HomeMy WebLinkAboutResolution - 2013-R0109 - FY 2011-12 CARF - 03/28/2013(Resolution N0. 2013-R0309
March 28, 2013
Item No. 6.3
RESOLUTION
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK:
THAT the City Council of the City of Lubbock hereby accepts the
Comprehensive Annual Financial Report for the Fiscal year that ended September 30,
2012.
Passed by the City Council on _March 28, 2013 2013.
GLEgg?ROBERTSON, MAYOR
ATTEST:
Reb cca Garza. City Secretary
(APPROVED AS TO CONTENT:
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Pamela Moon, Executive Director of Finance
APPROVED AS TO FORM:
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BKD,,
CPAs & Advisors
Audit Committee, Honorable Mayor,
Members of the City Council and Management
City of Lubbock, Texas
14241 Dallas Parkway, Suite 1100
Dallas, TX 75254-2961
972.702.8262 Fax 972.702.0673 www.bkd.com
As part of our audits of the financial statements and compliance of City of Lubbock, Texas
(COL) as of and for the year ended September 30, 2012, we wish to communicate the following
to you.
AUDIT SCOPE AND RESULTS
Auditor's Responsibility Under 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
and U.S. Office of Management and Budizet (OMB) Circular A-133, Audits of States Local
Governments, and Nonprofit Organizations
An audit performed 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 and U.S. Office of
Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and
Nonprofit Organizations is designed to obtain reasonable, rather than absolute, assurance about
the financial statements and about whether noncompliance with the types of compliance
requirements described in OMB Circular A-133 that could have a direct and material effect on a
major federal program occurred. In performing auditing procedures, we establish scopes of audit
tests in relation to the financial statements taken as a whole. Our engagement does not include a
detailed audit of every transaction. Our engagement letter more specifically describes our
responsibilities.
These standards require communication of significant matters related to the financial statement
and compliance audits that are relevant to the responsibilities of those charged with governance
in overseeing the financial reporting process. Such matters are communicated in the remainder
of this letter or have previously been communicated during other phases of the audit. The
standards do not require the auditor to design procedures for the purpose of identifying other
matters to be communicated with those charged with governance.
Audits of the financial statements and compliance do not relieve management or those charged
with governance of their responsibilities. Our engagement letter more specifically describes
your responsibilities.
experience BKD
Praxity.
MEMBER -'
GLOBAL ALLIANCE OF
INDEPENDENT FIRMS
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Qualitative Aspects of Significant Accounting Policies and Practices
Significant Accounting Policies
The City's significant accounting policies are described in Note I of the audited financial
statements.
Alternative Accounting Treatments
We had no discussions with management regarding alternative accounting treatments within
accounting principles generally accepted in the United States of America for policies and
practices for material items, including recognition, measurement and disclosure considerations
related to the accounting for specific transactions as well as general accounting policies.
Management Judgments and Accounting Estimates
Accounting estimates are an integral part of financial statement preparation by management,
based on its judgments. The following areas involve significant areas of such estimates for
which we are prepared to discuss management's estimation process and our procedures for
testing the reasonableness of those estimates:
• Depreciation of capital assets
• Self -insured claims and judgments liabilities
• Pollution remediation liabilities
• Allowance for doubtful accounts receivable
• Landfill closure and post -closure care liabilities
• Pension obligations
Financial Statement Disclosures
The following areas involve particularly sensitive financial statement disclosures for which we
are prepared to discuss the issues involved and related judgments made in formulating those
disclosures:
• Pension and other post -employment benefit liabilities
• Deposits and investments
• Goodwill recorded on Lubbock Power & Light (LP&L) financial statements
• Contingent liabilities and litigation
Audit Adjustments
During the course of any audit, an auditor may propose adjustments to financial statement
amounts. Management evaluates proposed adjustments and records those adjustments which,
in its judgment, are required to prevent the financial statements from being materially misstated.
Proposed Audit Adjustments Recorded
• No matters are reportable
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Proposed Audit Adjustments Not Recorded
• No matters are reportable
Auditor's Judgments About the Quality of the Entity's Accounting Principles
During the course of the audit, we made the following observations regarding the City's
application of accounting principles:
No matters are reportable.
Other Information in Documents Containing Audited Financial Statements
The audited financial statements are included in the City's Comprehensive Annual Financial
Report. As part of our procedures, we read the entire report to determine if financial information
discussed in sections outside the financial statements materially contradicts the audited financial
statements. If we identify any such matters, we bring them to management's attention and
review subsequent revisions.
Significant Issues Discussed with Management
During the Audit Process
During the audit process, the following issue was discussed or was the subject of correspondence
with management:
• Adoption of GASB 61
• Procurement procedures at LP&L and performance of agreed upon procedures
involving LP&L procurement procedures
Other Material Written Communications
Listed below are other material written communications between management and us related to
the audit:
• Engagement Letter dated September 5, 2012
• Pre -audit Report dated September 30, 2012
• Management representation letter (attached)
INTERNAL CONTROL OVER FINANCIAL REPORTING
In planning and performing our audit of the financial statements of the COL as of and for the
year ended September 30, 2012, 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 and U.S.
Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments,
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and Nonprofit Organizations, we considered the City's internal control over financial reporting
(internal control) as a basis for designing our auditing procedures for the purpose of expressing
our opinion on the financial statements, but not for the purpose of expressing an opinion on the
effectiveness of the City's internal control. Accordingly, we do not express an opinion on the
effectiveness of the City's internal control.
Our consideration of internal control was for the limited purpose described in the preceding
paragraph and was not designed to identify all deficiencies in internal control that might be
significant deficiencies or material weaknesses and, therefore, there can be no assurance that all
deficiencies, significant deficiencies or material weaknesses have been identified.
Because of the limits of internal control, errors, fraud, illegal acts or instances of noncompliance
may occur and not be detected. Two or more people may also circumvent controls, or
management may override the system.
A deficiency exists when the design or operation of a control does not allow management or
employees, in the normal course of performing their assigned functions, to prevent or detect and
correct misstatements of the City's financial statements on a timely basis. A deficiency in design
exists when a control necessary to meet a control objective is missing or an existing control is
not properly designed so that, even if the control operates as designed, a control objective would
not be met. A deficiency in operation exists when a properly designed control does not operate
as designed or when the person performing the control does not possess the necessary authority
or competence to perform the control effectively.
A material weakness is a deficiency, or a combination of deficiencies, in internal control, such
that there is a reasonable possibility that a material misstatement of the City's financial
statements will not be prevented or detected and corrected on a timely basis.
A significant deficiency is a deficiency, or combination of deficiencies, in internal control that is
less severe than a material weakness, yet important enough to merit attention by those charged
with governance.
We observed the following matters that we consider to be deficiencies:
While performing internal control procedures over the procurement procedures at LP&L we
noted that certain invoices lacked documentation of approval by the person that was responsible
for receiving the service or goods. Based on our discussions with personnel and other
procedures, it appears that invoices are being properly reviewed, but this approval is not
consistently documented. In some cases, administrative staff signed off as approving the
invoice. We recommend that approval of invoices be limited to a select group of employees and
that signatures be required on any invoice by the individual responsible for receiving or
accepting the goods or services before the invoice is paid.
We noted that certain invoices lacked sufficient documentation detailing the scope of work that
had been performed. Although contracts and purchase orders contain the scope of services
procured, we recommend that a policy be implemented requiring all vendors to provide a detail
of work performed including labor charges, equipment rental, parts, etc. This will provide
transparency and allow for a more effective review of the invoice.
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We noted that several procurement files lacked documentation on how the winning bid or
proposal was selected. Individual employees are often responsible for evaluating the bids and
making a recommendation of which company should be used. We recommend that a committee
of at least three employees from LP&L review each proposal and that adequate documentation
be included in the bid file showing how the committee chose the winning bid or proposal. This
would allow for more transparency in the procurement process and force staff to discuss ideas
before a large investment is committed.
We noted that the purchasing manager at LP&L reports to the Director of Transmission and
Distribution (Director of T&D). Purchases are made by managers that report to the Director of
T&D. The Director of T&D's managers are responsible for purchasing a significant amount of
goods and services at LP&L. We recommend that the purchasing manager report to an
administrative position instead of the Director of T&D.
OTHER MATTERS
Although not considered material weaknesses, significant deficiencies or deficiencies in internal
control over financial reporting, we observed the following matters and offer these comments
and suggestions with respect to matters which came to our attention during the course of the
audit of the financial statements. Our audit procedures are designed primarily to enable us to
form an opinion on the financial statements and, therefore, may not bring to light all weaknesses
in policies and procedures that may exist. However, these matters are offered as constructive
suggestions for the consideration of management as part of the ongoing process of modifying
and improving financial and administrative practices and procedures. We can discuss these
matters further at your convenience and may provide implementation assistance for changes or
improvements if you require.
The COL performs many functions for the benefit of Lubbock Power and Light. One of those
functions is preparation and signing of checks and the processing of ACH transactions for the
payment of LP&L invoices. We recommend that LP&L consider designating a finance or
executive level manager to approve large invoices before they are sent to the COL for
processing. This would give the COL greater assurance prior to payment.
LP&L's policy is dated October 14, 1999, which is prior to the current LP&L charter. The
procurement system at LP&L is very complex and an updated procurement policy is needed.
We recommend that various scenarios be documented in the policy to provide guidance on what
constitutes an emergency and when it is appropriate to use job order contracts and master service
agreements for procuring goods or services.
There is a lot of conflict as to who is responsible for certain duties between the City and LP&L.
We recommend that a formal service agreement be put into effect for the benefit of both parties.
This communication is intended solely for the information and use of management, the audit
committee, the city council, and others within the City and federal and state awarding agencies
and is not intended to be and should not be used by anyone other than these specified parties.
March 27, 2013
lubb�ock
March 27, 2013
BKD, LLP
Certified Public Accountants
14241 Dallas Parkway, Ste. 1100
Dallas, Texas 75254-2961
We are providing this letter in connection with your audit of our financial statements as of and
for the years ended September 30, 2012 and your audit of our compliance with requirements
applicable to each of our major federal awards programs as of and for the year ended September
30, 2012. We confirm that we are responsible for the fair presentation of the financial statements
in conformity with accounting principles generally accepted in the United States of America.
We are also responsible for adopting sound accounting policies, establishing and maintaining
effective internal control over financial reporting, operations and compliance, and preventing and
detecting fraud.
Certain representations in this letter are described as being limited to matters that are material.
Items are considered material, regardless of size, if they involve an omission or misstatement of
accounting information that, in light of surrounding circumstances, makes it probable that the
judgment of a reasonable person relying on the information would be changed or influenced by
the omission or misstatement.
We confirm, to the best of our knowledge and belief, the following:
We acknowledge our responsibility for the design, implementation and
maintenance of internal control relevant to the preparation and fair presentation of
financial statements that are free from material misstatement, whether due to
fraud or error.
2. We acknowledge our responsibility for the design, implementation and
maintenance of internal control to prevent and detect fraud.
P. O. Box 2000 - 1625 13th Street e Lubbock, TX 79457 - 806.775.2000 a Citizen Call Center: 3-1-1 a www rnylubbock.us
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3. We have provided you with:
(a) Access to all information of which we are aware that is relevant to the
preparation and fair presentation of the financial statements such as records,
documentation and other matters.
(b) Additional information that you have requested from us for the purpose of
the audit.
(c) Unrestricted access to persons within the entity from whom you detennined
it necessary to obtain audit evidence.
(d) All minutes of meetings of the governing body held through the date of this
letter.
(e) All significant contracts and grants.
4. All transactions have been recorded in the accounting records and are reflected in
the financial statements.
We have informed you of all current risks of a material amount that are not
adequately prevented or detected by entity procedures with respect to:
(a) Misappropriation of assets.
(b) Misrepresented or misstated assets, liabilities or net assets.
6. With the exception of the reported Lubbock Power and Light (LP&L)
procurement allegation, we have no knowledge of any known or suspected:
(a) Fraudulent financial reporting or misappropriation of assets involving
management or employees who have significant roles in internal control.
(b) Fraudulent financial reporting or misappropriation of assets involving others
that could have a material effect on the financial statements.
7. With regards to the LP&L procurement allegation, we have provided you with all
known information relating to the situation that is relevant to your audit.
8. We have no knowledge of any allegations of fraud or suspected fraud affecting
the City received in corrununications from employees, customers, regulators,
suppliers or others, with the exception of the reported LP&L procurement
allegation.
9. We have disclosed to you the identity of the entity's related parties and all the
related party relationships and transactions of which we are aware. Related party
relationships and transactions have been appropriately accounted for and
disclosed in accordance with accounting principles generally accepted in the
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United States of America. We understand that the term related party refers to an
affiliate; management, and members of their immediate families, component
units; and any other party with which the entity may deal if it can significantly
influence, or be influenced by, the management or operating policies of the other.
The term affiliate refers to a party that directly or indirectly controls, or is
controlled by, or is under common control with us.
10. Except as reflected in the financial statements, there are no:
(a) Plans or intentions that may materially affect carrying values or
classifications of assets and liabilities.
(b) Material transactions omitted or improperly recorded in the financial
statements.
(c) Material gain/loss contingencies requiring accrual or disclosure, including
those arising from environmental remediation obligations.
(d) Events occurring subsequent to the balance sheet date through the date of
this letter requiring adjustment or disclosure in the financial statements.
(e) Agreements to purchase assets previously sold.
(f) Restrictions on cash balances or compensating balance agreements.
(g) Guarantees, whether written or oral, under which the City is contingently
liable.
11. We have disclosed to you all known instances of noncompliance or suspected
noncompliance with laws and regulations whose effects should be considered
when preparing financial statements.
12. We have disclosed to you all known actual or possible litigation and claims whose
effects should be considered when preparing the financial statements. The effects
of all known actual or possible litigation and claims have been accounted for and
disclosed in accordance with accounting principles generally accepted in the
United States of America.
13. Adequate provisions and allowances have been accrued for any material losses
from:
(a) Uncollectible receivables.
(b) Reducing obsolete or excess inventories to estimated net realizable value.
(c) Sales commitments, including those unable to be fulfilled.
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(d) Purchase commitments in excess of normal requirements or above
prevailing inarket prices.
14. Except as disclosed in the financial statements, we have:
(a) Satisfactory title to all recorded assets, and they are not subject to any liens,
pledges or other encumbrances.
(b) Complied with all aspects of contractual and grant agreements, for which
noncompliance would materially affect the financial statements.
15. We have not been designated as a potentially responsible party (PRP or equivalent
status) by the Environmental Protection Agency (EPA) or other cognizant
regulatory agency with authority to enforce environmental laws and regulations.
16. With regard to deposit and investment activities:
(a) All deposit, repurchase and reverse repurchase agreements and investment
transactions have been made in accordance with legal and contractual
requirements.
(b) Disclosures of deposit and investment balances and risks in the financial
statements are consistent with our understanding of the applicable laws
regarding enforceability of any pledges of collateral.
(c) We understand that your audit does not represent an opinion regarding the
enforceability of any collateral pledges.
17. With respect to any nonattest services you have provided us during the year:
(a) We have designated a qualified management -level individual to be
responsible and accountable for overseeing the nonattest services.
(b) We have established and monitored the performance of the nonattest
services to ensure that they meet our objectives.
(c) We have made any and all decisions involving management functions with
respect to the nonattest services and accept full responsibility for such
decisions.
(d) We have evaluated the adequacy of the services performed and any findings
that resulted.
18. We acknowledge that we are responsible for compliance with applicable laws,
regulations and provisions of contracts and grant agreements.
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19. We have identified and disclosed to you all laws, regulations and provisions of
contracts and grant agreements that have a direct and material effect on the
determination of amounts in our financial statements or other financial data
significant to the audit objectives.
20. We have identified and disclosed to you any violations or possible violations of
laws, regulations and provisions of contracts and grant agreements whose effects
should be considered for recognition and/or disclosure in the financial statements
or for your reporting on noncompliance.
21. We have taken or will take timely and appropriate steps to remedy any fraud,
abuse, illegal acts or violations of provisions of contracts or grant agreements that
you or other auditors report.
22. We have a process to track the status of audit findings and recommendations.
23. We have identified to you any previous financial audits, attestation engagements,
performance audits or other studies related to the objectives of your audit and the
corrective actions taken to address any significant findings and recommendations
made in such audits, attestation engagements or other studies.
24. We have provided our views on any findings, conclusions and recommendations,
as well as our planned corrective actions with respect thereto, to you for inclusion
in the findings and recommendations referred to in your report on internal control
over financial reporting and on compliance and other matters based on your audit
of the financial statements perfonned in accordance with Government Auditing
Standards.
25. With regard to federal awards programs:
(a) We have identified in the schedule of expenditures of federal awards all
assistance provided (either directly or passed through other entities) by
federal agencies in the form of grants, contracts, loans, loan guarantees,
property, cooperative agreements, interest subsidies, commodities,
insurance, direct appropriations or in any other form.
(b) We have identified the types of compliance requirements described in the
U. S. Office of Management and Budget (OMB) Circular A-133 Compliance
Supplement regarding activities allowed or unallowed; allowable costs/cost
principles; cash management; Davis -Bacon Act; eligibility; equipment and
real property management; matching, level of effort, earmarking; period of
availability of federal funds; procurement and suspension and debarment;
program income; real property acquisition and relocation assistance;
reporting; subrecipient monitoring; and special tests and provisions that are
applicable to each of our federal awards programs. We have identified to
you our interpretation of any applicable compliance requirements subject to
varying interpretations.
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(c) We are responsible to understand and comply with the requirements of
laws, regulations, contracts and grants applicable to each of our federal
awards programs and have disclosed to you any and all instances of
noncompliance with those requirements occurring during the period of your
audit or subsequent thereto to the date of this letter of which we are aware.
Except for any instances of noncompliance we have disclosed to you, we
believe the City has complied with all applicable compliance requirements.
(d) We are responsible for establishing and maintaining effective internal
control over compliance to provide reasonable assurance we have
administered each of our federal awards programs in compliance with
requirements of laws, regulations, contracts and grants applicable to those
programs.
(e) We have made available to you all contracts and grant agreements,
including any amendments, and any other correspondence or documentation
relevant to each of our federal awards programs and to our compliance with
applicable requirements of those programs.
(f) The information presented in federal awards program financial reports and
claims for advances and reimbursements is supported by the books and
records from which our financial statements have been prepared.
(g) Amounts claimed or used for snatching were determined in accordance with
the applicable OMB Circular regarding cost principles.
(h) We have monitored any subrecipients to determine that they have expended
federal awards in accordance with applicable laws and regulations and have
met the audit and other requirements of OMB Circular A-133.
(i) We have taken appropriate corrective action on a timely basis after receipt
of any subrecipient's auditor's report that identified findings and questioned
costs pertaining to federal awards programs passed through to the
subrecipient by us.
(j) We have considered the results of any subrecipient's audits received and
made any necessary adjustments to our books and records.
(k) We have disclosed to you any communications from grantors and pass -
through entities concerning possible noncompliance with the applicable
compliance requirements for each of our federal awards programs,
including any communications received from the end of the period of your
audit through the date of this letter.
(1) We have identified to you any previous compliance audits, attestation
engagements and internal or external monitoring related to the objectives of
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your compliance audit, including findings received and corrective actions
taken to address any significant findings and recommendations made in
such audits, attestation engagements or other monitoring.
(in) We are responsible for taking corrective action on any audit findings.
(n) The summary schedule of prior audit findings correctly states the status of
all audit findings included in the OMB Circular A-133 section of the prior
audit's schedule of findings and questioned costs and any uncorrected open
findings included in the prior audit's summary schedule of prior audit
findings as of the date of this letter.
26. With regard to state awards programs:
(a) We have identified in the schedule of expenditures of state awards all
assistance provided (either directly or passed through other entities) by state
agencies in the form of grants, contracts, loans, loan guarantees, property,
cooperative agreements, interest subsidies, commodities, insurance, direct
appropriations or in any other form.
(b) We have identified the types of compliance requirements described in the
Texas Uniform Grants Management Standards isstred by the Governor's
Office of Budget and Management of the State of Texas regarding activities
allowed or unallowed; allowable costs/cost principles; cash management;
Davis -Bacon Act; eligibility; equipment and real property management;
matching, level of effort, earmarking; period of availability of state funds;
procurement and suspension and debarment; program income; real property
acquisition and relocation assistance; reporting; subrecipient monitoring;
and special tests and provisions that are applicable to each of our state
awards programs. We have identified to you our interpretation of any
applicable compliance requirements subject to varying interpretations.
(c) We are responsible to understand and comply with the requirements of laws,
regulations, contracts and grants applicable to each of our state awards
programs and have disclosed to you any and all instances of noncompliance
with those requirements occurring during the period of your audit or
subsequent thereto to the date of this letter of which we are aware. Except
for any instances of noncompliance we have disclosed to you, we believe
the City has complied with all applicable compliance requirements.
(d) We are responsible for establishing and maintaining effective internal
control over compliance to provide reasonable assurance we have
administered each of our state awards programs in compliance with
requirements of laws, regulations, contracts and grants applicable to those
programs.
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(e) We have made available to you all contracts and grant agreements,
including any amendments, and any other correspondence or documentation
relevant to each of our state awards programs and to our compliance with
applicable requirements of those programs.
(f) The information presented in state awards program financial reports and
claims for advances and reimbursements is supported by the books and
records from which our financial statements have been prepared.
(g) Amounts claimed or used for matching were determined in accordance with
the applicable OMB Circular regarding cost principles.
27. The financial statements disclose all significant estimates and material
concentrations known to us. Significant estimates are estimates at the balance
sheet date which could change materially within the next year. Concentrations
refer to volumes of business, revenues, available sources of supply, or markets for
which events could occur which would significantly disrupt nonnal finances
within the next year. Significant assumptions used by us in making accounting
estimates, including those measured at fair value, are reasonable.
28. The fair values of financial and nonfinancial assets and liabilities, if any,
recognized in the financial statements or disclosed in the notes thereto are
reasonable estimates based on the methods and assumptions used. The methods
and significant assumptions used result in measurements of fair value appropriate
for financial statement recognition and disclosure purposes and have been applied
consistently from period to period, taking into account any changes in
circumstances. The significant assumptions appropriately reflect our present
intent and ability to carry out specific courses of action relevant to and inherent in
those assumptions.
29. The supplementary information required by the Governmental Accounting
Standards Board, consisting of management's discussion and analysis, budgetary
comparisons and pension information, has been prepared and is measured and
presented in conformity with the applicable GASB pronouncements and we
acknowledge our responsibility for the information. The information contained
therein is based on all facts, decisions and conditions currently known to us and is
measured using the same methods and assumptions as were used in the
preparation of the financial statements. We believe the significant assumptions
underlying the measurement and/or presentations of the information are
reasonable and appropriate. There has been no change from the preceding period
in the methods of measurement and presentation.
30. With regard to supplementary information:
(a) We acknowledge our responsibility for the presentation of the
supplementary information in accordance with the applicable criteria.
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(b) We believe the supplementary information is fairly presented, both in form
and content, in accordance with the applicable criteria.
(c) The methods of measurement and presentation of the supplementary
information are unchanged from those used in the prior period.
(d) We believe the significant assumptions or interpretations underlying the
measurement and/or presentation of the supplementary information are
reasonable and appropriate.
(e) If the supplementary information is not presented with the audited financial
statements, we acknowledge we will make the audited financial statements
readily available to intended users of the supplementary information no later
than the date such information and the related auditor's reports are issued.
31. We acknowledge the current protracted economic decline continues to present
difficult circumstances and challenges for state and local governments. Some
governinental entities are facing declines in the fair values of investments and
other assets, declines in the volume of business, constraints on liquidity and
difficulty obtaining financing. We understand the values of the assets and
liabilities recorded in the financial statements could change rapidly, resulting in
material future adjustments to asset values, allowances for accounts and notes
receivable, net realizable value of inventory, etc. that could negatively impact the
City's ability to meet debt covenants or maintain sufficient liquidity. We
acknowledge that you have no responsibility for future changes caused by the
current economic environment and the resulting impact on the City's financial
statements. Further, management and the City Council are solely responsible for
all aspects of managing the City, including questioning the quality and valuation
of investments, inventory and other assets, reviewing allowances for uncollectible
amounts and evaluating capital needs and liquidity plans.
Y,e,jr I Ptf OO&V\"
Lee Ann Dumbauld, City Manager Pamela Moon, CPA, Executive Director of
Finance
LUBBOCK POWER & LIGHT
P.O. BOX 2000 • LUBBOCK. TEXAS 79457 • (806) 775-2509
March 27, 2013
BKD, LLP
Certified Public Accountants
14241 Dallas Parkway, Ste. 1100
Dallas, Texas 75254-2961
We are providing this letter in connection with your audit of our financial statements as of and
for the years ended September 30, 2012. We confirm that we are responsible for the fair
presentation of the financial statements in conformity with accounting principles generally
accepted in the United States of America. We are also responsible for adopting sound
accounting policies, establishing and maintaining effective internal control over financial
reporting, operations and compliance, and preventing and detecting fraud.
Certain representations in this letter are described as being limited to matters that are material.
Items are considered material, regardless of size, if they involve an omission or misstatement of
accounting information that, in light of surrounding circumstances, makes it probable that the
judgment of a reasonable person relying on the information would be changed or influenced by
the omission or misstatement.
We confirm, to the best of our knowledge and belief, the following:
1. We acknowledge our responsibility for the design, implementation and
maintenance of internal control relevant to the preparation and fair presentation of
financial statements that are free from material misstatement, whether due to
fraud or error.
2. We acknowledge our responsibility for the design, implementation and
maintenance of internal control to prevent and detect fraud.
3. We have provided you with:
(a) Access to all information within the entity of which we are aware that is
relevant to the preparation and fair presentation of the financial statements
such as records, documentation and other matters.
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(b) Additional information that you have requested from us for the purpose of
the audit.
(c) Unrestricted access to persons within the entity from whom you determined
it necessary to obtain audit evidence.
(d) All minutes of meetings of the governing body held through the date of this
letter.
(e) All significant contracts within the entity.
4. All transactions have been recorded in the accounting records and are reflected in
the financial statements.
5. We have informed you of all current risks of a material amount that are not
adequately prevented or detected by entity procedures with respect to:
(a) Misappropriation of assets.
(b) Misrepresented or misstated assets, liabilities or net assets.
6. We have no knowledge of any known or suspected:
(a) Fraudulent financial reporting or misappropriation of assets involving
management or employees who have significant roles in internal control.
(b) Fraudulent financial reporting or misappropriation of assets involving others
that could have a material effect on the financial statements.
7. We have provided you with all known information that is relevant to your audit.
8. We have no knowledge of any allegations of fraud or suspected fraud affecting
LP&L received in communications from employees, customers, regulators,
suppliers or others.
9. We have disclosed to you the identity of the entity's related parties and all the
related party relationships and transactions of which we are aware. Related party
relationships and transactions have been appropriately accounted for and
disclosed in accordance with accounting principles generally accepted in the
United States of America. We understand that the term related party refers to an
affiliate; management, and members of their immediate families, component
units; and any other party with which the entity may deal if it can significantly
influence, or be influenced by, the management or operating policies of the other.
The term affiliate refers to a party that directly or indirectly controls, or is
controlled by, or is under common control with us.
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10. Except as reflected in the financial statements, there are no:
(a) Plans or intentions that may materially affect carrying values or
classifications of assets and liabilities.
(b) Material transactions omitted or improperly recorded in the financial
statements.
(c) Material gain/loss contingencies requiring accrual or disclosure, including
those arising from environmental remediation obligations.
(d) Events occurring subsequent to the balance sheet date through the date of
this letter requiring adjustment or disclosure in the financial statements.
(e) Agreements to purchase assets previously sold.
(f) Restrictions on cash balances or compensating balance agreements.
(g) Guarantees, whether written or oral, under which the City is contingently
liable.
11. We have disclosed to you all known instances of noncompliance or suspected
noncompliance with laws and regulations whose effects should be considered
when preparing financial statements.
12. We have disclosed to you all known actual or possible litigation and claims whose
effects should be considered when preparing the financial statements. The effects
of all known actual or possible litigation and claims have been accounted for and
disclosed in accordance with accounting principles generally accepted in the
United States of America.
13. Adequate provisions and allowances have been accrued for any material losses
from:
(a) Uncollectible receivables.
(b) Reducing obsolete or excess inventories to estimated net realizable value.
(c) Sales commitments, including those unable to be fulfilled.
(d) Purchase commitments in excess of normal requirements or above
prevailing market prices.
14. Except as disclosed in the financial statements, we have:
(a) Satisfactory title to all recorded assets, and they are not subject to any liens,
pledges or other encumbrances.
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(b) Complied with all aspects of contractual and grant agreements, for which
noncompliance would materially affect the financial statements.
15. We have not been designated as a potentially responsible parry (PRP or equivalent
status) by the Environmental Protection Agency (EPA) or other cognizant
regulatory agency with authority to enforce environmental laws and regulations.
16. With regard to deposit and investment activities, the City of Lubbock manages all
deposit and investment activities:
(a) We are not aware if deposits, repurchase and reverse repurchase agreements
and investment transactions have not been made in accordance with legal
and contractual requirements.
(b) Disclosures of deposit and investment balances and risks in the financial
statements are consistent with our understanding of the applicable laws
regarding enforceability of any pledges of collateral.
(c) We understand that your audit does not represent an opinion regarding the
enforceability of any collateral pledges.
17. With respect to any nonattest services you have provided us during the year:
(a) We have designated a qualified management -level individual to be
responsible and accountable for overseeing the nonattest services.
(b) We have established and monitored the performance of the nonattest
services to ensure that they meet our objectives.
(c) We have made any and all decisions involving management functions with
respect to the nonattest services and accept full responsibility for such
decisions.
(d) We have evaluated the adequacy of the services performed and any findings
that resulted.
18. We acknowledge that we are responsible for compliance with applicable laws,
regulations and provisions of contracts and grant agreements.
19. We have identified and disclosed to you all laws, regulations and provisions of
contracts that have a direct and material effect on the determination of amounts in
our financial statements or other financial data significant to the audit objectives.
20. We have identified and disclosed to you any violations or possible violations of
laws, regulations and provisions of contracts whose effects should be considered
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for recognition and/or disclosure in the financial statements or for your reporting
on noncompliance.
21. We have taken or will take timely and appropriate steps to remedy any fraud,
abuse, illegal acts or violations of provisions of contracts that you or other
auditors report.
22. We have a process to track the status of audit findings and recommendations.
23. We have identified to you any previous financial audits, attestation engagements,
performance audits or other studies related to the objectives of your audit and the
corrective actions taken to address any significant findings and recommendations
made in such audits, attestation engagements or other studies.
24. We have provided our views on any findings, conclusions and recommendations,
as well as our planned corrective actions with respect thereto, to you for inclusion
in the findings and recommendations referred to in your report on internal control
over financial reporting and on compliance and other matters based on your audit
of the financial statements performed in accordance with Government Auditing
Standards.
25. The financial statements disclose all significant estimates and material
concentrations known to us. Significant estimates are estimates at the balance
sheet date which could change materially within the next year. Concentrations
refer to volumes of business, revenues, available sources of supply, or markets for
which events could occur which would significantly disrupt normal finances
within the next year. Significant assumptions used by us in making accounting
estimates, including those measured at fair value, are reasonable.
26. The fair values of financial and nonfinancial assets and liabilities, if any,
recognized in the financial statements or disclosed in the notes thereto are
reasonable estimates based on the methods and assumptions used. The methods
and significant assumptions used result in measurements of fair value appropriate
for financial statement recognition and disclosure purposes and have been applied
consistently from period to period, taking into account any changes in
circumstances. The significant assumptions appropriately reflect our present
intent and ability to carry out specific courses of action relevant to and inherent in
those assumptions.
27. The supplementary information required by the Governmental Accounting
Standards Board, consisting of management's discussion and analysis, and
pension information, has been prepared and is measured and presented in
conformity with the applicable GASB pronouncements and we acknowledge our
responsibility for the information. The information contained therein is based on
all facts, decisions and conditions currently known to us and is measured using
the same methods and assumptions as were used in the preparation of the
financial statements. We believe the significant assumptions underlying the
M
measurement and/or presentations of the information are reasonable and
appropriate. There has been no change from the preceding period in the methods
of measurement and presentation.
28. With regard to supplementary information:
(a) We acknowledge our responsibility for the presentation of the
supplementary information in accordance with the applicable criteria.
(b) We believe the supplementary information is fairly presented, both in form
and content, in accordance with the applicable criteria.
(c) The methods of measurement and presentation of the supplementary
information are unchanged from those used in the prior period.
(d) We believe the significant assumptions or interpretations underlying the
measurement and/or presentation of the supplementary information are
reasonable and appropriate.
(e) If the supplementary information is not presented with the audited financial
statements, we acknowledge we will make the audited financial statements
readily available to intended users of the supplementary information no later
than the date such information and the related auditor's reports are issued.
29. We acknowledge the current protracted economic decline continues to present
difficult circumstances and challenges for state and local governments. Some
governmental entities are facing declines in the fair values of investments and
other assets, declines in the volume of business, constraints on liquidity and
difficulty obtaining financing. We understand the values of the assets and
liabilities recorded in the financial statements could change rapidly, resulting in
material future adjustments to asset values, allowances for accounts and notes
receivable, net realizable value of inventory, etc. that could negatively impact
LP&L's ability to meet debt covenants or maintain sufficient liquidity. We
acknowledge that you have no responsibility for future changes caused by the
current economic environment and the resulting impact on LP&L's financial
statements. Further, management, the Electric Utility Board and the City Council
are solely responsible for all aspects of managing LP&L, including questioning
the quality and valuation of investments, inventory and other assets, reviewing
allowances for uncollectible amounts and evaluating capital needs and liquidity
plans.
Gary Zheng, CEO/ Damian Pantoya, CPA, CIA,
Director of Electric Utilities Finance Director Electric Utilities