This portion of the meeting is to receive comments from the public on items not included in this agenda. Citizens should sign up with the Town Clerk
to speak prior to the start of the meeting. The Board is interested in hearing your concerns but may not take action or deliberate on subject matter brought up during the Petitions and Comments segment. Topics requiring further investigation will be referred to the appropriate town officials or staff and may be scheduled for a future agenda.
The document is an update and renewal of PEG Media Partners' Interlocal Agreement among the seven area municipalities--including the Town of
Garner--that make up the non-profit video production and broadcast consortium. PEG Media Partners' Board of Directors unanimously approved the updated agreement at its Dec. 5 meeting. Garner's communications manager is the town manager's designee on the board.
James Bence from the audit firm Mauldin Jenkins will be presenting the audit report for the fiscal year that ended June 30, 2019. The Town received
the desired unmodified audit opinion and there were no audit findings to report. The Town continues to be in a strong financial position. The audit report has been received and approved by the Local Government Commission (LGC). The Comprehensive Annual Financial Report (CAFR) has been submitted to the Government Finance Officer's Association (GFOA) for consideration of their award in financial reporting which the Town has received for 30 consecutive years.
Each of Mauldin Jenkins offices provides a wide variety of services to a broad range of clientele. We have partners and managers who are responsible
for specialized practice areas of auditing and accounting, taxes and management advisory services. Their purpose, as leaders in the particular practice area, is to establish policies with respect to technical matters in these specific areas and ensure that the quality of the Firm's practice is maintained.
Our responsibility, as external auditors, is to express opinions on these financial statements based on our audit. We conducted our audit in
accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. We planned and performed our audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
Government Auditing Standards require auditors to issue a report on our consideration of internal control over financial reporting and on our tests
of compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. We have issued such a report and reference to this report is included in the independent auditor s report.
The government-wide financial statements provide a broad overview of all of the Town s funds. The Statement of Net Position presents information on
all assets and deferred outflows and liabilities and deferred inflows of the Town, with the resulting difference reported as net position. The Statement of Activities presents information showing how the Town s net position changed during the most recent fiscal year. Revenues are categorized as program revenues or general revenues. Expenses are categorized by function.
Highlights of the government-wide statements note total assets and deferred outflows of resources of approximately 136,822,000 offset by liabilities
and deferred inflows of resources of approximately 65,984,000. This results in the Town reported net position (or equity) of approximately 70,838,000. Also, a substantial element of the net position is composed of a net investment in capital assets in the approximate amount of 63,714,000. Restricted net position amounts to approximately 3,853,000 leaving unrestricted net position at 3,271,000.
The Statement of Activities attempts to report expenses in the first column with direct offsetting program revenues to the adjacent columns to arrive
a net cost of the functional areas of operation. General revenues (primarily property taxes and sales taxes) come to the rescue of the net cost functional areas resulting in the Town reporting a decrease in net position of approximately 548,000 for the fiscal year ended June 30, 2019.
Net Change in Fund Balance and the Revenues and Expenditures of the General Fund. The following chart demonstrates General Fund revenues verses
expenditures for a four (4) year period.
The primary source of revenue for the Town s General Fund comes from the ad valorem taxes which are levied each year. Below is a trend of the
assessed values of the Town s real estate and person property taxes and the motor vehicle tax, which with the new changes in state law is no longer in place as an ad valorem tax. The Town has maintained a flat millage rate for the past four years, so the changes in the assessments directly affect the revenues.
The percentages noted above are indicative of the Town s ability to be proactive with its initiatives and general operations, and also its ability to
proceed into the new fiscal year with or without certain seasonal revenue streams. Of course, it is of great importance to further reflect that fund balance does not always equate to cash and investments. Fund balance is simply the difference in all assets (and deferred outflows) and all liabilities (and deferred inflows). Cash and investments are simply a component of this equation.
Note 4 Deposits and Investments: The Governmental Accounting Standards Board (GASB) issued Statement No. 40, Deposit and Investment Risk Disclosure,
an amendment of GASB Statement No. 3, which significantly changed the disclosure in the financial statements of the Town related to deposits and investments. The disclosure addresses common deposit and investment risks related to credit risk, concentration of credit risk, interest rate risk, and foreign currency risk.
Yellow Book Report: The compliance report is a report on our tests of the Town s internal controls and compliance with laws, regulations, etc. The
tests of internal controls were those we determined to be required as a basis for designing our financial statement auditing procedures. Such tests also considered the Town s compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. In accordance with the respective standards, the report is not intended to provide an opinion, but to provide a form of negative assurance as to the Town s internal controls and compliance with applicable rules and regulations.
Single Audit Report: The second compliance report is a report on our tests of the Town s internal controls and compliance with laws, regulations,
etc. relative to certain State grant programs and the respective expenditures. Our tests were performed on the Town s major programs (as defined by the relevant State and Federal guidelines), and were not applied to each and every State grant expended by the Town. In accordance with the respective standards, we did provide an unmodified (or positive) opinion on the Town s compliance based on our audit. However, we were not required to provide an opinion on the relevant internal controls, but to provide a form of negative assurance on such controls.
Our audit of the financial statements of the Town of Garner, North Carolina (the Town ) for the year ended June 30, 2019 was conducted in accordance
with auditing standards generally accepted in the United States of America and Government Auditing Standards issued by the Comptroller General of the United States. Those standards require we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error, fraudulent financial reporting or misappropriation of assets. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Accordingly, the audit was designed to obtain reasonable, rather than absolute, assurance about the financial statements. We believe our audit accomplishes that objective.
Management has the ultimate responsibility for the appropriateness of the accounting policies used by the Town. There are several new accounting
standards which will be required to be implemented in the coming years. These are discussed later in this document.
In considering the qualitative aspects of the Town s accounting policies, we did not identify any significant or unusual transactions or significant
accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus. The Town s policies relative to the timing of recording of transactions are consistent with GAAP and typical government organizations.
Significant Management Judgments and Accounting Estimates
Accounting estimates are an integral part of the preparation of financial statements and are based upon management s current judgment. The process
used by management encompasses their knowledge and experience about past and current events and certain assumptions about future events. Management has informed us they used all the relevant facts available to them at the
time to make the best judgments about accounting estimates and we considered this information in the scope of our audit. We considered this
information and the qualitative aspects of management s calculations in evaluating the Town s significant accounting policies. Estimates significant to the financial statements include such items as: the estimated lives of depreciable assets; actuarial assumptions and concepts relative to the benefit plans; and the estimated allowance for uncollectible accounts.
The footnote disclosures to the financial statements are also an integral part of the financial statements. The process used by management to
accumulate the information included in the disclosures was the same process used in accumulating the financial statements, and the accounting policies described above are included in those disclosures. The overall neutrality, consistency, and clarity of the disclosures was considered as part of our audit and in forming our opinion on the financial statements.
There were no significant issues discussed with management related to business conditions, plans, or strategies that may have affected the risk of
material misstatement of the financial statements. We are not aware of any consultations management had with us or other accountants about accounting or auditing matters. No major issues were discussed with management prior to our retention to perform the aforementioned audit.
During our audit of the financial statements as of and for the year ended June 30, 2019, we noted some areas within the accounting and internal
control systems that we believe can be improved. We have reported several findings (significant deficiencies and material weaknesses). Additionally, we noted certain items management should consider as part of its decision making process. Further, we noted other matters which we wish to communicate to you in an effort to keep the Town abreast of accounting matters that could present challenges in financial reporting in future periods. Our recommendations and proactive thoughts and communications are presented in the following paragraphs.
During our review of the payroll accrual, we noted several immaterial accrual accounts which were not properly cleared out throughout the year. We
recommend the Town periodically review all accrued liability accounts to ensure all liabilities are properly supported by a subsidiary ledger, or are timely clearing, and zeroing after the transaction has processed. This will help to catch small accumulations from becoming larger issues in future years.
The Information Technology environment is characterized by rapid change. Thus, any risk assessment and control activities, as they relate to IT, need
to be monitored and reviewed on a regular basis. During our review we noted that the Town is utilizing an IT framework in evaluating its cybersecurity risk management. However, we recommend that the framework currently being used by management add a monitoring component as new IT risks can emerge, controls and other mitigations can lose effectiveness, and new procedures can be deployed to address changing risk. A regular review or monitoring component to an IT framework is a key part of an effective internal control framework and risk management process.
Accounting Standards Board (GASB) Standards and Pronouncements
As has been the case for the past 10 years, GASB has issued several other new pronouncements which will be effective in future years. The following
is a brief summary of the new standards:
a) Statement No. 84, Fiduciary Activities was issued in January 2017 and is effective for the first reporting period beginning after December 15,
2018. This statement establishes criteria for identifying fiduciary activities with a focus on: 1) whether a government is controlling the assets of the fiduciary activity; and, 2) the beneficiaries with whom a fiduciary relationship exists.
Further, this statement describes four (4) fiduciary funds that should be reported, if applicable: 1) pension and other employee benefit trust funds;
2) investment trust funds; 3) private-purpose trust funds; and, 4) custodial funds. Custodial funds generally should report fiduciary activities that are not held in a trust or equivalent arrangement that meets specific criteria.
b) Statement No. 87, Leases was issued in June 2017 and is effective for the first reporting period beginning after December 15, 2019. This statement
increases the usefulness of governments financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments leasing activities.
Definition of a Lease: A lease is defined as a contract that conveys control of the right to use another entity s nonfinancial asset (the underlying
asset) as specified in the contract for a period of time in an exchange or exchange-like transaction. Examples of nonfinancial assets include buildings, land, vehicles, and equipment. Any contract that meets this
Short-Term Leases: A short-term lease is defined as a lease that, at the commencement of the lease term, has a maximum possible term under the lease
contract of 12 months (or less), including any options to extend, regardless of their probability of being exercised. Lessees and lessors should recognize short-term lease payments as outflows of resources or inflows of resources, respectively, based on the payment provisions of the lease contract.
Lessee Accounting: A lessee should recognize a lease liability and a lease asset at the commencement of the lease term, unless the lease is a
short-term lease or it transfers ownership of the underlying asset. The lease liability should be measured at the present value of payments expected to be made during the lease term (less any lease incentives). The lease asset should be measured at the amount of the initial measurement of the lease
A lessee should reduce the lease liability as payments are made and recognize an outflow of resources (for example, expense) for interest on the
liability. The lessee should amortize the lease asset in a systematic and rational manner over the shorter of the lease term or the useful life of the underlying asset. The notes to financial statements should include a description of leasing arrangements, the amount of lease assets recognized, and a schedule of future lease payments to be made.
Lessor Accounting: A lessor should recognize a lease receivable and a deferred inflow of resources at the commencement of the lease term, with
certain exceptions for leases of assets held as investments, certain regulated leases, short-term leases, and leases that transfer ownership of the underlying asset. A lessor should not derecognize the asset underlying the lease. The lease receivable should be measured at the present value of lease payments expected to be received during the lease term. The deferred inflow of resources should be measured at the value of the lease receivable plus any payments received at or before the commencement of the lease term that relate to future periods.
A lessor should recognize interest revenue on the lease receivable and an inflow of resources (for example, revenue) from the deferred inflows of
resources in a systematic and rational manner over the term of the lease. The notes to financial statements should include a description of leasing arrangements and the total amount of inflows of resources recognized from leases.
Contracts with multiple Components and Contract Combinations: Generally, a government should account for the lease and non-lease components of a
lease as separate contracts. If a lease involves multiple underlying assets, lessees and lessors in certain cases should account for each underlying asset as a separate lease contract. To allocate the contract price to different components, lessees and lessors should use contract prices for individual components as long as they do not appear to be unreasonable based on professional judgment, or use professional judgment to determine their best estimate if there are no stated prices or if stated prices appear to be unreasonable. If determining a best estimate is not practicable, multiple components in a lease contract should be accounted for as a single lease unit. Contracts that are entered into at or near the same time with the same counterparty and that meet certain criteria should be considered part of the same lease contract and should be evaluated in accordance with the guidance for contracts with multiple components.
decreases, in which case it would be a partial or full lease termination. A lease termination should be accounted for by reducing the carrying values
of the lease liability and lease asset by a lessee, or the lease receivable and deferred inflows of resources by the lessor, with any difference being recognized as a gain or loss. A lease modification that does not qualify as a separate lease should be accounted for by re-measuring the lease liability and adjusting the related lease asset by a lessee and re-measuring the lease receivable and adjusting the related deferred inflows of resources by a lessor.
A transaction qualifies for sale-leaseback accounting only if it includes a sale. Otherwise, it is a borrowing. The sale and lease portions of a
transaction should be accounted for as separate sale and lease transactions, except that any difference between the carrying value of the capital asset that was sold and the net proceeds from the sale should be reported as a deferred inflow of resources or a deferred outflow of resources and recognized over the term of the lease.
c) Statement 89, Accounting for Interest Cost Incurred Before the End of a Construction Period was issued in June 2018 and is effective for reporting
periods beginning after December 15, 2019. This standard eliminates the requirement/ability to capitalize construction period interest costs as part of the cost of a capital asset in enterprise funds. This standard should be applied prospectively with no restatement. This standard can be early implemented as part of fiscal year 2019.
d) Statement 90, Majority Equity Interests An Amendment of GASB s No. 14 and 61 was issued in August 2018, and is effective for reporting periods
beginning after December 15, 2018 (meaning June 30, 2020). Under this standard, an equity interest is: a) a financial interest in a legally separate organization by the ownership shares of the organization s stock; or, b) by otherwise having an explicit, measurable right to the net resources of the organization that is usually based on an investment of financial or capital resources by a government. An equity interest is explicit and measurable if: a) the government has a present or future claim to the net resources of the entity, and b) the method for measuring the government s share of the entity s net resources is determinable.
If the interest is deemed to be an investment under GASB No. 72, paragraph 64, then the interest should be reported as an investment and measured
using the equity method. If the interest is held by a special-purpose government engaged in fiduciary activities, a fiduciary fund, or an endowment or permanent fund, then amount should be measured at fair value. If interest is 100 of entity, then it is a component unit. We do not expect this new standard to have a significant effect on the Town.
e) Other Pending or Current GASB Projects. As noted by the numerous pronouncements issued by GASB over the past decade, the GASB continues to
research various projects of interest to governmental units. Subjects of note include:
Re-Examination of the Financial Reporting Model. GASB has added this project to its technical agenda to make improvements to the existing financial
reporting model (established via GASB 34). Improvements are meant to enhance the effectiveness of the model in providing information for decision-making and assessing a government s accountability. GASB anticipates a final standard expected in early 2022.
Conceptual Framework is a constant matter being looked at by GASB. Current measurement focus statements (for governmental funds) to change to
near-term financial resources measurement. May dictate a period (such as 60 days) for revenue and expenditure recognition. May expense things such as supplies and prepaid assets at acquisition. Will look into which balances (at all statement levels) are measured at acquisition and which need to be re-measured at year-end. Project placed on hold for now.