Canton, Massachusetts · Saved source text
FY17 Management Letter
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TOWN OF CANTON, MASSACHUSETTS
MANAGEMENT LETTER
YEAR ENDED JUNE 30, 2017Source 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, 2017, 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, 2017
Town of Canton, Massachusetts 1 of 7 Management LetterSource page 4
I. OVERVIEW
Throughout fiscal year 2017, the local, state-wide and national economies continued to
strengthen. Unemployment rates are low and property values are rising. Approximately 22%
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 $16.1 million in unassigned fund balance. This
represented a $3.1 million increase over the prior year and was the seventh straight year that
the unassigned fund balanced increased by 10% over the prior year. The increase was
primarily due lower tax refunds payable of $1.4 million from the settlement of appellate tax
cases, positive budgetary results of $3.0 million, offset by the use of free cash of $2.0 million
and $0.9 million in lower planned uses of unassigned fund balances in the subsequent years’
budget. In addition, the Town added over $0.75 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 18.0% 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. During the fiscal year the Town implemented recommendations to
strengthen its controls over cash receipts in its Board of Health Department.
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 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 Financial Statement Disclosures – OPEB Part 1
The Town adopted Governmental Accounting Standards Board, or GASB, issued Statement
No. 74, Financial reporting for Postemployment Benefit Plans Other Than Pensions, in fiscal
year 2017. Other postemployment benefits is commonly referred to as “OPEB” and includes
health and welfare plans and other similar benefits provided to Town retirees exclusive of
pension benefits. The Town’s current policy is to contribute 75% of the cost of retiree health
insurance costs, plus an annual appropriation of approximately $800,000.
The adoption of this accounting standard resulted in additional disclosures within the Town’s
financial statements and the inclusion of the effects of retiree benefits paid and received (both
from the Town and its retirees) in the Town’s fiduciary funds financial statements.
FY 2018 New Accounting Principle – OPEB Part 2
As discussed in previous letters to management, the Town will be required to report the full
amount of its net OPEB liability in its government-wide and proprietary funds financial
statements in fiscal year 2018. The Town currently reports a net OPEB obligation in its
government-wide financial statements calculated under GASB 45.
The Town’s net OPEB liability is significantly greater than its net OPEB obligation. The
Town’s independent actuary determined that the Town’s net OPEB liability at June 30, 2017
was approximately $87.5 million versus a net OPEB obligation of approximately $50.7
million.
Town of Canton, Massachusetts 3 of 7 Management LetterSource page 6
The Town’s independent actuary will remeasure the Town’s net OPEB liability at June 30,
2018. The Town will present this figure in its fiscal year 2018 affected financial statements.
This will result in a further reduction in the Town’s unrestricted net position.
The Town established an OPEB trust fund several years ago and has accumulated nearly $3
million in the fund from its inception to June 30, 2017. As it stands at June 30, 2017, the
OPEB trust fund is approximately 3.3% funded.
As we have indicated in several previous letters to management, the Town should continue to
include OPEB in its long-term planning.
Changes to Single Audit Requirements – Need for Internal Control Framework
In our previous two letters to management, 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 an internal control system based on a recognized internal control
framework such as the Green Book or COSO.
While the majority of the Town’s federal awards pertain to educational grants, the Town has
been the recent recipient of federal awards in other areas, particularly in public safety. 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 Town Accountant, but the School Business
Office (the primary recipient of federal awards) and the Town Finance Director.
Documented policies and procedures, while critical to any internal control system, is but one
of a series of components to an internal control system. We recommend that the Town
evaluate the Green Book internal control system and document the Town’s compliance with
this recognized control framework. The Town should plan to complete this task during
calendar 2018.
Student Activities in the News
On November 27, 2017, the Boston Globe reported on the Boston Public Schools’ use of
student activity accounts to pay employees “under the table” and for purposes unrelated to
student activities. These violations of federal and state tax law and Massachusetts General
Laws were uncovered by an IRS audit. The Boston Globe article spotlights the need for
continued oversight of the operation of a school district’s use of student activity accounts as
well as the risks associated with their misuse. Furthermore, as these matters were made
public in the state’s most widely circulated daily newspaper, this may lead to additional rules
and regulations being issued by the Commonwealth related to student activity accounts.
We are pleased to report that the Town’s schools undergo independent reviews of their
student activity accounts in accordance with recommendations set forth by the Massachusetts
Department of Elementary and Secondary Education and the Massachusetts Association of
School Business Officials, or MASBO. In our report on the Town’s student activities dated
October 1, 2015, there were a number of areas in need of improvement at both the High
School and Middle School. The next scheduled period of independent review of the Town’s
schools is scheduled for the spring of 2018.
Town of Canton, Massachusetts 4 of 7 Management LetterSource page 7
We recommend that the Town revisit our October 1, 2015 report and ensure that progress has
been made in areas in need for improvement. Furthermore, we recommend that the Town
provide a copy of this article to all school principals and student activity administrators as a
training tool and to continue its diligence in managing this fiduciary activity.
Town of Canton, Massachusetts 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
2017.
Capital Asset Maintenance
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.
Recreation Department Review
In fiscal year 2017 over $350,000 was collected through the recreation revolving fund to pay
for its programs that are offered throughout the year. The Department utilizes specifically
designed software to record participation and payments for its programs. Participant rosters
and receipt reports by program are available from the system that support the funds that are
turned over to the Town Treasurer/Collector’s Office.
The Department policy is that all users must pay for programs or the use of fields up front.
The Department indicated that local field users do not always pay timely which causes the
administrative staff to spend resources making collection calls to obtain payment. The
Department staff expends significant personnel and material resources to prepare the fields
each season and require the funds timely in order to maintain them properly. The Department
should consider a late fee or other means of encouraging timely payments.
Town of Canton, Massachusetts 6 of 7 Management LetterSource page 9
We also noted that the Department charges $3 - $4 daily fees for children and adults to use
the Town pool during the summer, in addition to offering season passes. The one-day pass
users are not expected to give their information or complete the liability waivers that is
required of season pass holders. This could be a liability and safety issue should someone get
injured while at the pool. The Department should encourage visitors to complete a one-time
account sign up and waiver completion through the Department’s website so that they can be
properly checked in by staff when utilizing the pool.
Town of Canton, Massachusetts 7 of 7 Management Letter