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2015 FIFD Report to Audit Committee
r- } 1 PKF 000NNOR DAVIES ACCOUNTANTS AND ADVISORS c , R RECEIVE[ AU'AUG 192016 50U9 =di.0h Id Town Clerk Fishers Island Ferry District Report to the Audit Committee r December 31 , 2015 L P L - f August 1, 2o16 Prepared by Marcia L. Marien, CPA 1 . �KNOW GREATER VALUE J PKF CCONNOR DAVIES ACCOUNTANTS AND-ADVISORS r i August 1, 2016 I Board of Commissioners Fishers Island Ferry District Fishers Island, NY We are in the process of completing our audit of the financial statements of Fishers Island Ferry District as of and for the year ended December 31, 2015. Professional standards require us to communicate with you regarding audit matters that are, in our professional judgment, significant and relevant to those charged with governance ("TCWG") in overseeing the financial reporting process. This communication is intended to provide you with these required communications as well as other findings and information regarding our audit. r We are pleased to be of service to you and Fishers Island Ferry District and appreciate the opportunity to present our audit findings to you. We are also pleased to discuss other matters which may be of interest to you and to answer any questions you may have. i This information is intended solely for the information and use of TCWG and management of Fishers Island Ferry District and is not intended to be and should not be used by anyone other than these specified parties. Very truly yours, PKF O'Connor Davies, LLP F i I- I I 2 C J PKF CYCONNOR DAVIES ( ACCOUNTANTS AND ADVISORS I Contents Status of the Audit and Other Services...............................................................................................4 Required Communications and Other Matters....................................................................................5 Internal Control Over Financial Reporting...........................................................................................9 0 Onthe Horizon..................................................................................................................................10 Appendices f , 1 — Communication of Internal Control Matters _ 2— Management Representation Letter 3— Financial Highlights 3—About PKF O'Connor Davies, LLP I f i I - 3 I PKC (YCONNOR DAVIES .ACCOUNTANTS AND ADVISORS Status of the Audit and Other Services r Audit of Financial Statements • Audit fieldwork is substantially complete. The scope of our fieldwork was substantially the jsame as described in our Audit Planning communications. l • The financial statements have been drafted and reviewed by management. • We anticipate that we will be issuing an unmodified report on the financial statements upon completion of all outstanding audit related items/issues and our internal review process. If the nature of our report changes, we will notify you prior to issuance. r i , I I I , r l ; r F I � .. 4 PKC MONNOR DAVIES ACCOUNTANTS AND ADVISORS Required Communications and Other batters ornmen Auditor's responsibility We have communicated such information in our engagement under professional letter to you dated January 1, 2016. Generally, these standards and planned responsibilities include: scope and timing of the; . Forming and expressing an opinion on, the financial audit statements. • Obtaining reasonable assurance the financial statements are free of material misstatements, whether caused by error or fraud. • Accumulating and communicating uncorrected misstatements to TCWG. • Maintaining professional skepticism. • Communicating audit related matters that are, in our professional judgment, significant to TCWG. Responsibilities of Management's responsibilities include: management and TCWG The fair presentation of the financial statements, including the selection of appropriate accounting policies. • Establishing and maintaining effective internal control. • Complying with laws, regulations, grants and contracts. • Providing the auditors with all financial records and related information and a signed representation letter. TCWG are responsible for communicating with the auditors and overseeing the financial reporting process. Both management and TCWG are responsible for: • Setting the proper.tone at the top. • Designing and implementing policies and controls to prevent and detect fraud. i 5 i PKF U' OfCONNOR DAVIES ACCOUNTANTS AND ADVISORS i Requiredliem COMments Qualitative°"aspects:ofJ. ; The' significant:accounting policies-are described.4i Note 1,to'" accounting practices the financial statements.' Accounting Policies As:,described °int Note`.2146-the",financial °statements,", using the year,:_the District,changedkits-method.of-accounting'�by°.adopting ' Govemrh ritai:Accounting.Standards Board (GASB);Statements . : as follows: d_ °GASB Statement 68 -.Accoun"fing{and Financial,Reporting` for a : Pensions and •71: =.Pension: Transition for Contribution's:Made ° Subsequent ,foa the IVleasurement~°Date These .statement"s.- statements"seek.to,improve.accounting and f'inancial.repor#ing;by state., and; local,`:'governments.--for. ',pensions,,,,by, `establishing;. $ standards:for 'measuring and.recognizing, liabilities., ,deferred• outflows/inflows"of,resources and,expenseslexpentlitures.e;' Accordingly; the;cumulative effectof accounting:change as.of, I the"beginning of.the year.'has been•-.reported'in°the Statement of .Activities., : " These,, policies, are,°':approp"riate` and;-comply wltli'Accounting,, Principles Generally accepted,:in, the.°'United,-States of°America: (Q8,GAAP)., , Qualitative aspects of -No matters have come to our attention that would require us to accounting practices— inform you about the methods used-to account .for significant Significant Unusual` unusual.transactions. Tran"sactio'ns, ; I f I " PKF (YCONNOR DAVI ES ACCOUNTANTS AND ADVISORS Qualitative aspects of Accounting estimates made by,management are an integral part. accounting practices - of the financial statements and are based on management's Accounting Estimates and knowledge and experience about past and current events ,and Management's Judgment assumptions about future events. Actual results could„differ from those estimates. Certain accounting estimates are particularly sensitive because of their significance to financial statements and their susceptibility to change. The most sensitive estimates affecting the financial statements are: Depreciation Expense — Depreciation expense is intended to allocate the cost of a long-term asset over .its period of use. Management estimates depreciation expense based on the expected useful life and residual value-of the underlying assets. Management believes that the estimates used and assumptions made are adequate based on the information currently available. We evaluated the key factors and assumptions used to develop the estimates in determining that they are reasonable in relation to the financial statements as a whole. Qualitative aspects of The financial statement disclosures are consistent and clear. accounting practices - Financial Statement Disclosures Difficulties encountered in We encountered no significant difficulties in dealing with performing the audit management relating to the performance of our audit. Corrected and uncorrected Professional standards require us to accumulate all known and misstatements likely misstatements identified during the audit, other than those that we believe are trivial, and communicate them to the appropriate level of management. There were no significant audit adjustments. r , 7 L PKF O`CONNOR D"I ES ACCOUNTANTS AND ADVISORS - a - a MrnlCo - j Disagreements with For purposes of this communication, a disagreement with management management is a matter, whether or not resolved to our satisfaction, concerning ° financial accounting, reporting, or auditing, which could be significant to the financial statements or the auditors' report. No such disagreements arose during the course of the audit. Management We have requested certain representations from management representations that are included in the management representation letter, (see Appendix 2. Management's In some cases, management may decide to consult with other consultations with other accountants about auditing and . accounting matters. accountants Management informed us that, and..to our knowledge,, there were no such consultations with other accountants. Auditor independence We affirm that PKF O'Connor Davies, LLP is independent with respect to the Organization in accordance with relevant professional standards. Significant issues We generally discuss with management a variety of matters, discussed with including the application of accounting principles and auditing management prior to standards, business conditions affecting the Organization and retention business plans and strategies. that may affect the risks of, _ material misstatement. None of-the matters discussed and our responses thereto were a condition to our retention as auditors. LJ I ' t 8 L � CPPKF MONNOR DAVIES ACCOUNTANTS AND ADVISORS I Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered Fishers Island Ferry District's (the "Organization") internal control over financial reporting ("internal control") as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of C expressing our opinion on the financial statements, but not for the purpose of expressing an opinion I. on the effectiveness of the Organization's internal control. Accordingly, we express no such opinion. Professional standards require that we communicate to you, in writing, all significant deficiencies and/or material weaknesses in internal control that we identify in performing our audit. For this purpose, deficiencies in internal control are categorized as follows: • 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. i • A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity'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 i that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph and was not designed to identify all deficiencies in internal control that might be deficiencies, significant deficiencies, or material weaknesses and, therefore, there can be no assurance that all such deficiencies have been identified. We identified certain deficiencies in the Organization's internal control. These are described in Appendix 1. I , This communication is intended solely for the information and.use of management and those _ - charged with governance and is not intended to be and should not be used by anyone other than these specified parties. r 9 i -- COW aCONNOR i DAVIES ACCOUNTANTS AND ADVISORS i On the Horizon Proposed Improvements to OPEB Reporting Recently the Government Accounting Standards Board ("GASB") proposed new standards for reporting Other Post-Employment Benefits ("OPEB") in a government's financial statements. GASB C believes that these would improve the financial reporting and transparency of the government. This would be similar to the changes approved in GASB Statements No. 68 and 71 discussed above. In addition, governments have been allowed to slowly incorporate the OPEB liability into their �- balance sheet. Because the current standard allows the OPEB liability to be phased in over 30 years, and we are less than 10 years into the current standards, most governments have only one- third or less of the total liability reported on their balance sheet. The new standard will require most of the liability to be reported on the balance sheet immediately or in a period not to exceed 5 years. Changes to the Federal Single Audit OMB Circular A-133 The following are some of the key areas of change from a client's perspective: Single Audit Threshold for Audit Proposed to Increase to $750,000 - Entities that expend less than $750,000 in federal awards would not be subject to an A-133, or single, audit. This is an a increase from the existing $500,000 threshold. Reduction in Types of Compliance Requirements to be Tested - The number of types of compliance requirements to be tested will be reduced from the current 14 types to 6 types of compliance requirements. The 6 requirements include: (1) Activities Allowed or Unallowed and Allowable Costs/Costs Principles; (2) Cash Management; (3) Eligibility; (4) Reporting; (5) Subrecipient Monitoring; and (6) Special Tests and Provisions. Federal agencies would be allowed to request that certain of the types of compliance requirements being eliminated could be added to the Special Tests and Provisions requirement for programs where they could be considered essential to the oversight of the program. i ' Findings - More detail will be required to be reported in auditor findings. The questioned cost threshold for reporting will be increased from $10,000 to $25,000. Streamlining of Related Circulars and Guidance - The Proposed Guidance streamlines eight existing OMB Circulars into one document including Circular A-133 and the various Cost Principles. The following OMB Circulars will be superseded: ! • A-21, Cost Principles for Educational Institutions • A-87, Cost Principles for State, Local, and Indian Tribal Governments • A-89, Federal Domestic Assistance Program information • A-102, Awards and Cooperative Agreements with State and Local Governments • A-110, Uniform Administrative Requirements for Awards and Other Agreements with _- Institutions for Higher Education, Hospitals and Other Nonprofit Organizations i , I i 10 r PKF OrCONNOR DAVIES ,ACCOUNTANTS AND ADVISORS. Appendix 1 C' Communication of Internal Control Matters � 1 Fishers Island Ferry District Schedule of Findings j For the Year Ended December 31, 2015 Findings on Internal Controls r- Each finding is numbered using the sequence XX-####-aaa where XX indicates whether it is a Material Weakness (MW) in internal control, Significant Deficiency (SD) in internal controls, or Noncompliance (NC) with rules and regulations. The #### indicates the year that the finding was first reported. Finally, each finding in a year has a number assigned to it in case there are more than one. The aaa, refers to the number of the finding in that year. MW-2010-001 — Entity Level Controls Condition: Internal controls are a coordinated set of policies and procedures that management uses to achieve their objectives and meet their fundamental responsibilities for effectiveness, efficiency, compliance and financial reporting. The literature recognizes five sections of internal control published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO Report) in Internal Control — Integrated Framework. These five interrelated components include: • Control Environment — A favorable control environment exists when management is knowledgeable about controls (entity wide and specific), is committed to establishing controls and communicates its support for internal controls to all individuals involved. • Risk Assessment—This involves management's continual identification and assessment of the potential risks that might prevent management from fulfilling its responsibilities and achieving its objectives. • Information and Communication Systems— These are the systems used to assure that appropriate individuals have timely and accurate information to carry out their j responsibilities. • Control Activities—These are management's response to the risks identified. These are the specific policies and procedures that are put in place to alert management of undesired actions in a timely manner. • Monitoring— There is a responsibility of management to follow up on the controls that have been put in place to assure that they continue to function and function properly, effectively and efficiently. The Fishers Island Ferry District does not have a framework established to deal with each of the interrelated entity level controls over and above the specific control policies and procedures that - have been developed. Recommendation: We recommend that as part of developing an accounting manual, the Fishers Island Ferry District consider the entity wide controls as discussed above. IJ l Management's Response: We have been working to develop a coordinated set of policies and procedures. In July of 2016 the Board of Commissioners adopted policies on payroll and Y paid time off accruals; and cash management. The accounting manual is in process and will be reviewed by the Finance Committee as work progresses. The manual will reinforce District policy on risk assessment, communication, control activities, and monitoring of these matters. The Board of Commissioners will enact corresponding policies; and will approve the accounting manual when it is complete. i, l� - l- Fishers Island Ferry District Schedule of Findings f For the Year Ended December 31, 2015 MW-2010-003—Segregation of Duties - Revenues r Condition: The Ferry District does not maintain an adequate segregation of duties for proper internal control over the financial transactions in certain areas. Proper internal control relies on the following three aspects of processing transactions being performed by separate individuals: authorizing transactions, custody of assets, and record keeping. This weakness in internal controls could lead to funds being expended in a manner not consistent with the intentions of management. These weaknesses were noted in the following areas: • Ticket Sales — Sales that are "no charge" are authorized and recorded by the same individual. i • Ticket Books—Ticket Books have the same individuals able to authorize the purchase, have custody of the physical books and cash collected and do the record keeping for the sale. • Freight Sales — Freight is not always counted by the freight agent. This is not noted and corrected at the other end. Cash payments are collected and recorded by the same individual. Individuals are able to collect payment, record transactions and delete ! transactions from the system. M a Recording Revenues — Individuals are able to collect payment, record transactions and delete transactions from the system or write off transactions in the system. Recommendation: The Ferry District should review the segregation of duties involved in all the cash receipts functions. The duties of the individuals involved should, be analyzed and 4 restructured as necessary to provide for a better system of checks and balances. A segregation of duties is not the only tool used in internal controls, where a segregation of duties is not possible, alternate internal control tools should be implemented. Once a better system has been devised, it should be written, approved by the Board of Commissioners and distributed to the individuals involved. Management's Response: We have been working to develop a coordinated set of policies and procedures. During the year ended December 31, 2015, the reconciliation function was segregated from the custody and recording function. There is one staff person responsible for accounts payable processing, one for payroll processing, and one for receivables recording and invoicing. Multiple staff receive cash and create deposits; deposits are verified by the staff member responsible for receivables. i We are eliminating the ticket books. All unsold ticket books will be shredded. Tickets from previously sold ticket books will be accepted for passage. - In June 2016, we began working with a consulting CPA to update our policies and procedures, including segregation of duties. Currently, the same individual may collect cash receipts and record those payments. To segregate the collection function from the recording function, we plan to install, in 2016, a cash register that will create numbered receipts. A methodology for verifying that all freight received in New London is delivered on Fishers Island is in process. In conjunction with producing policies and procedures, we will create a process for management approval of no-charge items, changes, deletions and transaction write-offs. � L 1 ' !F Fishers Island Ferry District Schedule of Findings For the Year Ended December 31, 2015 MW-2010-007— Documentation of the Components of Internal Control over Processes Condition: The Fishers Island Ferry District has numerous internal controls in place over significant processes and accounts. Not all of these controls are formally documented. It is possible for controls to change over time or not be completely understood by the individuals involved in the processes. i Recommendation: We recommend that the Fishers Island Ferry District make a listing of its - significant processes and accounts. Controls in each area should be documented in a procedures manual. Each of the procedures should be reviewed to determine if controls are r adequate. Management's Response: We have been working to develop a coordinated set of policies and procedures. We will document our policies and procedures and communicate them to staff. We are working with a consulting CPA, the Finance Committee, the Board of Commissioners and the District's general counsel to update our policies and procedures and ensure that we have instituted adequate controls. MW-2015-001 — Internal Controls over Payroll Condition: The Fishers Island Ferry District lacks controls over payroll. Time slips are required f to be signed by the employee but that is not always done. Time slips are not approved by the employees' supervisor. The clerk's review of the time slips is not documented. The lack of controls creates a situation in which it cannot be confirmed whether an employee actually r worked or that overtime worked was approved. Recommendation: We recommend that the Fishers Island Ferry District tighten their controls over payroll including requiring an employee signature and a supervisor signature. The clerk's review of the time cards should also be documented. Management's Response: In 2015 the Marine Operations Supervisor and the Maintenance Mechanic established that the baseline paid time off (PTO) balances at the 2013 year end (as manually recorded in a Red Book) were accurate. The balances were brought forward into 2014. PTO used was accurately and completely accounted for by using original documentation (leave requests) and the requirements of the Employee Handbook and the Collective Bargaining Agreement for Unused time carry-forward or loss. These balances were brought forward into _ 2015, and the same process was followed to establish carry-forwards, vacation hours eligible to be paid out in December 2015, and time lost. These balances were brought forward into 2016. In July of 2015, the Accounting Supervisor (Secretary) assumed the duties of calculating bi- weekly payroll and retroactive payments and of reporting hours to the Town of Southold payroll department for issuance of checks and related (withholding, medical premium share, garnishments, etc.), payroll calculations and reporting. 1 The Accounting Supervisor emphasizes to employees the necessity for signing time sheets and requires Managers to approve, on the timesheets, the hours of all employees. The Accounting t- Supervisor works closely with the Marine Operations Supervisor to ensure that reported hours j are correct, complete, and comply with the assigned schedule for those employees scheduled by the Marine Operations Supervisor and the Maintenance Mechanic (those employees i I {-- Fishers Island Ferry District Schedule of Findings For the Year Ended December 31, 2015 r originating at the New London Terminal, except the Managers). The Accounting Supervisor publishes the bi-weekly timesheets for employees originating in the New London terminal and posts them for employee signature prior to submitting the hours to the Town of Southold payroll department. In cases where the employee does not sign prior to submission to the Town, the Accounting Supervisor and/or the Marine Operations Supervisor will contact the employee and encourage them to sign the timesheet. The Business Manager or the Accounting Supervisor publishes the bi-weekly timesheets for employees whose work responsibilities are on Fishers Island. Where necessary, the Accounting Supervisor calculates corrections to hours, which are paid or deducted retroactively. Findings on Compliance NC-2010-001 Non-collusion Statements Section 103-d of the New York General Municipal Law requires a statement of non-collusion in bids and proposals to political subdivision of the state. Currently, the Fishers Island Ferry District does not have a policy to obtain, nor does it obtain any statements of non-collusion in its r bids and proposals. Management's Response: In 2014, the Board of Commissioners approved an amendment to the procurement policy to include a statement of non-collusion. As of July 2016, the Town of Southold's non-collusion statement is included in bid documents and approved contracts as part of the procurement process. NC-2015-001 Bidding Appropriate bidding was not advertised properly on the South Ramp Project. There is no documentation of any bids besides the winning bid. The bill for this project was contested with the Town of Southold because the bidding was not done appropriately. j Management's Response: Management is revising the procurement policy with oversight and input from the District's general counsel. The procurement policy will be revised to conform to the State Comptroller's guidelines. +r- 1 I i I 1 , i , Fishers Island Ferry District Schedule of Findings For the Year Ended December 31, 2015 NC-2015-002 Supervision of Employees I� An agreement was approved by the Board of Commissioners whereby an employee's duties were reassigned, except for performing special marine projects for the Manager. When the s- Manager left, no one was assigned the duty to oversee the employee and provide special s' projects to the employee. The employee continued to be paid a salary. It is unclear the amount `- of services, if any, provided in return and if any deductions should have been taken from the employee's leave time. Management's Response: The Board approved the then Manager's recommendation in January 2014 on realigning responsibilities between the Marine Operations Supervisor and the �~ Assistant Manager Marine Operations. Management is working with the consulting CPA to review this situation and outside HR counsel is preparing the necessary documentation to seek recovery of any over payment for leave accruals. Procedures will be developed to formalize all employee separation benefits for Board approval. i i 4 ' I , -u r , F_, �J aCONNOR DAVIES ACCOUNTANTS AND ADVISORS Appendix 2 Management Representation Letter , i i i- -i 12 F , I ;. Management Representation Letter June 24, 2016 PKF O'Connor Davies, LLP 100 Great Meadow Road Wethersfield, CT 06109 This representation letter is provided in connection with your audit of the financial statements of the Fishers Island Ferry District ("District), which comprise the respective financial position of the { governmental activities and each major fund as of December 31, 2015, and the respective changes in T financial position for the year then ended, and the related notes to the financial statements, for the purpose of expressing opinions as to whether the financial statements are presented fairly, in all material respects, in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). 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. An omission or misstatement that is monetarily small in amount could be considered material as a result of qualitative factors. We confirm, to the best of our knowledge and belief, (having made such inquiries as we considered ' necessary for the purpose of appropriately informing ourselves) as of the date of this letter, the following representations made to you during your audit. Our Responsibilities - 1) We acknowledge that we have fulfilled our responsibilities for: a) The preparation and fair presentation of the financial statements in accordance with US GAAP and include all properly classified funds and other financial information of the primary government and all component units required by generally accepted accounting principles to be included in the financial reporting entity. b) 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; and c) The design, implementation, and maintenance of internal control to prevent and detect fraud. 2) We understand that the term "fraud" refers to intentional acts by one or more individuals among management, those charged with governance, employees, or third parties, involving the use of deception that results in a misstatement in financial statements. Two types of intentional misstatements are relevant to your audit — misstatements resulting from fraudulent financial reporting and misstatements resulting from misappropriation of assets. Fraudulent financial reporting involves intentional misstatements, including omissions of amounts or disclosures in financial statements to deceive financial statement users. Misappropriation of assets involves the theft of an entity's assets. 3) We are further responsible for reviewing, accepting and processing the standard, adjusting, or correcting journal entries that you proposed during the course of your engagement. We confirm that ,', we designated a suitably qualified individual who understands the nature and impact of the proposed entries to the financial statements, and we accept responsibility for the proposed entries that we authorized and processed. Financial Statements i 4) The financial statements referred to above are fairly presented in conformity with US GAAP and include all disclosures necessary for such fair presentation. In that connection, we specifically confirm that: a) The District's accounting policies, and the practices and methods followed in applying them, are appropriate and are as disclosed in the financial statements. b) Except as disclosed in note 2 to the financial statements, there have been no changes during the period audited in the District's accounting policies and practices. c) All material transactions have been recorded in the accounting records and are reflected in the financial statements. 5) Significant assumptions we used in making accounting estimates, including those measured at fair value, are reasonable. I 6) The following, where they exist, have been appropriately disclosed to you and accounted for and/or disclosed in the financial statements in accordance with the requirements of US GAAP: a) The identity of all related parties and related party relationships and transactions including revenues, expenditures/expenses, loans, transfers, leasing arrangements, and guarantees, and amounts receivable from or payable to related parties. b) Guarantees, whether written or oral, under which the District is contingently liable, if any. c) The effects of all known actual, possible, pending or threatened litigation, claims, and assessments. d) The identity of the District's related parties and all the related party relationships and transactions of which we are aware. 7) We have evaluated events subsequent to the date of the financial statements through the date of this letter, and no such events have occurred which would require adjustment or disclosure in the financial statements. No events, including instances of noncompliance, have occurred subsequent to the balance sheet date and through the date of this letter that would require adjustment to or disclosure in the aforementioned financial statements. 8) The effects of uncorrected misstatements are immaterial, both individually and in the aggregate, to the financial statements as a whole. We are in agreement with the adjusting journal entries you have proposed, and they have been posted to the District's accounts. ( Information Provided 9) 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 and all audit or relevant monitoring reports, if any, received from funding sources. b) Communications from regulatory agencies concerning noncompliance with, or deficiencies in, financial reporting practices, if applicable. c) Additional information that you have requested from us for the purpose of the audit. -- d) Unrestricted access to persons' within the District from whom you determined it necessary to i obtain audit evidence. e) Completeness and availability of all minutes of the meetings of the Board of Commissioners or summaries of actions of recent meetings for which minutes have not yet been prepared. i� 10)We have disclosed to you the results of our assessment of the risk that the financial statements may be materially misstated as a result of fraud. 11) Except as made known to you, There are no deficiencies in the design or operation of internal r control over financial reporting that are reasonably likely to adversely affect the District's ability to initiate, authorize, record, process, and report financial data reliably in accordance with US GAAP. 12) Except as made known to you, we have no knowledge of any fraud or suspected fraud that affects iL the entity and involves: a) Management, b) Employees who have significant roles in internal control, or c) Others where the fraud could have a material effect on the financial statements. 13) Except as made known to you and included in your Management Letter, we have no knowledge of any allegations of fraud or suspected fraud affecting the District's financial statements communicated by employees, former employees, regulators, or others. These include the findings from the State pension auditors. I 14) Except as made known to you, we have no knowledge of instances of noncompliance or suspected noncompliance with provisions of laws, regulations, contracts, or grant agreements, or abuse, whose effects should be considered when preparing financial statements. 15)We have disclosed to you all known actual or possible litigation, claims, and assessments whose - effects should be considered when preparing the financial statements. 16)We have disclosed to you the identity of the District's related parties and all the related party relationships and transactions of which we are aware. ' Government—specific 17) Except as made known to you, there have been no communications from regulatory agencies concerning noncompliance with, or deficiencies in, financial reporting practices. 18)We have a process to track the status of audit findings and recommendations. 19)We have identified to you any previous audits, attestation engagements, and other studies related to the audit objectives and whether related recommendations have been implemented. 20)We have provided our views on reported findings, conclusions, and recommendations, as well as - our planned corrective actions, for the report. i ' 21)The District has no plans or intentions that may materially affect the carrying value or classification of assets, liabilities, or equity. - 22)We are responsible for compliance with the laws, regulations, and provisions of contracts and grant agreements applicable to us, including tax or debt limits and debt contracts, and legal and contractual provisions for reporting specific activities in separate funds. 23)We have identified and disclosed to you all instances that have occurred or are likely to have occurred, of fraud and noncompliance with provisions of laws and regulations that we believe have a material effect on the financial statements or other financial data significant to the audit objectives, and any other instances that warrant the attention of those charged with governance. L 1 24)We have identified and disclosed to you all instances, which have occurred or are likely to have occurred, of noncompliance with provisions of contracts and grant agreements that we believe have a material effect on the determination of financial statement amounts or other financial data significant to the audit objectives. 25)We have identified and disclosed to you all instances that have occurred or are likely to have occurred, of abuse that could be quantitatively or qualitatively material to the financial statements or other financial data significant to the audit objectives. 26)There are no violations or possible violations of budget ordinances, laws and regulations (including those pertaining to adopting, approving, and amending budgets), provisions of contracts and grant i agreements, tax or debt limits, and any related debt covenants whose effects should be considered for disclosure in the financial statements, or as a basis for recording a loss contingency, or for reporting on noncompliance. 27)As part of your audit, you assisted with preparation of the financial statements and related notes. We acknowledge our responsibility as it relates to those nonaudit services, including that we assume all management responsibilities; oversee the services by designating an individual, preferably with senior management, who possesses suitable skill, knowledge, or experience; evaluate the adequacy and results of the services performed; and accept responsibility for the results of the services We have reviewed, approved, and accepted responsibility for those financial statements and related notes. We also understand that as part of your audit, you prepared various adjusting journal entries, both on the fund and entity-wide level, and acknowledge that we have reviewed and approved those entries and accepted responsibility for them. 28)The District has satisfactory title to all owned assets, and there are no liens or encumbrances on r such assets nor has any asset been pledged as collateral. 29)The District has complied with all aspects of contractual agreements that would have a material effect on the financial statements in the event of noncompliance. 30)We have followed all applicable laws and regulations in adopting, approving, and amending budgets. 31)The financial statements include all component units as well as joint ventures with an equity interest, _ and properly disclose all other joint ventures and other related organizations. 32)The financial statements properly classify all funds and activities in accordance with GASB Statement No. 34. 33)All funds that meet the quantitative criteria in GASB Statement Nos. 34 and 37 for presentation as major are identified and presented as such and all other funds that are presented as major are particularly important to financial statement users. 34)Components of net position (net investment in capital assets; restricted; and unrestricted) and classifications of fund balance (nonspendable, restricted, committed, assigned, and unassigned) j are properly classified and, if applicable, approved. - 35) Receivables recorded in the financial statements represent valid claims against debtors for transactions arising on or before the balance sheet date and have been reduced to their estimated net realizable value. 36) Provisions for uncollectible receivables have been properly identified and recorded. L-! — 37) Expenses have been appropriately classified in or allocated to functions and programs in the statement of activities, and allocations have been made on a reasonable basis. 38)We agree with the findings of specialists in evaluating the other postemployment benefit obligation F and have adequately considered the qualifications of the specialist in determining the amounts and disclosures used in the financial statements and underlying accounting records. We did not give or cause any instructions to be given to the specialist with respect to the values or amounts derived in an attempt to bias their work, and we are not otherwise aware of any matters that have had an impact on the independence or objectivity of the specialist. 39)We believe that the actuarial assumptions and methods used to measure pension and OPEB ! liabilities and costs for financial accounting purposes are appropriate in the circumstances. 40) Revenues are appropriately classified in the statement of activities within program revenues, general revenues, contributions to term or permanent endowments, or contributions to permanent fund principal. r 41) Interfund, internal, and intra-entity activity and balances have been appropriately classified and reported. 42) Deposits and investment securities are properly classified as to risk and are properly disclosed. 43)Capital assets, including infrastructure and intangible assets, are properly capitalized, reported, and, ,I if applicable, depreciated. 44)Capital assets have been evaluated for impairment as a result of significant and unexpected decline in service utility. Impairment loss and insurance recoveries have been properly recorded. I , 45)We have appropriately disclosed the District's policy regarding whether to first apply restricted or - unrestricted resources when an expense is incurred for purposes for which both restricted and unrestricted net position is available and have determined that net position is properly recognized under the policy. 46)We are following GASB Statement No. 54, paragraph 18, to determine the, fund balance classifications for financial reporting purposes. 47)We acknowledge our responsibility for the required supplementary information (RSI). The RSI is measured and presented within prescribed guidelines and the methods of measurement and presentation have not changed from those used in the prior period. We have disclosed to you any significant assumptions and interpretations underlying the measurement and presentation of the ! RSI. 48) Expenditures of federal awards were below the $750,000 threshold for the year ended December 31, 2015, and we were not required to have an audit in accordance with Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards("Uniform Guidance"). I Signature: Signature: r- Title: Title: i PKF O`CONNOR DAVIES ACCOUNTANTS AND ADVISORS Appendix 3 - Financial Highlights i � r� I l I I I I ' i f- L 13 Fishers Island Ferry District Exit Conference with the Board J ' Year Ended December 31, 2015 Tr F Marcia L. Marien, CPA >. mmarien@pkfod.com 860-257-1870 ext 5221 J PKF aCONNOR DAVIES ACCOUNTANTS AND ADVISORS Dirzft Shen Teirm Balmnee ASSETS Cash and cash equivalents $ 752,573 Receivables 53,972 Due from primary government 177,219 Prepaid expenditures 49,964 Total Assets $1,033,728 LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCE Liabilities Accounts payable $ 299,746 Accrued payroll 78,8.18 Security deposit 13,232 Total Liabilities 391,796 Deferred inflows of resources Deferred revenue '11,133 Taxes paid in advance 177,219 Total Deferred Inflows of Resources 188,352 Fund balance Nonspendable 49,964 Unassigned 403,616 Total Fund Balance 453,580 013000NNOR PKF Total Liabilities, Deferred Inflows of Resources, and Fund Balance $1,033,728 DIMES ACCOUNTANTS AND ADVISORS Unassigned Fund Balance Over Time Unassigned Fund Balance Over Time $4,000,000 General Fund Only 18.00% $3,500,000 16.00% $3,000,000 14.00% 12.00% $2,500,000 10.00% $2,000,000 8.00% $1,500,000 6.00% $1,000,000 4.00% $500,000 2.00% $- 0.00% 2009 2010 2011 2012 2013 2014 2015 General Fund Balance unassigned00000NNOR PKF Revenue -i—Total Unassigned General Fund Balance to General Fund Revenue DAV I ES ACCOUNTANTS AND ADVISORS Vol lalla.0 Final Favorable Budget Actual (Unfavorable) REVENUES Ferry Revenues $ 2,841,840 $ 2,722,728 $ (119,112) Property,Tax Revenues 7881103 7881116 13 Property Management Revenues 81,000 1101316 29,316 Grant Revenues 337,148 1,532 (335,616) Other Revenues 500 2,891 2,391 TOTAL REVENUES 4,048,591 3,625,583 (423,008) EXPENDITURES General Government 460,584 451,371 91213 Transportation 31092,001 2,686,905 405,096 Theater, Contractual 13,000 12,877 123 Employee Benefits 536,113 532,644 3,469 Debt Service 383,763 383,545 218 TOTAL EXPENDITURES 4,485,461 4,067,342 418,119 EXCESS (DEFICIENCY) OF REVENUES 0 PKF OVER EXPENDITURES $ (436,870) $ (441,759) $ (4,889) OrCONNOR DAVIES ACCOUNTANTS AND ADVISORS r a - r - iKevenues Over Time 3,000,000 - Ferry Revenue by Ca ry 2,500,000 2,000,000 — 1,500,000 1,000,000 500,000 2009 2010 2011 2012 2013 2014 2015 C13PKF ■FerryO Freight ■Ferry 0 Traffic ■Ferry O UPS ■Ferry 0 Charters ■Ferry 0 Other C(CONNOR P. 9 ry P. ry P, ry P, ry P� DAV I E S ACCOUNTANTS AND ADVISORS GREATH VALUE Payroll Comparison Over Time 2,000,000 _ Cost of Personnel Over Time 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 2009 2010 2011 2012 2013 2014 2015 C■Personnel ■Medical insurance ■NYS Retirement In PKFSocial Security ■Unemployment aCONNOR DAVIES ACCOUNTANTS AND ADVISORS j, r=: --milli Beginning Ending Balance Increases Balance Capital assets not being depreciated Land $ 41,717 $ - $ 41,717 Capital assets being depreciated Buildings and systems 12,583,229 - 12,583,229 Machinery and equipment 2,942,060 2,942,060 Infrastructure 3,118,404 130,377 3,248,781 18,643,693 130,377 18,774,070 Less accumulated depreciation (8,528,575) (602,305) (9,130,880) $ 10,1561835 $ (471,928) $ 9,684,907 0%3 PKF C CONNOR DAVIES ACCOUNTANTS AND ADVISORS Debt oummcallry Beginning Ending Type and (Vote Balance Additions Reductions Balance Bonds (3E1 ) $ 1 ,375,000 $ 111387000 $ 17375,000 $ 111381.000 BANS (3E2) 849,000 6997000 849,000 699,000 Comp abs (3E3) 213,432 - 54,092 1597340 Pension (4A) 1791481 457303 134,178 OPEB (4C) 334;379 37,430 487010 3237799 $ 2,951 ,292 $ 11874,430 $ 2,3719405 $ 2,4547317 013PKF aCONNOR DAVIES ACCOUNTANTS AND ADVISORS Long Term Halane,e- Sheet AJJ�r� Cash and cash equivalents S 752,573 Receivables 53,972 Due from primary government 177,219 Prepaid expenses 92,408 Capital assets Nondepreciable 41,717 Depreciable,net of accumulated depreciation 9,643,190 Total Assets 10,760,679 DEFERRED OUTFLOWS OF RESOURCES Difference between expected and actual experience 4,295 Net difference between projected and actual earnings 23,305 Contributions after the measurement date 120,621 Total Deferred Outflows of Resources 148.221 LIABILITIES Accounts payable 299,746 Accrued payroll 78,818 Security deposit 13,232 Accrued interest payable 19,794 Noncurrent liabilities Due within one year 932,835 Due in more than one year 1,521,482 Total Liabilities 2,865,907 DEFERRED INFLOWS OF RESOURCES Changes in proportion 2,310 Taxes paid in advance 177,219 Total deferred inflows of resources 179,529 NET POSITION PYKF Net investment in capital assets 7,847,907 rCONNOR Unrestricted ' O 15,557 DAVIES ACCOUNTANTS AND ADVISORS Total Net Position S 7,863,464 e Y 1AME7ZIrM KIMCOMe 8tMt(BMVMR Net(Expense) Revenue and Changes in Net Program Revenues Position Charges Operating for Grants and FunctionsfPrograms Expenses Services Contributions Total Governmental activities General government S 363,446 $ - S - (363,446) Ferry operations 3,646,065 2,722,728 1,532 (9121,805) Airport 35,041 13,573 - (21,468) Theater 12,877 81338 - (4,539) Dental activities 9,049 88,405 - 79,356 Interest on long ternm debt 56,467 - - (56.467) Total Government 4.122.945 2,833,044 1.532 (1,288,369) General Revenues Property taxes, interest and liens 788,116 Interest and investment earnings 476 Miscellaneous 79,685 Total General Revenues 868,277 Change in Net Position (420,092) Net Position- Beginning of Year, as reported 6,302,040 Cumulative Effect of Change in Accounting Principle (18,484) Net Position- Beginning of Year, as restated 8,283,556 Net Position -Ending $ 7,863,464 r GREATER I VALUE lit Net Position Over Time History of Net Position $10,000,000 $8,000,000 3 i $6,000,000 $4,000,000 i 9 $2,000,000 k! t $- 20)9 2010 2011 2012 2013 2014 2015 $(2,000,000) - C13 PKF Net investment in capital assets ■ Unrestricted I C(CONNOR DAVIES A(i pUNIAN i<AND AOViS010 s. About the 201-5 Audit 013PKF C CONNOR DAVIES ACCOUNTANTS AND ADVISORS ® Perform the audit under GAAS to achieve reasonable, rather than absolute assurance, the FS are free from material misstatements © Communicate in writing deficiencies in internal control that we believe to be significant deficiencies or material weaknesses ® Advise management of appropriateness of accounting policies and their application ® Communicate any fraud or illegal acts that were noted during the course of the audit, however our audit cannot be relied on to identify all such acts COW OrCONNOR DIES ACCOUNTANTS AND ADVISORS fa i Of Oth(elr M@fttelfO ][i4eviewed- Internal Accounting Controls in the-context--of the audit Management's Judgment and Estimates Appear Appropriate Difficulties encountered in audit No unresolved matters/no disagreements Significant Accounting Policies No changes Planned Scope and Timing I Same as planned I Audit Adjustments - Made We made no significant adjustments Audit Adjustments - Not Made 1 Waived adjustments were trivial Consultations with Other Auditors None Independence Not impaired - -T PPCF C aCONNOR DAVIES ACCOUNTANTS AND ADVISORS of H/C MRIMBITO ® Control Deficiencies exist when the design or operation of a control does not allow management or employees, in their normal course of performing their assigned functions, to prevent or detect and correct misstatements on a timely basis o Significant Deficiencies —deficiencies in I/C that are less sever than a material weakness, yet important enough to merit attention by those charged with governance ® Material Weaknesses — deficiencies in I/C, such that there is a reasonable possibility that a material misstatement of the FS will not be prevented, or detected and corrected on a timely basis CPKF C(CONNOR DAVIES ACCOUNTANTS AND ADVISORS t (IC Q it itee Hdlemt'Me(�l ® 10-1 : Entity Wide Controls • Documentation of Controls in Place • Review of the Controls to Assess Risk • Make Changes in the Controls, if needed • Share the procedures with all • Monitor to see that they are followed © 10-3: Segregation of Duties over Revenues 10-7: Documentation of Controls 15-1 : Controls* over Payroll 0 EKF OrCONNOR DAVIES ACCOUNTANTS AND ADVISORS a,. Complimnce 10-1 : Section 103-d of the New York General Municipal Law requires a statement of non-collusion in bids and proposals to political subdivision of the state. Currently, the Fishers Island Ferry District does not have a policy to obtain, nor does it obtain, any statements of non-collusion in its bids and proposals. © 15-1 : Appropriate bidding was not performed for the South Ramp Project. There is no documentation of any bids besides the winning bid. The bill for this project was contested with the Town of Southold because the bidding was not done appropriately. ® 15-2: An agreement was approved by the Board of Commissioners whereby an employee's duties were reassigned, except for performing special marine projects for the Manager. When the Manager left, no one was assigned the duty to oversee the employee and provide special projects to the employee. The employee continued to be paid a salary. It is unclear the amount of services, if any, provided in return and if any deductions should have been taken from the employee's leave time. CPKF OFCONNOR DAVIES ACCOUNTANTS AND ADVISORS i PKF OCONNOR DAVIES ACCOUNTANTS AND ADVISORS Appendix 4 About PKF O'Connor Davies, LLP 1 14 r I C PKF O`CONNOR DAVIES ACCOUNTANTS AND ADVISORS i FIRM OVERVIEW Founded in 1891, PKF O'Connor Davies has evolved from an' Himdustry Recognitioni accounting firm to a corps of high-caliber professionals that delivers to a global and growing client base a complete range of audit, tax a Ranked 26of"2016'sTop100Firms" and advisory services as well as insights and expertise at the highest; level. As our business has grown, our commitment to active value —INSIDE Public Accounting, 2016 I creation has allowed us to connect our clients to sound business, advice,key players and resources across diverse industries. Ranked 6 of the"Top Firms t in the Mid-Atlantic" i AN ACKNOWLEDGED GLOBAL LEADER —Accounting Today, 2015 Not only are we one of the nation's most rapidly growing "gest Full-Service accounting and advisory firms,we are also the lead North American Alternative Investment firm in the growing PKF global network of independent accounting Practice" and advisory firms.This enables us to provide clients with preferred — wealth and Finance International,2015 access to top-tier experts and firms in 440 cities and 150 countries around the world. It also establishes us as the primary referral point Ranked the 11 th largest for international businesses with needs in North America, an p advantage for our domestic clients seeking connections outside the accounting firm in New York U.S. City —Crain's New York Business, 2015 ACTWE PARTNER INVOLVEMENT DEMCATED ENGAGEMENT, TEAMS Among the 50"Best Accounting Employers to We have built strong relationships with our clients by being Work for in proactive, thorough and efficient. Firm partners are involved in the day-to-day management of engagements, ensuring a high degree of North America" client service and cost effectiveness. Multi- disciplinary teams ensure — Vault, 2016 solutions are customized to address specific needs and integrated for greater efficiency. Oneofthelargestaccounting firms in the New York A MOHER STANDARD: BEYOND PASSIVE Metropolitan area VALUE CALCULATION TO ACTIVE VALUE — Westchester and Fairfield County Business Journals, CREATION 2014 Our focus on value has driven our growth, propelling PKF O'Connor Davies to the Top 26 on INSIDE Public Accounting's 2016 "Top 100 v A"Leader in Audit and Accounting" Firms" list and gaining us acclaim as one of the country's fastest- —Accounting Today, 2014 growing firms. With unmatched client focus, we unlock genuine value hidden at key connection points in every engagement within P One of the"Top 10 Fastest- regional, national and international arenas. Through these Growing Firms" connections, our team of specialists continually drives efficiencies, —INSIDE Public Accounting, 2014 i uncovers opportunities and manages risk — delivering value where others can't. a A"Pacesetter in Growth" —Accounting Today, 2014 KNOW GREATER VALUE TM 15 COW OCONNOR DAVIES ACCOUNTANTS AND ADVISORS AgiIlnty9 Responnsnveness and RecognniSm Since our founding, PKF O'Connor Davies has maintained its commitment to gaining a deep understanding of each client's operations and financial history in order to help meet their every challenge and objective. We fulfill this mission by providing resources that match those of larger firms in scope — but with the agility only a mid-sized firm such as ours can demonstrate...and yet,we still rank among them. Our services include: Accounting and Advisory Services Assurance Services n Bankruptcy& Restructuring Accounting Outsourcing n ManagementAdvisoryServices Agreed-Upon Procedures (AUPs) Risk Advisory Services Audits, Reviews and Compilations a Specialty Industry Advisory Services Employee Benefit Plans —Employee Benefit Plan Services Government Entity Audits& Compliance —Entrepreneurial Business Advisory Solutions International Financial Reporting —Government&Public SectorAdvisory Services Standards(IFRS) —Healthcare Advisory Services IT Audit & Cybersecurity Reviews —HospitalityAdvisoryServices Public Company Accounting Oversight a Transaction & Financial Advisory Services Board(PCAOB) G Wealth Services Tax Compliance and Family Office Services Planning Services Accounting & Reporting Employee Benefit Planning&Tax Compliance G Advisory n International Tax Services n Charitable Giving IRS Representation &Tax Controversies n Investment Monitoring & Oversight a m Personal Financial Planning Lifestyle Support Private Foundation Services a Personal Financial Management State and Local Tax(SALT) n Tax Planning n Tax Compliance&Reporting n Wealth Planning n Tax-Exempt Organizations n Tax Research and Strategic Planning n Trust and Estate Planning We offer an exceptional breadth of advisory services across diverse industries and sectors. 16 COW 000NNOR DAVIES ACCOUNTANTS AND ADVISORS I PKF O'Connor Davies,LLP is a member firm of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm orfirms. I , Global, National and Dotal Presence Our office locations include: El Bethesda, MD © Cranford, NJ Harrison, NY Livingston, NJ, © New York, NY El Newburgh, NY © Paramus, NJ Ridgewood, NJ © Stamford, CT Wethersfield, CT _a 17