CITY OF STURGIS

Finding No. 2023-001: Financial Statement and Schedule of Federal Awards (SEFA) Preparation Federal Program Affected: Disaster Grants - Public Assistance (Presidentially Declared Disasters) Compliance Requirement: Reporting Questioned Costs: None Condition and Cause: We were requested to draft the audited financial statements, related footnote disclosures, and SEFA as part of our regular audit services. Ultimately, it is management’s responsibility to provide for the preparation of the City’s statements, SEFA and footnotes and the responsibility of the auditor to determine the fairness and presentation of those statements. From a practical standpoint, we do both for the City at the same time in connection with our audit. This is not unusual for municipalities of your size. Criteria and Effect: It is our responsibility to inform the Council that this deficiency could result in a material misstatement to the financial statements or the SEFA that could have been prevented or detected by the City’s management. Repeat Finding from Prior Year: Yes, prior year finding #2022-001. Recommendation: As in prior years, we have instructed management to review a draft of the auditor prepared financial statements and SEFA in detail for their accuracy, we have answered any questions they might have, and have encouraged research of any accounting guidance in connection with the adequacy and appropriateness of classification and disclosure in the City’s statements. We are satisfied that the appropriate steps have been taken to provide the City with the completed financial statements and SEFA. It is the responsibility of management and those charged with governance to make the decision whether to accept the degree of risk associated with this condition because of cost or other considerations. Response/Corrective Action Plan: The City agrees with the above finding. See Corrective Action Plan.

Finding No. 2023-002: Audit Adjustments and SEFA Adjustments Federal Program Affected: Disaster Grants - Public Assistance (Presidentially Declared Disasters) Compliance Requirement: Reporting Questioned Costs: None Condition and Cause: During the course of our engagement, we proposed material audit adjustments that were approved and recorded. Significant audit adjustments included the following: - An entry to rollforward fund balances from the previous year - Entries to adjust capital asset activity, including several adjustments for construction in process and tax increment financing activity - An entry to adjust long-term debt related to Dolan Creek TIF #12 and the First Interstate Bank interim loan - An entry to reclassify a misposting between Advance To/From and Due To/From other funds - An entry to adjust property tax receivable and deferral - We assisted with calculating SDRS pension activity in accordance with GASB 68, Pensions - An entry to adjust the allowance for doubtful accounts in the ambulance fund - An entry to record the due from federal and state government related to Federal Emergency Management Agency funding. Additionally, the City incorrectly reported the federal expenditures under the Highway Planning and Construction program (ALN #20.205) - An entry to record Due from State Government for Liquor Tax Reversion and Local Highway and Bridge revenues - An entry to adjust the accrued leave balances for all funds - We assisted with calculating adjusting entries related to GASB87, Leases - An entry to reverse an incorrectly posted amount for prepaid health insurance In addition, there were other audit adjustments that were either insignificant or had no effect on reported change in fund balance/net position so they are not individually identified above. Furthermore, entries were proposed as a part of the audit, but were not recorded due to the overall insignificance on the financial statements. Criteria and Effect: These adjustments would not have been identified as a result of the City’s existing internal controls, and therefore, could have resulted in a material misstatement of the City’s financial statements. Repeat Finding from Prior Year: Yes, prior year finding 2022-002. Recommendation: Management should consider the following: - Do not post activity directly to fund balance/net position accounts - Capital assets should be reviewed to make sure all additions and disposals are properly reflected, including the activity within TIF Funds - Work with lenders to verify year-end long-term debt balances, including interest, and adjust balances accordingly - Reconcile interfund advance to/from and due to/from other funds at year end - Adjust property tax receivable and deferrals to actual at year-end - Management should continue to review and approve pension entries - Analyze and adjust, if necessary, ambulance allowance for doubtful accounts - For reimbursement-based grants, such as FEMA, the due from other government portion should be recorded and the expenditures should be tracked under the correct Assistance Listing Number (ALN). - Accrued leave/compensated absences should adjusted at year end - City management should continue to review and approve entries related to leasing activity. Additionally, management should document existing leases, including lease terms, payments, renewal dates, purchase options, etc. - Prepaid expenses should only be recorded if a cash expenditure is made in a period prior to the dates of service Response/Corrective Action Plan: The City agrees with the above finding. See Corrective Action Plan.

#2021-001 FINDING: Financial Statement and Schedule of Federal Expenditures (SEFA) Preparation Federal Program Affected: Capitalization Grants for Clean Water State Revolving Funds and Coronavirus State and Local Fiscal Recovery Funds (CFDA #66.458 and #21.027). Compliance Requirement: Reporting Questioned Costs: None Condition and Cause: We were requested to draft the SEFA as part of our regular audit services. Ultimately, it is management?s responsibility to provide for the preparation of the City?s SEFA. From a practical standpoint, we do both for the City at the same time in connection with our audit. This is not unusual for municipalities of your size. Criteria and Effect: It is our responsibility to inform the Council that this deficiency could result in a material misstatement to the financial statements that could have been prevented or detected by the City?s management. Repeat Finding from Prior Year: Not for SEFA Preparation. Recommendation: As in prior years, we have instructed management to review a draft of the auditor prepared SEFA in detail for their accuracy, we have answered any questions they might have, and have encouraged research of any accounting guidance in connection with the adequacy and appropriateness of classification and disclosure in the City?s SEFA. We are satisfied that the appropriate steps have been taken to provide the City with the completed SEFA. It is the responsibility of management and those charged with governance to make the decision whether to accept the degree of risk associated with this condition because of cost or other considerations. Response/Corrective Action Plan: The City agrees with the above finding. See Corrective Action Plan.

GSA_MIGRATION

GSA_MIGRATION

GSA_MIGRATION