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Home My WebLink About22-23 SAS Audit Letter November 10, 2023 To the Mayor and City Council Members City of McHenry McHenry, Illinois We have audited the financial statements of City of McHenry (City) as of and for the year ended April 30, 2023, and have issued our report thereon dated November 10, 2023. Professional standards require that we advise you of the following matters relating to our audit. Our Responsibility in Relation to the Financial Statement Audit As communicated in our engagement letter dated May 31, 2023, our responsibility under generally accepted auditing standards and, if applicable, Government Auditing Standards and Uniform Guidance, is to form and express opinions about whether the financial statements that have been prepared by management with your oversight are presented fairly, in all material respects, in accordance with accounting principles generally accepted in the United States of America. Our audit of the financial statements does not relieve you or management of your respective responsibilities. Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain reasonable, rather than absolute, assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control over financial reporting. Accordingly, as part of our audit, we considered the internal control of the City solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. We are also responsible for communicating significant matters related to the audit that are, in our professional judgment, relevant to your responsibilities in overseeing the financial reporting process. However, we are not required to design procedures for the purpose of identifying other matters to communicate to you. Planned Scope and Timing of the Audit We conducted our audit consistent with the planned scope and timing we previously communicated to you. Compliance with All Ethics Requirements Regarding Independence The engagement team, others in our firm, as appropriate, our firm, and our network firms have complied with all relevant ethical requirements regarding independence. Significant Risks Identified We have identified the following significant risks: Management override of controls and improper revenue recognition due to fraud, both of which are commonly identified as significant risks for audits. As both are common significant risk areas, both are addressed by performing the following standard procedures: • Incorporate an element of unpredictability in designing audit procedures: alternating test of controls at least once every two years, vary sampling techniques for detailed transaction testing, and interviewing different employees regarding fraud. • Obtain an understanding of the process and related controls over journal entries and other adjustments and test journal entries and other adjustments we believe to be of higher risk. • Review significant accounting estimates for evidence of management bias. • Finally, obtain an understanding of the entity’s rationale for significant and unusual transactions, if any. Qualitative Aspects of the Organization’s Significant Accounting Practices Significant Accounting Policies Management has the responsibility to select and use appropriate accounting policies. A summary of the significant accounting policies adopted by the City are included in Note 1 to the financial statements. As described in Note 22 to the financial statements, during the year, the City implemented GASB Statement No. 87, Leases. There have been no changes in existing significant accounting policies or their application during fiscal year 2023. No matters have come to our attention that would require us, under professional standards, to inform you about (1) the methods used to account for significant unusual transactions and (2) the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus. Significant Accounting Estimates Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s current judgment. Those judgments are normally based on knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ markedly from management’s current judgment. The most sensitive estimates affecting the financial statements are: - Management’s estimate of depreciation expense is based on estimated useful lives of the capital assets held by the City. - Management’s estimates regarding pension and OPEB liabilities were based on various actuarial assumptions regarding projected salaries, market trends, and expected mortality. - Management’s estimates regarding allowances on receivables were based on historical collection rates. - Management’s estimates of amortization expense, related to leases, is based on the terms of the specific lease agreement. The discount rate, related to leases, is either based on a rate stated/implied within the lease agreement, if available, or an estimate based on similar type arrangements. We evaluated the key factors and assumptions used to develop the above estimates and determined that they are reasonable in relation to the financial statements taken as a whole and in relation to the applicable opinion units. Financial Statement Disclosures Certain financial statement disclosures involve significant judgment and are particularly sensitive because of their significance to financial statement users. The most sensitive disclosures affecting the City’s financial statements relate to: depreciation, pension and OPEB liabilities, and fair value estimates. Significant Unusual Transactions For purposes of this communication, professional standards require us to communicate to you significant unusual transactions identified during our audit. The following significant unusual transactions identified as a result of our audit procedures were brought to the attention of management: none noted Significant Difficulties Encountered during the Audit We encountered no significant difficulties in dealing with management relating to the performance of the audit. Uncorrected and Corrected Misstatements For purposes of this communication, professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that we believe are trivial, and communicate them to the appropriate level of management. Further, professional standards require us to also communicate the effect of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the financial statements as a whole and each applicable opinion unit. Management has corrected all identified misstatements. In addition, professional standards require us to communicate to you all material, corrected misstatements that were brought to the attention of management as a result of our audit procedures. The attached misstatements that we identified as a result of our audit procedures were brought to the attention of, and corrected by, management. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or audit matter, which could be significant to the City’s financial statements or the auditor’s report. No such disagreements arose during the course of the audit. Circumstances that Affect the Form and Content of the Auditor’s Report For purposes of this letter, professional standards require that we communicate any circumstances that affect the form and content of our auditor’s report. None Noted Representations Requested from Management We have requested certain written representations from management, which are included in the attached letter. Management Consultations with Other Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting principle to the City’s financial statements or a determination of the type of auditor’s opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. Management informed us that, and to our knowledge, there were no consultations with other accountants regarding auditing and accounting matters. Other Significant Matters, Findings or Issues In the normal course of our professional association with the City, we generally discuss a variety of matters, including the application of accounting principles and auditing standards, significant events or transactions that occurred during the year, operating and regulatory conditions affecting the City, and operating plans and strategies that may affect the risks of material misstatement. However, none of the matters discussed resulted in a condition to our retention as the City’s auditors. Other Matters We applied certain limited procedures to the required information, which is required supplemental information (RSI) that supplement the basic financial statements (as listed on the table of contents in the audit report). Our procedures consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We did not audit the RSI and do not express an opinion or provide any assurance on the RSI. We were engaged to report on supplemental information which accompany the financial statements but are not RSI. With respect to the supplemental information, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplemental information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. Restriction on Use This report is intended solely for the information and use of the City Council and management of City of McHenry and is not intended to be and should not be used by anyone other than these specified parties. Very truly yours, Eccezion Consulting • CPAs • Technology Client:City of McHenry Engagement:City of McHenry Period Ending:4/30/2023 Workpaper:General Fund AJEs Report Account Description W/P Ref Debit Credit Adjusting Journal Entries JE # 1 100-04-6945 DEVELOPMENT EXPENSE 5,607.00 100-2160 SALES TAX DUE 5,607.00 Total 5,607.00 5,607.00 Adjusting Journal Entries JE # 2 100-2500 FUND BALANCE 861,324.00 100-00-3130 TAXES-STATE INCOME 861,324.00 Total 861,324.00 861,324.00 Adjusting Journal Entries JE # 3 100-01-3882 REIMB-MISC 4,805.00 100-1990 CASH IN POOL 4,805.00 Total 4,805.00 4,805.00 Adjusting Journal Entries JE # 4 100-04-6945 DEVELOPMENT EXPENSE 25,000.00 100-2160 SALES TAX DUE 25,000.00 Total 25,000.00 25,000.00 Adjusting Journal Entries JE # 5 100-22-3180 GRANTS 5,790.00 100-22-3883 REIMB-OFFICERS TRAINING 5,790.00 Total 5,790.00 5,790.00 I have reviewed and agree with the adjustments above: Client Signature Date Recored Fabrik Sales Tax Rebate Acrrual Prior Period Adjustment to Adjust for FY'22 Accrual of Income Taxes Cash in Pool Offset Entry from Revolving Loan Fund to Write Off Bad Debt Related to Woof & Run Business Rentention Loan Accrue for 1/3 of Fixed Sales Tax Rebate Associated with Advance Real Estate Agreement Reclass IL Law Enforcement Training Reimbursement 8/14/2023 12:53 PM Client:City of McHenry - City of McHenry Engagement:City of McHenry Period Ending:4/30/2023 Trial Balance:200 - Tourism Fund Workpaper:200 - Tourism Fund AJE's Report Account Description W/P Ref Debit Credit Adjusting Journal Entries JE # 1 200-00-7600 LOAN INTEREST 80.00 200-00-7610 LOAN PRINCIPAL PAYMENT 80.00 Total 80.00 80.00 Adjusting Journal Entries JE # 2 200-2100 ACCOUNTS PAYABLE 2,000.00 200-00-5110 CONTRACTUAL SERVICES 2,000.00 Total 2,000.00 2,000.00 I have reviewed and agree with the adjustment(s) above: Client Signature Date Adjust McHenry Savings Bank Loan Payment Amounts between Interest and Principal to tie to Amortization Schedule Prorate McHenry County Convention Dues Invoice in Accounts Payable 1 of 1 8/14/2023 1:16 PM Client:City of McHenry - City of McHenry Engagement:City of McHenry Period Ending:4/30/2023 Trial Balance:270 - Motor Fuel Tax Fund Workpaper:270 - Motor Fuel Tax Adjusting Journal Entries Report Account Description W/P Ref Debit Credit Adjusting Journal Entries JE # 1 270-1180 DUE FROM OTHER GOV'T UNITS 24,711.00 270-00-3150 MFT-ALLOTMENTS FROM STATE 24,711.00 Total 24,711.00 24,711.00 I have reviewed and agree with the adjustment(s) above: Client Signature Date Record FY'23 MFT High Growth Payment 1 of 1 10/16/2023 12:18 PM Client:City of McHenry - City of McHenry Engagement:City of McHenry Period Ending:4/30/2023 Trial Balance:280 - Developer Donations Fund Workpaper:280 - Developer Donations Adjusting Journal Entries Report Account Description W/P Ref Debit Credit 280-41-8800 PARK PLAYGROUND IMPROVEMENTS 7,058.00 280-2103 RETENTION PAYABLE 7,058.00 Total 7,058.00 7,058.00 I have reviwed and agree with the adjustments above: Client Signature Date Adjusting Journal Entries JE # 1 Record Retention Payable 1 of 1 10/16/2023 12:20 PM Client:City of McHenry - City of McHenry Engagement:City of McHenry Period Ending:4/30/2023 Trial Balance:290 - TIF Fund Workpaper:290 - TIF AJE's Report Account Description W/P Ref Debit Credit 290-00-3890 MISCELLANEOUS INCOME 12,729.00 290-00-8900 PUBLIC IMPROVEMENTS 12,729.00 Total 12,729.00 12,729.00 290-00-8900 PUBLIC IMPROVEMENTS 40,687.00 290-2103 RETENTION PAYABLE 40,687.00 Total 40,687.00 40,687.00 I have reviewed and agree with the adjustments above: Client Signature Date Adjusting Journal Entries JE # 1 Reclass Riverside Dr Parking Lot Project Expense Reimbursement Adjusting Journal Entries JE # 2 Record Retention Payable 1 of 1 Client:City of McHenry Engagement: Period Ending: Trial Balance: Workpaper: City of McHenry 4/30/2023 424-Lakewood SSA #4 Lakewood SSA #4 Account Description W/P Ref Debit Credit Adjusting Journal Entries JE # 1 424-2270 DEFERRED PROPERTY TAXES 543.00 424-1150 PROPERTY TAXES RECEIVABLE 543.00 Total 543.00 543.00 I have reviewed and agree with the adjustment(s) above: Client Signature Date Adjust Property Tax Receivable and Deferral 8/14/2023 1:11 PM Client:City of McHenry - City of McHenry Engagement:City of McHenry Period Ending:4/30/2023 Trial Balance:440 - Capital Improvements Fund Workpaper:440 - Capital Improvements AJES Account Description W/P Ref Debit Credit Adjusting Journal Entries JE # 1 440-00-3837 UNREALIZED GAIN/LOSS 4,268.00 440-2500 FUND BALANCE 4,268.00 Total 4,268.00 4,268.00 I have reviewed and agree with the adjustments above: Client Signature Date Adjust Fund Balance for Account Balance Entered Backwards during FY'22 Audit. 1 of 1 10/12/2023 8:19 AM Client:City of McHenry - City of McHenry Engagement:City of McHenry Period Ending:4/30/2023 Trial Balance:510 - Water/Sewer Fund Workpaper:510 - Water Sewer Adjusting Journal Entries Report Account Description W/P Ref Debit Credit Adjusting Journal Entries JE # 1 510-31-3836 GAIN/LOSS ON SALE 26,760.00 510-31-3920 PROCEEDS FIXED ASSET SALE 26,760.00 Total 26,760.00 26,760.00 Adjusting Journal Entries JE # 2 510-2444 IMRF DEFERRED OUTFLOWS-ACT EVAL 702,451.00 510-2445 IMRF DEFERRED OUTFLOWS-CONT AFTER 14,085.00 510-2448 IMRF - DEFERRED INFLOWS 767,546.00 510-31-4420 EMPLOYER CONTRIBUTION - IMRF 66,073.00 510-32-4420 EMPLOYER CONTRIBUTION - IMRF 121,517.00 510-35-4420 EMPLOYER CONTRIBUTION - IMRF 98,905.00 510-2443 IMRF NET PENSION LIABILITY 1,770,577.00 Total 1,770,577.00 1,770,577.00 Adjusting Journal Entries JE # 3 510-2449 DEFERRED OUTFLOWS - OPEB 70,647.00 510-99-9930 OPEB EXPENSE 124,861.00 510-2450 NET OPEB LIABILITY 44,929.00 510-2451 DEFERRED INFLOWS - OPEB 131,032.00 510-99-9940 OPEB CONTRIBUTIONS 19,547.00 Total 195,508.00 195,508.00 Adjusting Journal Entries JE # 4 510-32-4010 SALARIES-REGULAR 3,961.00 510-35-4010 SALARIES - REGULAR 1,977.00 510-2170 COMPENSATED ABSENCES 5,038.00 510-31-4010 SALARIES-REGULAR 900.00 Total 5,938.00 5,938.00 Adjusting Journal Entries JE # 5 510-1387 ACCUM DEPREC - VEHICLES 14,868.00 510-1307 VEHICLES 14,868.00 Total 14,868.00 14,868.00 Adjusting Journal Entries JE # 6 510-1999 LESSOR LEASE RECEIVABLE - AT&T 504,581.17 510-31-3845 RENTAL INCOME 4,302.95 510-2530 DEFERRED REVENUE 508,884.12 Total 508,884.12 508,884.12 I have reviewed and agree with the adjustment(s) above: Client Signature Date Record GASB 68 IMRF Activity Remove Prior Year Gain/Loss on Sale of Fixed Assets and Related Proceeds Record GASB 75 Activity Adjust Compensated Absences for FY'22 Audit AJE not reversed out before FY'23 Accrual was Recorded Record Disposal of 2008 Ford F350 Add-ons Fixed Asset Adjust for GASB 87 Lessor Lease - AT&T 1 of 1 8/14/2023 1:45 PM Client:City of McHenry - City of McHenry Engagement:City of McHenry Period Ending:4/30/2023 Trial Balance:620 - Information Technology Fund Workpaper:620 - Information Technology Fund AJE Report Account Description W/P Ref Debit Credit 620-00-3210 INTEREST INCOME 1.00 620-2310 CAPITAL LEASE PAYABLE 1.00 Total 1.00 1.00 Adjusting Journal Entries JE # 2 620-00-4420 EMPLOYER CONTRIBUTION - IMRF 34,577.00 620-2444 IMRF DEFERRED OUTLFOWS-ACTUARIAL REPORT 74,044.00 620-2445 IMRF DEF OUTFLOWS - CONTR MADE AFTER MEAS DATE 402.00 620-2448 IMRF - DEFFERED INFLOWS 112,775.00 620-2443 IMRF NET PENSION LIABILITY 221,798.00 Total 221,798.00 221,798.00 Adjusting Journal Entries JE # 3 620-00-9930 OPEB EXPENSE 3,820.00 620-2449 DEFERRED OUTFLOWS - OPEB 2,949.00 620-2450 NET OPEB LIABILITY 2,828.00 620-00-9940 OPEB CONTRIBUTIONS 2,275.00 620-2451 DEFERRED INFLOWS - OPEB 7,322.00 Total 9,597.00 9,597.00 I have reviewed and agree with the adjustment(s) above: Client Signature Date Adjusting Journal Entries JE # 1 Zero Out Capital Lease Payable Account - Lease Paid Off in FY'23 Record GASB 68 IMRF Activity Record GASB 75 Activity 1 of 1 8/15/2023 1:16 PM Client:City of McHenry - City of McHenry Engagement:City of McHenry Period Ending:4/30/2023 Trial Balance:720 - Developmental Escrow Fund Workpaper:720 - Developmental Escrow Fund AJEs Account Description W/P Ref Debit Credit 720-2130 DEPOSITS-DUE CUSTOMERS 6,855.00 720-00-9999 REVENUE/EXPENSE CLOSING 24.00 720-2500 FUND BALANCE 6,831.00 Total 6,855.00 6,855.00 I have reviewed and agree with the adjustment(s) above: Client Signature Date Adjusting Journal Entries JE # 1 Remove Liability and Setup Fund Balance 1 of 1 8/14/2023 12:51 PM Client:City of McHenry - City of McHenry Engagement:City of McHenry Period Ending:4/30/2023 Trial Balance:740 - Retained Personnel Escrow Fund Workpaper:740 - Retained Personnel Escrow AJEs Report Account Description W/P Ref Debit Credit Adjusting Journal Entries JE # 1 740-1200 ACCOUNTS RECEIVABLE-OTHER 49,204.00 740-2500 FUND BALANCE 49,204.00 Total 49,204.00 49,204.00 I have reviewed and agree with the adjustment(s) above: Client Signature Date Record Beginning Fund Balance and Adjust Revenue and Expense Activity to Actual 1 of 1 Client:City of McHenry Engagement:City of McHenry Period Ending:4/30/2023 Trial Balance:750- Revolving Loan Fund Workpaper:Revolving Loan Fund Adjusting Entries Report Account Description W/P Ref Debit Credit Adjusting Journal Entries JE # 1 750-1990 CASH IN POOL 4,805.00 750-1210 LOAN RECEIVABLE- BUS RETENTION L 4,805.00 Total 4,805.00 4,805.00 I have reviewed and agree with the adjustment(s) above: Client Signature Date Write off Woof & Run Business Retention Loan Receivable Balance 8/14/2023 1:08 PM Client:City of McHenry - City of McHenry Engagement:City of McHenry Period Ending:4/30/2023 Trial Balance:760 - Police Pension Fund Workpaper:760 - Police Pension AJE's Report Account Description W/P Ref Debit Credit Adjusting Journal Entries JE # 1 760-00-3210 INTEREST INCOME 18,648.00 760-00-3836 GAIN/LOSS ON SALE 18,648.00 Total 18,648.00 18,648.00 Adjusting Journal Entries JE # 2 760-00-3882 REIMB-MISC 5,628.00 760-00-4930 SURVIVOR BENEFIT PAYMENTS 5,628.00 Total 5,628.00 5,628.00 I have reviewed and agree with the adjustment(s) made above: Client Signature Date Reclass IPOPIF Negative Contributions Amounts from September and December Statements Reclass L Burg Reimbursement 1 of 1