Fort Walton Beach — Comprehensive Annual Financial Report September 30, 2013 — reading text

conducted in accordance with Chapter 10.550, Rules of the Auditor General, which govern the conduct of local governmental entity audits performed in the State of Florida. This letter includes the following information, which is not included in the aforementioned auditor's reports or schedules: 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 report. Corrective actions have been taken or are in progress to address findings and recommendations made in the preceding annual financial audit report. (please see status under the heading "Prior Year Comments") Section 10.554(1)(i)2, Rules of the Auditor General, requires our audit to include a review of the provisions of Section 218.415, Florida Statutes, regarding the investment of public funds. In connection with our audit, we determined that the City of Fort Walton Beach, Florida, complied with Section 218.415, Florida Statutes. Section 10.554(1)(i)3., Rules of Auditor General, requires that we address in the management letter any recommendations to improve financial management. In connection with our audit, we did not have any such recommendations. Section 10.554(1)(i)4., Rules of 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. Section 10.554(l)(i)5., 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 City of Fort Walton Beach, Florida, was established as a municipality by a Special Act of the Florida Legislature in 1937. The City's original charter was enacted as Chapter 18539, Laws of Florida. 126 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Management Letter (Continued) The present charter was enacted in 1953 as Chapter 29093, Laws of Florida. The City of Fort Walton Beach, Florida, had one component unit within its reporting entity. The Fort Walton Beach Community Redevelopment Agency was created pursuant to provisions of Chapter 163, Part III, Florida Statutes. This action, adopted by Resolution Number 77-38, also outlines the rights, powers, duties, privileges, and immunities invested in the governing body. City ordinance 1262, adopted on September 27, 1994, gave the City Council the authority to appoint an independent Board of Commissioners in place of the City Council effective January 1, 1995. During 1992, the Florida Department of Community Affairs determined that the Fort Walton Beach Housing Authority was a dependent special district of the City of Fort Walton Beach, Florida. Utilizing the standards set forth in GASB 61, the Fort Walton Beach Housing Authority was not considered as having met sufficient criteria for inclusion within the City's audited financial statements for the year ended September 30, 2013. As a result, the Fort Walton Beach Housing Authority is not included in the City's annual financial report. During 2011, the Fort Walton Beach Community Redevelopment Agency (the Agency) became a blended component unit of the City. The City's council members serve as board members of the Agency. The Agency's governing body is the same as the governing body of the City and the Agency provides services specifically to the Community Redevelopment Area of the City. Due to the nature and significance of the Agency's relationship with the City, exclusion of the Agency's financial operations would render the City's financial statements incomplete or misleading. Section 10.554(1)(i)6,.a., Rules of the Auditor General, requires a statement be included as to whether or not the local government entity 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 of Fort Walton Beach, Florida did not meet any of the conditions described in Section 218.503(1), Florida Statutes. Section 10.554(1)(i)6.b., Rules of the Auditor General, requires that we determine whether the annual financial report for the City of Fort Walton Beach, Florida, for the fiscal year ended September 30, 2013, 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, 2013. In connection with our audit, we determined that these two reports were in agreement. Pursuant to Sections 10.554(1)(i)6.c., and 10.556(7), 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. Our assessment was performed as of September 30, 2013. 127 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Management Letter (Continued) PRIOR YEAR COMMENTS 2012-MC-01: DEFINED BENEFIT PENSION PLANS Prior Year Comment Summarized In June, 2012 the GASB adopted two statements, GASB 67 – Financial Reporting for Pension Plans, an amendment of GASB 25 and GASB 68 – Accounting and Financial Reporting for Pensions, an amendment of GASB 27. The provisions of the Statement 68 will be effective for the year ended September 30, 2015. This statement will require the recognition of the net pension liability in the full accrual financial statements which represents the total pension liability less the fiduciary net position of the pension plan which is currently presented in the supplementary information as the unfunded AAL (Actuarial Accrued Liability). The City of Fort Walton Beach, Florida has funded 100% of the actuarially required contributions of the three defined benefit pension plans over the last ten year period. However the overall funded status of each plan has declined over the same time period. If the City, as the plans' sponsor, were to adopt the provisions of GASB early, the effect is consequential. We recommend the City of Fort Walton Beach, Florida as the plans sponsor review alternatives as it related to the existing benefit structure in an effort to stabilize current and future pension costs and liability while providing benefits that meet the objectives of employees covered by the plans. Status The City Council, acting as the Board of Trustees for the General Employees’ Pension Plan, recently agreed to expand its Investment Policy to allow for a larger diversity in its portfolio and to respond to the changing economic environment. At the fiscal 2013-14 strategic planning session, alternative structures for the Plan will be presented for implementation during the fiscal year 2014-15 budget process. 2012-MC-02: GOLF ENTERPRISE FUND Prior Year Comment Summarized The Golf Fund reported a net loss of approximately $265,000 for the year ended September 30, 2012 and has deficit unrestricted net position of approximately $99,000 at September 30, 2012. The fund generated positive cash flow from operating activities of approximately $110,000 in FY 12; however that is not sufficient to cover the fund’s debt payments to creditors and the advance repayment to the General Fund. We recommended that City management continue to closely monitor the fiscal operations of the Golf Fund. If the fund continues operating at a loss, the City should consider temporarily suspending the repayments of the general fund advance or make additional budget transfers to eliminate the deficit fund balance. Status Effective October 1, 2014, the City opted to combine the Golf Enterprise Fund with the City’s General Fund operations, recognizing that self-sustainability was not a viable option in the Golf Fund’s current state. 128 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Management Letter (Continued) CURRENT YEAR COMMENTS (CONTINUED) 2012-MC-03: ANTI-FRAUD PROGRAM Prior year comment summarized The City maintains a strong ethical culture and positive environment to deter fraud and promote ethical behavior. None the less, fraud can occur in any entity and the City would benefit by formally reviewing its fraud prevention, detection and reaction programs on an annual basis. We recommended City Council and senior management would strengthen its anti-fraud program with the adoption of the following:  Periodic documented fraud risk assessments  A written fraud response plan  Training for City employees on warning signs of fraud and what to do if they suspect fraud is occurring  Implementation of a whistleblower policy Status While there have been no reported incidents of ethics or fraud violations at the City of Fort Walton Beach, the Senior Management team is being proactive in reviewing all policies and procedures and drafting a new Code of Ethics for both City Council and its employees. The City continues to research the various anti-fraud programs throughout the State and is currently implementing a fraud hotline. This will be the first step in the development of an anti-fraud program that is customized to the City of Fort Walton Beach. 2012-MC-04: ENTERPRISE RISK MANAGEMENT Prior year comment summarized The City of Fort Walton Beach, Florida has not formally documented management’s identification of strategic, operational and financial risks and the related monitoring of the risks identified. We recommended documenting enterprise risk assessments as they will provide additional assurances that key business processes have appropriate control activities in place. The assessment and documentation will help management identify control gaps, strengthen existing controls, and remove redundancies where applicable. Status The City recently completed its review of the Hurricane Response Plan and continues to make adjustments and revisions to its Continuity of Operations Plan. Effective with the fiscal year 2013-14 budget, both five- and ten-year replacement programs for Fleet and IT were adopted. 129 Honorable Mayor and City Council Members City of Fort Walton Beach, Florida Management Letter (Continued) 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, and applicable management, and is not intended to be and should not be used by anyone other than these specified parties. We greatly appreciate the assistance and cooperation extended us during our audit. Fort Walton Beach, Florida March 3, 2014 130 (THIS PAGE INTENTIONALLY LEFT BLANK.)