To: Honorable Mayor and Members of Town Council
From: Trish Muller, Finance Director
Title
Presentation: 2016 Comprehensive Annual Financial Report
Body
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Executive Summary
Colorado state law and the Town of Castle Rock Home Rule Charter require an annual audit of the Town’s financial statements. The goal of an audit is to provide reasonable assurance that the financial statements of the Town are presented in conformity with generally accepted accounting principles. The audit must be performed by an independent firm of licensed certified public accountants. In accordance with this requirement, staff submits for your information and review, the Comprehensive Annual Financial Report (CAFR) of the Town for the year ended December 31, 2016.
A representative from Eide Bailly, LLP will be making a short presentation which will address the following areas:
Annual Audit Process
2016 was the fourth year Eide Bailly, LLP performed the independent financial audit for the Town of Castle Rock. We commend them on their thoroughness and their high level of professionalism.
During their interim fieldwork, the auditors visited Town departments to document cash handling and revenue streams in detail. The testing and documentation of Town departments will be rotated each year depending on materiality and the complexity of the system.
The auditors also worked extensively with Finance staff to document accounting processes and the related controls. These conversations included procedures performed by Development Services, Payroll, and Sales Tax and various other functions of the Town.
In late April 2017, the auditors returned to the Town to perform audit procedures on year-end asset, liability and fund balances. In addition, several analytic procedures were performed on significant revenue and expense accounts. No material adjustments were noted.
Eide Bailly, LLP issued a clean or unmodified opinion on the Town’s financial statements for the year end December 31, 2016. In other words, the Town’s financial statements appear fairly stated in all material respects, in accordance with general accepted accounting principles (GAAP).
Through the Town’s evaluation of related entities, it was determined that the Castle Rock Urban Renewal Authority should be included as a blended component unit and the Castle Rock Downtown Development Authority should be included as a discretely presented component unit. The Town has restated the previously reported net position to account for the inclusion of the discretely presented component unit. As a result of this change in reporting entity, the auditors have included an explanatory paragraph in the opinion letter.
Comprehensive Annual Financial Report (CAFR)
The Town continued to experience growth during 2016. For the year ended December 31, 2016, the Town had an overall positive net income and continued to experience improvement in its major revenues. Total revenue collected for all Town Funds combined exceeded budgeted appropriations for the year. Sales tax revenue increased approximately 8% over 2015.
Expenses to accommodate growth and infrastructure projects increased as well. In 2016, the Town opened a new roadway, the North Meadows extension, officially designated Castle Rock Parkway, connecting the Meadows with I-25, which has been under construction for multiple years. Progress continued on the WISE and Stillwater Legacy long term water projects. Construction also began on an expansion to the Castle Rock Town Hall Building.
The Town engaged the refunding of two existing debt instruments to take advantage of favorable market conditions. In July 2016, the Town issued $50,635,000 of Water and Sewer Enterprise Revenue Refunding Bonds to prepay the Towns obligations under the variable interest rate 2008 Certificates of Participation, which were originally issued to fund the acquisition of raw water storage easement in the Reuter-Hess Reservoir and to acquire, construct and install certain other water supply, storage, transmission and treatment facilities. As a result of the prepayment, the debt service payments were reduced by a total of $22.7 million. The refunding transaction resulted in a net present value savings of $15.7 million.
The Town also refunded the 2008 Sales and Use Tax Revenue Bonds which were originally issued to finance certain transportation projects approved by the Town’s voters in April, 2005. This refunding generated a savings of approximately $1.3M to be used on other transportation projects in the near term.
It is important to note that the Town does not have any General Obligation debt outstanding. All current debt issuances are secured by a specific revenue source, rather than a general obligation of the Town.
The CAFR will be submitted to the Government Finance Officers Association for consideration of the Certificate of Achievement for Excellence in Financial Reporting.
Report to Governance
As part of the 2016 financial statement audit Eide Bailly, LLP reviewed the Town’s internal control structure and various policies and procedures of the Town. There are 3 levels of comments that are issued by the Auditors;
• Material Weaknesses - most severe level of comment noting that the internal control is not adequate to prevent significant misstatement or fraudulent activities,
• Significant Deficiencies - less severe, however, the internal control system is weak and the financial integrity may be compromised and
• Advisory Comments - suggestions to enhance an existing control structure or procedure.
Eide Bailly, LLP had no comments in any category resulting from the audit and communicated this in their Report to Governance.
We would like to thank the finance staff for their dedicated efforts in the preparation of the financial statements and in the audit process.
Attachments
Attachment A: Report to Governance Resulting from the 2016 Financial
Statement Audit
Attachment B: Due to the size of the document, The Comprehensive Annual Financial Report (CAFR) for the Town for the year ending December 31, 2016 can be found on the Town’s website at: <http://www.crgov.com/DocumentCenter/View/17440>