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HomeMy WebLinkAboutLEPFA Lansing Entertainment and Public facilities Authority Audit 2014 Lansing Entertainment L FRow J :111...FAk -and Public � - Lansing Entertainment &x Facilities Public Facilities Authority Authority Year Ended Financial June 30, 2014 Ip Statements 0 kb RBhmann wsr'-ess wisdoms delivered. This page intentionally left blank. LANSING ENTERTAINMENT AND PUBLIC FACILITIES AUTHORITY Table of Contents Page Independent Auditors' Report 1 Management's Discussion and Analysis 4 Basic Financial Statements Statement of Net Position 8 Statement of Revenues, Expenses and Changes in Net Position 9 Statement of Cash Flows 10 Notes to Financial Statements 12 Independent Auditors' 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 Auditing Standards 17 Schedule of Findings 19 MENEM This page intentionally left blank. Re h m a n n ' Rebmann Robson 675 Robinson Rd. Jackson,MI 49203 Ph: 517.787.6503 Fx: 517.788.8111 rehmann.com INDEPENDENT AUDITORS' REPORT December 17, 2014 The Honorable Mayor, Members of the City Council, and Members of the Board of Commissioners of the Lansing Entertainment and Public Facilities Authority Lansing, Michigan Report on the Financial Statements We have audited the accompanying financial statements of the business-type activities and each major fund of the Lansing Entertainment and Public Facilities Authority (the "Authority"), a discretely presented component unit of the City of Lansing, Michigan, as of and for the year ended June 30, 2014, and the related notes to the financial statements, as listed in the table of contents. Management's Responsibility for the Financial &atements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes 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. Independent Auditors'Responsibility Our responsibility is to express opinions on these financial statements based on our audit. 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Authority's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Authority's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. Rebmann is an independent member of Nexia International. CPAs&Consultants Wealth Advisors Corporate Investigators 1 INTERNATIONAL We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the business-type activities and each major fund of the Lansing Entertainment and Public Facilities Authority as of June 30, 2014, and the respective changes in financial position and cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that management's discussion and analysis be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about 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 do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Reporting Required by Government Auditing&andards In accordance with Government Auditing Standards, we have also issued our report dated December 17, 2014 on our consideration of the Lansing Entertainment and Public Facilities Authority's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Authority's internal control over financial reporting and compliance. L LC 2 MANAGEMENT'S DISCUSSION AND ANALYSIS 3 LANSING ENTERTAINMENT AND PUBLIC FACILITIES AUTHORITY Management's Discussion and Analysis As management of the Lansing Entertainment and Public Facilities Authority ("LEPFA' we offer readers of the Authority's financial statements this narrative overview and analysis of the financial activities of the Authority for the fiscal year ended June 30, 2014. Financial Highlights ■ The assets of the Authority exceeded its liabilities at the close of the most recent fiscal by $693,786 (net position). Of this amount, $679,388 (unrestricted net position) may be used to meet the Authority's ongoing obligations to citizens and creditors. ■ The Authority's total net position increase by $162,705 for fiscal 2014. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the Authority's basic financial statements. The basic financial statements are comprised of: ■ The statement of net position presents information on all of the Authority's assets and liabilities, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the Authority is improving or deteriorating. ■ The statement of revenues, expenses and changes in net position presents information showing how the Authority's net position changed during the two most recent fiscal years. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods. ■ The statement of cash flows presents the change in the Authority's cash and investments for the two most recent fiscal years. ■ The notes to the financial statements provide additional information that is essential to a full understanding of the data provided in the basic financial statements. Financial Analysis As noted earlier, net position may serve over time as a useful indicator of a government's financial position. In the case of LEPFA, assets exceeded liabilities by$693,786 at the close of the most recent fiscal year. By far the largest portion of the Authority's net position (97.9 percent) is its unrestricted net position which may be used to meet the Authority's ongoing obligations to system users and creditors. The remaining portion of the net position (2.1 percent) is its investment in capital assets (e.g., machinery and equipment); less any related debt used to acquire those assets that is still outstanding. The Authority uses these capital assets to provide services; consequently, these assets are not available for future spending. At the end of the current fiscal year, the Authority is able to report positive balances in both categories of net position. The same situation held true for the prior fiscal year. 4 LANSING ENTERTAINMENT AND PUBLIC FACILITIES AUTHORITY Management's Discussion and Analysis Net Position 2014 2013 Current and other assets $ 1,633,570 $ 1,498,579 Capital assets 14,398 30,695 Total assets 1,647,968 1,529,274 Long-term liabilities - 2,733 Other liabilities 954,182 995,460 Total liabilities 954,182 998,193 Net position: Net investment in capital assets 14,398 27,962 Unrestricted 679,388 503,119 Total net position $ 693,786 $ 531,081 Change in Net Position 2014 2013 Operating revenues $ 5,599,274 $ 5,086,099 Operating expenses 6,901,187 6,479,192 Operating loss (1,301,913) (1,393,093) Nonoperating revenues 1,464,618 1,339,205 Change in net position 162,705 (53,888) Net position - beginning 531,081 584,969 Net position - end of year $ 693,786 $ 531,081 The Authority's net position increased by$162,705 for fiscal 2014. Key elements of the 2014 increase include: ■ An increase in revenues in the Lansing Center for rent and food services. A portion of those increases were offset by an increase in certain expenditures with the largest increase being in personnel services and food and beverages. 5 LANSING ENTERTAINMENT AND PUBLIC FACILITIES AUTHORITY Management's Discussion and Analysis Capital Asset and Debt Administration Capital assets. LEPFA's investment in capital assets as of June 30, 2014 amounted to $14,398 (net of accumulated depreciation). This investment in capital assets is comprised of equipment. Total net capital assets decreased by $16,297. The majority of the decrease is due to depreciation expense. Capital Assets 2014 2013 Equipment $ 1,380,734 $ 1,509,962 Less accumulated depreciation (1,366,336) (1,479,267) $ 14,398 $ 30,695 Additional information on the Authority's capital assets can be found in Note 5 of this report. Long-term debt. At year-end, the Authority had no outstanding long-term installment purchase agreements. Long-term Debt 2014 2013 Installment purchase agreements $ - $ 2,733 Additional information on the Authority's long-term debt can be found in Note 8 of this report. Economic Factors Affecting Next Year's Operations The Authority is concerned with several types of economic factors that will significantly affect business in fiscal year 2014-15. The most significant among them are changes in consumer/customer behavior in response to local and regional economic conditions, the effects of inflation on the local labor market, health care costs, and the rates charged by the Authority's utility supplier. The Authority's plan reflects a belief that local economic conditions will remain flat from those during fiscal year 2014-15. Inflation in the local labor markets will remain moderate, whereas inflation in utility and health care costs will be expected to rise. Requests for Information This financial report is designed to provide a general overview of LEPFA's finances for all those with an interest in the Authority's finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to Lansing Entertainment and Public Facilities Authority, 333 E. Michigan Avenue, Lansing, Michigan 48933. 6 BASIC FINANCIAL STATEMENTS 7 LANSING ENTERTAINMENT AND PUBLIC FACILITIES AUTHORITY Statement of Net Position June 30, 2014 Lansing Cooley City Center Stadium Market Total Assets Cash and cash equivalents $ 35,208 $ 78,294 $ 78,610 $ 192,112 Restricted cash and cash equivalents 751,696 80,000 - 831,696 Accounts receivable, net 386,378 35,701 6,556 428,635 Due from other funds 44,769 6,677 - 51,446 Prepaid expenses 42,847 5,143 97 48,087 Inventories 79,837 - 1,757 81,594 Capital assets, net - 5,015 9,383 14,398 Total assets 1,340,735 210,830 96,403 1,647,968 Liabilities Accounts payable 159,484 92,644 7,896 260,024 Accrued liabilities 148,057 405 462 148,924 Due to other funds 6,677 22,195 22,574 51,446 Unearned revenue 473,382 - 20,406 493,788 Total liabilities 787,600 115,244 51,338 954,182 Net position Net investment in capital assets - 5,015 9,383 14,398 Unrestricted 553,135 90,571 35,682 679,388 Total net position $ 553,135 $ 95,586 $ 45,065 $ 693,786 The accompanying notes are an integral part of these financial statements. 8 LANSING ENTERTAINMENT AND PUBLIC FACILITIES AUTHORITY Statement of Revenues, Expenses and Changes in Net Position For the Year Ended June 30, 2014 Lansing Cooley City Center Stadium Market Total Operating revenues Building rental $ 1,006,025 $ 8,000 $ 90,051 $ 1,104,076 Security 79,387 1,080 - 80,467 Food services 3,254,894 5,770 3,260,664 Equipment rental 606,934 585 607,519 Box office 32,328 459 32,787 Labor/service 239,708 4,971 244,679 Trade show utilities 160,923 - - 160,923 Other 75,591 7,168 25,400 108,159 Total operating revenues 5,455,790 28,033 115,451 5,599,274 Operating expenses Personnel services 2,414,420 81,067 81,356 2,576,843 Food and beverage 1,897,598 - - 1,897,598 Communications 21,153 2,415 1,195 24,763 Rents and leases 6,711 - - 6,711 Professional services 340,237 - 2,714 342,951 Utilities 847,382 132,430 64,710 1,044,522 Marketing 51,664 1,277 19,852 72,793 Repairs and maintenance 112,737 52,093 6,239 171,069 Supplies and materials 140,612 1,662 7,683 149,957 Insurance 57,300 19,321 1,576 78,197 Events 165,281 - 2 165,283 Security 71,881 1,024 - 72,905 Depreciation 5,224 1,662 9,411 16,297 Bad debt expense 126,348 - 106 126,454 Other 124,700 29,650 494 154,844 Total operating expenses 6,383,248 322,601 195,338 6,901,187 Operating loss (927,458) (294,568) (79,887) (1,301,913) Nonoperating revenues(expense) Annual operating subsidy- City of Lansing 852,399 307,082 49,299 1,208,780 Pass-through of hotel/motel tax collections from Greater Lansing Convention and Visitors Bureau 269,770 - - 269,770 Interest income 57 57 Interest expense (67) (67) Capital development fund expense - (13,922) - (13,922) Total nonoperating revenues 1,122,159 293,160 49,299 1,464,618 Change in net position 194,701 (1,408) (30,588) 162,705 Net position, beginning of year 358,434 96,994 75,653 531,081 Net position, end of year $ 553,135 $ 95,586 $ 45,065 $ 693,786 The accompanying notes are an integral part of these financial statements. 9 LANSING ENTERTAINMENT AND PUBLIC FACILITIES AUTHORITY Statement of Cash Flows For the Year Ended June 30, 2014 Lansing Cooley City Center Stadium Market Total Cash flows from operating activities Cash received from customers $ 5,673,333 $ 28,033 $ 130,856 $ 5,832,222 Cash received from interfund services 38,451 13,114 279 51,844 Cash payments for goods and services (4,025,651) (294,415) (104,239) (4,424,305) Cash payments to employees (2,385,774) (80,811) (81,275) (2,547,860) Cash payments for interfund services (6,677) (45,167) (51,844) Net cash used in operating activities (699,641) (340,756) (99,546) (1,139,943) Cash flows from noncapital financing activities Cash transfers from City and Common Ground 852,399 307,082 49,299 1,208,780 Cash transfers from Convention and Visitors Bureau 269,770 - - 269,770 Net cash provided by noncapital financing activities 1,122,169 307,082 49,299 1,478,550 Cash flows from capital and related financing activities Payments on installment purchase agreements (2,733) - - (2,733) Interest on installment purchase agreements (67) (67) Net cash used in capital and related financing activities (2,800) (2,800) Cash flows from investing activities Interest on cash and cash equivalents 57 57 Net change in cash and cash equivalents 419,785 (33,674) (50,247) 335,864 Cash and cash equivalents, beginning of year 367,119 191,968 128,857 687,944 Cash and cash equivalents, end of year $ 786,904 $ 158,294 $ 78,610 $ 1,023,808 Reconciliation of operating loss to net cash used in operating activities Operating loss $ (927,458) $ (294,568) $ (79,887) $ (1,301,913) Adjustments to reconcile operating loss to net cash used in operating activities: Depreciation expense 5,224 1,662 9,411 16,297 Accounts receivable 114,369 92,610 6,261 213,240 Due from other funds 31,998 (6,677) 279 25,600 Prepaid expenses (19,085) (854) 34 (19,905) Inventories (18,665) - 603 (18,062) Accounts payable (24,297) (146,299) (305) (170,901) Accrued liabilities 28,646 256 81 28,983 Due to other funds 6,453 13,114 (45,167) (25,600) Unearned revenue 103,174 - 9,144 112,318 Net cash used in operating activities $ (699,641) $ (340,756) $ (99,546) $ (1,139,943) The accompanying notes are an integral part of these financial statements. 10 NOTES TO FINANCIAL STATEMENTS 11 LANSING ENTERTAINMENT AND PUBLIC FACILITIES AUTHORITY Notes to Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reporting Entity The Lansing Entertainment and Public Facilities Authority (the "Authority" or "LEPFA") was established under the charter of the City of Lansing in February, 1996, replacing the former Greater Lansing Convention/Exhibition Authority. LEPFA was established to oversee the management and operations of the Lansing Center, the Cooley Stadium and the City Market under an agreement with the City of Lansing. The Authority is chartered as a building authority under the provisions of Act 31, Public Acts of Michigan, 1948. In the event of dissolution or termination of the Authority, all assets and rights of the Authority shall revert to the City of Lansing. The Authority's Board of Commissioners consists of nine members appointed by the Mayor of the City of Lansing and approved by the City Council, and three ex-officio members. The Authority is a discretely presented component unit of the City of Lansing. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The proprietary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. The Authority reports the Lansing Center, Cooley Stadium and City Market Enterprise Funds as major funds in accordance with GASB Statement No. 34. Each fund accounts for the activities of its respective facility. Enterprise funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with an enterprise fund's principal ongoing operations. The principal operating revenues of the enterprise funds are charges to customers for facility rentals, sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. Assets, Liabilities and Equity Deposits and Investments The Authority's cash and cash equivalents are considered to be cash on hand, demand deposits and short- term investments with original maturities of three months or less from the date of acquisition. State statutes authorize governments to deposit in the accounts of federally insured banks, credit unions, and savings and loan associations, and to invest in obligations of the U.S. Treasury, certain commercial paper, repurchase agreements, bankers' acceptances, and mutual funds composed of otherwise legal investments. Investments are reported at fair value. 12 LANSING ENTERTAINMENT AND PUBLIC FACILITIES AUTHORITY Notes to Financial Statements Receivables and Payables Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either "due to/from other funds" (i.e., the current portion of interfund loans) or "advances to/from other funds" (i.e., the non current portion of interfund loans). All other outstanding balances between funds are reported as "due to/from other funds". Inventories and Prepaid Items Inventories are valued at cost using the first-in/first-out (FIFO) method. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items. Restricted Assets Under the terms of the Authority's operating agreement with the City of Lansing, the Authority is required to restrict $50,000 annually for capital improvements and/or replacements. Any such monies unexpended shall be carried forward to future years. For the year ended June 30, 2014, all such restricted monies were expended on capital improvements, leaving a zero balance in restricted assets for capital improvements at year end. Under an amendment to the operating agreement with the City of Lansing, the Authority is also required to maintain an Event Development cash reserve fund to provide a source of monies from which to finance events at the Cooley Law School Stadium. The fund was established by an initial contribution from the City and may be increased up to certain limits by the amount of any profits earned from such events. Restricted assets for event development amounted to $80,000 at June 30, 2014. The Authority's Board of Commissioners has also established a cash reserve account to ensure reasonable liquidity for Lansing Center operations. The balance of this cash reserve as of June 30, 2014 was $751,696 and is reported as restricted cash and cash equivalents in the statement of net position. Generally, the reserve is intended to provide up to 60 days of operating cash (which would be approximately $850,000 if fully funded). The account is adjusted annually for the prior year operating results and does not correlate with the Authority's net position or fund equity. By contrast, the Authority's fund equity position as of June 30, 2014, which represents accumulated net income, was $679,356 for the Lansing Center fund. Capital Assets Capital assets, which are limited to equipment, are stated at cost and depreciated using the straight line method over the estimated useful lives of the assets ranging from three to ten years. Capital assets are defined by the government as assets with an initial, individual cost of more than $500 and an estimated useful life of three years. Facilities managed by the Authority are owned by the City of Lansing and, as such, the carrying values of these properties are reflected in the City's financial statements. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. 13 LANSING ENTERTAINMENT AND PUBLIC FACILITIES AUTHORITY Notes to Financial Statements 2. DEPOSITS AND INVESTMENTS A reconciliation of cash and investments as shown on the statement of net position follows: Statement of net position Cash and cash equivalents $ 192,112 Restricted cash and cash equivalents 831,696 Total $ 1,023,808 Deposits and investments Bank deposits - checking and savings accounts $ 371,237 Investments - money market accounts 612,776 Cash on hand 39,795 Total $ 1,023,808 Interest Rate Risk. State law limits the allowable investments and the maturities of some of the allowable investments as identified in the summary of significant accounting policies. The Authority's investment policy does not have specific limits in excess of state law on investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. None of the Authority's investments at year end have maturity dates. Credit Risk. State law limits investments to specific government securities, certificates of deposits and bank accounts with qualified financial institutions, commercial paper with specific maximum maturities and ratings when purchased, bankers acceptances of specific financial institutions, qualified mutual funds and qualified external investment pools as identified in the list of authorized investments in the summary of significant accounting policies. The Authority's investment policy does not have specific limits in excess of state law on investment credit risk. Credit risk ratings, where applicable, have been identified above for the Authority's investments. Custodial Credit Risk - Deposits. Custodial credit risk is the risk that in the event of a bank failure, the Authority's deposits may not be returned. State law does not require and the Authority does not have a policy for deposit custodial credit risk. As of year end, $229,640 of the Authority's bank balance of $479,640 was exposed to custodial credit risk because it was uninsured and uncollateralized. The Authority's investment policy does not specifically address this risk, although the Authority believes that due to the dollar amounts of cash deposits and the limits of FDIC insurance, it is impractical to insure all bank deposits. As a result, the Authority evaluates each financial institution with which it deposits Authority funds and assesses the level of risk of each institution; only those institutions with an acceptable estimated risk level are used as depositories. Custodial Credit Risk - Investments. For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the Authority will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. State law does not require and the Authority does not have a policy for investment custodial credit risk. On the investments listed above, there is no custodial credit risk, as these investments are uncategorized as to credit risk. 14 LANSING ENTERTAINMENT AND PUBLIC FACILITIES AUTHORITY Notes to Financial Statements Concentration of Credit Risk. State law limits allowable investments but does not limit concentration of credit risk as identified in the list of authorized investments in the summary of significant accounting policies. The Authority's investment policy does not have specific limits in excess of state law on concentration of credit risk. All investments held at year end are reported above. 3. TRANSACTIONS WITH THE CITY OF LANSING For the year ended June 30, 2014, the City of Lansing provided annual operating subsidies to the Authority in the amount of$1,208,780 for the Lansing Center, Cooley Stadium, and City Market. 4. RECEIVABLES Receivables are composed entirely of amounts due from customers (net of an allowance for doubtful accounts in the amount of $147,030) and the City of Lansing. Accounts receivable as of June 30, 2014 were as follows: Accounts receivable, net $ 396,378 Accounts receivable - City of Lansing 32,257 Total accounts receivable $ 428,635 5. CAPITAL ASSETS Capital assets activity for the year ended June 30, 2014 was as follows: Beginning Ending Balance Additions Disposals Balance Machinery and equipment $ 1,509,962 $ - $ (129,228) $ 1,380,734 Less accumulated depreciation 1,479,267 16,297 (129,228) 1,366,336 Net capital assets $ 30,695 $ (16,297) $ - $ 14,398 6. PAYABLES Accounts payable is composed entirely of amounts due to vendors, except for $54,279 payable to the City of Lansing. Accrued liabilities include wages payable, payroll taxes payable. Insurance, and benefits payable. 15 LANSING ENTERTAINMENT AND PUBLIC FACILITIES AUTHORITY Notes to Financial Statements 7. INTERFUND RECEIVABLES AND PAYABLES Amounts due from and to other funds at year-end are as follows: Receivable Payable Lansing Center $ 44,769 $ 6,677 Cooley Stadium 6,677 22,195 City Market - 22,574 $ 51,446 $ 51,446 The outstanding balances between funds result mainly from the time lag between the dates that (1) interfund goods and services are provided or reimbursable expenditures occur, (2) transactions are recorded in the accounting system, and (3) payments between funds are made. 8. LONG-TERM DEBT The Authority has entered into various long-term installment purchase agreements. The original amount of installment obligations issued in prior years for the items listed below was $142,947. Installment purchase agreements outstanding at year-end are as follows: Changes in installment purchase agreements payable for the year ended June 30, 2014, were as follows: Beginning Ending Due Within Balance Additions Deductions Balance One Year Installment purchase agreements $ 2,733 $ - $ 2,733 $ $ 9. DEFINED CONTRIBUTION PENSION PLAN The Authority has a defined contribution pension plan covering substantially all full-time employees who have completed 120 days of employment. The Authority contributes 12% of participating employees' annual compensation to the plan. Effective January 1, 2003, employees are required to contribute 7.5%of covered wages as defined in the plan; prior to that date, no employee contributions to this plan were required. Such current employee contributions are in lieu of federal social security participation. Plan provisions and contribution requirements are established and may be amended by the Authority's Board of Commissioners. Employee contributions for the year ended June 30, 2014 were $139,314. Employer contributions for the year ended June 30, 2014 were $227,786. ■ ■ ■ ■ ■ 16 Re h m a n n ' Rebmann Robson 675 Robinson Rd. Jackson,MI 49203 Ph: 517.787.6503 Fx: 517.788.8111 rehmann.com INDEPENDENT AUDITORS' 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 AUDITING STANDARDS December 17, 2014 Honorable Mayor, Members of the City Council, and Members of the Board of Commissioners of the Lansing Entertainment and Public Facilities Authority Lansing, Michigan We have audited, in accordance with the 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, the financial statements of the business-type activities and each major fund of the Lansing Entertainment and Public Facilities Authority (the "Authority"), as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the Authority's basic financial statements, and have issued our report thereon dated December 17, 2014. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Authority's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Authority's internal control. Accordingly, we do not express an opinion on the effectiveness of the Authority's internal control. A deficiency in internal control 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 on a timely basis. 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 Authority's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a 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. Rebmann is an independent member of Nexia International. CPAs&Consultants Wealth Advisors Corporate Investigators 17 INTERNATIONAL Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. We did identify certain deficiencies in internal control over financial reporting, described in the accompanying schedule of findings as items 2014-FS-01 and 2014-FS-02 that we consider to be significant deficiencies. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Authority's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of 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 or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Authority's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly, this communication is not suitable for any other 4L-u�4L4)1- L LG 18 LANSING ENTERTAINMENT AND PUBLIC FACILITIES AUTHORITY Schedule of Findings For the Year Ended June 30, 2014 2014-FS-01 - Segregation of Duties (Repeat Comment) Finding Type. Significant Deficiency in Internal Control over Financial Reporting. Criteria. Management is responsible for establishing and maintaining effective internal control over financial reporting and the safeguarding of the Authority's assets. In establishing appropriate internal controls, careful consideration must be given to the cost of a particular control and the related benefits to be received. Accordingly, management must make the difficult decision of what degree of risk it is willing to accept, given the Authority's unique circumstances. Condition. During the course of the audit we noted that: • Maintenance of the receivable subsidiary ledger is not independent of general ledger maintenance. • Billing is not independent of cash handling and accounts receivable bookkeeping. • Persons preparing payroll are not restricted from access to other payroll data or cash. • Handling of cash is not independent of accounts receivable bookkeeping. • Check signing is not independent of the initiator of the preparer of checks and accounts payable. • Bank accounts are not reconciled by individuals independent of cash receipts and disbursements. • Invoice processing and accounts payable are not segregated from the general ledger function. • Account distributions are not recorded by the operating department. Cause. As is the case with many organizations of similar size, the Authority lacks a sufficient number of accounting personnel in order to ensure a complete segregation of duties within its accounting function. Ideally, no single individual should ever be able to authorize a transaction, record the transaction in the accounting records, and maintain custody of the assets resulting from the transaction. Essentially, proper segregation of duties is intended to prevent an individual from committing an act of fraud or abuse and being able to conceal it. Effect. Events of recent years have given rise to a heightened awareness of the risks of fraud and abuse. The purpose of internal controls is to provide reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are properly authorized and recorded. Any limitations on the effectiveness of an Authority's internal controls carries with it a greater risk of fraud and abuse. Recommendation. While there are, of course, no easy answers to the challenge of balancing the costs and benefits of internal controls and the segregation of duties, we would nevertheless encourage management to actively seek ways to further strengthen its internal control structure by requiring as much independent review, reconciliation, and approval of accounting functions by qualified members of management as possible. View of Responsible Official. The Authority agrees with the items noted above. Due to the size of the entity, complete segregation of duties may not be feasible, however, procedures are being implemented to mitigate the risks that exist and the Authority will continue to review procedures and make changes where possible. 19 LANSING ENTERTAINMENT AND PUBLIC FACILITIES AUTHORITY Schedule of Findings For the Year Ended June 30, 2014 2014-FS-02 -Accounts Receivable Finding Type. Significant Deficiency in Internal Control over Financial Reporting. Criteria. Management is responsible for establishing and maintaining effective internal controls over the financial reporting of accounts receivable and revenue recognition. Condition. We noted that there are numerous customer accounts that are recorded as receivables that are outstanding that date back as far as 2008. Cause. During our testing of accounts receivable, we noted that there is no review of the outstanding customer accounts or follow-up with the customers to determine if the account is collectible. Effect. Accounts receivable may be overstated with the expectation that these accounts are collectible, when in fact they may not be. Recommendation. We recommend that there be a systematic review of the aged accounts receivable and that the Authority implement procedures identify which accounts are not collectible and remove the receivable form the accounting records by recording bad debt expense. We strongly recommend the Authority make a concerted effort to collect the amounts before recording the bad debt expense. View of Responsible Official. The Authority recognizes deficiencies in this process. The receivables that are mentioned dating back to 2008 were set up in a bad debt account, hopeful to collect, but the additional step of writing them off has not occurred to date. We will proceed forward with writing them off in FY 15. As we move forward, there is a weekly meeting with the Accounting Manager to review the aging detail and discuss attempts to collect on those balances upon reaching the 30 day window. This information will be shared monthly with the President/CEO. Upon reaching 45 days, additional team members (VP of Sales, Director of Sales, Event Coordinators) will be brought into the discussion to seek additional points of contact to reach. Upon reaching 60 days, we will submit a letter requesting payment along with a statement of the account. Collection efforts will also include pressure being brought by upper management and the City. When efforts have been exhausted, including legal remedies, the VP of Finance will recommend to the President/CEO to set up an allowance for Bad Debt. As the end of the fiscal year approaches, those accounts deemed uncollectible will be written off. ■ ■ ■ ■ ■ 20