HomeMy WebLinkAboutManagement LetterCity of Miami, Florida
Management Letter in Accordance
With Chapter 10.550, Rules of the
Florida Auditor General and
Independent Accountant's Report
on the Examination of the City's Compliance
with Section 218.415, Florida Statutes
Fiscal Year Ended September 30, 2016
Contents
Management Letter in Accordance with
Chapter 10.550 of the Rules of the
Florida Auditor General 1-3
Appendix A — Current Year Findings and Recommendations to Improve Financial
Management 4
Appendix B — Status of Prior Years' Findings and Recommendations to Improve Financial
Management 5-11
Independent Accountant's Report
on the Examination of the City's Compliance
with Section 218.415, Florida Statutes
12
RSM
RSM US UP
Management Letter in Accordance with
Chapter 10.550 of the Rules of the
Florida Auditor Genera!
Honorable Mayor and Members of the
City Commission
City of Miami, Florida
Report on the Financial Statements
We have audited the financial statements of the governmental activities, the aggregate discretely
presented component units, each major fund, and the aggregate remaining fund information of the City of
Miami, Florida (the City), as of and for the fiscal year ended September 30, 2016, and have issued our
report thereon dated March 30, 2017. Our report includes a reference to other auditors who audited the
financial statements of the following:
Component Units 1 Funds Classification
• Southeast Overtown Park West Redevelopment Agency
• Omni Redevelopment Agency
• Midtown Community Redevelopment Agency
• Virginia Key Beach Park Trust
• Liberty City Community Revitalization District Trusts
• Firefighters' and Police Officers' Retirement Trust
• General Employees' and Sanitation Employees'
Retirement Trust and Other Managed Trusts
• Miami Sports and Exhibition Authority
• Downtown Development Authority
• Bayfront Park
• Coconut Grove Business Improvement District
• Wynwood Business Improvement District
nonmajor special revenue fund
nonmajor special revenue fund
nonmajor special revenue fund
nonmajor special revenue fund
nonmajor special revenue fund
aggregate remaining fund information
aggregate remaining fund information
discretely presented component unit
discretely presented component unit
discretely presented component unit
discretely presented component unit
discretely presented component unit
This management letter does not include the results of the other auditors' testing of compliance and other
matters that are reported on separately by those auditors.
THE POWER OF BEING UNDEIR*T
AUDIT I TAX I CONSULTING
1
RWU9L1Ahd*UAewrrorM1inMeal F ani:WA+4netwaMefIndeparsimRa l4ter4andamid%ArmrmswcoNoboularderrronekdamwdan RWU9u.Pawl
Auditor's Responsibility
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.
Other Reports and Schedule
We have issued our Independent Auditor's Report on Internal Control Over Financial Reporting and
Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance
with Government Auditing Standards; Independent Auditor's Report on Compliance for Each Major
Federal Program and State Project, Report on Internal Control Over Compliance, Report on the
Schedule of Expenditures of Federal Awards and State Financial Assistance Required By OMB Uniform
Guidance and Chapter 10.550, Rules of the Florida Auditor General; Schedule of Findings and
Questioned Costs; and Independent Accountant's Report on an examination conducted in accordance
with attestation standards established by the American Institute of Certified Public Accountants
Professional Standards, Section 601, regarding compliance requirements in accordance with Chapter
10.550, Rules of the Auditor General. Disclosures in those reports and schedule should be considered in
conjunction with this management letter.
Prior Audit Findings
Section 10.554(1)(i)1., Rules of the Auditor General, requires that we determine whether or not
corrective actions have been taken to address findings and recommendations made in the preceding
annual financial audit report. Corrective actions taken to address the findings and recommendations
made in the preceding annual financial audit report are disclosed in Appendix B — Status of Prior Years'
Findings and Recommendations to Improve Financial Management.
Official Title and Legal Authority
Section 10.554(1)(i)4., Rules of the Auditor General, requires that the name or official title and legal
authority for the primary government and each component unit of the reporting entity be disclosed in
this management letter, unless disclosed in the notes to the financial statements. The information is
disclosed in Note 1 to the financial statements.
Financial Condition
Sections 10.554(1)(i)5.a. and 10.556(7), Rules of the Auditor General, require that we apply
appropriate procedures and report the results of our determination as to whether or not the City has
met one or more of the conditions described in Section 218.503(1), Florida Statutes, and identification
of the specific condition(s) met. In connection with our audit, we determined that the City did not meet
any of the conditions described in Section 218.503(1), Florida Statutes.
Pursuant to Sections 10.554(1)(i)5.c. and 10.556(8), Rules of the Auditor General, we applied financial
condition assessment procedures. It is management's responsibility to monitor the City's financial
condition, and our financial condition assessment was based in part on representations made by
management and the review of financial information provided by same.
2
Annual Financial Report
Sections 10.554(1)(i)5.b. and 10.556(7), Rules of the Auditor General, require that we apply appropriate
procedures and report the results of our determination as to whether the annual financial report for the
City for the fiscal year ended September 30, 2016, filed with the Florida Department of Financial Services
pursuant to Section 218.32(1)(a), Florida Statutes, is in agreement with the annual financial audit report
for the fiscal year ended September 30, 2016. As of the date of this letter the 2016 annual financial report
for the City was not filed.
Other Matters
Section 10.554(1)(i)2., Rules of the Auditor General, requires that we address in the management letter
any recommendations to improve financial management. Such recommendations are included in
Appendix A — Current Year Findings and Recommendations to Improve Financial Management.
Section 10.554(1)(i)3., Rules of the Auditor General, requires that we address noncompliance with
provisions of contracts or grant agreements, or abuse, that have occurred, or are likely to have
occurred, that have an effect on the financial statements that is less than material but which warrants
the attention of those charged with governance. In connection with our audit, we did not have any such
findings.
Purpose of this Letter
Our management letter is intended solely for the information and use of the Legislative Auditing
Committee, members of the Florida Senate and the Florida House of Representatives, the Florida
Auditor General, Federal and other granting agencies, the Mayor and City Commission, and applicable
management, and is not intended to be and should not be used by anyone other than these specified
parties.
Miami, Florida
March 30, 2017, except for the
examination report on the City's compliance with Section 218.415,
Florida Statutes, Local Government Investment Policies, the
report on compliance for each major federal program and state
project and report on internal control over compliance, for which
the date of each report is April 28, 2017
3
City of Miami, Florida
Appendix A — Current Year Findings and Recommendations to Improve
Financial Management
ML 2016-01 — Financial Integrity Ordinance
Criteria: City Ordinance No. 11890 — Financial Integrity Ordinance (the Ordinance) requires that the City
individually retain assigned and unassigned fund balance reserves equal to at least ten percent of the
average General Fund revenues (excluding transfers) for the prior three fiscal years.
Condition: As of September 30, 2016, the current measurement date, the City failed to retain assigned
fund balance reserves equal to at least ten percent of the average General Fund revenues for the prior
three fiscal years (fiscal years 2013, 2014 and 2015) of $56.5 million, as required by the Ordinance.
General Fund assigned and unassigned fund balance reserves as of September 30, 2016 was
$21.1 million and $56.5 million, respectively.
Cause: Lack of effective planning and budgeting resulted in noncompliance with the Ordinance.
Effect: Noncompliance with City Ordinance.
Recommendation: September 30th is the measurement date, as per the Ordinance, that is used to
assess compliance. Consequently, the City failed the financial test of the Ordinance and management is
not able to cure the noncompliance as of fiscal year-end September 30, 2016. Therefore, we recommend
that management incorporate the financial requirements of the Ordinance in its budgeting process and
monitor actual operating results during each period.
Views of Responsible Officials and Planned Corrective Actions: The administration is aggressively
exploring ways to improve revenues and reduce expenditures and is working towards a recovery plan to
replenish the general fund reserves. The City administration has made significant efforts during FY 2016-
17 to project year-end results in order to mitigate the findings in future periods. Additionally, the City
administration will work to revise related ordinances to ensure they are in accordance with government
financial reporting standards.
4
City of Miami, Florida
Appendix 6 — Status of Prior Years' Findings and Recommendations to Improve Financial
Management
Finding No Finding Title Current Year Status
2015-01 Use of Restricted Resources Repeated
2015-02 Accounts Receivable Repeated
2014-03 Password Configurations Repeated
2014-04 User Access Reviews Repeated
2014-05 Data Restoration Repeated
2014-06 Change Management Repeated
5
City of Miami, Florida
Appendix B — Status of Prior Years' Findings and Recommendations to Improve Financial
Management (Continued)
ML 2015-01 — Use of Restricted Resources
Criteria: The City should establish a funding timeline for capital project related expenditures prior to
obtaining debt financing to fund such projects. This will result in the timely utilization of debt financing
proceeds for funding projects. Also, it is the City's policy to use restricted resources first as they are
needed, followed by the use of unrestricted resources.
Prior Year Condition: We noted that the City is not expending available capital project bond proceeds in a
timely manner. As of September 30, 2015, the City had $35 million of available bond proceeds restricted
for capital projects related to debt issued between fiscal years 2009 and 2010.
Current Year Condition: We noted that the City is not expending available capital project bond proceeds
in a timely manner. As of September 30, 2016, the City had $22 million of available bond proceeds
restricted for capital projects related to debt issued between fiscal years 2009 and 2010.
Cause: Lack of effective planning, budgeting, and funding of capital projects with available bond
proceeds.
Effect: Possible non-compliance with bond indentures, applicable covenants under the City's bond
resolution, and tax compliance certificates related to the respective bonds. Additionally, the City is paying
interest expense on related bonds and not utilizing the available proceeds to fund City projects.
Recommendation: We recommend that management develop a plan and budget appropriately to allow for
the utilization of available bond proceeds to fund allowable City projects. Additionally, the City should
establish defined funding timelines for individual capital projects, prior to obtaining debt financing to fund
such projects.
Prior Year Views of Responsible Officials and Planned Corrective Actions: The City concurs with the
recommendation. The City continues to aggressively spend -down remaining unspent proceeds. During
fiscal year 2015 the City Commission approved the use of unspent bond proceeds to pay for Debt
Service, for certain issuances, as disclosed in the Fiscal Year 2015 Comprehensive Annual Financial
Report. This was the primary reason that the available bond proceeds restricted for capital projects
related to debt decreased significantly from last year. The City has implemented measures to minimize
the risk of this recurring. The City will focus on finding an optimal balance between issuing bonds and the
timing of the expenditures. The timing of the project related expenditures will be scrutinized and factored
into the timing of issuing the debt. Furthermore, the City will issue official letters of intent for bond issues.
The official letter of intent will enable the City to incur the expenditures and subsequently reimburse itself
from bond proceeds.
Current Year Views of Responsible Officials and Planned Corrective Actions: The City continues to
spend -down remaining unspent proceeds. The City has had project status/funding meetings including the
City Attorney's Office, the Budget Department, the Capital Improvement Department, and the Finance
Department to continually assess projects and the progress of the spend down. The City will continue to
spend down as quickly as possible and work with bond counsel regarding its circumstance.
6
City of Miami, Florida
Appendix 6 — Status of Prior Years' Findings and Recommendations to Improve Financial
Management (Continued)
ML 2015-02 — Accounts Receivable
Criteria: Allowances for uncollectible receivables should be based upon historical trends and the periodic
aging of receivables. Additionally, management should assess the collectability of receivables on a
periodic basis and write-off balances not deemed to be collectible at a future date.
Prior Year Condition: The City's allowance for uncollectible receivables was $32.5 million as of
September 30, 2015. Management should assess the collectability of the allowed receivable balances
and write-off amounts not deemed to be collectible at a future date, after all reasonable collection efforts
have been exhausted.
Current Year Condition: The City's allowance for uncollectible receivables was $33.4 million as of
September 30, 2016. Management should assess the collectability of the allowed receivable balances
and write-off amounts not deemed to be collectible at a future date, after all reasonable collection efforts
have been exhausted.
Effect: Gross receivable balances reported in the financial statements may not be collectible at a future
date.
Cause: Management has been assessing the collectability of the outstanding receivable balances over
time however, formal action has not been taken to write-off amounts not deemed to be collectible at a
future date.
Recommendation: We recommend that management assess the collectability of outstanding receivables
and take formal action to write-off balances for financial statement reporting purposes, which are not
deemed to be collectible at a future date.
Prior Year Views of Responsible Officials and Planned Corrective Actions: The City concurs with the
recommendation. The City consistently works on collecting outstanding receivables by mailing out letters
and sending delinquent accounts to a collection agency. The City also assesses these outstanding
receivables periodically. As disclosed in the Fiscal Year 2015 Comprehensive Annual Financial Report,
$13.8 million of the $32.5 million of the allowance for uncollectible receivables is related to Parrot Jungle
and Gardens of Watson Island Inc. These payments are to begin in 2019. However, the City will establish
formal written policies on how and when to write-off balances not deemed to be collectible at a future
date.
Current Year Views of Responsible Officials and Planned Corrective Actions: The City is drafting
legislation to provide for write-offs of accounts that are deemed uncollectible. The City anticipates having
the item before the City Commission prior to the 2017 fiscal year end.
7
City of Miami, Florida
Appendix B — Status of Prior Years' Findings and Recommendations to Improve Financial
Management (Continued)
ML 2014-03 — Password Configurations
Criteria: General Information Technology (IT) controls require that passwords settings be sufficient to
prevent the unauthorized access to systems and data.
Condition: We noted that password configuration settings for complexity and length do not meet the
minimum requirements as stated in the City's Acceptable Technology Use Policy.
Cause: Password configurations have not been setup to meet minimum requirements as stated in the
City's Acceptable Technology Use Policy.
Effect: Risks include unauthorized use of systems and disclosure, modification, damage, and/or loss of
proprietary information.
Recommendation: We recommend that management adjust password length and complexity
configuration settings to meet the minimum requirements as stated in the City's Acceptable Technology
Use Policy.
Prior Year Views of Responsible Officials and Planned Corrective Actions: A password complexity policy
has been submitted and is in the review process.
Current Year Views of Responsible Officials and Planned Corrective Actions: Discussions to review the
impact of changes in password length and complexity were held as a result of the audit recommendation.
Adjustments to password length and complexity were made effective on March 27, 2017.
8
City of Miami, Florida
Appendix B — Status of Prior Years' Findings and Recommendations to Improve Financial
Management (Continued)
ML 2014-04 — User Access Reviews
Criteria: User access rights to an organization's relevant financial reporting applications or data should be
reviewed periodically by management.
Condition: We noted periodic user access reviews are not being performed for the network and Oracle to
validate that employee system access rights are appropriate based on the employee's roles and
responsibilities.
Cause: The City does not have established policies and procedures in place requiring the review of user
access rights on a periodic basis.
Effect: Risks include unauthorized use, disclosure of proprietary information, modification, damage, or
loss of data.
Recommendation: We recommend that management establish formal policies and procedures to allow for
the proper administration of user access rights on an ongoing basis. Such policies and procedures should
address the proper provisioning, modifying, removing, and periodic review of access rights assigned to
employees. Management should determine as part of the user access review that configured access
rights are appropriate based on the employee's roles and responsibilities. This review should indicate
who performed the review, when the review was performed, and if any access changes are required.
Prior Year Views of Responsible Officials and Planned Corrective Actions: The Oracle enhancement to
facilitate the periodic review of Oracle access has been developed. We are working to send the first
communication to the stakeholders by the end of June 2016. The Network group is currently evaluating
software which will allow for periodic review and reporting of user rights to each department.
Current Year Views of Responsible Officials and Planned Corrective Actions: A report to validate user
access in the Financial System will be sent to Department Directors by June 30"' every year starting in
2017.
9
City of Miami, Florida
Appendix 8 — Status of Prior Years' Findings and Recommendations to Improve Financial
Management (Continued)
ML 2014-05 — Data Restoration
Criteria: General information technology (IT) controls require that procedures be in place to allow for the
backup and recovery of financial data on an ongoing basis.
Condition: We noted that stored data (backup) is not being tested on a periodic basis for Oracle and the
network to validate the effectiveness and content of the data backups being performed.
Cause: There is no formal policy in place requiring the periodic backup and restoration of data.
Effect: Risks include modification, damage, and/or loss of data. The lack of a strategy for cyclical testing
of the stored (backup) data exposes the City to operational disruption.
Recommendation: We recommend that management establish formal policies and procedures requiring
the periodic storage (backup) and restoration of data. Such policy should include the requirement that
stored data be tested at least on an annual basis, to validate the effectiveness and content of the data
storage (backup) being performed.
Prior Year Views of Responsible Officials and Planned Corrective Actions: The Network group is in the
process of developing an internal procedure to randomly test restoration of departmental data on a
semiannual basis.
Current Year Views of Responsible Officials and Planned Corrective Actions: We are creating a daily
backup of all financial data and performing a restoration and validation process every quarter. Going
forward we will also create backups of the network and perform scheduled restorations and validations as
deemed applicable.
10
City of Miami, Florida
Appendix B — Status of Prior Years' Findings and Recommendations to Improve Financial
Management (Continued)
ML 2014-06 — Change Management
Criteria: General Information Technology (IT) controls should provide reasonable assurance that program
changes, application configuration changes, system changes and maintenance (including changes to
system software and data structures), production processing changes (including new jobs, schedule
changes), and emergency changes are standardized, documented, approved, and subject to formal
change management procedures.
Condition: We noted that network changes are not being formally documented on a consistent basis as
required by the City's established policies and procedures.
Cause: Change management documentation requirements are not consistently being performed by City
personnel when changes are being made to the City's IT systems.
Effect: Unauthorized changes may be moved to the production environment without management's
knowledge.
Recommendation: We recommend that management adhere to its change management program and
policies which requires proper documentation for all changes to the City's IT systems.
Prior Year Views of Responsible Officials and Planned Corrective Actions: There is a Change Advisory
Board (CAB) that meets on a weekly basis to approve planned hardware and software major changes to
the Network and Enterprise applications. The IT department is in the process of implementing a tool that
will allow us to document incidents occurring from unplanned changes.
Current Year Views of Responsible Officials and Planned Corrective Actions: As a result of the audit
recommendation all changes to production systems are now being submitted to the Change Advisory
Board (CAB) for approval. This new policy was implemented at the beginning of fiscal year 2017.
11
RSM
RSM US Ll.p
Independent Accountant's Report
The Honorable Mayor, Members of the
City Commission, and City Manager
City of Miami, Florida
We have examined the City of Miami, Florida's (the City) compliance with Section 218.415, Florida
Statutes, Local Government Investment Policies during the year ended September 30, 2016.
Management is responsible for the City's compliance with those requirements. Our responsibility is to
express an opinion on the City's compliance based on our examination.
Our examination was conducted in accordance with attestation standards established by the American
Institute of Certified Public Accountants and, accordingly, included examining, on a test basis, evidence
about the City's compliance with those requirements and performing such other procedures as we
considered necessary in the circumstances. We believe that our examination provides a reasonable basis
for our opinion. Our examination does not provide a legal determination on the City's compliance with
specified requirements.
In our opinion, the City complied, in all material respects, with the aforementioned requirements for the
year ended September 30, 2016.
This report is intended solely for the information and use of the Florida Auditor General, the Honorable
Mayor, Members of the City Commission, the City Manager, and applicable management, and is not
intended to be and should not be used by anyone other than these specified parties.
sAf vs 4hP
Miami, Florida
April 28, 2017
THE POWER OF BEING UNDERSTOOD
AUDIT I TAXI CONSULTING
12
R9MUSLLPkIMU.S.m®uidar(km atRai har rsel edwlariebq staim tax, end uktroullng Vst ramowune4OsittinArmomYskrmet ii mewing RSMUSU..end
R911them pi