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HomeMy WebLinkAboutCOW Agenda Packet 07/12/2005 COMMITTEE OF THE WHOLE AGENDA Meeting Location: Mount Prospect Village Hall 50 South Emerson Street Meeting Date and Time: Tuesday, July 12, 2005 7:00 p.m. I. CALL TO ORDER - ROLL CALL Mayor Irvana K. Wilks Trustee Timothy Corcoran Trustee Richard Lohrstorfer Trustee Paul Hoefert Trustee Michaele Skowron Trustee John Korn Trustee Michael Zadel II. ACCEPTANCE OF MINUTES OF COMMITTEE OF THE WHOLE MEETING OF JUNE 14, 2005 III. CITIZENS TO .BE HEARD IV. ANNUAL AUDIT OF VILLAGE FINANCES Each year the Village retains the services of a CPA firm to audit its financials and assist in the preparation of the Comprehensive Annual Financial Report (CAFR). Sikich Gardner & Co, LLP performed the audit for the Village for fiscal year ended December 31,2003. As part of the audit, Sikich is also required to present a management letter to the Village's governing board. The purpose of the management letter is to inform the board of any problems encountered during the audit, and to report any deficiencies in internal controls uncovered during the course of the audit. Discussion regarding the CAFR will revolve around changes made to the format of the report as a result of implementing Governmental Accounting Standards Board (GASB) Statement 34. Sikich has given its audit of the Village for year-end 2003 an "unqualified opinion." This means that their examination found our financial statements to be fairly presented and prepared in accordance with generally accepted accounting principles. In addition to performing the audit on the Village's financials, Sikich also conducted two separate audits referred to as the Single Audit and the TIF Compliance Audit. The Single Audit is a compliance audit of the Village's federal and state grant receipts pursuant to the U.S. Office of Management and Budget Circular A-133. The TIF Audit is a compliance audit required by the State of Illinois of our tax increment financing activities. Results from these two audits indicate the NOTE: ANY INDIVIDUAL WHO WOULD LIKE TO ATTEND THIS MEETING BUT BECAUSE OF A DISABILITY NEEDS SOME ACCOMMODATION TO PARTICIPATE, SHOULD CONTACT THE VILLAGE MANAGER'S OFFICE AT 50 SOUTH EMERSON, MOUNT PROSPECT, ILLINOIS 60056, 8471392-6000, EXTENSION 5327, TDD #8471392-6064. V. RECOMMENDATION FOR A COMPREHENSIVE AUDIT POLICY In November 2004, the Village conducted an RFP process for audit services. During discussion for awarding the audit services contract the Board felt a more formal audit policy was needed. At the Board's direction, staff researched establishing a formal audit committee and the creation of a comprehensive audit policy for the procurement of audit services. The purpose of the policy is to assign oversight responsibility for the independent audit of the Village's financial statements from the selection of the independent auditor to the resolution of audit findings. The policy will also provide comprehensive guidelines and directions for procuring audit services. Finally, the policy will address procedures for monitoring compliance of the Village's fraud risk assessment program. Staff will present recommendations for the comprehensive audit policy and will be available to answer questions and facilitate discussion. VI. 2006-2010 CAPITAL IMPROVEMENTS PLAN In 1997, the Village Board formally adopted its first comprehensive 5-year Capital Improvements Plan (Crp). In previous years, the Village used a number of separate documents in its capital projects planning. While each of these documents was useful in its own right, none offered an overall picture of the Village's capital needs. The establishment of a 5-year Capital Improvements Plan (CIP) provides a comprehensive view of the Village's capital needs for consecutive rolling five-year windows. The proposed 2006-2010 CI P is generally comprised of projects that involve the purchase or construction of long-lived, tangible assets at a cost of $25,000 or more. The total cost of all requests for all years included in the plan is approximately $48.9 million. Many of the requests in the plan are simply continuations of established projects. Others are projects not currently in progress but have been discussed by the Village Board on previous occasions. Some requests are being presented for the first time through the CIP. Given that the CIP is intended to afford a comprehensive view of the Village's capital needs, it is fitting that all of these project requests be included in the proposed plan. Of the $48.9 million of project requests included in the proposed CIP, $28.8 million (or 58.9%) is for the continuation of established projects including approximately $14.4 million for street resurfacing. Significant new projects include the combined sewer project with a five-year total of $8.5 million. The total cost of the combined sewer project is estimated to be $15 million. A project's inclusion in the CIP does not guarantee its funding and accomplishment. The CIP is a planning document. As such, it is subject to change. The elP is reviewed and updated on an annual basis. The next CIP will cover the years 2007 through 2011. 2006 project requests included in the proposed CIP amount to $9.2 million, an increase of $3.9 from the first year projects in the 2005-2009 CIP. This is mainly due to the addition of the combined sewer project. Of the $9.2 million proposed for 2006, $5.5 million (60%) is for the continuation of established projects including $2.7 million for the street program. It should be noted that approximately $2.2 million in capital projects scheduled between 2002- 2005 have been deferred to out years while the Village Board and Administration work to develop a permanent funding source for such projects. The proposed 2006-2010 CI P was distributed on June 17, 2005 to the Finance Commission and the Village Board. The Finance Commission held a meeting on June 30,2005 to review the proposed document. Copies of the draft minutes from the Commission's meetings will be provided separately. Once the Committee of the Whole completes its review of the proposed 2006-2010 CIP, it will be presented to the Village Board for formal acceptance on July 19, 2005. Staff will make a presentation on the projects included in the five-year plan and will be on hand to answer questions and facilitate discussion. VII. VILLAGE MANAGER'S REPORT VIII. ANY OTHER BUSINESS IX. ADJOURNMENT Mount Prospect Village of Mount Prospect Mount Prospect, Illinois ~ INTEROFFICE MEMORANDUM TO: MICHAEL E. JANONIS, VILLAGE MANAGER FROM: DIRECTOR OF FINANCE DATE: JULY 6, 2005 SUBJECT: COMPREHENSIVE ANNUAL FINANCIAL REPORT - 12/31/04 PURPOSE: To present the Comprehensive Annual Financial Report (CAFR) for the fiscal year ended December 31,2004. BACKGROUND: Each year the Village retains a CPA firm to audit the Village's financials and assist in the preparation of the annual CAFR. Sikich Gardner & Co, LLP performed the audit for the Village for fiscal year ended December 31, 2004. DISCUSSION: The CAFR presents two kinds of financial statements, each with a different snapshot of Village finances. The statement's focus is on both the Village as a whole (government-wide) and on the major individual funds. Both perspectives allow the user to address relevant questions, broaden a basis for comparison from year-to-year at the Village and also between governments and enhance the Village's accountability. Sikich Gardner has given its audit of the Village for year-end 2004 an "unqualified opinion". This means that their examination found our financial statements to be fairly presented and prepared in accordance with generally accepted accounting principles. Their opinion can be found on pages 1 and 2 in the financial section of the report. A detailed overview of the financial results for the fiscal year is provided in the Management's Discussion and Analysis (MD & A), which may be found immediately following the auditor opinion on page 3 of the financial section. Following are a few of the more significant highlights: Comprehensive Annual Financial Report July 6, 2005 Page 2 General Fund: General Fund revenues of $31,437,412 fell short of the final budget by $310,534 or 0.98%. The following table shows the variance from final budget for revenues broken down by major revenue category. . ..'EiJJ.~L:B4dget Ai","';;"lic />~;~f;.,'" .................... yp~/./ .. . ""'/6 Property Taxes $ 8,164,528 $ 7,965,530 $ (198,998) (2.44%) Other Taxes 5,024,100 5,189,856 165,756 3.30% Licenses & Permits 2,814,750 2,798,930 (15,820) (0.56%) Intergovernmental 13,791,677 13,672,588 (119,089) (0.86%) Service Charges 806,863 749,216 (57,647) (7.14%) Fines & Forfeits 582,000 554,741 (27,259) (4.68%) Investment Earnings 47,500 45,869 (1,631) (3.43%) Miscellaneous 516,528 460,682 (55,846) (10.81%) Total Revenue $ 31,747,946 $ 31,437,412 $ (310,534) (0.98%) Property tax revenues were down $198,998 from the final budget. The amount collected by the County and remitted to the Village came in at 96.9% of the original levy. This is slightly below the average collection ratio of 97.6% for the Village in the past five years. Revenue classified as Other Taxes exceeded the final budget by $165,756, or 3.30%. The surplus over budget can be attributed mostly to the telecommunication tax and food and beverage tax, which exceeded their budgets $81,308 and $55,486 respectively. The remaining revenues in this category had minor variances plus or minus budget. The real estate transfer tax continues to remain strong generating a positive variance of $316,018 above the original budget amount. Intergovernmental revenues fell short $119,089 or 0.86% from the $13,672,588 final budget amount. The original budget was increased by $158,477 for adjustments to various revenue line items. Although state income taxes fell slightly short of its final budget amount, the tax came in significantly higher than the original budget by $222,390. The income tax has been trending up for the past two years, but still lags below 2002 levels. Receipts from sales taxes were down $185,831 or 2.28% from the final budget. The state use tax and corporate personal property replacement tax, both state shared revenues, exceeded the final budget by $80,417 and $43,948 respectively. Intergovernmental revenues are projected to grow slowly over the next fisc?!1 year. This is a pleasant change from the decline attributed to state shared revenues the Village has experienced over the past several years. Fines and forfeits fell short of the final budget by $27,259 or 4.68%. Local fines fell short by $76,314 while the remaining revenues in this category exceeded the final budget by $49,055. Investment earnings continue to suffer from the low interest rates continuing to be offered in the marketplace. This combined with the intentional draw down of fund balance and budget shortfalls caused investment earnings to come in $1,631 or 3.43% below the final budget projection. Although this amount appears minor, this revenue projection has been revised downward over the past several years. At its high point, interest income generated in excess of $300,000. Comprehensive Annual Financial Report July 6, 2005 Page 3 General Fund expenditures totaled $31,835,052, representing a positive variance of $210,664, or 0.66%, under the revised 2004 Budget. The following table presents a breakdown of actual expenditures as compared to the final budget for each department. ..... 4)",-",;",'/,r~r ~.. ~ i I;;; ;. '1:;0; ~nl ....-........ I. , ._.~.......A..."...;i. ... ...... :1;; Public Representation $ 110,074 $ 108,884 $ 1,190 1.08% Village Manager 2,058,753 2,101,737 (42,984) (2.09%) Television Services 170,262 161,903 8,359 4.91% Village Clerk 163,256 163,656 (400) (0.25%) Finance 1,368,331 1,351,088 17,243 1.26% Community Development 1,583,296 1,481,617 101,679 6.42% Human Services 784,867 702,815 82,052 10.45% Police 11,373,788 11,356,202 17,586 0.15% Fire 8,886,140 8,866,769 19,371 0.22% Public Works 5,207,593 5,212,118 (4,525) (0.09% Other 339,356 328,263 11,093 3.27% Total Expenditures $ 32,045,716 $ 31,835,052 $ 210,664 0.66% The results from operations of the General Fund are showing a deficit in 2004. Expenditures exceeded revenues by $397,640. In addition, a transfer of $270,000 was made to cover a portion of the debt service for the new Village Hall. Fund balance totaling $667,640 was used to cover the combined shortfall. The original budget called for a planned drawdown of $362,116. Fund balance as of December 31,2004 was $8,257,514. Unreserved fund balance at year-end was $8,037,820, representing 23.7% of budgeted operating expenditures for 2005. Revenue from the sale of right- of-way earmarked to cover the transfer to debt service ($270,000) did not come in as expected, but will instead be credited in 2005. This caused a temporary drop in fund balance. Including these monies would raise fund balance to $8,322,820 or 24.5%. Special Revenue Funds: In total, the special revenue funds are showing a deficit with expenditures exceeding revenues by $737,348. There was an intentional draw down of fund balance in the Motor Fuel Tax Fund in the amount of $575,075 for the completion of carry-over projects from 2003. In addition, the Refuse Fund expenditures exceeded revenues by $189,200 due to the inclusion of the leaf removal program. Fund balances for these two special revenue funds remain strong at 48% and 55% respectively. Fund balance for all special revenue funds total $2,943,955 at year-end. Debt Service Funds: The various debt service funds are showing a combined operating deficit of $753,281 for the year, on revenues and other financing sources of $5,172,153 and expenditures of $5,925,434. Shortfalls in the home-rule sales tax accounted for much of the deficit. Fund balance for all the debt service funds totaled $36,785 at December 31,2004. Comprehensive Annual Financial Report July 6, 2005 Page 4 Capital Projects Funds: Expenditures exceeded revenues and other financing sources by $8,949,026 in 2004. Planned expenditures for property acquisition, downtown redevelopment, street improvements, and construction of the new village hall occurred during 2004 that had intentionally drawn down fund balance. The year-end fund balance was $1,982,531. Water and Sewer Fund: This fund is showing a net deficit $445,282 on revenues of $7,956,614 and expenses of $8,401 ,896. The net income figure includes depreciation expense of $452,769 and excludes $101,000 of bond principal payments. Pension Trust Funds: The net assets of the Police and Firefighter pension funds increased during 2004. The Police Pension Fund is showing an increase of $2,095,894 in net plan assets, while the Firefighters Pension Fund is showing an increase of $1 ,617,553. According to the December 31, 2003 actuarial report, the most recent information available, the Police Pension Fund was 77.45% funded and the Firefighters Pension Fund was 78.84% funded. RECOMMENDATION: It is recommended the Village Board accept the Comprehensive Annual Financial Report for the fiscal year ended December 31,2004. /Ja~/ tp ~ ~. DAVID O. ERB DIRECTOR OF FINANCE Copy: Finance Commission DOE! H:\ACCT\AUDIT\2004 Audit\Correspondence\Board Memo - 12-31-04 CAFR.doc Mount Prospect Village of Mount Prospect Mount Prospect, Illinois ~ INTEROFFICE MEMORANDUM TO: MICHAEL E. JANONIS, VILLAGE MANAGER FROM: DIRECTOR OF FINANCE DATE: JULY 6,2005 SUBJECT: AUDITOR'S MANAGEMENT LETTER - 12/31/04 PURPOSE: To present the Auditor's Management Letter for the fiscal year ended December 31, 2004. BACKGROUND: Auditing Standards require auditors to present a management letter to the governing boards of entities they have audited. The purpose of the letter is to inform the board of any problems they encountered during the audit, and to report any deficiencies in internal controls uncovered during the course of the audit. DISCUSSION: Attached is the Management Letter prepared by Sikich Oardner & Co. for the fiscal year ended December 31,2004. Page two of the Management Letter reports on current year recommendations. There were two recommendations for improvement presented. The first recommendation dealt with "Marking to Market" investments. This is the practice of revaluing the equities held in the pension portfolios to current market value. The Finance Department concurs with this recommendation and as standard practice prepares Mark to Market adjustments quarterly. The year-end adjustment for 2004 though had not been done until the commencement of the audit in April. Procedures are in place to ensure future adjustments are made in a more timely manner. The auditors also recommended the Village establish a formal audit committee to oversee the audit and monitor the Village's fraud risk assessment program. The Finance Department concurs with this recommendation and has taken steps to establish a formal audit committee. It is expected to be completed by the end of 2005. There was one recommendation from the prior year that required follow-up. The auditors noted consecutive years (2002 and 2003) where the Risk Management Fund had significant claims that resulted in a reduction in net assets (fund balance). The recommendation was to examine user fees charged to other funds that support expenditures for the Risk Management Fund. H:\ACCT\AUDIT\2004 Audit\Correspondence\Managment Letter Transmittal.doc Management Letter July 6, 2005 Page 2 of 2 In response, the Village noted that the high level of activity was unusual and not expected to continue into the future. In addition, the Village now self-insures for a larger portion of claims rather than purchasing conventional insurance. There will be an overall savings to the Risk Management Fund by making this change. RECOMMENDATION: It is recommended the Village Board accept the auditor's Management Letter for the fiscal year ended December 31,2004. J~tJ.U- David 0, Erb Director of Finance Copy: Finance Commission DOE! H:\ACCT\AUDIT\2004 Audit\Correspondence\Managment Letter Transmittal.doc VILLAGE OF MOUNT PROSPECT, ILLINOIS MANAGEMENT LETTER December 31, 2004 ~Sikich Gardner & Co, LLP ACCOUNTANTS AND CONSULTANTS ;if~ich Gardner & Co, LLP" Members of American Institute of Certified Public Accountants A Member of Sikich Group, LLC 998 Corporate Boulevard. Aurora, IL 60502-9102 Illinois CPA Society The Honorable Mayor Members of the Village Board Village of Mount Prospect, Illinois Ladies and Gentlemen, In planning and performing our audit ofthe basic and combining and individual fund financial statements of the Village of Mount Prospect, Illinois as of and for the year ended December 31, 2004, we considered its internal controls in order to determine our auditing procedures for the purpose of expressing our opinion on the basic and combining and individual fund financial statements and not to provide assurance on internal controls. Our assessment of the internal controls was limited to obtaining an understanding of the internal controls sufficient to plan our audit and did not include tests of control policies and procedures. The Village Board and management of the Village are responsible for establishing and maintaining internal controls. In fulfilling that responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of a system are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles. Because of the inherent limitations in any internal control, errors, or irregularities may nevertheless occur and not be detected. Also, projection of any assessment of the internal controls to future periods is subject to the risk that policies or procedures may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Our study and evaluation made for the limited purpose described in the first paragraph would not necessarily disclose all reportable conditions. Accordingly, we do not express an opinion on the internal controls of the Village of Mount Prospect, Illinois taken as a whole. However, our study. and evaluation disclosed the following conditions that we believe should be considered by management and the Village Board. This report is intended solely for the information and use of the Mayor, the Village Board, and management and should no~ be used by anyone other than these specified parties. ~~ ~~g ~,lL\ Aurora, Illinois April 14, 2005 - 1 - RECOMMENDATIONS FOR IMPROVEMENT - CURRENT YEAR 1. Mark to Market Adjustments for Investments During our testing of investments we noted that several investments were not marked to market at year end. Management's Response The investments are reconciled on a quarterly basis. This was an entry that was missed during the regular audit preparation process. The journal entries were provided following the commencement of the audit. 2. Audit Committee We noted during our audit, through inquiry with management, that the Village Board is considering establishing an audit committee. We recommend that the audit committee be responsible for establishing an audit procurement policy as well as implementing and overseeing a fraud risk assessment program for the Village. Management's Response The Village is in the process of developing a comprehensive audit policy which will include the establishment of a formal Audit Committee, audit procurement procedures and procedures for monitoring compliance of SAS 99 requirements. A preliminary plan will be brought to the Village Board in July 2005. Approval of the final policy is expected by the end of2005. OTHER INFORMATION The Governmental Accounting Standards Board has issued a number of pronouncements that will impact the Village in the future. Statement No. 40, Deposit and Investment Risk Disclosures-an amendment ofGASB Statement No.3, is effective for the Village's fiscal year ended December 31, 2005 and will alter how the Village discloses its exposure to credit, market and custodial credit risks. Statement No. 42, Accounting and Financial Reportingfor Impairment of Capital Assets andfor Insurance Recoveries, is effective for the Village's fiscal year ending December 31, 2005 and provides guidance on valuing assets that have become impaired or are no longer used in operations. Statement No. 43, Financial Reportingfor Post-employment Benefit Plans Other Than Pension Plans, is effective for the Village's fiscal year ending December 31,2007 (Phase II) provides guidance on accounting for an OPEB plan. - 2 - RECOMMENDATIONS FOR IMPROVEMENT - CURRENT YEAR (Continued) OTHER INFORMATION (Continued) Statement No. 44, Economic Condition Reporting: The Statistical Section is effective for the Village's fiscal year ending December 31, 2006 and will require the Village to modify the presentations currently found in the statistical section of the CAFR. Statement 45, Accounting and Financial Reporting by Employers for Post-Employment Benefits Other Than Pensions addresses how employers should account for and report costs and obligations for post-employment health care and other nonpension post-employment benefits promised to employees and is effective for the Village's fiscal year ending December 31, 2008 (Phase II). Statement 46, Net Assets Restricted by Enabling Legislation, an amendment of GASB Statement No. 34. The purpose of Statement 46 is to help governments determine when net assets have been restricted to a particular use by the passage of enabling legislation and to specify how those net assets should be reported in financial statements when there are changes in the circumstances surrounding such legislation. Statement-46 is effective for periods beginning after June 15, 2005 (Village's fiscal year ending December 31,2006). TB2004-2, Recognition of Pension and Other Postemployment Benefit tOP EB] Expenditures/Expense and Liabilities by Cost-Sharing Employers. The Technical Bulletin clarifies the application of requirements regarding accounting for employers' contractually required contributions to cost-sharing pension and OPEB plans issued in Statement No. 27, Accountingfor Pensions by State and Local Governmental Employers, and Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, respectively and is effective for the Village's fiscal year ending December 31,2008. GFOA 2005 Governmental Accounting Auditing and Financial Reporting (Blue Book), will require the Village to modify its letter oftransmittal to the new format/contents for the fiscal year ending December 31, 2005. - 3 - RECOMMENDATIONS FOR IMPROVEMENT - PRIOR YEAR 1. Uninsured/uncollateralized deposits As disclosed in Note 3, there was insufficient collateral pledged by one of the Village's depositories to cover the uninsured deposits at that depository, which is not in accordance with the Village's investment policy. We recommend that the depository be required to monitor and pledge sufficient collateral at all times. Management Response The Village corrected this issue in March 2004. 2. Net Loss in Risk Management Fund We observed during our audit that the Risk Management Fund has a current year net loss (change in net assets) of $1 ,328,690 that was preceded by a net loss of $536,607 for the year ended December 31, 2002. We recommend that the Village examine the user fees charged to other funds of the Village. Management Response The high level of activity occurring in the Risk Management Fund the past two years included the settlement of a few large claims that were unusual in occurrence. These claims are not expected to continue in future years. In addition, the Village is currently looking into alternatives for administering its risk management program to control claims costs. The Risk Management Fund recorded a net loss of $56,276 for the year ending December 31, 2004. - 4 - INTEROFFICE MEMORANDUM Village of Mount Prospect Mount Prospect, Illinois TO: MICHAEL E. JANONIS, VILLAGE MANAGER FROM: DIRECTOR OF FINANCE DATE: JULY 6,2005 SUBJECT: SINGLE AUDIT ACT COMPLIANCE -12/31/04 PURPOSE: To present the Single Audit Compliance Report for the fiscal year ended December 31,2004. BACKGROUND: Each year as part of the annual financial audit, the Village engages a CPA firm to undertake a compliance audit of the Village's federal and state grant receipts pursuant to the U.S. Office of Management and Budget (OMB) Circular A-133. This is commonly referred to as the Single Audit Act. Sikich Gardner & Co. LLP performed the Single Audit for the fiscal year ended December 31, 2004. DISCUSSION: As you can see on pages 3 and 6 of the Single Audit Report, the auditors are reporting that the Village complied with the Single Audit Act for 2004. RECOMMENDATION: It is recommended the Village Board accept the Single Audit Compliance Report for the fiscal year ended December 31,2004. ~/ tY, <<-- DAVID O. ERB DIRECTOR OF FINANCE Copy: Finance Commission DOE! H:\ACCT\AUDIT\2004 Audit\Single Audit\Memo to Manager - 2004.doc . VILLAGE OF MOUNT PROSPECT, ILLINOIS SINGLE AUDIT REPORT F or the Year Ended December 31, 2004 ~Sikich Gardner & Co, LLP ACCOUNTANTS AND CONSULTANTS VILLAGE OF MOUNT PROSPECT, ILLINOIS TABLE OF CONTENTS -.'. v',. Page( s) Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government A uditing Standards............. ...... ........ ................... ........... ... ............... ..... ....... 3-4 Schedule of Expenditures of Federal Awards ..................................................................... 5 Independent Auditor's Report on Compliance with Requirements Applicable to Each Major Program and Internal Control Over Compliance in Accordance with OMB Circular A-l33 and Schedule of Expenditures of Federal Awards ............................................................ 6-7 Schedule of Findings and Questioned Costs.... ........................... ............ ....................... ..... 8-9 -2- ,,~'ijH C::~slkich Gardner & CO, LLP"" '/-}:;~ii)tt~':5>:~~"'-' Members of American Institute of Certified Public Accountants A Member of Sikich Group, llC 998 Corporate Boulevard. Aurora, IL 60502-9102 Illinois CPA Society INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVElWMENT A UDITING STANDARDS The Honorable Mayor Members of the Board of Trustees Village of Mount Prospect Mount Prospect, Illinois We have audited the basic financial statements of the Village of Mount Prospect, Illinois, as of and for the year ended December 31, 2004, and have issued our report thereon dated April 14, 2005. 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. Internal Control Over Financial Reporting In planning and performing our audit, we considered the Village of Mount Prospect's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the basic financial statements and not to provide assurance on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a reportable condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the basic financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. However, we noted other matters involving the internal control over financial reporting that we have communicated to the management of the Village of Mount Prospect in a separate letter dated April 14, 2005. - 3 - Compliance and Other Matters As part of obtaining reasonable assurance about whether the Village of Mount Prospect, Illinois' basic financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the determination of the basic financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of the Village Board, management, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. ~~~~ ~.~J~ Aurora, Illinois April 14, 2005 - 4 - VILLAGE OF MOUNT PROSPECT, ILLINOIS SCHEDULE OF EXPENDITURES OF FEDERAL A WARDS For the Year Ended December 31, 2004 Federal CFDA Program/Grant Federal Grantor Pass-Through Grantor Program Title Number Number Revenues Expenditures Department of Housing N/A Community Development and Urban Development Block Grant 14.218 B-03-MC-17-0011 $ 358,407 $ 358,407 B-04-MC-17-0011 166,213 166,213 Department of Justice N/A Law Enforcement Block Grant 16.592 2002-LB-BX-1298 11,144 1 1,144 Department of Justice N/A Bulletproof Vest Program 16.607 02013422 3,413 3,413 Federal Railroad N/A PEERS Grant 20.301 ICC-2003-PEERS- 25,000 25,000 Administration 20 Department of Justice Judicial Advisory Council Law Enforcement Block of Cook County Grant 16.592 31,956 31,956 Emergency Management N/A Prevention Deterrence Grant 97.704 ODP-04-LETP 12,217 12,217 Association Department of Homeland N/A Emergency Preparedness Security & Response 83.544 EMW-2002 8,946 8,946 Department of Homeland N/A Emergency Preparedness Security & Response 83.544 EMW-2003 46,734 46,734 TOTAL FEDERAL AWARDS $ 664,030 $ 664,030 Notes to Schedule of Expenditures of Federal Awards Note A The accompanying schedule of expenditures offederal awards is a summary of the activity of the Village's federal award programs presented on the modified accrual basis of accounting in accordance with generally accepted accounting principles. Accordingly, revenues are recognized when the qualifying expenditure has been incurred and expenditures have been recognized when the fund liability has been incurred. Note B Of the federal expenditures presented in this schedule, the Village provided federal awards to subrecipients from the Community Development Block Grant in the amount of$108,233. - 5 - -". ,.;.,>>\ ,^"i:,<"'.'_"." p...,"'!i;'x"i.;.... .' ... ....." '<i.i~'SlkICh Gardner & Co, LLP , ':'<;'>;:,-"-1f\~;;;.<": Members of American Institute of Certified Public Accountants A Member of Sikich Group, LLC 998 Corporate Boulevard. Aurora, IL 60502-9102 Illinois CPA Society INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 AND SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS The Honorable Mayor Members of the Board of Trustees Village of Mount Prospect Mount Prospect, Illinois Compliance We have audited the compliance of the Village of Mount Prospect, Illinois' with the types of compliance requirements described in the U S. Office of Management and Budget (OMB) Circular A-I33 Compliance Supplement that are applicable to each of its major federal programs for the year ended December 31,2004. The Village of Mount Prospect, Illinois' major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs is the responsibility of the Village of Mount Prospect, Illinois' management. Our responsibility is to express an opinion on the Village of Mount Prospect, Illinois' compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Village of Mount Prospect, Illinois' compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the Village of Mount Prospect, Illinois' compliance with those requirements. In our opinion, the Village of Mount Prospect, Illinois' complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the year ended December 31, 2004. - 6 - Internal Control Over Compliance The management of the Village of Mount Prospect, Illinois is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered the Village of Mount Prospect, Illinois' internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-13 3. Our consideration of the internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that noncompliance with applicable requirements of laws, regulations, contracts and grants that would be material in relation to a major federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses. Schedule of Expenditures of Federal Awards We have audited the basic financial statements of the Village of Mount Prospect, Illinois, as of and for the year ended December 31, 2004, and have issued our report thereon dated April 14, 2005. Our audit was performed for the purpose of forming an opinion on the basic financial statements of the Village of Mount Prospect, Illinois, taken as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. This report is intended solely for the information and use of the Village Board, management, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Ju yj)~ e (nJ Lv{ Aurora, Illinois April 14, 2005 - 7 - VILLAGE OF MOUNT PROSPECT, ILLINOIS SCHEDULE OF FINDINGS AND QUESTIONED COSTS For the Year Ended December 31, 2004 Section I - Summary of Auditor's Results Financial Statements Type of auditor's report issued: unqualified Internal control over financial reporting: Material weakness(es) identified? Reportable condition(s) identified considered to be material weaknesses? _yes -Lno _ yes -L none reported Noncompliance material to financial statements noted? _yes -Lno Federal Awards Internal Control over major programs: Material weakness( es) identified? Reportable condition(s) identified that are not considered to be material weaknesses? _yes -Lno _yes x no Type of auditor's report issued on compliance for major programs: unqualified Any audit findings disclosed that are required to be reported in accordance with Circular A-B3, Section 510(a)? _yes -Lno Identification of major programs: CFDA Number(s) Name of Federal Program or Cluster 14.218 Community Development Block Grant Dollar threshold used to distinguish between Type A and Type B programs: $ 300,000 Auditee qualified as low-risk auditee? -L yes no - 8 - ~ VILLAGE OF MOUNT PROSPECT, ILLINOIS SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) F or the Year Ended December 31, 2004 Section II - Financial Statement Findings None Section III - Federal Award Findings and Questioned Costs None -9- Mount Prospect Village of Mount Prospect Mount Prospect, Illinois ~ INTEROFFICE MEMORANDUM TO: MICHAEL E. JANONIS, VILLAGE MANAGER FROM: DIRECTOR OF FINANCE DATE: JULY 6, 2005 SUBJECT: TIF COMPLIANCE AUDIT -12/31/04 PURPOSE: To present the Report on Compliance with Public Act 85-1142 for the fiscal year ended December 31,2004. BACKGROUND: Each year as part of the annual financial audit, the Village engages a CPA firm to undertake a compliance audit of our tax increment financing activities. Sikich Gardner & Co. performed the TIF compliance audit for the fiscal year ended December 31, 2004. DISCUSSION: On page three of the TIF audit is the Report of Independent Accountant's on Compliance. In this report, the auditors indicate that the Village has complied with the requirements of the Tax Increment Redevelopment Allocation Act (P.A. 85-1142). Page two lists the combining schedule of revenues, expenditures and changes in fund balance for the 2004 fiscal year and the Statistical Section on pages four-six list the summary of activity and schedule of fund balance from the inception of the TIF through 2004. The combining schedule and summary includes both the Downtown Redevelopment Construction Fund as well as the debt service funds used to supportTIF redevelopment. RECOMMENDATION: It is recommended the Village Board accept the Report on Compliance with Public Act 85-1142 for the fiscal year ended December 31,2004. &,,/ &. &L-- David O. Erb Director of Finance Copy: Finance Commission DOE! H:\ACCT\AUDIT\2004 Audit\Correspondence\TIF Compliance Audit Transmittal.doc VILLAGE OF MOUNT PROSPECT, ILLINOIS FINANCIAL REPORT AND REPORT ON COMPLIANCE WITH PUBLIC ACT 85-1142 DOWNTOWN REDEVELOPMENT FUNDS For the Year Ended December 31, 2004 ~Sikich Gardner & Co, LLP ACCOUNTANTS AND CONSULTANTS $i~ich Gardner & Co, LLpr,!, Members of American Institute of Certified Public Accountants A Member of Sikich Group, LLC 998 Corporate Boulevard. Aurora, I L 60502-9102 Illinois CPA Society INDEPENDENT AUDITOR'S REPORT The Honorable Mayor Members of the Board of Trustees Village of Mount Prospect, Illinois We have audited the accompanying combining schedule of revenues, expenditures, and changes in fund balances of the Downtown Redevelopment Funds of the Village of Mount Prospect, Illinois, for the year ended December 31, 2004. This combining schedule is the responsibility of the Village of Mount Prospect, Illinois' management. Our responsibility is to express an opinion on this combining schedule based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether this combining schedule is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combining schedule. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall combining schedule presentation. We believe that our audit provides a reasonable basis for our opinion. The combining schedule referred to above presents only the Downtown Redevelopment Funds and are not intended to present fairly the financial position and results of operations of the Village of Mount Prospect, Illinois, in conformity with accounting principles generally accepted in the United States of America. The combining schedule referred to above does not include the notes to financial statements. In our opinion, such notes are required by generally accepted accounting principles. In our opinion, except for the effects on the combining schedule of the omission described in the preceding paragraph, the combining schedule referred to above presents fairly, in all material respects, the revenues, expenditures, and changes in fund balances of the Downtown Redevelopment Funds of the Village of Mount Prospect, Illinois, for the year ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. The statistical information on pages 4 through 6 was not audited by us, and accordingly, we do not express an opinion thereon. Aurora, Illinois April 14, 2005 J~~~R ~,LL~ - 1 - VILLAGE OF MOUNT PROSPECT, ILLINOIS COMBINING SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES DOWNTOWN REDEVELOPMENT FUNDS For the Year Ended December 31,2004 Capital Projects General General General General General Downtown Obligation Obligation Obligation Obligation Obligation Redevelopment Bond Series Bond Series Bond Series Bond Series Bond Series Construction of 1996B ofl998B of 1998C of 1999 of 2002A Totals $ 535,262 $ - $ - $ 150,000 $ 808,999 $ 44,000 $ 1,538,261 3,092 1,371 3,647 456 8,566 538,354 151,371 812,646 44,456 1,546,827 REVENUES Taxes Investment income Total revenues EXPENDITURES Capital outlay Infrastructure Public improvements Contractual services Other professional services Debt service Principal retirement Interest and fiscal charges 1,340,714 851,772 57,514 1,340,714 851,772 57,514 120,000 455,000 50,000 625,000 29,775 253,500 2,900 286,175 149,775 708,500 52,900 3,161,175 Total expenditures 2,250,000 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (1,711,646) - - 1,596 104,146 (8,444) (1,614,348) OTHER FINANCING SOURCES (USES) Installment contract issued Transfer in Transfer (out) 705,000 - - - - - 705,000 31 - 31 - (24) (7) - - (31) Total other financing sources (uses) 705,000 (24) {7) 31 705,000 NET CHANGE IN FUND BALANCES (1,006,646) (24) (7) 1,596 104,177 (8,444) (909,348) FUND BALANCES, JANUARY I 497,649 24 7 70,342 337,098 24,686 929,806 FUND BALANCES (DEFICIT), DECEMBER 31 $ (508,997) $ - $ - $ 71,938 $ 441,275 $ 16,242 $ 20,458 (See independent auditor's report.) - 2- ~ikich Gardner & Co, LLpT~ Members of American Institute of Certified Public Accountants A Member of Sikich Group, LLC 998 Corporate Boulevard. Aurora, IL 60502-9102 Illinois CPA Society REPORT OF INDEPENDENT ACCOUNTANT'S ON COMPLIANCE The Honorable Mayor Members of the Board of Trustees Village of Mount Prospect, Illinois We have examined management's assertion included in its representation letter dated April 14, 2005, that the Village of Mount Prospect, Illinois, complied with the provisions of subsection (q) of Section 11-74.4-3 of the Illinois Tax Increment Redevelopment Allocation Act (Illinois Public Act 85-1142) during the year ended December 31, 2004. As discussed in that representation letter, management is responsible for the Village of Mount Prospect, Illinois' compliance with those requirements. Our responsibility is to express an opinion on management's assertion about the Village's compliance based on our examination. Our examination was made in accordance with the standards established by the American Institute of Public Accountants and, accordingly, included examining, on a test basis, evidence about the Village of Mount Prospect, Illinois' 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 Village of Mount Prospect, Illinois' compliance with statutory requirements. In our opinion, management's assertion that the Village of Mount Prospect, Illinois, complied with the aforementioned requirements for the year ended December 31, 2004, is fairly stated in all material respects. This report is intended solely for the information and use of the Village Board, management, the joint review board, the Illinois State Comptroller, and the Illinois Department of Revenue and should not be used by anyone other than these specified parties. .d~ J)~ ~ G> (U Aurora, Illinois April 14, 2005 - 3 - STATISTICAL SECTION VILLAGE OF MOUNT PROSPECT, ILLINOIS SCHEDULE OF ENDING FUND BALANCES BY SOURCE DOWNTOWN REDEVELOPMENT FUNDS For The Year Ended December 31, 2004 Fiscal Year Description 1986 Revenues Capital expenditures 1987 Revenues Capital expenditures Debt service expenditures 1988 Revenues Capital expenditures Debt service expenditures 1989 Revenues Capital expenditures Debt service expenditures 1990 Revenues Capital expenditures Debt service expenditures 1991 Revenues Capital expenditures Debt service expenditures 1992 Revenues Capital expenditures Debt service expenditures Property Taxes Sales Taxes Bond Proceeds Rental Income Investment Income Other Income Totals $ - $ - $ 1,700,000 $ 6,210 $ 43,926 $ 45,000 $ 1,795,136 - (687,904) - - - (687,904) 1,012,096 6,210 43,926 45,000 1,107,232 49,919 8,425 - 11,085 58,469 240 128,138 (512,900) - - - (512,900) (49,919) (8,425) (23,661) (17,295) (102,395) (45,240) (246,935) 475,535 - - 475,535 53,511 - 1,995,008 12,055 49,430 803,301 (749,693) (53,511) - (779,658) (12,055) (49,430) (803,301) 941,192 2,913,305 (749,693) (1,697,955) 941,192 36,783 - - 8,750 39,180 64,800 149,513 (248,508) - - - (248,508) (36,783) (13,043) (8,750) (39,180) (64,800) (162,556) 679,641 - - - 679,641 39,995 - 15,297 34,265 - 89,557 (438,799) - - - (438,799) (39,995) (54,134) (15,297) (34,265) - (143,691) 186,708 - - - 186,708 218,591 - - 15,750 18,136 12,400 264,877 (75,039) - (255,229) (15,750) (18,136) (12,400) (376,554) (143,552) - - - - - (143,552) (68,521) - - - (68,521) 309,684 - 743,640 18,175 38,789 - 1,110,288 (28,682) (18,175) (27,825) - (74,682) (144,376) - (98,326) - (10,426) - (253,128) 165,308 - 548,111 - 538 - 713,957 -4- Fiscal Year Description 1993 Revenues $ Capital expenditures Debt service expenditures 1994 Revenues Capital expenditures Debt service expenditures 1995 Revenues Capital expenditures Debt service expenditures 1 995(a) Revenues Capital expenditures Debt service expenditures 1996 Revenues Capital expenditures Debt service expenditures 1997 Revenues Capital expenditures Debt service expenditures 1998 Revenues Capital expenditures Debt service expenditures 1999 Revenues Capital expenditures Debt service expenditures Property Taxes Sales Taxes Bond Proceeds Rental Income Investment Income Other Income Totals 364,580 $ - $ - $ 17,250 $ 31,114 $ - $ 412,944 (11, I 97) - (11,197) (197,196) - - (17,250) (20,455) - (234,901) 332,692 - 548, III - - - 880,803 504,283 - 647,397 - 48,113 33,431 1,233,224 (346,830) 52,054 (30,310) (33,431) (358,517) (301,794) - - (52,054) (17,803) - (371,651) 535,181 - 848,678 - - - 1,383,859 502,214 - - - 40,033 . 565,383 (125,206) - (848,678) 23,136 (40,033) - (1,037,053) (356,043) - - (23,136) - - (356,043) 556,146 - - - - - 556,146 494,313 - - - 18,958 - 513,271 (224,220) - - - (18,958) - (243,178) (452,783) - - - - - (452,783) 373,456 - - - - 373,456 578,327 - 750,000 - 52,040 146,632 1,526,999 (24,742) - - (146,632) (171,374) (448,517) - - (52,040) - (500,557) 503,266 - 725,258 - - - 1,228,524 677,294 - - - 70,331 - 747,625 (488,803) - - (488,803) (604,358) - - - - - (604,358) 576,202 - 236,455 - 70,331 - 882,988 776,759 - 1,160,000 - 29,766 102,549 2,069,074 (1,253,463) - (58,316) (102,549) (1,414,328) (573,826) - - - (41,781) - (615,607) 779,135 - 142,992 - - - 922,127 837,269 - 5,550,000 - 117,702 1,243,000 7,747,971 (3,958,099) . (117,702) (1,243,000) (5,318,801) (876,249) - - - - - (876,249) 740,155 - 1,734,893 - - - 2,475,048 (This schedule is continued on the following page.) - 5 - VILLAGE OF MOUNT PROSPECT, ILLINOIS SCHEDULE OF ENDING FUND BALANCES BY SOURCE (Continued) DOWNTOWN REDEVELOPMENT FUNDS For The Year Ended December 31, 2004 Fiscal Year Description Property Taxes Sales Taxes Bond Proceeds Rental Income Investment Income Other Income Totals 2000 Revenues Capital expenditures Debt service expenditures $ 801,036 $ - $ - $ - $ 96,917 $ 1,135,360 $ 2,033,313 (1,167,881) - (14,589) (635,360) (1,817,830) (1,086,861) - - - (82,328) (500,000) (1,669,189) 454,330 - 567,012 - - 1,021,342 2001 Revenues Capital expenditures Debt service expenditures 804,700 - - - 52,901 1,082,465 (473,520) - - (582,465) (758,200) - - (52,901) (500,000) 500,830 - 93,492 1,940,066 (1,055,985) (1,311,IOI) 594,322 2002 Revenues Capital expenditures Debt service expenditures Bond proceeds Payment of bond principal - current refunding Operating transfers in Operating transfers (out) 912,882 - - 16,780 929,662 (529,055) - (93,492) - - (64) (622,611) (1,335,913) - - (16,780) - (1,352,693) 635,064 635,064 (635,000) (635,000) 369,832 - - - - - 369,832 (369,832) - - - - (369,832) (451,256) - - - - - (451,256) 1,185,391 - - - 10,533 177,474 1,373,398 (437,951) - - - - - (437,951) (779,385) - - - - - (779,385) 1,225,000 1,225,000 (483,201) - - - 10,533 1,402,474 929,806 2003 Revenues Capital expenditures Debt service expenditures Sale of Village property 2004 Revenues Capital expenditures Debt service expenditures Installment contract proceeds Transfer in Transfer (out) 8,566 - 1,546,827 (19,096) (2,107,505) (2,250,000) (911,175) 705,000 705,000 31 31 (31) - - - - - (31) 1,538,261 ( 123,399) (911,175) $ 20,455 $ - $ - $ - $ 3 $ $ 20,458 (a) During 1995, the government changed its fiscal year-end from April 30 to December 31. The data for this fiscal period pertains to May I - December 31. - 6- Mount Prospect INTEROFFICE MEMORANDUM Village of Mount Prospect Mount Prospect, Illinois TO: MICHAEL E. JANONIS, VILLAGE MANAGER FROM: DIRECTOR OF FINANCE DATE: JULY 6,2005 SUBJECT: RECOMMENDATION FOR A COMPREHENSIVE AUDIT POLICY PURPOSE: To present elements of a. formal audit policy for use by Village Officials and staff in its oversight of the independent audit of the Village's financial statements. BACKGROUND: In November 2004, the Village conducted an RFP process for audit services. During discussion for awarding the audit services contract the Board felt a more formal audit policy was needed. At the Board's direction, I researched establishing a formal audit committee and the creation of a comprehensive audit policy for the procurement of audit services. The purpose of the policy is to assign oversight responsibility for the independent audit of the Village's financial statements from the selection of the independent auditor to the resolution of audit findings. The policy will also provide comprehensive guidelines and directions for procuring audit services. Finally, the policy will address procedures for monitoring compliance of the Village's fraud risk assessment program (as required by SAS- 99, Statement of Auditing Standards). DISCUSSION: The Government Finance Officers Association (GFOA) has developed recommended practices covering various areas of public finance including the establishment of an audit committee and the procurement of audit services. In addition, Generally Accepted Auditing Standards (GMS) require that auditors inform the audit committee (or its equivalent) of important matters related .to the financial statement audit. Currently, the Village's Purchasing Policy provides guidance for selecting an auditor. Presentations by the auditor to the Finance Commission and Board of Trustees are utilized to meet the GMS requirement for information sharing. Although these procedures have worked well to this point, a comprehensive policy which includes an independent audit committee will help enhance the financial statement auditor's real and perceived independence by providing a direct link between the auditor and governing board. Audit Policy Recommendations July 6, 2005 Page 2 Recommendations being presented for inclusion in the Village's audit policy come directly from GFOA recommended practices. Listed below are elements that would be included in a formal audit policy for the Village. Audit Committee - As mentioned previously, an independent audit committee would be established to enhance an auditor's independence by providing a link between the auditor and governing board. The committee is advisory in nature and assists management and the governing board to ensure a fair presentation of the financial statements and for obtaining and monitoring the annual audit. Recommendations for establishing an audit committee per GFOA recommended practices are as follows: · A separate independent audit committee will be formally established by ordinance to enhance the independence of the external auditor and the reliability of the audited financial statements. · Members of the audit committee shall collectively posses the expertise and experience in governmental accounting, auditing, financial reporting, and finance needed to understand and resolve issues raised by the independent audit. When necessary or otherwise desirable, members of the audit committee should be selected from outside the government to provide the needed expertise and experience. · A majority of the members of the audit committee should be selected from outside of management. In addition, the audit committee should include at lease one representative from each of the executive and legislative branches of government. GFOA recommended practices recommend a committee size of 5 to 7 members. The proposed make-up of the audit committee will consist of the following: Village President, member of the Board of . Trustees (1), member of the Finance Commission (1), Mayoral appointee, and Director of Finance/Treasurer. . Audit committee members should be educated regarding their roles and responsibilities as members including their duty to exercise an appropriate degree of professional skepticism. Professional skepticism is the concept of not accepting evidence on face value, but rather evaluating for the possibility that the evidence is misleading or incomplete. Primary responsibility includes oversight of the audit, from the selection of the independent auditor to the resolution of audit findings. . Audit committee will have access to reports of any internal auditors, as well as access to any annual internal audit work papers. . Audit committee should present annually to the governing board and management a written report of how it discharged its duties and met its responsibilities. This report will be made public after its initial presentation to the governing board. Audit Policy Recommendations July 6,2005 Page 3 Audit Procurement - One essential function of the audit committee will be the regular selection of an independent auditor. This important first step in the audit process is key to preserving the integrity of the public finance functions and maintaining the citizens' confidence in its elected leaders. As mentioned previously, guidelines for selecting an independent auditor are included in the Village's Purchasing Policy. In addition to these guidelines, the audit policy will require all request for proposals for auditing services to include the following: . Scope of the audit will include the fair representation of the basic financial statements as well as the financial statements of all individual funds and component units (GAAP requirement). . Auditors will be required to conform to the independence standard promulgated in the General Accounting Office's Government Auditing Standards for all engagements. . Agreements for Auditing Services will be for a term of five-years. The five-year agreement will consist of a series of single-year agreements. . A full-scale competitive RFP process will be performed at the end of the term of each audit contract. The policy will require that auditors be replaced at the end of the audit contract. . The independent auditor currently under contract to perform financial statements audit will be allowed to perform certain types of non-audit services for the Village of Mount Prospect. All non-audit services shall be approved in advance by the audit committee. .In addition, the Village will explore the possibility of alternative service providers before making a decision to engage its independent auditor to perform such non-audit services. . The principal factor in the selection of an independent auditor will be the auditor's ability to perform a quality audit. In no case will price be allowed as the sole criterion for the selection of an independent auditor. SAS 99 Compliance - The Statement of Auditing Standards No. 99 entitled Consideration of Fraud in a Financial Statement Audit require auditors to make inquiries of client personnel regarding the risks of fraud at the Village. While management has primary responsibility for establishing and monitoring all aspects of the Village's fraud risk assessment and prevention activities, it is the audit committee that would have ultimate oversight of the function. Audit Policy Recommendations July 6,2005 Page 4 According to guidelines stipulated in SAS 99, the following proactive steps should be taken by the Village in an effort to reduce opportunities for fraud: 1) identify and measure fraud risks, 2) take steps to mitigate identified risks, and 3) implement and monitor appropriate preventive and detective internal controls and other deterrent measures. The Village currently provides for each of these steps in its management of internal controls. Activities with a high opportunity for fraud have been identified and various segregation of duties are in place to mitigate risks. Beginning in 2003, fraud risk assessment questionnaires were mailed to select staff, elected and appointed officials based on their position in the Village. Questionnaires inquired about the knowledge of any fraud or the potential for fraud in the Village. As part of its oversight responsibilities, the audit committee would encourage management to provide a mechanism for employees to report concerns about unethical behavior, actual or suspected fraud, or violation of the Village's ethics policy. The committee should receive periodic reports describing the nature, status and eventual disposition of any reported fraud or unethical conduct. A summary of activity, follow-up and disposition should also be provided to the full board and be made public. This activity would take place in conjunction with the annual audit. In summary, a comprehensive audit policy for the Village should include these three general elements, 1) the formation of a formal audit committee, 2) guidelines and directions for procuring audit services, and 3) procedures for monitoring compliance of the Village's fraud risk assessment program. I would anticipate the specific roles and responsibilities of the audit committee would evolve over time as auditing standards and requirements change. A formal policy including these elements will need to be drafted upon receiving further direction from the Board. Also, an Ordinance will be required amending the Village Code to include a section establishing the audit committee. RECOMMENDATION: The Village Board authorize the Village Attorney, Village Manager and staff to draft a comprehensive audit policy for the Village. u~u/ C:;l. ~ David O. Erb Director of Finance H:\ADMN\Administration\Dave Correspondence\Memo Audit Policy 7-6-05.doc Mount Prospect Village of Mount Prospect Mount Prospect, Illinois ~ INTEROFFICE MEMORANDUM TO: VILLAGE BOARD AND FINANCE COMMISSION FROM: DIRECTOR OF FINANCE DATE: JUNE 17, 2005 SUBJECT: PROPOSED CIP: 2006-2010 Attached hereto is the proposed 2006-2010 Capital Improvements Plan (CIP). The projects being considered for the year 2006 total $9,232,038. The five-year total for all projects is $48,935,288. We encourage you to read the Manager's transmittal letter beginning on page ii. This correspondence describes the purpose of the CIP, highlights some of the more significant projects, and reviews project funding. To help you evaluate our ability to fund the requested projects we have again provided five-year financial forecasts for the major operating and capital project funds that provide funding for the CIP. These forecasts can be found in Section H of the document. In general, the projects being presented directly relate to the monies expected to be available. However, from reviewing the CIP requests in conjunction with the five-year financial forecasts I would like to direct your attention to several project areas. General Fund Proiects The CIP is showing the five-year average of projects being paid from General Fund revenues as $422,000. This is higher than in previous years due to the inclusion of a single large project in 2008. Streetlight improvements totaling $440,500 are budgeted for that year. Excluding this item, the five-year average is $334,000. This is typical of the amount of capital projects funded by the General Fund on an annual basis. Of greater concern is the five-year financial forecast for the General Fund. This forecast is shoWing operating deficits beginning in 2006 ($975,376) with annual deficits increasing each year through 2010 ($5,565,391). See the complete five-year forecast for the General Fund beginning on page H-1. Motor Fuel Tax Fund (MFT) Receipts from motor fuel taxes for 2005 are expected to decline from 2004 and remain flat through 2006. Due to this flattening of the motor fuel taxes, the Fund has annual deficits for every year of the forecast. This will force a draw down on fund balance to where fund balance becomes negative in 2008. This is significant as the MFT Fund supports approximately one-half of the funding for the annual street program. Originally to be finished in 2005, the completion of the street program was pushed back to 2009 due to budget Proposed CIP June 17, 2005 Page 2 of 3 constraints. Constant monitoring of this Fund will be necessary to ensure that the original street resurfacing program started in 1995 is completed as planned. Capital Improvement Fund The Capital Improvement Fund is meant to support intermediate sized capital expenditures for various departments that are non-recurring in nature. Some examples of these projects are Wireless Connectivity, Phone System Upgrade and Detention Pond Improvements. Since the General Fund discontinued the annual capital transfer, $2.2 million of these intermediate sized projects have been deferred. In addition, the projects that have been funded, which are higher priority items, have drawn down the fund balance to where it will become negative sometime in 2007. A new annual funding source of approximately $750,000 is needed to support this capital program into the future. Street Improvement Construction ~lIrld Proiect~ The forecast for the Street Improvement Fund (H-11 )is showing a positive fund balance of $590,124 by the end of 2010. This is the result of debt service for street related projects being paid off in 2004 and the projected completion in 2009 of the formal street program started in 1995. Moving forward beginning in 2010, there will be sufficient funding to support ongoing maintenance of the Village streets and also slowly rebuild fund balance, which was intentionally drawn down as part of the Village Hall financing plan. Flood Control Construction Fund Proiects The forecast for the Flood Control Construction Fund (H-12) is showing a negative fund balance of approximately $25,000 by the end of 2008. This is the result of some larger flood projects coming on line in 2008. Fund balance by 2010 is expected to fall further to a negative $1.2 million if the Prospect Meadows ($600,000) and McDonald Creek ($1,500,000) projects are completed as planned. A portion of the % cent home rule sales tax, which supports flood control becomes available in 2010 to support ongoing projects, but is not fully available until 2019 when all the IEPA loan obligations are paid off. Water and Sewer Fund There are several large capital projects included in the proposed CIP for 2006-2010 that significantly impacts the Water and Sewer Fund as can be seen in the five-year financial forecast beginning on page H-13. Operating deficits of between $465,000 and $2,100,000 are expected each year during the five-year plan. This is due mostly to the combined sewer reconstruction project beginning in 2005. The entire project is expected to cost $15,000,000. A comprehensive water rate study and other funding methods are being researched to locate funding sources for the project. Based on the five-year projections, fund balance will decrease over the next five years from a positive $3.5 million in 2005 to a negative $4,7 million by 2010. 1:\CIP\2006-2010\Board Memo June 2005.doc Proposed CIP June 17, 2005 Page 3 of 3 Bond Proceeds The proposed CIP is showing two new projects to be funded by bond proceeds. They are the construction of a new Fire Station 14 at $2.0 million and the expansion of the Public Works vehicle maintenance building at just under $1.0 million. Both projects are slated to begin in 2007. The CIP does not address the tax increases that would be associgted with issuing bonds for these projects. Staff looks forward to discussing the proposed CIP with you in the very near future. ~~~ David O. Erb Director of Finance Copy: Michael E. Janonis, Village Manager Dave Strahl, Assistant Village Manager Carol L. Widmer, Deputy Finance Director Department Directors 1:\CIP\2006-2010\Board Memo June 2005.doc Mount Prospect Director Glen R. Andler ~ Deputy Director Sean P. Dorsey Mount Prospect Public Works Department 1700 W. Central Road, Mount Prospect, Illinois 60056-2229 SAFETY COMMISSION AGENDA MEETING LOCATION: Public Works Building 1 700 W. Central Road Mount Prospect, Illinois 60056 MEETING DATE AND TIME: Monday July 11,2005 7:00 p.m. I. Call to Order II. RollCall III. Approval of Minutes IV. Citizens to be Heard V. Old Business VI. New Business A. Maple Street Parking Study VII. Commission Issues VIII. Adjournment Ntn:E:ANY lNDfVu5uAL WHC?''WQULD ukEJ(:;fATT~NbJHIS'MEEr{NGgUT 8~CAUS~ OF A bIS~8iUTY'NE:EDS SOME ACCQMMQDATJ(YN i6~ABTk::fPAtEsikjuwc6FiiActrHEV/[rxGE'MANAGEk'S'6FffCEAT 50 soOrH EMERSON STREEt '847/j"(j2~dod; 'EXrEWSIONs327, 'tob '847J392~tj64." ""'f'-' "," i! "~f ",; .,.. " ,:.'l!( .'1;:0;:';; '," ". ..:,~';" Phone 847/870-5640 Fax 847/253-9377 www.mountprospect.org MINUTES Coffee With Council Saturday, June 11,2005 Community Center, Village Hall Trustee Michaele Skowron called the meeting to order at 9:00 a.m. Trustee Skowron announced that Mayor Wilks would not be in attendance due to her handling Village business at the U.S. Mayors Conference, which was being held in Chicago. Trustee Corcoran was present and Trustee Hoeffert joined the group a short time later. Staff representatives were Village Manager Mike Janonis and Police Chief Richard Eddington. Residents in Attendance Mal Holec Mike Skowron Carol Tortorello Walter Fisher Jim Chylik Jean Skrzynski Katy Hanson Mel Pietraszewski 927 Quince Lane 1404 W. Busse Avenue 223 S. Elmhurst Avenue 904 S. Candota 1809 Locust 100 North Elmhurst 103 Eastwood 1105 Ironwood Drive Mal Holec, 927 Quince Lane: Mr. Holec had several issues he wished to discuss with the Board. The first was the ban on liquor licenses for convenient stores. Mr. Holec felt that this prohibition was causing independent convenient stores to go out of business because they could not be competitive with the larger chain stores. A liquor license might provide a significant profit margin for the independent convenient stores to be economically viable. The Village Board members expressed their position that the current prohibition was a method of liquor control. They were satisfied with the current provisions. Mr. Holec stated he would convey that information to the convenient store owner he had been conversing with. Mr. Holec's next issue was senior center reciprocity. He felt it would be a positive thing if there was reciprocity between the Arlington Heights and Des Plaines Senior Centers and the Mount Prospect senior citizens. Mal Holec was told that guest memberships were available at the cost of$1O from the Arlington Heights Senior Center. A review of the currently available activities ensued. Mr. Holec was concerned that the overall levels of services at the new Community Center were not as wide-ranging as they had been at the prior location. Several of the Trustees and the Manager commented that all of the services are still available and they would ensure that information would continue to be available regarding these servIces. Mr. Holec's last issue was Fire Station 14. He wanted to express the concerns of a number of residents regarding the station being moved to the east side of the tracks. Carol Tortorello, 223 S. Elmhurst Avenue: Carol Tortorello commented that she really enjoyed the first Saturday night car show downtown and was looking forward to upcoming Village events, such as the art fair, the 4th of July parade and fireworks, and the block party. Walter Fisher, 904 South Candota: Mr. Fisher was concerned about feral cats and an ongoing situation with them. He asked for a few minutes of the Village Manager's time after the meeting to cover his specific situation. Jim Chylik, 1809 Locust: Mr. Chylik had several issues that he wanted to bring to the board's attention. First was an issue on the Wille Street lot involving his neighbor. There was some confusion regarding parking in that lot on Friday, the loth of June. Police Chief Eddington committed to investigating why the car that was allegedly illegally parked was not towed. The Chiefwill follow up with Mr. Chylik and Mr. Gallant. Mr. Chylik wanted each individual renter to be able to call the tow company. There was universal hesitation to allow any individual that latitude due to the expense and difficulty of retrieving a car after it had been towed. [Roman Gallant was contacted with a summary of our actions regarding the illegally parked vehicle. It was discovered that towing from the leased parking spots is not adequately covered by the Village Code. Recommended changes have been forwarded to the Village Manager's office. Due to the inexperience of the Community Service Officer, no citations were issued. Training has been provided for the day shift community service officers so this oversight does not occur in the future.) Mr. Chylik also expressed concern about the manner in which the Police Department handled six to eight cars that were vandalized in his neighborhood. He felt the officers did not invest enough time in talking with the victims and concerned neighbors. The officers talked at them rather than to them. Mr. Chylik also had a question regarding blood drive pens; this was addressed by Carol Tortorello. Jean Skrzynski, 100 N. Elmhurst and Katy Hanson, 103 Eastwood: Jean Skrzynski and Katy Hanson came to complain about their neighbor. It is their allegation that he is running a business. This has been a chronic matter of concern for both Hanson and Skrzynski. Village Manager Mike Janonis has directed that the Secretary of State's Office be contacted to determine whether the alleged offender is selling more than five cars in a year. This would be an indication that he is running a business rather than engaging in a hobby. Hanson and Skrzynski were also encouraged again to call 9-1-1 ifthere is an issue. Allegations over a week old are not able to be investigated. Consequently, no Village resources will be brought to bear unless police officers are called to document the situation when it occurs. Katy Hanson then went on to express her concerns regarding the expense of installation and maintenance of brick pavers in the downtown area. A discussion ensued regarding the goal of making the downtown an attractive location to enhance visitorship and the viability of the downtown renewal. Mel Pietraszewski, 1105 Ironwood Drive: Mr. Pietraszewski wanted to express concerns about the length of time that contractors take in finishing up a roadway and sidewalk project along Wheeling Road. The project has been ongoing since April with no conclusion in sight. The Village Manager explained that the contractors focused on specific functions Village-wide; i.e., all curbs, all gutters, all sidewalks, all street grinding, and all resurfacing as sequences of work. It is possible to bid jobs so a location is completed. However, that option becomes cost prohibitive, and consequently not an astute use of tax dollars. Village Manager Janonis promised a quick review of the Wheeling Road project, but felt that the project was moving along within an acceptable time frame. Further, he compared it to the ongoing Central Road projects, with the stops and starts and other issues that inevitably occur. Mr. Pietraszewski also wanted to call the Board's attention to the proliferation "For Sale by Owner" signs that he had seen in his neighborhood. The Village Manager assured him that the signs would be removed; however, the signs tend to be erected on weekends when the public works crews are not out and available to confiscate the signs. Mal Holec raised the issues of sidewalks near the River Trails pool and the sequence of lights at Wolf and Euclid. The sequence oflights will be reviewed. Walter Fisher voiced a concern he had about the intersection of Northwest Highway and Mount Prospect Road. When semi-tractors and trailers turn, sometimes they drag their wheels over the curb line causing ruts in the parkway. This matter will be referred to the appropriate parties to see if additional gravel would alleviate the rut issue. Carol Tortorello broached the topic of roadside memorials. A short discussion ensued. Trustee Corcoran suggested that the Youth Commission be solicited for an opinion on this matter, as it tends to be a youth driven phenomenon. With no further business to come before the council, the meeting adjourned at 10:22 a.m. Respectfully Submitted, ~ Richard Eddington Chief of Police