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Fiscal Year 2018 Management Letter (PDF)
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TOWN OF CANTON, MASSACHUSETTS
MANAGEMENT LETTER
YEAR ENDED JUNE 30, 2018
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Certified Public Accountants
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TOWN OF CANTON, MASSACHUSETTS
MANAGEMENT LETTER
YEAR ENDED JUNE 30, 2018Source page 2
Table of Contents Transmittal letter...……………………………………………………. ...................1 Overview ...................................................................................................................2 Informational Items ...................................................................................................3 Findings and Comments………………………………………………………….4 - 5
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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, 2018, 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 21, 2018 Town of Canton, Massachusetts 1 of 5 Management Letter
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I. OVERVIEW
Throughout fiscal year 2018, the local, state-wide and national economies continued to
strengthen. Unemployment rates are low and property values are rising. Approximately 39%
of the Town’s property tax levy is assessed to commercial and industrial tax payers, which is
a greater percentage than most communities of its size.
The Town ended the year with approximately $17.2 million in unassigned fund balance. This
represented a $1.1 million increase over the prior year and was the eighth straight year that
the unassigned fund balanced increased by 5% over the prior year. The increase was
primarily due lower tax refunds payable of $0.7 million from the settlement of appellate tax
cases and positive budgetary results of $3.1 million, which were offset by the use of free cash
of $2.6 million. In addition, the Town added $1.0 million to its OPEB Trust, reflecting its
commitment to funding 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 19.1% which places the Town in 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 are critical components of the S&P evaluation and decision to rate
Canton’s debt as AAA investment grade. The Town’s consistency and strong management
has allowed the Town to maintain this top investment grade. Maximizing the Town’s bond
rating, will minimize the cost of future borrowing for the Town.
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 2 of 5 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.
Other Postemployment Benefit Liability Adoption
As discussed in our previous letter to management, the Town was required to adopt a new
accounting standard related to OPEB in fiscal year 2018. Since fiscal year 2009, the Town
had been reporting an OPEB obligation in its government-wide financial statements.
Essentially, the OPEB obligation was the accumulation of shortfalls between the amount the
Town should fund an OPEB plan (its annual required contributions) and the amount the
Town paid on a pay-as-you-go basis. The adoption of the new OPEB accounting standards
required the Town to actuarially determine the present value of its future OPEB liability and
record this liability, net of any OPEB trust funds, in its government-wide financial
statements.
As expected, the adoption of this new accounting standard materially affected the Town’s
financial condition. A prior period restatement of approximately $32.9 million was made to
the beginning net positions of the Town’s governmental and business-type activities. At June
30, 2018, the Town’s net OPEB liability was approximately $87.5 million.
The Town established an OPEB trust fund several years ago and has contributed
approximately $4.1 million into it from its inception. As it stands at June 30, 2018, the OPEB
trust fund is approximately 4.4% funded.
As we have indicated in several previous letters to management, the Town should continue to
include OPEB in its long-term planning.
Town of Canton, Massachusetts 3 of 5 Management LetterSource page 6
III. FINDINGS AND RECOMMENDATIONS
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. We did note that the Department reduced the number of deficit accounts from eight
to four during the fiscal year.
Capital Asset Maintenance (repeated from prior year)
The Town Accountant’s Office maintains the Town’s capital asset detail using automated
capital asset software. We noted that there are many fully depreciated vehicles and
equipment that are maintained in the system and that are recorded on the Town’s financial
statements. We recommend that the Town Accountant review these assets with the
individual departments to determine if the assets are still in service. Those that are not should
be disposed in the asset software and assets that are still in service should be analyzed to
determine if there is a significant remaining useful life that warrants updating the system.
The Town Accountant has begun this process but many older, fully depreciated assets remain
on the Town’s capital asset listing.
Town Administrator Department Review
The Town Administrator’s Department collects funds from restaurant and other annual and
one-time licenses, rental agreements with utilities for cell towers, insurance claims and sales
of rubbish and recycling receptacles to homeowners. While the Department maintains a
binder with support for all amounts turned over to the Treasurer/Collector, there is no internal
subledger that tracks the amounts collected by revenue source. Also, the permitting software
used to create and issue permits does not always include payment information, particularly
the one-time permits issued. We recommend the Department develop a spreadsheet to track
all receipts by type. If related to a permit, the permit number should be indicated on the
spreadsheet, which would allow for a reconciliation of all permits issued to the money
received. Also, this spreadsheet should be periodically reconciled to revenue reports from the
Town’s MUNIS system.
The Department also oversees property insurance coverage and related claims. In accordance
with MGL, any insurance proceeds under $150,000 may be utilized to repair damaged
property without further appropriation. The Town has accumulated a balance of unspent
insurance proceeds of $118,192.95 but does not maintain any tracking of which property the
balance relates to. We recommend that the Department follow up with each department that
receives insurance claims to ascertain if there are any ongoing repairs that are necessary and
that any residual balance be appropriated for capital purposes or reverted to the general fund.
In the future, we recommend that Department track each claim individually and that any
repairs for damage that is not spent or encumbered by the end of the fiscal year, be sent to the
general fund.
Town of Canton, Massachusetts 4 of 5 Management LetterSource page 7
Finally, as part of its property insurance responsibilities, the Department maintains a listing of
insured property for each department. This listing should be reviewed annually with each
department and shared with the Town Accountant to be reconciled to the capital asset records
maintained by that Office.
Town of Canton, Massachusetts 5 of 5 Management Letter