Financial Statements Audit Report

City of Wapato
For the period January 1, 2017 through December 31, 2017

Published May 2, 2019

Report No. 1023731
 Office of the Washington State Auditor
Pat McCarthy

May 2, 2019

Mayor and City Council

City of Wapato
Wapato, Washington

Report on Financial Statements

The State Auditor’s Office takes seriously our role of providing state and local governments with
assurance and accountability as the independent auditor of public accounts. Independent audits
provide essential accountability and transparency for City operations.

The attached comprises our independent audit report on the City’s financial statements and
compliance with certain provisions of laws, regulations, contracts and grant agreements.

In summary, this audit revealed an alarming disregard for the accountability and transparency that
is the foundation for public trust in government. Elected officials and public employees have an
obligation to ensure open government, by following the law, their own policies and best practices.
Those standards are outlined in this audit, as are several instances in which the city did not follow
them.

Multiple audits performed by this Office have highlighted egregious actions of City officials.

I strongly recommend that City officials adhere to their civic responsibilities and work diligently
to meet the expectations of their community, and the broader Washington public.

We hope this audit proves valuable to those assessing the government’s stewardship of public
resources.

Sincerely,

Pat McCarthy
State Auditor
Olympia, WA

Insurance Building, P.O. Box 40021  Olympia, Washington 98504-0021  (360) 902-0370  Pat.McCarthy@sao.wa.gov
 TABLE OF CONTENTS

Schedule of Audit Findings and Responses .................................................................................... 4

Schedule of Audit Findings and Responses .................................................................................. 11

Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance
and Other Matters Based on an Audit of Financial Statements Performed in Accordance with
Government Auditing Standards................................................................................................... 18

Independent Auditor's Report on Financial Statements ................................................................ 21

Financial Section ........................................................................................................................... 25

About the State Auditor's Office ................................................................................................... 41

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 SCHEDULE OF AUDIT FINDINGS AND RESPONSES

2017-001 The City’s internal controls over accounting and financial

statement preparation were inadequate to ensure accurate and
timely reporting.
Background
City management, state and federal agencies, and the public rely on the information
included in financial statements and reports to make decisions. City management is
responsible for designing and following internal controls that provide reasonable
assurance regarding the reliability of financial reporting.

State law (RCW 43.09.230) requires local governments to submit annual financial
reports to the State Auditor’s Office within 150 days of the end of the fiscal year.
As part of the annual financial report, all local governments that spend federal funds
must prepare a Schedule of Expenditures of Federal Awards (SEFA). Local
governments that spend $750,000 or more in federal funds must receive a federal
single audit.

Government Auditing Standards, prescribed by the Comptroller General of United

States, requires the auditor to communicate material weaknesses, as defined below
in the Applicable Laws and Regulations section, as a finding.

Description of Condition
The current audit identified the following deficiencies in internal controls that,
when taken together, represent a material weakness:

 The City did not take appropriate action to submit accurate and timely
annual reports. The City submitted financial statements on
September 25, 2018, which was 118 days after the deadline.
 City staff responsible for financial statement preparation lacked technical
knowledge and experience necessary to prepare the financial statements and
supplementary schedules accurately and completely in accordance with the
Budgeting, Accounting, and Reporting System (BARS) manual.
 The City did not establish a secondary review process to detect and correct
errors before submitting the annual financial report for audit.

Cause of Condition
The City experienced significant turnover in key positions responsible for preparing
the financial statements and did not ensure new staff had the technical proficiency

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 or adequate training in the BARS manual reporting requirements needed to prepare
the financial statements accurately and in a timely manner.

Effect of Condition
As a result of the internal control weaknesses, we identified the following errors:

 The City did not submit its Schedule of Liabilities for audit. As a result, the
City understated liabilities by $8 million.
 The City’s original SEFA reported over $3 million in federal expenditures,
which led the City to request a federal single audit. During our audit, we
determined the City over-reported its federal expenses by about
$2.5 million. As a result, the City was under the $750,000 threshold and was
not required to receive a federal single audit.
 The City incorrectly classified at least $656,665 of its ending reserved cash
and investments as unreserved.
Additionally, delayed filing of the financial reports prevents the public from
obtaining timely information about the City’s fiscal operations. It also hinders
transparency to citizens and our Office’s efforts to compile statistical information
for use by the state Legislature and others.

Recommendations
We recommend the City establish and follow effective internal controls over the
preparation of the financial statements, which should include:

 Staff obtaining the necessary training to present financial statements

accurately and completely
 Reporting the annual financial statements by the required deadline
 Verifying that all federal expenditures are reported accurately on the SEFA
before submitting the annual report
 Presenting the Schedule of Liabilities accurately and completely

City’s Response
The present Clerk-Treasurer is unable to respond as to the prior year’s financial
reporting, only to say the City of Wapato is working on the present year reporting
and presenting the accounting of the past Clerk-Treasurer in the 2018 Annual
Report. The City is cleaning up the past to present a new and productive future.

Auditor’s Remarks

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 We appreciate the City’s commitment to resolving the issues identified above and
emphasize the importance of establishing effective controls over financial reporting
so the public can rely on the financial information provided by management. We
will follow up on the status of the finding during the next audit.

Applicable Laws and Regulations

RCW 43.09.200 – Local government accounting – Uniform system of accounting,
states,

The state auditor shall formulate, prescribe, and install a

system of accounting and reporting for all local governments,
which shall be uniform for every public institution, and every
public office, and every public account of the same class.

The system shall exhibit true accounts and detailed statements

of funds collected, received, and expended for account of the
public for any purpose whatever, and by all public officers,
employees or other persons.

The accounts shall show the receipt, use, and disposition of all
public property, and the income, if any, derived therefrom; all
sources of public income , and the amounts due and received
from each sources; all receipts, vouchers, and other documents
kept, or required to be kept, necessary to isolate and prove the
validity of every transaction; all statements and reports made
or required to be made, for the internal administration of the
office to which they pertain; and all reports published or
required to be published, for the information of the people
regarding any and all details of the financial administration of
public affairs.

RCW 43.09.230 – Local government accounting – Annual reports – Comparative

statistics, states in part:

The state auditor shall require from every local government

financial reports covering the full period of each fiscal year,
in accordance with the forms and methods prescribed by the
state auditor, which shall be uniform for all accounts of the
same class.
Such reports shall be prepared, certified, and filed with the
state auditor within one hundred fifty days after the close of
each fiscal year.

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 The reports shall contain accurate statements, in summarized
form, of all collections made, or receipts received, by the
officers from all sources; all accounts due the public
treasury, but not collected; and all expenditures for every
purpose, and by what authority authorized; and also: (1) A
statement of all costs of ownership and operation, and of all
income, of each and every public service industry owned and
operated by a local government; (2) a statement of the entire
public debt of every local government, to which power has
been delegated by the state to create a public debt, showing
the purpose for which each item of the debt was created, and
the provisions made for the payment thereof; (3) a classified
statement of all receipts and expenditures by any public
institution; and (4) a statement of all expenditures for labor
relations consultants, with the identification of each
consultant, compensation, and the terms and conditions of
each agreement or arrangement; together with such other
information as may be required by the state auditor.
Budgeting Accounting and Reporting System (BARS) manual, Internal Control
section 3.1.3, states in part:

Purpose and Definition of Internal Controls

Internal control is defined by the Committee of Sponsoring

Organizations of the Treadway Commission (COSO), in
standards adopted by the American Institute of Certified
Public Accountants and by the Federal Office of Management
and Budget as follows:

Internal control is a process – affected by those charged with

governance, management and other personnel designed to
provide reasonable assurance regarding the achievement of
objectives in the following categories:
 Effectiveness and efficiency of operations
 Compliance with applicable laws and regulations
 Reliability of financial reporting

Management and the governing body are responsible for the

government’s performance, compliance and financial
reporting. Therefore, the adequacy of internal control to
provide reasonable assurance of achieving these objectives is
also the responsibility of management and the governing body.

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 The governing body has ultimate responsibility for ensuring
adequate controls to achieve objectives, even though primary
responsibility has been delegated to management. Since
management and the governing body are assumed to work in
harmony, both parties are collectively referred to as
“management” throughout the rest of this section.

Controls over Financial Reporting

This objective refers to fair presentation of financial

statements and required schedules in all material respects in
accordance with the stated basis of accounting . . .

Preparation of the annual report – Controls should ensure that

financial statements and required schedules are properly
compiled and prepared from source accounting records.
Controls should also ensure correct presentation of statements
and schedules . . .

Controls over Financial Reporting

This objective refers to fair presentation of financial

statements and required schedules in all material respects in
accordance with the stated basis of accounting.

In meeting this objective, the government should have controls

that accomplish the following key functions:
 Identification of financial events – Controls should
ensure financial events and transactions are properly
identified and recorded.
 Properly applying accounting standards – Controls
should ensure correct criteria and methodology is
applied when accounting for financial events. When the
correct method of accounting for or reporting a
transaction is unclear, the government should seek
clarification by performing research, contracting for
accounting assistance, or communicating with the State
Auditor’s Office or standard setting bodies.
 Correctly accounting for all financial events – Controls
should ensure that:
 Only valid transactions are recorded and reported.

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  All transactions occurred during the period are
recorded and reported.
 Transactions are recorded and reported at properly
valued and calculated amounts.
 Recorded and reported transactions accurately
reflect legal rights and obligations.
 Transactions are recorded and reported in the
account and fund to which they apply.
 Preparation of the annual report – Controls should
ensure that financial statements and required schedules
are properly compiled and prepared from source
accounting records. Controls should also ensure correct
presentation of statements and schedules.

Controls and processes should generate adequate

documentation to demonstrate achievement of objectives. This
is not only important for audit, oversight and public records
purposes, but also to enable effective monitoring of controls
over financial reporting by management.

Government Auditing Standards, December 2011 Revision, paragraph 4.23 states:

4.23 When performing GAGAS financial audits, auditors

should communicate in the report on internal control over
financial reporting and compliance, based upon the work
performed, (1) significant deficiencies and material
weaknesses in internal control; (2) instances of fraud and
noncompliance with provisions of laws or regulations that
have a material effect on the audit and any other instances
that warrant the attention of those charged with governance;
(3) noncompliance with provisions of contracts or grant
agreements that has a material effect on the audit; and (4)
abuse that has a material effect on the audit.

The American Institute of Certified Public Accountants Codification of Statements

on Auditing Standards, section 265 – Communicating Internal Controls Related
Matter Identified in Audit, paragraph 7, states:

For purposes of generally accepted auditing standards, the

following terms have the meanings attributed as follows:

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 Material weakness. A deficiency, or a 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.

Significant deficiency. 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.

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 SCHEDULE OF AUDIT FINDINGS AND RESPONSES

2017-002 The City did not monitor its financial activity, resulting in
noncompliance with state law and a significant decline in financial
position that places it at risk of not meeting its financial obligations
or providing services at current levels.
Background
Until the fall of 2018, the City of Wapato was governed by a seven-member Council
and Mayor, who oversaw daily operations. The City then established a new city
administrator position in September 2018 to oversee its daily operations. The
Clerk-Treasurer is responsible for recording and reporting financial transactions.
The City serves about 5,000 citizens and operates on a $6.6 million annual budget.

Description of Condition
The City’s financial condition declined during the 2017 audit period. Additionally,
we examined the City’s financial condition from 2018 through February 2019 and
identified a continued decline in the City’s ending cash and investments.
Management has not established a formalized plan to improve its financial
condition. Also, the City has not fully reconciled bank activity since April 2018 and
did not record beginning fund balances in the general ledger to allow for proper
monitoring of expenditures, budgets, and available cash.

Financial condition

The City reported a continued decrease in ending cash and investments for its
Current Expense Fund, as shown in the table below:

For year ending December 31 2016 2017 2018

Ending cash & investments - Current Expense $1,954,288 $1,288,547 $75,775

We estimate that ending cash and investments reduced to negative $41,516 in

February 2019.

In addition, the City paid unallowable expenditures in 2018 out of the Garbage and
Sewer Funds that should have been paid through the Current Expense Fund. The
Garbage and Sewer Fund resources are restricted to only expenses for these
activities because these resources come from charges to users. Therefore, they are
not allowable for general use of the government. During 2018, the City paid
$125,894 through the Garbage Fund for construction on the swimming pool, and
paid $117,111 through the Sewer Fund for City legal expenses.

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 Budget compliance/Ending cash and investments

The City Council annually approves a budget that determines the City’s legal
spending limits. Under state law (RCW 35.33.121), spending should not exceed
this level without a Council-approved budget amendment. The City paid
expenditures within funds that did not have available cash and that exceeded
approved budgets. For 2017, the City overspent approved budgets for five funds
totaling $755,093 and reported negative cash and investment balances for four
funds, totaling $594,610. This is detailed in the tables below:

2017 fund details

Amount that expenses Ending cash and
Fund
exceeded budget investments
Cemetery Fund - (11,177)
Street Fund 220,107 (488,773)
Capital Improvement Fund 340,172 (43,123)
SEID Loan - Valicoff Fruit Fund 123,975 44,144
Garbage Fund 35,107 356,646
Information Technology Rental
35,732 (51,537)
and Revolving Fund

For 2018, the City overspent approved budgets for four funds totaling $266,973
and reported negative cash and investment balances in balances in three funds,
totaling $367,091.

When expenditures in a fund exceed the amount of available resources, the City is
borrowing from other funds to continue operations without formally establishing
an interfund loan. The Council must approve interfund loans by resolution or
ordinance that includes a payment plan and sets a reasonable rate of interest to be
paid to the lending fund. If such funds are not repaid in a timely manner, it would
represent an unallowable diversion of funds.

We also reported other areas of non-compliance in the 2018 accountability audit

report number 1023796, finding number 2018-003.

Cause of Condition
The City has not monitored financial activities to ensure funds have the available
resources and budget to cover expenditures before payment. Also, the City is not
monitoring that expenses are reported in the correct fund. Further, the City has not
acted to improve its financial position.

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 Effect of Condition
The City did not comply with state laws that had a direct and material effect on the
financial statements. Specifically, the City did not follow state budget requirements
and used restricted resources for unallowable purposes. Also, the City risks not
being able to meet future financial obligations or continue operations at current
service levels.

Recommendations
We recommend the City’s elected officials and management establish a formal,
written comprehensive plan to address the City’s financial condition and closely
monitor financial operations to ensure it can meet its financial obligations. Also,
we recommend the City follow state law. To do this, the City should:
 Obligate expenditures only when funds have the available budget and
resources to pay for the transactions and use restricted resources only for
allowable purposes
 Establish interfund loans that include appropriate interest rates and
repayment plans for funds with negative cash and investments to avoid the
permanent diversion of restricted resources

City’s Response
The prior Financial Officers did not have municipal experience and did not appear
to understand the concept of BARS Fund accounting; therefore, monies allocated
for individual funds (i.e. Water, Sewer and Garbage, etc) were spent on general
expenses, without performing an Inter-Fund Loan with the interest calculated
though a payback date. As a result of these errors in accounting practices, the
above mention funds are in the red.

The present Clerk-Treasurer is taking steps to replenish the funds that have
improperly managed.

Auditor’s Remarks
We appreciate the City’s commitment to resolving the issues identified above and
emphasize the importance of closely monitoring financial obligations. We will
follow up on the status of the finding during the next audit.

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 Applicable Laws and Regulations
RCW 35.33.121 – Funds – Limitations on expenditures – Transfers, states:

The expenditures as classified and itemized in the final budget

shall constitute the city's or town's appropriations for the ensuing
fiscal year. Unless otherwise ordered by a court of competent
jurisdiction, and subject to further limitations imposed by
ordinance of the city or town, the expenditure of city or town
funds or the incurring of current liabilities on behalf of the city
or town shall be limited to the following:

(1) The total amount appropriated for each fund in the budget
for the current fiscal year, without regard to the individual
items contained therein, except that this limitation shall not
apply to wage adjustments authorized by RCW 35.33.107;
and

(2) The unexpended appropriation balances of a preceding

budget which may be carried forward from prior fiscal years
pursuant to RCW 35.33.151; and

(3) Funds received from the sale of bonds or warrants which

have been duly authorized according to law; and

(4) Funds received in excess of estimated revenues during

the current fiscal year, when authorized by an ordinance
amending the original budget; and

(5) Expenditures required for emergencies, as authorized in

RCW 35.33.081 and 35.33.091.

Transfers between individual appropriations within any one

fund may be made during the current fiscal year by order of the
city's or town's chief administrative officer subject to such
regulations, if any, as may be imposed by the city or town
legislative body. Notwithstanding the provisions of RCW
43.09.210 or of any statute to the contrary, transfers, as herein
authorized, may be made within the same fund regardless of the
various offices, departments or divisions of the city or town
which may be affected.

The city or town legislative body, upon a finding that it is to the

best interests of the city or town to decrease, revoke or recall all

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 or any portion of the total appropriations provided for any one
fund, may, by ordinance, approved by the vote of one more than
the majority of all members thereof, stating the facts and
findings for doing so, decrease, revoke or recall all or any
portion of an unexpended fund balance, and by said ordinance,
or a subsequent ordinance adopted by a like majority, the
moneys thus released may be reappropriated for another purpose
or purposes, without limitation to department, division or fund,
unless the use of such moneys is otherwise restricted by law,
charter, or ordinance.

RCW 43.09.210, states in part:

All service rendered by . . . one department, public improvement,

undertaking, institution and public service industry to another,
shall be paid for at its true and full value by the department . . .
receiving the same, and no department, public improvement,
undertaking, institution or public service industry shall benefit in
any financial manner whatever by an appropriation or fund made
for the support of another . . . .

Budgeting Accounting and Reporting System (BARS) manual – Accounting

Principles and Controls, Internal Control, Sections 3.1.3.20 and 3.1.3.30 states:

Internal control is a process – affected by those charged with

governance, management and other personnel designed to provide
reasonable assurance regarding the achievement of objectives in
the following categories:

 Effectiveness and efficiency of operations

 Compliance with applicable laws and regulations
 Reliability of financial reporting

Management and the governing body are responsible for the

government’s performance, compliance and financial reporting.
Therefore, the adequacy of internal control to provide reasonable
assurance of achieving these objectives is also the responsibility
of management and the governing body. The governing body has
ultimate responsibility for ensuring adequate controls to achieve
objectives, even though primary responsibility has been delegated
to management. Since management and the governing body are

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 assumed to work in harmony, both parties are collectively referred
to as “management” throughout the rest of this section.

Budgeting, Accounting and Reporting System (BARS) manual, 3.9.1, Loans, states,
in part:

This section does not attempt to determine which moneys of a

local government may or may not be available for interfund
lending, since the special character of some moneys involves
commitments and restrictions which would require individual
consideration. As a rule of thumb, however, it may be
considered permissible to make interfund loans of those moneys
which are clearly inactive or in excess of anticipated cash needs
throughout the duration of the loan and legally available for
investment.

The minimum acceptable procedures for making and accounting

for interfund loans are as follows:

1. The legislative body of a local government must, by

ordinance or resolution, approve all interfund loans,
indicating the lending and borrowing funds, and provide
in the authorization a planned schedule of repayment of
the loan principal as well as setting a reasonable rate of
interest (based on the external rate available to the local
government) to be paid to the lending fund. The planned
schedule of repayment should specify the due date(s) of
payment(s) needed to repay the principal and interest on
the loan.

2. Interest should be charged in all cases, unless:

a. The borrowing fund has no other source of revenue

other than the lending fund; or

b. The borrowing fund is normally funded by the lending

fund.

3. The borrowing fund must anticipate sufficient revenues

to be able over the period of the loan to make the
specified principal and interest payments as required in
the authorizing ordinance or resolution.

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 4. The loan status should be reviewed annually by the
legislative body at any open public meeting.

5. The term of the loan may continue over a period of more

than one year, but must be “temporary” in the sense that
no permanent diversion of the lending fund results from
the failure to repay by the borrowing fund. A loan that
continues longer than three years will be scrutinized for
a permanent diversion of moneys. (Note: these
restrictions and limitations do not apply to those funds
which are legally permitted to support one another
through appropriations, transfers, advances, etc.)

6. Appropriate accounting records should be maintained to

reflect the balances of loans in every fund affected by
such transactions.

No debt instrument issued by one fund and held by another fund

can be consider an investment. Such activity should be
accounted for and reported as an interfund loan. Although the
accounting treatment for such situations is not specified within
a source of authoritative pronouncements, GAAP standards
require transactions to be with an external party in order to
classify them as other than interfund.

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 INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING AND ON COMPLIANCE AND
OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL
STATEMENTS PERFORMED IN ACCORDANCE WITH
GOVERNMENT AUDITING STANDARDS

City of Wapato
January 1, 2017 through December 31, 2017

Mayor and City Council

City of Wapato
Wapato, Washington

We have audited, 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, the financial statements of the
City of Wapato, as of and for the year ended December 31, 2017, and the related notes to the
financial statements, which collectively comprise the City’s financial statements, and have issued
our report thereon dated May 2, 2019. Our report and Finding 2017-002, in the accompanying
Schedule of Audit Findings and Responses, include information on material non-compliance that
continues to have an effect on the City’s financial condition.

We issued an unmodified opinion on the fair presentation of the City’s financial statements in
accordance with its regulatory basis of accounting. We issued an adverse opinion on the fair
presentation with regard to accounting principles generally accepted in the United States of
America (GAAP) because the financial statements are prepared by the City using accounting
practices prescribed by Washington State statutes and the State Auditor’s Budgeting, Accounting
and Reporting System (BARS) manual described in Note 1, which is a basis of accounting other
than GAAP. The effects on the financial statements of the variances between the basis of
accounting described in Note 1 and accounting principles generally accepted in the United States
of America, although not reasonably determinable, are presumed to be material.

INTERNAL CONTROL OVER FINANCIAL REPORTING

In planning and performing our audit of the financial statements, we considered the City’s internal
control over financial reporting (internal control) to determine the audit procedures that are

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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 City’s
internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s
internal control.

Our consideration of internal control was for the limited purpose described in the preceding
paragraph and was not designed to identify all deficiencies in internal control that might be
material weaknesses or significant deficiencies and therefore, material weaknesses or significant
deficiencies may exist that were not identified. However, as described in the accompanying
Schedule of Audit Findings and Responses, we identified certain deficiencies in internal control
that we consider to be material weaknesses.

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 City'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. We consider the deficiencies described in the
accompanying Schedule of Audit Findings and Responses as Finding 2017-001 to be a material
weakness.

COMPLIANCE AND OTHER MATTERS

As part of obtaining reasonable assurance about whether the City’s financial statements are free
from material misstatement, we performed tests of the City’s 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 instances of noncompliance or other matters that are required to
be reported under Government Auditing Standards and which are described in the accompanying
Schedule of Audit Findings and Responses as Finding 2017-002. We also noted certain matters
that we have reported to the management of the City in a separate special investigation report dated
February 21, 2019.

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CITY’S RESPONSE TO FINDINGS
The City’s response to the findings identified in our audit is described in the accompanying
Schedule of Audit Findings and Responses. The City’s response was not subjected to the auditing
procedures applied in the audit of the financial statements and, accordingly, we express no opinion
on the response.

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
City’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 City’s internal control and
compliance. Accordingly, this communication is not suitable for any other purpose. However, this
report is a matter of public record and its distribution is not limited. It also serves to disseminate
information to the public as a reporting tool to help citizens assess government operations.

Pat McCarthy
State Auditor
Olympia, WA

May 2, 2019

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 INDEPENDENT AUDITOR’S REPORT ON
FINANCIAL STATEMENTS

City of Wapato
January 1, 2017 through December 31, 2017

Mayor and City Council

City of Wapato
Wapato, Washington

REPORT ON THE FINANCIAL STATEMENTS

We have audited the accompanying financial statements of the City of Wapato, for the year ended
December 31, 2017, and the related notes to the financial statements, which collectively comprise
the City’s financial statements, as listed on page 25.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements
in accordance with the financial reporting provisions of Washington State statutes and the
Budgeting, Accounting and Reporting System (BARS) manual prescribed by the State Auditor
described in Note 1. This includes determining that the basis of accounting is acceptable for the
presentation of the financial statements in the circumstances. Management is also responsible for
the design, implementation and maintenance of internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement, whether due to fraud
or error.

Auditor’s 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 auditor’s judgment,
including the assessment of the risks of material misstatement of the financial statements, whether

Washington State Auditor’s Office Page 21

due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the City’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 City’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.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinions.

Unmodified Opinion on Regulatory Basis of Accounting (BARS Manual)

As described in Note 1, the City of Wapato has prepared these financial statements to meet the
financial reporting requirements of Washington State statutes using accounting practices
prescribed by the State Auditor’s Budgeting, Accounting and Reporting System (BARS) manual.
Those accounting practices differ from accounting principles generally accepted in the United
States of America (GAAP). The differences in these accounting practices are also described in
Note 1.

In our opinion, the financial statements referred to above present fairly, in all material respects,
the financial position and results of operations of the City of Wapato, for the year ended
December 31, 2017, on the basis of accounting described in Note 1.

Basis for Adverse Opinion on U.S. GAAP

Auditing standards issued by the American Institute of Certified Public Accountants (AICPA)
require auditors to formally acknowledge when governments do not prepare their financial
statements, intended for general use, in accordance with GAAP. The effects on the financial
statements of the variances between GAAP and the accounting practices the City used, as
described in Note 1, although not reasonably determinable, are presumed to be material. As a
result, we are required to issue an adverse opinion on whether the financial statements are
presented fairly, in all material respects, in accordance with GAAP.

Washington State Auditor’s Office Page 22

Adverse Opinion on U.S. GAAP
The financial statements referred to above were not intended to, and in our opinion they do not,
present fairly, in accordance with accounting principles generally accepted in the United States of
America, the financial position of the City of Wapato, as of December 31, 2017, or the changes in
financial position or cash flows for the year then ended, due to the significance of the matter
discussed in the above “Basis for Adverse Opinion on U.S. GAAP” paragraph.

Other Matters
Material Non-compliance Affecting Fiscal Sustainability
As described in Finding 2017-002, our audit found that the City did not monitor its financial
activity, resulting in material non-compliance with state law and a significant decline in financial
position. This condition continues to exist and to have a significant effect on the City's financial
condition. Our opinion is not modified with respect to this matter.

City’s Response to Finding

The City’s response to the finding identified above is described in the accompanying Schedule of
Audit Findings and Responses. The City’s response was not subjected to the auditing procedures
applied in the audit of the financial statements and, accordingly, we express no opinion on the
response.

Supplementary and Other Information

Our audit was conducted for the purpose of forming an opinion on the financial statements taken
as a whole. The Schedule of Liabilities is presented for purposes of additional analysis, as required
by the prescribed BARS manual. This schedule is not a required part of the financial statements.
Such information is the responsibility of management and was derived from and relates directly to
the underlying accounting and other records used to prepare the financial statements. The
information has been subjected to the auditing procedures applied in the audit of the financial
statements and certain additional procedures, including comparing and reconciling such
information directly to the underlying accounting and other records used to prepare the financial
statements or to the financial statements themselves, and other additional procedures in accordance
with auditing standards generally accepted in the United States of America. In our opinion, the
information is fairly stated, in all material respects, in relation to the financial statements taken as
a whole.

Washington State Auditor’s Office Page 23

OTHER REPORTING REQUIRED BY GOVERNMENT AUDITING
STANDARDS
In accordance with Government Auditing Standards, we have also issued our report dated May 2,
2019 on our consideration of the City’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 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
City’s internal control over financial reporting and compliance.

Pat McCarthy
State Auditor
Olympia, WA

May 2, 2019

Washington State Auditor’s Office Page 24

 FINANCIAL SECTION

City of Wapato
January 1, 2017 through December 31, 2017

FINANCIAL STATEMENTS
Fund Resources and Uses Arising from Cash Transactions – 2017
Fiduciary Fund Resources and Uses Arising from Cash Transactions – 2017
Notes to Financial Statements – 2017

SUPPLEMENTARY AND OTHER INFORMATION

Schedule of Liabilities – 2017

Washington State Auditor’s Office Page 25

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Administration 873360 867,745 5615
Law Enforcement 2269270 2077556 191713
Fire Department 359260 331572 27688
Recreation 23615 50254 -26,639
Public Works 236440 208635 27805
Non-Expenditures 0 55021 -55020
Jail Profit Managerial Fund 1064 15000 13936
3/10's of 1% Yakima CO Tax CE Managerial Fund 110000 109650 350
Community Outreach Managerial Fund 3000 5242 -2242
Street Fund 236620 205112 31508
Street Construction Managerial Fund 1399780 1651395 -251615
CDBG Rehabilitation Fund 8300 7800 500
Debt Service/Wapato Ave LID 3500 0 3500
SEID Loan-Valicoff Fruit 25000 148975 -123975
Capital Improvement Fund 0 340172 -340172
Water Fund 1081295 919492 161803
Sewer Fund 1420800 1441691 -20891
Garbage Fund 680610 715717 -35107
Cemetery Fund 146540 112956 33584
Water Construction Managerial Fund 460400 469137 -8737
Sewer Construction Managerial Fund 1354900 413175 941725
Equipment Rental & Revolving 360730 216823 89907
Public Works Service Center 364510 323275 41235
Information Technology Rental & Revolving 177800 213532 -35732

TOTAL 11596794 10,899,927 670739

Page 32
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 minimum of 60 days prior to termination. A participating employer’s teUPLQDWLRQZLOO
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Fund Title Amount
002 Jail Commissary $3,431.29
003 3/10's of 1% Yakima County Sales Tax $67,073.42
101 Streets $121,769
102 Street Construction -610,542
170 Rehab Loans $92,930
225 LID $38,012
230 SIED Loan $44,144
309 Capital Projects -43,123
701 Cemetery Perpetual $411,074

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Fund Fund 1/1/2017 New Loans Repayments 12/31/2017
001 410 $55,000.00 $0 $0.00 $55,000.00
TOTALS $55,000.00 $0 $0.00 $55,000.00
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2018 $176,370.77 $164,527.67 $340,898.44
2019 $180,906.34 $159,992.07 $340,898.41
2020 $185,188.16 $155,710.25 $340,898.41
2021-2025 $963,287.43 $702,627.44 $1,665,914.87
2026-2030 $913,379.32 $598,226.92 $1,511,606.24
2031-2035 $882,280.26 $505,179.74 $1,387,460.00

Page 37
 2036-2040 $974,413.26 $413,046.74 $1,387,460.00
2041-2045 $1,076,674.49 $310,785.51 $1,387,460.00
2046-2050 $1,189,367.21 $198,092.79 $1,387,460.00
2051-2055 $1,313,856.51 $73,603.49 $1,387,460.00
2056-2060 $2,600.22 $25.93 $2,626.15
$8,030,293.22 $3,450,747.70 $11,481,040.92

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Page 39
 City of Wapato
Schedule of Liabilities
For the Year Ended December 31, 2017

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Page 40
 ABOUT THE STATE AUDITOR’S OFFICE
The State Auditor's Office is established in the state's Constitution and is part of the executive
branch of state government. The State Auditor is elected by the citizens of Washington and serves
four-year terms.

We work with our audit clients and citizens to achieve our vision of government that works for
citizens, by helping governments work better, cost less, deliver higher value, and earn greater
public trust.

In fulfilling our mission to hold state and local governments accountable for the use of public
resources, we also hold ourselves accountable by continually improving our audit quality and
operational efficiency and developing highly engaged and committed employees.

As an elected agency, the State Auditor's Office has the independence necessary to objectively
perform audits and investigations. Our audits are designed to comply with professional standards
as well as to satisfy the requirements of federal, state, and local laws.

Our audits look at financial information and compliance with state, federal and local laws on the
part of all local governments, including schools, and all state agencies, including institutions of
higher education. In addition, we conduct performance audits of state agencies and local
governments as well as fraud, state whistleblower and citizen hotline investigations.

The results of our work are widely distributed through a variety of reports, which are available on
our website and through our free, electronic subscription service.

We take our role as partners in accountability seriously, and provide training and technical
assistance to governments, and have an extensive quality assurance program.

Contact information for the State Auditor’s Office

Public Records requests PublicRecords@sao.wa.gov

Main telephone (360) 902-0370

Toll-free Citizen Hotline (866) 902-3900

Website www.sao.wa.gov

Washington State Auditor’s Office Page 41