Canton, Massachusetts · Saved source text
FY16 Management Letter
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TOWN OF CANTON, MASSACHUSETTS
MANAGEMENT LETTER
YEAR ENDED JUNE 30, 2016Source page 2
Table of Contents Transmittal letter...……………………………………………………. ...................1 Overview ...................................................................................................................2 Informational Items ................................................................................................ 3 - 5 Findings and Comments………………………………………………………….6 - 7
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Board of Selectmen
Town of Canton
Canton, Massachusetts
In planning and performing our audit of the financial statements of the governmental
activities, business-type activities, each major fund, and the aggregate remaining fund
information of the Town of Canton, Massachusetts, (the “Town”) as of and for the year
ended June 30, 2016, in accordance with auditing standards generally accepted in the
United States of America, we considered the Town’s internal control over financial
reporting (internal control) as a basis for designing our auditing procedures for the
purpose of expressing our opinions on the financial statements, but not for the purpose of
expressing an opinion on the effectiveness of the Town’s internal control. Accordingly,
we do not express an opinion on the effectiveness of the Town’s internal control.
A deficiency in internal control exists when the design or operation of a control does not
allow management or employees, in the normal course of performing their assigned
functions, to prevent or detect and correct misstatements on a timely basis. A material
weakness is a deficiency, or a combination of deficiencies, in internal control such that
there is a reasonable possibility that a material misstatement of the entity’s financial
statements will not be prevented, or detected and corrected on a timely basis.
Our consideration of internal control over financial reporting was for the limited purpose
described in the first paragraph of this section and was not designed to identify all
deficiencies in internal control over financial reporting that might be deficiencies,
significant deficiencies, or material weaknesses. We did not identify any deficiencies in
internal control over financial reporting that we consider to be material weaknesses, as
defined above.
This communication is intended solely for the information and use of management, the
Board of Selectman, and others within the organization, and is not intended to be and
should not be used by anyone other than these specified parties.
Roselli, Clark & Associates
Certified Public Accountants
Woburn, Massachusetts
November 17, 2016
Town of Canton, Massachusetts Page 1 of 7 Management LetterSource page 4
I. OVERVIEW
Fiscal year 2016 was another financially positive year for communities in Massachusetts.
Many experienced increases to their reserve balances as average balances statewide increased
to approximately 8% of general fund expenditures. In addition, unemployment rates have
been reduced to pre-recession levels and a favorable mortgage market has bolstered home
sales which have been robust over the past several years.
The Town ended the year with approximately $13.0 million in unassigned fund balance. This
represented a $1.6 million increase over the prior year and was the sixth straight year that the
unassigned fund balanced increased by 10% over the prior year. The increase was primarily
due to positive budgetary results of $3.8 million, offset by the use of free cash of $1.6
million. In addition, the Town added over $0.75 million to its OPEB Trust, reflecting its
commitment to begin to fund this long-term obligation.
These results exemplified the consistency the Town maintains in managing its reserves. More
specifically, unassigned fund balances have not been below $5.1 million during any of the
past 10 years. In doing so the Town has kept a reserve ratio trending over 10% while still
being able to (1) balance its budget on an annual basis, (2) maintain significant unused levy
capacity, and (3) attend to its capital needs.
A common budgetary flexibility test used by the rating bureaus when conducting a credit
evaluation is called a reserve ratio. The ratio is calculated by adding general fund assigned
and unassigned fund balances presented in the financial statements and dividing this by the
general fund expenditures. 15% is considered tier one and 8% - 15% is considered tier two.
The Town’s ratio is 14.9% which places the Town just shy of tier one and is considered
healthy. This metric represents 10% of the overall credit profile.
Other metrics such as the Town’s demographics, proximity to Boston and first class
Management Team were critical components of the S&P evaluation and decision to rate
Canton AAA investment grade several years ago. The Town’s consistency and delivery
since, has allowed the Town to maintain this top investment grade.
The Town’s bond rating is important. Maximizing the Town’s bond rating, will minimize the
cost of future borrowing for the Town, and the Town has been successful in this endeavor.
We are encouraged by this effort and support the Town’s efforts to continue this trend into
the future. Also, on a positive note, the Town continues to improve upon its internal control
process; in part this is done through the corrective action suggested through annual
management letters.
The remainder of this report is intended to provide the Town and its management with
recommendations for improvement in accounting and financial operations and informational
items. The Town should review these recommendations and informational items, and, if
determined to be cost-effective, implement these improvements.
Town of Canton, Massachusetts Page 2 of 7 Management LetterSource page 5
II. INFORMATIONAL ITEMS
Statement on Auditing Standards No. 115 – Audit Communications
The American Institute of Certified Public Accountants (“AICPA”) recently issued Statement
on Auditing Standards No. 115, Communicating Internal Control Related Matters Identified in
an Audit (“SAS 115”). SAS 115 establishes standards and provides guidance on
communicating matters related to an entity’s internal control over financial reporting identified
in an audit of financial statements. In particular, SAS 115 provides guidance on evaluating the
severity of deficiencies in internal control identified in an audit of financial statements in the
following order:
1. Deficiency in internal control
2. Significant deficiency
3. Material weakness
Deficiencies identified as significant deficiencies or material weaknesses are required to be
communicated to those charged with governance. Deficiencies in internal control are not
required to be communicated; however we have chosen to also report these types of
deficiencies in this report.
We did not deem any of the findings in this report to be categorized as either a significant
deficiency or a material weakness.
New Accounting Principle - OPEB
The Governmental Accounting Standards Board, or GASB, has issued a new pronouncement
related to other postemployment benefits, or OPEB, that is substantially similar to the pension
standard described above. OPEB typically includes health and life insurance plans and other
similar benefits provided to Town retirees exclusive of pension benefits.
Currently, the Town reports a net OPEB obligation in its government-wide financial
statements. However, the proposed new accounting standards will require that the net OPEB
liability, which can be substantially larger that the net OPEB obligation, be reported in the
government-wide financial statements. Adoption of this new accounting standard is required
in fiscal year 2018.
While this proposed accounting standard will likely materially affect the Town’s government-
wide financial statements, the Commonwealth has not passed legislation requiring
municipalities to begin setting aside monies for this unfunded obligation like it has with
pensions.
The Town established an OPEB trust fund and has accumulated nearly $2.0 million in assets
to provide for this liability. Credit rating agencies like Standard and Poor’s Financial Services
LLC, or S&P, have begun to assign an allocation of the credit evaluation to the management of
long-term liabilities, which includes OPEB. We recommend that the Town continue its
commitment to funding this liability to assist in maintaining the Town’s exemplary bond
rating.
Town of Canton, Massachusetts Page 3 of 7 Management LetterSource page 6
New Financial Statement Disclosures – Tax Abatement Disclosures
The GASB has issued Statement No. 77, Tax Abatement Disclosures, to improve financial
reporting by giving users of financial statements essential information regarding the nature and
magnitude of tax abatement programs to assist in determining how tax abatements affect the
Town’s future ability to raise revenues and meet its financial obligations. This Statement is
effective for the Town’s fiscal year 2017 financial statements.
Tax abatements, as defined in the Statement, result from an agreement between the Town and
an individual or entity in which the Town promises to forgo tax revenues and the individual or
entity promises to subsequently take specific action that contributes to economic development
or otherwise benefits the Town or its citizens. Tax abatement agreements may be in writing or
may be implicitly understood by the Town and the entity.
It is important to note that tax abatements for valuation disputes or tax exemptions for
qualified taxpayers are not covered by this Statement and no disclosure of these types of
transactions is required.
This Statement requires Town’s that enter into tax abatement agreements to disclose the
following information about the agreements:
Brief descriptive information, such as the tax being abated, the authority under which
tax abatements are provided, eligibility criteria, the mechanism by which taxes are
abated, provisions for recapturing abated taxes and the types of commitments made by
tax abatement recipients.
The gross dollar amount of taxes abated during the period.
Commitments made by the Town, other than to abate taxes, as part of a tax abatement
agreement.
The disclosures are organized by major tax abatement program and the Town may, but is not
required, to disclose information for individual tax abatement agreements.
We recommend that the Town begin to compile the pertinent information above regarding all
tax abatement agreements that may require disclosure so that the Statement may be efficiently
implemented in fiscal year 2017.
Changes to Single Audit Requirements – Need for Internal Control Framework
In our prior year management letter, we notified the Town that there were a number of
changes made to single audits. One of the requirements under the new Uniform Guidance (the
successor to the OMB A-133 compliance supplement) is that all federal award recipients are
required to establish and document an internal control system based on a recognized internal
control framework such as the Green Book or COSO.
The Town is the recipient of significant federal educational awards as well as federal monies
for various public safety and health grants. Many Massachusetts municipalities of similar size
to the Town are focusing their efforts solely at the school level, for which the MASBO
provides significant guidance, including policies and procedures templates. The proper
implementation of any internal control system requires coordination or resources between not
only the Finance Department, but the School Business Office and other departments that
receive federal awards.
Town of Canton, Massachusetts Page 4 of 7 Management LetterSource page 7
We recommend that the Town’s finance team prioritize this matter to properly establish and
document their internal control system for the fiscal year 2018 grant awards. Failure to
accomplish this task may lead to reportable deficiencies in Single Audit reports.
Town of Canton, Massachusetts Page 5 of 7 Management LetterSource page 8
III. FINDINGS AND RECOMMENDATIONS
Employee Reimbursement Policy (repeated from prior year)
In response to prior auditor comments regarding a policy for employee reimbursements, the
Town drafted a policy for such activity. We understand that this policy has yet to be adopted
and suggest the Town follow-through with these final steps to help remove any risk
associated with this activity.
Planning Board Escrow Deposits (repeated from prior year)
Prior year audits have highlighted several issues with respect to the Planning Board
Accounts. These include payment of services when funds are not available and maintaining
deficit account balances which are the results of a lack of monitoring developers’ available
balances. While progress is ongoing we noted the same conditions existed during fiscal year
2016.
Deposit of Gifts and Donations
In accordance with Massachusetts General Law, the Board of Selectmen officially accepts
donations that may be spent by department heads without further appropriation. Some of
these donations are held by the departments until such acceptance rather than turning the
funds over to the Collector/Treasurer’s Office. We recommend that all donations be turned
over timely with the Collector/Treasurer’s Office on a separate standard turnover form so that
the monies are properly safeguarded along with other Town funds. The Collector/Treasurer
can hold the funds in the office safe until the donation is accepted.
Board of Health Departmental Review
The Board of Health Department (BOH) collects approximately $25,000 annually for various
licenses and permits that it issues. The BOH utilizes GEOTMS software to issue and track
the majority of these licenses and permits. We reviewed and sampled transactions from
nearly all of the revenue sources of the BOH and determined that sufficient and detailed
manual files were maintained that supported the licenses and permits issued. We did,
however, note the following deficiencies:
Several fees were not turned over to the Collector/Treasurer timely. Most of these
were turned over several weeks after receipt but in one instance it was nearly ten
weeks after receipt. Turnover of funds should occur weekly.
Turnovers to the Collector/Treasurer were supported with detail of the individuals or
businesses paying the fees, the type of fee and amount paid. The detail was both
manual and spreadsheet based depending on the turnover. The BOH should
discontinue the use of manual logs and use the spreadsheet detail for all turnovers.
Not all receipts were updated in the GEOTMS system so the licenses were listed as
pending when in fact they were already issued. These licenses should be updated
weekly upon turnover of monies to the Collector/Treasurer.
Town of Canton, Massachusetts Page 6 of 7 Management LetterSource page 9
There was a lack of timely follow up on licensees that were active in the year prior.
In some cases a significant amount of time passed before these licensees were
notified that they had not renewed. The BOH should develop a policy to send timely
notification to all prior year licensees to assure proper licensure and timely collection
of fees.
A manual log book is used to track septic system fees. Either GEOTMS should be
utilized or a spreadsheet created for these fees.
A reconciliation is not performed to ensure that the amount collected for each type of
fee matches the licenses and permits issued in the GEOTMS system and the amounts
recorded as revenue in the Town’s MUNIS general ledger. Such a reconciliation
should be performed at least semi-annually to ensure that all monies are properly
accounted for.
Town of Canton, Massachusetts Page 7 of 7 Management Letter