HomeMy WebLinkAboutVLAWMO Annual Financial Report 2009ABDO
j to EICK &
®I/Ali_ MEYERS LLP
Certtjted Public Accountants & Consultants
March 24, 2010
5201 Eden Avenue
Suite 370
Edina, MN 55436
Board of Directors
Vadnais Lake Area Water Management Organization
Vadnais Heights, Minnesota
We have audited the financial statements of the governmental activities and each major fund of the Vadnais Lake Area Water
Management Organization (the Organization), Vadnais Heights, Minnesota, for the year ended December 31, 2009 and have
issued our report thereon dated March 24, 2010. Professional standards require that we provide you with the following
information related to our audit.
Our Responsibility Under Auditing Standards Generally Accepted in the United States of America
As stated in our engagement letter, our responsibility, as described by professional standards, is to express opinions about whether
the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity
with accounting principles generally accepted in the United States of America. Our audit of the financial statements does not
relieve you or rngement of your responsibilities.
Our responsibility is to plan and perform the audit to obtain reasonable, but not absolute, assurance that the financial statements
are free of material misstatement. As part of our audit, we considered the internal control of the Organization. Such considerations
were solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control.
We are responsible for communicating significant matters related to the audit that are, in our professional judgment, relevant to
your responsibilities in overseeing the financial reporting process. However, we are not required to design procedures specifically
to identify such matters.
Significant Audit Findings
Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and
was not designed to identify all deficiencies in internal control over financial reporting that might be significant deficiencies or
material weaknesses and therefore, there can be no assurance that all such deficiencies have been identified. However, as
discussed below, we identified certain deficiencies in internal control over financial reporting that we consider to be material
weaknesses and other deficiencies that we consider to be significant deficiencies.
A deficiency in internal control over financial reporting 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 combination of deficiencies in internal control, such that
there is a reasonable possibility that a material misstatement of the Organization's financial statements will not be prevented, or
detected and corrected on a timely basis. We consider the deficiencies presented as findings 2009-3 and 2009-4 on the following
pages to be material weaknesses in internal control over financial reporting.
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A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less
severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider the
deficiencies presented as findings 2009-1 and 2009-2 below to be significant deficiencies in internal control over financial
reporting.
2009-1 Limited Segregation of Duties - Cash Disbursements and Cash Receipts
Condition: During our audit we reviewed procedures over cash disbursements and cash receipts and
found the Organization to have limited segregation of duties related to these procedures.
Criteria:
Cause:
There are four general categories of duties: authorization, custody, record keeping and
reconciliation In an ideal system, different employees perform each of these four major
functions. In other words, no one person has control of two or more of these responsibilities.
As a result of the limited number of staf the Organization is not able to completely segregate
all accounting functions. For both transaction cycles, one person is performing two or more of
the major functions described above.
Effect: The, existence of this limited segregation of duties increases the risk of fraud and errors.
Recommendation: While we recognize the current staff is not large enough to eliminate this deficiency, we
recommend the following compensating controls be implemented by the Organization. For
cash disbursements, we suggest that the Administrator be removed as an authorized signatory.
For cash receipts, we suggest that someone other than the Administrator either prepare the
deposit slip or take it to the bank.
Management Response: Efforts have been made to increase the internal control available by segregating duties. A
part-time bookkeeper reconciles bank statements, prepares checks and monthly financial
reports. The program coordinator or water resource technician opens and initials bank
statements. The administrator reviews payments and reports, makes deposits and can be one
of two required signatures on checks. Monthly expenditures within budget are authorized by
the Technical Commission at their monthly meeting. The Board officers are check signers and
the Board must approve any changes to budgeted expenses.
For now, the Organization accepts the degree of risk associated with any further segregation of
duties.
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2009-2 Preparation of Financial Statements
Condition:
Vadnais Lake Area Water Management Organization
March 24, 2010
Page 3
We were requested to draft the audited financial statements and related footnote disclosures as
part of our regular audit services. Ultimately, it is management's responsibility to provide for
the preparation of your statements and footnotes, and the responsibility of the auditor to
determine the fairness of presentation of those statements. However, based on recent auditing
standards, it is our responsibility to inform you that this deficiency could result in a material
misstatement to the financial statements that could have been prevented or detected by your
management. Essentially, the auditors cannot be part of your internal control process.
Criteria: Internal controls should be in place to provide reasonable assurance over financial reporting.
Cause:
From a practical standpoint, we both prepare the statements and determine the fairness of the
presentation at the same time in connection with our audit. This is not unusual for us to do
with organisations of your size.
Effect: The effectiveness of the internal control system relies on enforcement by management. The
effect of deficiencies in internal controls can result in undetected errors in financial reporting.
Recommendation: It is your responsibility to make the ultimate decision to accept this degree of risk associated
with this condition because of cost and other considerations. We have instructed management
to review a draft of the auditor prepared financials in detail for accuracy; we have answered
any questions that management might have, and have encouraged research of any accounting
guidance in connection with the adequacy and appropriateness of classification of disclosures
in your statements. We are satisfied that the appropriate steps have been taken to provide you
with the completed financial statements. While the Organization is reviewing the financial
statements we recommend a disclosure checklist is utilized to ensure all required disclosures
are presented and the Organization should agree its financial software to the numbers reported
in the financial statements.
Management Response: For now, the Organization's mJ gement accepts the degree of risk associated with this
condition and thoroughly reviews a draft of the financial statements.
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2009-3 Material Audit Adjustments
Condition: During our audit, adjustments were needed to correct beginning balances, record accounts
payable, record interest revenue and other miscellaneous entries.
Criteria: The financial statements are the responsibility of the Organization's management.
Cause: The Organization's staff has not prepared a year-end trial balance reflecting all necessary
accounting entries.
Effect: This indicates that it would be likely that a misstatement may occur and not be detected by the
Organization's system of internal control. The audit firm cannot serve as a compensating
control over this deficiency.
Recommendation: We recommend that management review each journal entry, obtain an understanding of why
the entry was necessary and modify current procedures to ensure that future corrections are not
needed.
Management Response: The Organization's bookkeeper and administrator will work with the auditing staff to
incorporate the adjustments into the Organization's accounting software.
2009-4 Authorized Bank Signatories
Condition:
During our audit, we requested confirmations of authorized bank signatories from the
Organizations depository. We discovered that a number of the Organization's former Board
members were still listed as authorized signors.
Criteria: Internal controls should be in place to ensure that former employees and Board members do
not have access to the Organization's bank accounts.
Cause: Former Board members were not formally removed as authorized signors.
Effect: The effectiveness of the internal control system relies on enforcement by management. The
effect of deficiencies in internal controls can result in undetected errors or misappropriation of
assets of the Organization.
Recommendation: We recommend that the Organization remove the former Board members immediately upon
their term expiring and also to periodically confirm authorized signors at the Organizations
depository to ensure that only current employees and Board members have authorization as
signors.
Management Response: The Organization's Board and management are working with the bank to update the signature
cards and remove unauthorized signors. The updates will be complete by the spring of 2010.
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March 24, 2010
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Compliance
As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we performed
tests of compliance with certain provisions of Minnesota statutes. However, the objective of our tests was not to provide an
opinion on compliance with such provisions. We noted no instances of noncompliance with Minnesota statutes.
Summary of Prior Year Findings
2008-4 Declaration for Payment
Condition:
Criteria:
Auditing for legal compliance requires a review of the Organization's deposits and
investments. Our study indicated an instance of non-compliance that we believe is
required to be remedied.
Minnesota statute §471.391 requires that each declaration for payment be signed to
the effect that such account, claim, or demand is just and correct and no that no part
of it has been paid. The statute is satisfied if on the back of Organizations checks is a
declaration as defined in Minnesota statute §471.391 reading "I declare under the
penalties of law that this account, claim or demand is just and correct and that no part
of it has been paid."
Current Year Status: The Organization eliminated this finding during 2009 by including the appropriate
declaration on the back of their checks.
Planned Scope and Timing of the Audit
We performed the audit according to the planned scope and timing.
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used
by the Organization are described in Note 1 to the financial statements. No new accounting policies were adopted and the
application of existing policies was not changed during the year ended December 31, 2009. We noted no transactions entered into
by the governmental unit during the year for which there is a lack of authoritative guidance or consensus. All significant
transactions have been recognized in the financial statements in the proper period.
Accounting estimates are an integral part of the financial statements prepared by management and are based on management's
knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are
particularly sensitive because of their significance to the financial statements and because of the possibility that future events
affecting them may differ significantly from those expected. The most sensitive estimates affecting the financial statements were
capital asset basis and depreciation.
Management's estimate of these accounting estimates is based on estimated or actual historical cost and the estimated useful lives
of capital assets. We evaluated the key factors and assumptions used to develop these accounting estimates in determining that it
is reasonable in relation to the financial statements taken as a whole.
The disclosures in the financial statements are neutral, consistent, and clear. Certain financial statement disclosures are particularly
sensitive because of their significance to financial statement users.
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Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management in performing our audit.
Corrected and Uncorrected Misstatements
Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those
that are trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements.
During our audit, adjustments were needed to correct beginning balances, record accounts receivable, record accounts payable,
record interest revenue and other miscellaneous entries.
Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a financial accounting, reporting, or
auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor's
report. We are pleased to report that no such disagreements arose during the course of our audit.
Management Representations
We have requested certain representations from management that are included in the management representation letter dated
March 24, 2010.
Management Consultations with Other Independent Accountants
In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to
obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the
Organization's financial statements or a determination of the type of auditor's opinion that may be expressed on those statements,
our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant
facts. To our knowledge, there were no such consultations with other accountants.
Other Audit Findings or Issues
We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with
management each year prior to retention as the Organization's auditors. However, these discussions occurred in the normal course
of our professional relationship and our responses were not a condition to our retention.
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Financial Position and Results of Operations
Our principal observations and recommendations are summarized on the following pages. These recommendations resulted from
our observations made in connection with our audit of the Organization's financial statements for the year ended
December 31, 2009.
General Fund
The fund balance at December 31, 2009 was $254,419, an increase of $44,152 in comparison with the prior year. The total
fund balance represents 59 percent of the 2010 budget.
A table summarizing the General fund balance in relation to budget follows:
Year
Percent
General General of Fund
Fund Balance Budget Fund Balance to
December 31 Year Budget Budget
2005 $ 37,311 2006 $ 186,400
2006 57,014 2007 460,305
2007 45,466 2008 380,000
2008 210,267 2009 386,784
2009 254,419 2010 432,693
$500,000
$400,000
$300,000
$200,000
$100,000
Fund Balance as a Percent of Next Year's Budget
20 %
12
12
54
59
$460,305
$380,000
$432,693
$386,784
S186,400
54%
59%
12%
12%
20%
•
♦
2005
2006
2007
2008
—•—General Fund Balance ,-FBudget
2009
2010
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The purposes and benefits of a General fund balance are as follows:
Purposes and Benefits
• Expenditures are incurred somewhat evenly throughout the year. However revenues are not received evenly. An
adequate fund balance will provide the cash flow required to finance the General fund expenditures.
• Expenditures not anticipated at the time the annual budget was adopted may need immediate Board action. These would
include capital outlay replacement, lawsuits and other items. An adequate fiord balance will provide the financing needed
for such expenditures.
The 2009 General fund operations are summarized as follows:
Variance with
Final Final Budget -
Budgeted Actual Positive
Amounts Amounts (Negative)
Revenues $ 386,184 $ 439,504 $ 53,320
Expenditures 386,784 395,352 (8,568)
Net change in fund balances (600) 44,152 44,752
Fund balances, January 1 210,267 210,267
Fund balances, December 31 $ 209,667 $ 254,419 $ 44,752
The positive variance in revenues was due to the Organization receiving a number of grants during the year. The Organization
received $30,000 from St. Paul Regional Water Service and $25,100 from the Pollution Control Agency.
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Current and Future Accounting Standard Changes
The following Governmental Accounting Standards Board (GASB) Statements have been issued and may have an impact on
future Organisation's financial statements:
GASB Statement No. 54 - Fund Balance
This statement was issued in March of 2009 and is effective for periods beginning after June 15, 2010.
This new standard is intended to improve the usefulness of information provided to financial report users about fund balance
by providing clearer, more structured fimd balance classifications, and clarifying the definitions of existing governmental fund
types.
GASB No. 54 distinguishes fund balance between amounts that are considered non -spendable, such as fund balance
associated with inventories, and other amounts that are classified based on the relative strength of the constraints that control
the purposes for which specific amounts can be spent. The following classifications and definitions will be used:
• Restricted - amounts constrained by external parties, constitutional provision, or enabling legislation
• Committed - amounts constrained by a government using its highest level of decision -making authority
• Assigned - amounts a government intends to use for a particular purpose
• Unassigned - amounts that are not constrained at all will be reported in the general fund.
In addition to the classifications of fund balance, the standard clarified the definitions of individual governmental fund types,
for example, special revenue funds, debt service funds, and capital project funds.
This report is intended solely for the information and use of Board of Directors, management and the Minnesota Office of the
State Auditor, and is not intended to be and should not be used by anyone other than these specified parties.
Our audit would not necessarily disclose all weaknesses in the system because it was based on selected tests of the accounting
records and related data. The comments and recommendations in the report are purely constructive in nature, and should be read
in this context.
If you have any questions or wish to discuss any of the items contained in this letter, please feel free to contact us at your
convenience. We wish to thank you for the opportunity to be of service and for the courtesy and cooperation extended to us by
your staff.
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March 24, 2010 ABDO, EICK & MEYERS, LLP
Minneapolis, Minnesota Certified Public Accountants
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VADNAIS LAKE AREA WATER
MANAGEMENT ORGANIZATION
VADNAIS HEIGHTS, MINNESOTA
ANNUAL FINANCIAL REPORT
YEAR ENDED
DECEMBER 31, 2009
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INTENTIONALLY
VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION
VADNAIS HEIGHTS, MINNESOTA
TABLE OF CONTENTS
DECEMBER 31, 2009
INTRODUCTORY SECTION
Board of Directors and Appointed Officials
FINANCIAL SECTION
Independent Auditor's Report
Management's Discussion and Analysis
Page No.
5
9
11
Basic Financial Statements
Government -wide Financial Statements
Statement of Net Assets 22
Statement of Activities 23
Fund Financial Statements
Governmental Funds
Balance Sheets 26
Reconciliation of the Balance Sheets to the Statement of Net Assets 27
Statements of Revenues, Expenditures and Changes in Fund Balances 28
Reconciliation of the Statement of Revenues, Expenditures and
Changes in Fund Balances to the Statement of Activities 29
General Fund
Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual 30
Notes to Financial Statements 31
OTHER REPORTS
Report on Minnesota Legal Compliance 43
Report on Internal Control Over Financial Reporting
Based on an Audit of Financial Statement 44
Schedule of Findings and Responses 46
-1-
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-2-
INTRODUCTORY SECTION
VADNAIS LAKE AREA WATER
MANAGEMENT ORGANIZATION
VADNAIS HEIGHTS, MINNESOTA
YEAR ENDED
DECEMBER 31, 2009
-3-
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INTENTIONALLY
-4-
VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION
VADNAIS HEIGHTS, M NNESOTA
BOARD OF DIRECTORS AND APPOINTED OFFICIALS
DECEMBER 31, 2009
Name
BOARD OF DIRECTORS
Title Member City
Marc Johannsen Chairperson Vadnais Heights
Dan Jones Vice Chair White Bear Lake
Bill Mample Secretary/Treasurer White Bear Township
John Bergeson Director Lino Lakes
Marty Long Director North Oaks
Robert Uzpen Director Gem Lake
Name
TECHNICAL COMNIISSION
Title Member City
Paul Peterson Chairperson White Bear Township
Marty Aeslesong Vice Chair Lino Lakes
Neil Franey Finance Officer White Bear Lake
Robert Uzpen Commissioner Gem Lake
John Youngstrom Commissioner North Oaks
Mark Graham Commissioner Vadnais Heights
-5-
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-6-
FINANCIAL SECTION
VADNAIS LAKE AREA WATER
MANAGEMENT ORGANIZATION
VADNAIS HEIGHTS, MINNESOTA
YEAR ENDED
DECEMBER 31, 2009
-7-
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-8-
ABDO
iEICK&
®4 ;MEYERS LLP
Certified Pnblte Accountants & Consultants
5201 Eden Avenue
Suite 370
Edina, MN 55436
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Vadnais Lake Area Water Management Organization
Vadnais Heights, Minnesota
We have audited the accompanying financial statements of the governmental activities and each major fund of the Vadnais Lake
Area Water Management Organization (the Organization), Vadnais Heights, Minnesota, as of and for the year ended
December 31, 2009 which collectively comprise the Organization's basic financial statements as listed in the table of contents.
These financial statements are the responsibility of the Organization's magement. Our responsibility is to express opinions on
these financial statements based on our audit. The prior year comparative information has been derived from the Organization's
2008 financial statements and, in our report dated March 10, 2009, we expressed unqualified opinions on the respective
governmental fund financial statements.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable
basis for our opinions.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the
governmental activities and each major fund of the Organization as of December 31, 2009, and the results of its operations and
budgetary comparison for the General fund for the year then ended in conformity with accounting principles generally accepted in
the United States of America.
The management's discussion and analysis, starts on page 11, is not a required part of the basic financial statements but is
supplementary information required by accounting principles generally accepted in the United States of America. We have
applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement
and presentation of the supplementary information. However, we did not audit the information and express no opinion on it.
Ozikitt ituropo
March 24, 2010 ABDO, EICK & MEYERS, LLP
Minneapolis, Minnesota Certified Public Accountants
952.835.9090 • Fax 952.835.3261 -9-
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INTENTIONALLY
-10-
Management's Discussion and Analysis
As management of the Vadnais Lake Area Water Management Organization, (the Organization), Vadnais Heights, Minnesota, we
offer readers of the Organization's financial statements this narrative overview and analysis of the financial activities of the
Organization for the fiscal year ended December 31, 2009. We encourage readers to consider the information presented here in
conjunction with the financial statements, which follow this section.
Financial Highlights
• The assets of the Organization exceeded its liabilities at the close of the most recent fiscal year by $418,161 (net assets).
Of this amount, $254,759 (unrestricted net assets) may be used to meet the Organization's ongoing obligations.
• The Organization's total net assets increased by $53,693. The increase is due to revenues exceeding expenses.
• As of the close of the current fiscal year, the Organization's governmental funds reported combined ending fund
balances of $254,419, an increase of $44,152 in comparison with the prior year. This increase in fund balance is due to
revenues in excess of expenses.
• The ending General fund balance of $254,419. All of this fund balance is dedicated to ongoing programs and capital
projects including Whitaker pond restoration, Birch Lake Plan implementation, and others.
• The Organization's unrestricted cash and temporary investments increased to $336,474 from $241,868 during 2009.
Overview of the Financial Statements
This discussion and analysis is intended to serve as an introduction to the Organization's basic financial statements. The
Organization's basic financial statements are comprised of three components: 1) government -wide financial statements, 2) fund
financial statements, and 3) notes to the financial statements. This report also contain other required supplemental information in
addition to the basic financial statements themselves.
-11-
Management's Discussion and Analysis - Continued
March 24, 2010
The financial statements also include notes that explain some of the information in the financial statements and provide more
detailed data. The statements are followed by a section of combining and individual fund financial statements and schedules that
further explains and supports the information in the financial statements. Figure 1 shows how the required parts of this annual
report are arranged and relate to one another.
Figure 1
Required Components of the
Organization's Annual Financial Report
Management's
Discussion and
Analysis
Basic Financial
Statements
Required
Supplementary
Information
1
Government -wide
Financial
Statements
Summary
Fund
Financial
Statements
Notes to the
Financial
Statements
t > Detail
-12-
Management's Discussion and Analysis - Continued
March 24, 2010
Figure 2 summarizes the major features of the Organization's financial statements, including the portion of the Organization
government they cover and the types of information they contain. The remainder of this overview section of management's
discussion and analysis explains the structure and contents of each of the statements.
Figure 2
Major features of the Government -wide and Fund Financial Statements
Fund Financial Statements
Government -wide
Statements
Governmental Funds
Scope
Entire Organization
The activities of the.
Organization
• Balance Sheet
• Statement of Revenues,
Expenditures, and
Changes in Fund
Balances
Required financial
statements
• Statement of Net Assets
• Statement of Activities
Accounting Basis and
measurement focus
Accrual accounting and
economic resources focus
Modified accrual accounting
and current financial
resources focus
Type of asset/liability
information
All assets and liabilities, both
financial and capital, and
short-term and long-term
Only assets expected to be
used up and liabilities that
come due during the year or
soon thereafter; no capital
assets included
Type of in flow/out flow
information
All revenues and expenses
during year, regardless of
when cash is received or paid
Revenues for which cash is
received during or soon after
the end of the year;
expenditures when goods or
services have been received
and payment is due during
the year or soon thereafter
Government -wide Financial Statements
The government -wide financial statements are designed to provide readers with a broad overview of the Organization's finances,
in a manner similar to a private -sector business.
The statement of net assets presents information on all of the Organization's assets and liabilities, with the difference between the
two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial
position of the Organization is improving or deteriorating.
The statement of activities presents information showing how the Organization's net assets changed during the most recent fiscal
year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the
timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in
cash flows in future fiscal periods (e.g., grants and earned but unused vacation and sick leave).
The governmental activities of the Organization include general government, programs, and projects.
The government -wide financial statements start on page 22 of this report.
-13-
Management's Discussion and Analysis - Continued
March 24, 2010
Fund Financial Statements
Afund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific
activities or objectives. The Organization, like other state and local government, uses fund accounting to ensure and demonstrate
compliance with finance -related legal requirements. The Organization currently only uses governmental funds.
Governmental funds. Governmental funds are used to account for essentially the same functions reported as governmental
activities in the government -wide financial statements. However, unlike the government -wide financial statements, governmental
fund financial statements focus on near -term inflows and outflows of spendable resources, as well as on balances of spendable
resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near -term
financing requirements.
Because the focus of governmental funds is narrower than that of the government -wide financial statements, it is useful to
compare the information presented for governmental funds with similar information presented for governmental activities in the
government -wide financial statements. By doing so, readers may better understand the long-term impact by the government's
near -term financing decisions. Both the governmental fund balance sheets and the governmental fund statements of revenues,
expenditures and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and
governmental activities.
The Organization adopts an annual appropriated budget for its general fund. A budgetary comparison statement has been
provided for the general fund to demonstrate compliance with this budget.
The basic governmental fund financial statements start on page 26 of this report
Notes to the Financial Statements
The notes provide additional information that is essential to a full understanding of the data provided in the government -wide and
fund financial statements. The notes to the financial statements start on page 31 of this report.
-14-
Management's Discussion and Analysis - Continued
March 24, 2010
Government -wide Financial Analysis
As noted earlier, net assets may serve over time as a useful indicator of a government's financial position. In the case of the
Organization, assets exceeded liabilities by $418,161 at the close of the most recent fiscal year.
The largest portions of the Organization's net assets are unrestricted and available to meet the ongoing needs of the Organization.
The other 39 percent reflects its investment in capital assets (e.g., land, buildings, machinery and equipment). The Organization
uses these capital assets to provide services to its member cities; consequently, these assets are not available for future spending.
Assets
Current
Capital, net of accumulated depreciation
Total assets
Liabilities
Current
Noncurrent
Total liabilities
Net assets
Invested in capital assets
Unrestricted
Total net assets
Summary of Net Assets
December 31, Increase
2009 2008 (Decrease)
$ 794,973 $ 654,832
163,402 157,308
$ 140,141
6,094
958,375 812,140 146,235
530,016 438,557
10,198 9,115
540,214 447,672
163,402 157,308
254,759 207,160
$ 418,161 $ 364,468
91,459
1,083
92,542
6,094
47,599
$ 53,693
At the end of the current fiscal year, the Organization is able to report positive balances in both categories of net assets.
-15-
Management's Discussion and Analysis - Continued
March 24, 2010
Changes in Net Assets
December 31, Increase
2009 2008 (Decrease)
Revenues
Program
Charges for services $ 381,790 $ 412,765 $ (30,975)
Operating grants and contributions 28,830 6,833 21,997
Capital grants and contribution 30,750 30,750
General
Unrestricted investment earnings 1,225 6,302 (5,077)
Miscellaneous 1,439 119 1,320
Total revenues
444,034 426,019 18,015
Expenses
General government 232,082 182,076 50,006
Programs 47,454 55,335 (7,881)
Projects 110,805 28,264 82,541
Total expenses 390,341 265,675 124,666
Change in net assets 53,693 160,344 (106,651)
Net assets, January 1, 364,468 204,124 160,344
Net assets, December 31, $ 418,161 $ 364,468 $ 53,693
• Although charges for services decreased, the cash flows from charges for services were higher during the current year
than the prior year. This was due to approximately $72 thousand of recognized revenue in 2008 actually being collected
in 2007. This amount was recorded as deferred revenue as of December 31, 2007.
• Capital grants and contributions increased $30,750 primarily due to grant proceeds from the St. Paul Regional Water
Service and the Minnesota Pollution Control Agency.
-16-
Management's Discussion and Analysis - Continued
March 24, 2010
• The following graph depicts various governmental activities and shows the revenue and expenses directly related to
those activities.
$400,000
$350,000
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
$-
General revenues
0.61%
Capital grants and
contributions
6.93%
Expenses and Program Revenues - Governmental Activities
General govemment
Program s
■Expenses ■Program Revenues
Projects
Revenues by Source - Governmental Activities
Operating grants and
contributions
6.49%
Charges for services
85.97%
-17-
Management's Discussion and Analysis - Continued
March 24, 2010
Financial Analysis of the Government's Funds
As noted earlier, the Organization uses fund accounting to ensure and demonstrate compliance with finance -related legal
requirements.
Governmental funds. The focus of the Organization's governmental funds is to provide information on near -term inflows,
outflows and balances of spendable resources. Such information is useful in assessing the Organization's financing requirements.
In particular, unreserved fund balance may serve as a useful measure of a government's net resources available for spending at
the end of the fiscal year.
As of the end of the current fiscal year, the Organization's governmental funds reported combined ending fund balances of
$254,419 an increase of $44,152 in comparison with the prior year. All of this balance constitutes unreserved fund balance,
which is available for spending at the Organization's discretion. However, the entire balance has been designated by the Board for
specific purposes.
The general fund is the chief operating fund of the Organization. At the end of the current year, the fund balance of the general
fund was $254,419. As a measure of the general fund's liquidity, it may be useful to compare total fund balance to total fund
expenditures. Total fund balance represents 64 percent of 2009 fund expenditures and 59 percent of 2010 budgeted fund
expenditures.
The fund balance of the Organization's general fund increased $44,152 during the current fiscal year. The key factor in this
change was grant proceeds from the St. Paul Regional Water Service and the Minnesota Pollution Control Agency.
General Fund Budgetary Highlights
The Organization's general fund budget was amended during the year. The amendment did not change total appropriations, but
rather amended certain line items due to the addition of the Water Resources Technician during the year.
The actual results were much more favorable than those projected by the 2009 budget. Revenues were in excess of budget by
$53,320, due to grant revenues from the St. Paul Regional Water Service and the Minnesota Pollution Control Agency.
Expenditures exceeded appropriations by $8,568. The largest variance was provided by Projects, which were over budget by
$15,937. This excess was primarily due to the Whitaker pond project.
Capital Asset and Debt Administration
Capital Assets. The Organization's investment in capital assets for its governmental activities as of December 31, 2009, amounts
to $163,402 (net of accumulated depreciation). This investment in capital assets includes infrastructure related to the Lambert
Creek Flume project.
Major capital asset events during the current fiscal year included the following:
• In 2009, VLAWMO replaced a flume at County Road F.
Additional information on the Organization's capital assets can be found in Note 3D on page 38 of this report.
-18-
Management's Discussion and Analysis - Continued
March 24, 2010
Economic Factors and Next Year's Budgets
• 2010 Budget.
o Revenue is chiefly from the Storm sewer utility, with minor income from grants, service fees and interest
o Expenses fall into three main categories: Programs, projects, and operations and administration.
■ Programs include: monitoring and data analysis, sustainable lake plans, cost -share, education, and
maintenance. 13 percent
• Projects include capital projects, Whittaker pond improvements, installation of flume #2; Lambert
Creek, Gem Lake, Gilfillan Lake, Goose Lake, Wilkinson Lake and TMDL work planning,
implementation of sustainable lake plans. 29 percent
• Operations and administration include office rent and supplies, bookkeeping and audit, information
systems, insurance, all payroll for 3.33 employees and legal expenses. 58 percent
All of these factors were considered in preparing the Organization's budget for the 2010 fiscal year.
Requests for Information
This financial report is designed to provide a general overview of the Organization's finances for all those with an interest in the
Organization's finances. Questions concerning any of the information provided in this report or requests for additional financial
information should be addressed to Stephanie McNamara, Administrator, Vadnais Lake Area Water Management Organization,
800 County Road E East, Vadnais Heights, MN 55127.
-19-
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INTENTIONALLY
-20-
GOVERNMENT -WIDE
FINANCIAL STATEMENTS
VADNAIS LAKE AREA WATER
MANAGEMENT ORGANIZATION
VADNAIS HEIGHTS, MINNESOTA
YEAR ENDED
DECEMBER 31, 2009
-21-
VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION
VADNAIS HEIGHTS, MINNESOTA
STATEMENT OF NET ASSETS
DECEMBER 31, 2009
Governmental
Activities
ASSETS
Cash and temporary investments $ 336,474
Restricted cash 21,943
Receivables
Accounts 750
Special assessments 435,806
Capital assets
Depreciable assets, net of accumulated depreciation 163,402
TOTAL ASSETS 958,375
LIABILITIES
Accounts payable 57,201
Escrow deposits payable 21,943
Due to other governments 28,395
Unearned revenue 422,477
Noncurrent liabilities
Due within one year
Compensated absences payable 6,404
Due in more than one year
Compensated absences payable 3,794
TOTAL LIABILITIES 540,214
NET ASSETS
Invested in capital assets
Unrestricted
163,402
254,759
TOTAL NET ASSETS $ 418,161
The notes to financial statements are integral part of this statement.
-22-
VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION
VADNAIS HEIGHTS, M NNESOTA
STATEMENT OF ACTIVITIES
YEAR ENDED DECEMBER 31, 2009
Net (Expense)
Revenue and
Changes in
Program Revenues Net Assets
Charges Operating Capital Governmental
for Grants and Grants and Activities
Functions/Programs Expenses Services Contributions Contributions 2009
Governmental Activities
General government $ 232,082 $ 286,343 $ 3,730 $ $ 57,991
Programs 47,454 76,358 25,100 54,004
Projects 110,805 19,090 30,750 (60,966)
Total
$ 390,341 $ 381,790 $ 28,830 $ 30,750 51,029
General revenues
Unrestricted investment earnings
Miscellaneous
Total general revenues
Change in net assets
Net assets, January 1
Net assets, December 31
The notes to financial statements are integral part of this statement.
1,225
1,439
2,664
53,693
364,468
$ 418,161
-23-
THIS PAGE IS LEFT BLANK
INTENTIONALLY
-24-
FUND
FINANCIAL STATEMENTS
VADNAIS LAKE AREA WATER
MANAGEMENT ORGANIZATION
VADNAIS HEIGHTS, MINNESOTA
YEAR ENDED
DECEMBER 31, 2009
-25-
VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION
VADNAIS HEIGHTS, MINNESOTA
BALANCE SHEETS
GOVERNMENTAL FUNDS
DECEMBER 31, 2009 AND 2008
2009 2008
ASSETS
Cash and temporary investments $ 336,474 $ 241,868
Restricted cash 21,943 21,910
Receivables
Accounts 750
Special assessments 435,806 387,773
Due from other governments 3,281
TOTAL ASSETS $ 794,973 $ 654,832
LIABILITIES AND FUND BALANCES
LIABILITIES
Accounts payable $ 57,201 $ 11,322
Escrow deposits payable 21,943 21,910
Due to other governments 28,395 24,419
Deferred revenue 433,015 386,914
TOTAL LIABILITIES
540,554 444,565
FUND BALANCES
Unreserved
Designated for working capital 254,419 210,267
TOTAL LIABILITIES AND FUND BALANCES $ 794,973 $ 654,832
The notes to financial statements are integral part of this statement.
-26-
VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION
RECONCILIATION OF THE BALANCE SHEETS
TO THE STATEMENT OF NET ASSETS
GOVERNMENTAL FUNDS
YEAR ENDED DECEMBER 31, 2009
Total fund balances - governmental $ 254,419
Amounts reported for the governmental activities in the statement
of net assets are different because:
Capital assets used in governmental activities are not financial
resources and therefore are not reported as assets in governmental funds.
Cost of capital assets
Less: accumulated depreciation
Noncurrent liabilities, are not due and payable in the current period
and therefore are not reported as liabilities in the funds.
Compensated absences
Some receivables are not available soon enough to pay for the current period's
expenditures, and therefore are deferred in the funds.
Delinquent special assessments
181,219
(17,817)
(10,198)
10,538
Total net assets - governmental activities $ 418,161
The notes to the financial statements are an integral part of this statement.
-27-
VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION
VADNAIS HEIGHTS, MINNESOTA
STATEMENTS OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
GOVERNMENTAL FUNDS
YEARS ENDED DECEMBER 31, 2009 AND 2008
2009 2008
REVENUES
Charges for services $ 377,260 $ 406,757
Intergovernmental
Grants 59,480 6,423
Interest on investments 1,225 6,302
Miscellaneous 1,539 529
TOTAL REVENUES 439,504 420,011
EXPENDITURES
Current
General government 221,461 171,611
Programs 47,454 55,335
Projects 126,437 28,264
TOTAL EXPENDITURES
EXCESS OF REVENUES
OVER EXPENDITURES
FUND BALANCES, JANUARY 1
395,352 255,210
44,152 164,801
210,267 45,466
FUND BALANCES, DECEMBER 31 $ 254,419 $ 210,267
The notes to financial statements are integral part of this statement.
-28-
VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION
VADNAIS HEIGHTS, MINNESOTA
RECONCILIATION OF THE STATEMENT OF
REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES
TO THE STATEMENT OF ACTIVITIES
GOVERNMENTAL FUNDS
YEAR ENDED DECEMBER 31, 2009
Total net change in fund balances - governmental funds $ 44,152
Amounts reported for governmental activities
in the statement of activities are different because:
Capital outlays are reported in governmental funds as expenditures. However
in the statement of activities, the cost of those assets is allocated over the
estimated useful lives as depreciation expense.
Capital outlays
Depreciation expense
Certain revenues are recognized as soon as they are earned. Under the modified
accrual basis of accounting certain revenues cannot be recognized until they
are available to liquidate liabilities of the current period.
Special assessments
Some expenses reported in the statement of activities do not require the use of
current financial resources and, therefore, are not reported as expenditures
in governmental funds.
Compensated absences
15,632
(9,538)
4,530
(1,083)
Change in net assets - governmental activities $ 53,693
The notes to financial statements are integral part of this statement.
-29-
VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION
VADNAIS HEIGHTS, MINNESOTA
STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCES -
BUDGET AND ACTUAL
GENERAL, EURASIAN MILFOIL AND SAVE THE LAKE FUNDS
YEAR ENDED DECEMBER 31, 2009
(With comparative actual amounts for the year ended December 31, 2008)
REVENUES
Charges for services
Intergovernmental
Grants
Interest on investments
Miscellaneous
TOTAL REVENUES
2009 2008
Variance with
Budgeted Amounts Final Budget
Actual Positive Actual
Original Final Amounts (Negative) Amounts
$ 380,184 $ 380,184 $ 377,260 $ (2,924) $ 406,757
59,480 59,480 6,423
2,000 2,000 1,225 (775) 6,302
4,000 4,000 1,539 (2,461) 529
386,184 386,184 439,504 53,320 420,011
EXPENDITURES
Projects 120,000 110,500 126,437 (15,937) 28,264
Programs
Monitoring 14,000 14,000 21,121 (7,121) 23,617
Maintenance 47,609 35,609 26,333 9,276 31,718
General and administrative
Wages 108,075 108,075 112,412 (4,337) 103,276
Payroll taxes and employee benefits 33,200 41,821 29,871 11,950 20,737
Legal 4,000 4,000 4,332 (332) -
Professional services 33,000 49,879 47,186 2,693 24,254
Information systems 4,500 4,500 4,343 157 10,727
Insurance 3,400 3,400 3,605 (205) 2,892
Office (supplies, postage, and rent) 9,000 5,000 8,788 (3,788) 6,057
Staff training and expenses 1,500 1,500 1,556 (56) 939
Telephone - - 1,175 (1,175) 300
Miscellaneous 8,500 8,500 8,193 307 2,429
TOTAL EXPENDITURES 386,784 386,784 395,352 (8,568) 255,210
EXCESS (DEFICIENCY) OF REVENUES
OVER (UNDER) EXPENDITURES
FUND BALANCES, JANUARY 1
(600) (600) 44,152 44,752 164,801
210,267 210,267 210,267 45,466
FUND BALANCES, DECEMBER 31 $ 209,667 $ 209,667 $ 254.419 $ 44,752 $ 210,267
The notes to the financial statements are an integral part of this statement.
-30-
VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION
VADNAIS HEIGHTS, MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2009
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Reporting Entity
The Vadnais Lake Area Water Management Organization (the Organization) was established to meet the
requirements of the Metropolitan Surface Water Management Act, re -codified as Minnesota Statutes chapters
103-b and 103-d.
The general purpose of the Organization is to establish a jointly and cooperatively developed water management
plan and program to (1) protect, preserve, and use natural surface and groundwater storage and retention
systems; (2) minimize capital expenditures necessary to correct flooding and water quality problems; (3) identify
and plan for means to effectively protect and improve surface and groundwater quality; (4) establish more
uniform local policies and official controls for surface water, wetland and groundwater management; (5) prevent
erosion of soil into surface water systems; (6) promote groundwater recharge; (7) protect and enhance fish and
wildlife habitat and water recreational facilities, and secure other benefits associated with the proper
management of surface ground water, and be in accordance with the Act.
The Organization is governed by a Board of Directors which consists of six members, one from each of the
following governmental units: City of North Oaks, City of White Bear Lake, City of Lino Lakes, White Bear
Township, City of Vadnais Heights and the City of Gem Lake. The Board exercises legislative authority and
determines all matters of policy. The Board appoints personnel responsible for the proper administration of all
affairs relating to the Organization's activities.
The Organization has considered all potential units for which it is financially accountable, and other
organizations for which the nature and significance of their relationship with the Organization are such that
exclusion would cause the Organization's financial statements to be misleading or incomplete. The
Governmental Accounting Standards Board (GASB) has set forth criteria to be considered in determining
financial accountability. These criteria include appointing a voting majority of an organization's governing
body, and (1) the ability of the primary government to impose its will on that organization or (2) the potential for
the organization to provide specific benefits to, or impose specific financial burdens on the primary government.
The Organization has no component units that meet the GASB criteria.
B. Government -wide and Fund Financial Statements
The government -wide financial statements (i.e., the statements of net assets and the statements of changes in net
assets) report information on all of the non -fiduciary activities of the Organization.
The statement of activities demonstrates the degree to which the direct expenses of a given function or segment
is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or
segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit
from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that
are restricted to meeting the operational or capital requirements of a particular function or segment. Other items
not properly included among program revenues are reported instead as general revenues.
Separate financial statements are provided for governmental funds. Major individual governmental funds are
reported as separate columns in the fund financial statements.
-31-
VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION
VADNAIS HEIGHTS, MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2009
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
C. Measurement Focus, Basis of Accounting and Basis of Presentation
The government -wide financial statements are reported using the economic resources measurement focus and
the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability
is incurred, regardless of the timing of related cash flows. Grants and similar items are recognized as revenue as
soon as all eligibility requirements imposed by the provider have been met.
Governmental fund financial statements are reported using the current financial resources measurement focus
and the modifaed accrual basis of accounting. Revenues are recognized as soon as they are both measurable and
available. Revenues are considered to be available when they are collectible within the current period or soon
enough thereafter to pay liabilities of the current period. For this purpose, the Organization considers revenues
to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures
generally are recorded when a liability is incurred, as under accrual accounting. However, expenditures related
to compensated absences and claims and judgments, are recorded only when payment is due.
Charges for service, assessments to members, grants and interest associated with the current fiscal period are all
considered susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other
revenue items are considered to be measurable and available only when cash is received by the organization.
Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is
recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded
in the year in which the resources are measurable and become available.
Non -exchange transactions, in which the Organization receives value without directly giving equal value in
return, include grants, entitlement and donations. Eligibility requirements include timing requirements, which
specify the year when the resources are required to be used or the year when use is first permitted, matching
requirements, in which the Organization must provide local resources to be used for a specified purpose, and
expenditure requirements, in which the resources are provided to the Organization on a reimbursement basis.
On a modified accrual basis, revenue from non -exchange transactions must also be available before it can be
recognized.
Deferred revenue in the fund financial statements and unearned revenue in the government -wide financial
statements arises when assets are recognized before revenue recognition criteria have been satisfied. Grants and
entitlements received before eligibility requirements are met are also recorded as deferred revenue. On the
modified accrual basis, receivables that will not be collected within the available period have also been reported
as deferred revenue.
The Organization reports the following major governmental fund:
The General fund is the Organization's primary operating fund. It accounts for all financial resources of the
Organization.
Private -sector standards of accounting and financial reporting issued prior to December 1, 1989, generally are
followed in the government -wide financial statements to the extent that those standards do not conflict with or
contradict guidance of GASB.
When both restricted and unrestricted resources are available for use, it is the Organization's policy to use
restricted resources first, then unrestricted resources as they are needed.
As a general rule the effect of interfund activity has been eliminated from government -wide financial statements.
-32-
VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION
VADNAIS HEIGHTS, MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2009
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Amounts reported as program revenues include: (1) charges to customers or member cities for goods, services,
or privileges provided; (2) operating grants and contributions; and (3) capital grants and contributions, including
special assessments.
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from those estimates.
D. Assets, Liabilities and Net Assets or Fund Equity
Deposits and Investments
The Organization's cash and temporary investments are considered to be cash on hand, demand deposits and
short term investments with original maturities of three months or less from the date of acquisition. Investments
are reported at fair value.
The Organization may also invest idle funds as authorized by Minnesota statutes, as follows:
1. Direct obligations or obligations guaranteed by the United States or its agencies.
2. Shares of investment companies registered under the Federal Investment Company Act of 1940 and
received the highest credit rating, rated in one of the two highest rating categories by a statistical rating
agency, and have a final maturity of thirteen months or less.
3. General obligations of a state or local government with taxing powers rated "A" or better; revenue
obligations rated "AA" or better.
4. General obligations of the Minnesota Housing Finance Agency rated "A" or better.
5. Bankers' acceptances of United States banks eligible for purchase by the Federal Reserve System.
6. Commercial paper issued by United States banks corporations or their Canadian subsidiaries, of highest
quality category by at least two nationally recognized rating agencies, and maturing in 270 days or less.
7. Repurchase or reverse repurchase agreements and securities lending agreements with financial
institutions qualified as a "depository" by the government entity, with banks that are members of the
Federal Reserve System with capitalization exceeding $10,000,000, a primary reporting dealer in U.S.
government securities to the Federal Reserve Bank of New York, or certain Minnesota securities
broker -dealers.
8. Guaranteed investment contracts (GIC's) issued or guaranteed by a United States commercial bank, a
domestic branch of a foreign bank, a United States insurance company, or its Canadian subsidiary,
whose similar debt obligations were rated in one of the top two rating categories by a nationally
recognized rating agency.
-33-
VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION
VADNAIS HEIGHTS, MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2009
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Restricted Assets
Certain assets of the Organization are set aside for repayment of individual property owners once they meet
specific criteria.
Accounts Receivable
Accounts receivable include amounts billed for services provided before year end.
Special Assessments
Special assessments represent storm sewer utility charges. These assessments are recorded as receivables upon
certification to the County. Special assessments are recognized as revenue in the year they are collected or
received in cash or within 60 days after year end. All governmental fund special assessments receivables are
offset by a deferred revenue liability in the fund financial statements.
Capital Assets
Capital assets, which include property, plant and equipment, are reported in the applicable governmental
activities cobimns in the government -wide financial statements. Capital assets are defined by the Organization
as assets with an initial, individual cost of more than $5,000 (amount not rounded) and an estimated useful life
in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or
constructed. Donated capital assets are recorded at estimated fair market value at the date of donation.
The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets
lives are not capitalized.
Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred
during the construction phase of capital assets is included as part of the capitalized value of the assets
constructed.
Property, plant, and equipment of the Organization are depreciated using the straight-line method over the
following estimated useful lives:
Assets
Useful Lives
in Years
Infrastructure 20 - 30
Compensated Absences
It is the Organi7. tion's policy to permit employees to accumulate earned but unused vacation and sick benefits,
which will be paid to the employee upon separation without the considerations of number of years of service.
A liability for these amounts is reported in the governmental funds only if they have matured, for example, as a
result of employee resignations and retirements.
Fund Equity
Designations of fund balance represent tentative mgpagement plans that are subject to change.
-34-
VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION
VADNAIS HEIGHTS, MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2009
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Net Assets
Net assets represent the difference between assets and liabilities. Net assets are displayed in three components:
a. Invested in capital assets, net of related debt - Consists of capital assets, net of accumulated
depreciation reduced by any outstanding debt attributable to acquire capital assets.
b. Restricted net assets - Consist of net assets restricted when there are limitations imposed on their use
through external restrictions imposed by creditors, grantors, laws or regulations of other governments.
c. Unrestricted net assets - All other net assets that do not meet the definition of restricted" or "invested
in capital assets, net of related debt".
Comparative Data/Reclassifications
Comparative total data for the prior year has been presented for the fund financial statements in order to provide
an understanding of the change in financial position. Certain amounts presented in prior year data have been
reclassified in order to be consistent with the current year's presentation.
Note 2: STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY
Budgetary Information
Annual budgets are prepared on a basis consistent with accounting principles generally accepted in the United States of
America for the General fund. All annual appropriations lapse at year end. The Organization does not use
encumbrance accounting.
During the budget year, supplemental appropriations and deletions are or may be authorized by the Board. The Board
authorized an amendment during the year. The amendment was the effect of the Organization adding the Water
Resources Technician. Although an amendment was made, total appropriations remained the same.
For the year ended December 31, 2009, expenditures were in excess of appropriations as follows:
General
Excess of
Expenditures
Over
Fund Budget Actual Appropriations
$ 386,784 $ 395,352 $ 8,568
The excess of expenditures over appropriations was funded by revenues in excess of budget.
-35-
VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION
VADNAIS HEIGHTS, MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2009
Note 3: DETAILED NOTES ON ACCOUNTS
A. Deposits and Investments
Deposits
Custodial credit risk for deposits and investments is the risk that in the event of a bank failure, the
Organization's deposits may not be returned or the Organization will not be able to recover collateral securities
in the possession of an outside party. In accordance with Minnesota statutes and as authorized by the Board of
Commissioners, the Organization maintains deposits at those depository banks which are members of the
Federal Reserve System.
Minnesota statutes require that all Organization deposits be protected by insurance, surety bond or collateral.
The market value of collateral pledged must equal 110 percent of the deposits not covered by insurance or
bonds.
Authorized collateral in lieu of a corporate surety bond includes:
• United States government Treasury bills, Treasury notes, Treasury bonds;
• Issues of United States government agencies and instrumentalities as quoted by a recognized industry
quotation service available to the government entity;
• General obligation securities of any state or local government with taxing powers which is rate "A" or
better by a national bond rating service, or revenue obligation securities of any state or local
government with taxing powers which is rated "AA" or better by a national bond rating service;
• General obligation securities of a local government with taxing powers may be pledged as collateral
against funds deposited by that same local government entity;
• Irrevocable standby letters of credit issued by Federal Home Loan Banks to a municipality
accompanied by written evidence that the bank's public debt is rated "AA" or better by Moody's
Investors Service, Inc., or Standard & Poor's Corporation; and
• Time deposits that are fully insured by any federal agency.
Minnesota statutes require that all collateral shall be placed in safekeeping in a restricted account at a Federal
Reserve Bank, or in an account at a trust department of a commercial bank or other financial institution that is
not owned or controlled by the financial institution furnishing the collateral. The selection should be approved
by the government entity.
At year end, the Organi7ation's carrying amount of deposits was $118,208 and the bank balance was $134,958.
The entire bank balance was covered by federal depository insurance.
-36-
VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION
VADNAIS HEIGHTS, MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2009
Note 3: DETAILED NOTES ON ACCOUNTS - CONTINUED
A reconciliation of cash and temporary investments as shown in the financial statements of the Organization
follows:
Carrying amount of deposits $ 118,208
Investments 240,185
Cash on hand 24
Total $ 358,417
Cash and investments
Unrestricted $ 336,474
Restricted 21,943
Total $ 358,417
B. investments
The Minnesota Municipal Money Market Fund (the 4M Fund) is a customized cash management and investment
program for Minnesota public funds. Sponsored and govemed by the League of Minnesota Cities since 1987,
the 4M Fund is a unique investment alternative designed to address the daily and long term investment needs of
Minnesota cities and other municipal entities. Allowable under Minnesota statutes, the 4M Fund is comprised of
top quality, rated investments.
At year end, the Organization had the following investments that are insured or registered, or securities held by
the Organization's agent in the Organization's name:
Types of Investments
Fair Value
Credit Segmented and
Quality/ Time Carrying
Ratings (1) Distribution (2) Amount
Investments not subject to categorization
Minnesota Municipal Money Market fund N/A less then 6 months $ 240,185
1. Ratings are provided by Moody's where applicable to indicate associated credit risk.
2. Interest rate risk is disclosed using the segmented time distribution method.
N/A Indicates not applicable or available
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VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION
VADNAIS HEIGHTS, MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2009
Note 3: DETAILED NOTES ON ACCOUNTS - CONTINUED
The investments of the Organization are subject to the following risks:
• Credit Risk. Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill
its obligations. Ratings are provided by various credit rating agencies and where applicable, indicate
associated credit risk. Minnesota Statutes limit the Organization's investments to the list on page 33 of
the notes.
• Custodial Credit Risk. The custodial credit risk for investments is the risk that, in the event of the
failure of the counterparty to a transaction, a government will not be able to recover the value of
investment or collateral securities that are in the possession of an outside party.
• Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude
of a government's investment in a single issuer.
• Interest rate risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair
value of an investment.
The Organization does not have an investment policy that addresses the risks described above.
C. Restricted Assets
The Organization set aside the following cash balances for repayment of individual property owners:
2009 2008
Mitigation Restricted Cash
D. Capital Assets
Capital asset activity for the year ended December 31, 2009 was as follows:
$ 21,943 $ 21,910
Beginning Ending
Balance Increases Decreases Balance
Governmental activities
Capital assets, being depreciated
Infrastructure $ 165,587 $ 15,632 $ $ 181,219
Less accumulated depreciation for
Infrastructure (8,279) (9,538) (17,817)
Total governmental activities $ 157,308 $ 6,094 $ $ 163,402
The full depreciation expense amount was charged to general government.
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VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION
VADNAIS HEIGHTS, MINNESOTA
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2009
Note 3: DETAILED NOTES ON ACCOUNTS - CONTINUED
E. Deferred Revenue/Unearned Revenue
Governmental funds report deferred revenue in connection with receivables for revenues that are not considered
to be available to liquidate liabilities of the current period. Also, governmental funds defer revenue recognition
in connection with resources that have been received, but not yet earned. At the end of the current fiscal year,
the various components of deferred revenue/unearned revenue reported were as follows:
Unavailable Unearned
Special assessments $ 10,538 $ 422,477
F. Changes in long-term liabilities
Long-term liability activity for the year ended December 31, 2009, was as follows:
Beginning Ending Current
Balance Increases Decreases Balance Portion
Governmental activities
Compensated
absences payable $ 9,115 $ 7,486 $ (6,403) $ 10,198 $ 6,404
Note 4: DEFINED BENEFIT PENSION PLANS - STATEWIDE
A. Plan Description
All full-time and certain part-time employees of the Organization are covered by defined benefit plans
administered by the Public Employees Retirement Association of Minnesota (PERA). PERA administers the
Public Employees Retirement Fund (PERF) which is a cost -sharing, multiple -employer retirement plan. This
plan is established and administered in accordance with Minnesota statutes, chapters 353 and 356.
PERF members belong to either the Coordinated Plan or the Basic Plan. Coordinated Plan members are
covered by Social Security and Basic Plan members are not. All new members must participate in the
Coordinated Plan.
PERA provides retirement benefits as well as disability benefits to members, and benefits to survivors upon
death of eligible members. Benefits are established by Minnesota statute, and vest after three years of credited
service. The defined retirement benefits are based on a member's highest average salary for any five successive
years of allowable service, age and years of credit at termination of service.
Two methods are used to compute benefits for PERA's Coordinated and Basic Plan members. The retiring
member receives the higher of step -rate benefit accrual formula (Method 1) or a level accrual formula (Method
2). Under Method 1, the annuity accrual rate for a Basic Plan member is 2.2 percent of average salary for each
of the first 10 years of service and 2.7 percent for each remaining year. The annuity accrual rate for a
Coordinated Plan member is 1.2 percent of average salary for each of the first 10 years and 1.7 percent for each
remaining year. Under Method 2, the annuity accrual rate is 2.7 percent of average salary for Basic Plan
members and 1.7 percent for Coordinated Plan members for each year of service. A reduced retirement annuity
is also available to eligible members seeking early retirement.
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VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION
VADNAIS HEIGHTS, MINNESOTA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009
Note 4: DEFINED BENEFIT PENSION PLANS - STATEWIDE - CONTINUED
There are different types of annuities available to members upon retirement. A single -life annuity is a lifetime
annuity that ceases upon death of the retiree —no survivor annuity is payable. There are also various types of
joint and survivor annuity options available which will be payable over joint lives. Members may also leave
their contributions in the fund upon termination of public service, in order to qualify for a deferred annuity at
retirement age. Refunds of contributions are available at any time to members who leave public service, but
before retirement benefits begin.
The benefit provisions stated in the previous paragraphs of this section are current provisions and apply to active
plan participants. Vested, terminated employees, who are entitled to benefits but are not receiving them yet, are
bound by the provisions in effect at the time they last terminated their public service.
PERA issues a publicly available financial report that includes financial statements and required supplementary
information for PERF. That report may be obtained on the Internet at mnpera.org, by writing to PERA, 60
Empire Drive #200, St. Paul, Minnesota, 55103-2088 or by calling (651) 296-7460 or 1-800-652-9026.
B. Funding Policy
Minnesota statutes, chapter 353 sets the rates for employer and employee contributions. These statutes are
established and amended by the State legislature. The Organization makes annual contributions to the pension
plans equal to the amount required by Minnesota statutes. PERF Basic Plan members and Coordinated Plan
members are required to contribute 9.10 percent and 6.00 percent, respectively, of their annual covered salary in
2009. The Organization is required to contribute the following percentages of annual covered payroll: 11.78
percent for Basic Plan PERF members and 6.75 percent for Coordinated Plan PERF members. Employer
contribution rates for the Coordinated Plan will increase to 7.00 percent, effective January 1, 2010. The
Organization's contributions to the Public Employees Retirement Fund for the years ended December 31, 2009,
2008 and 2007 were $9,048, $6,645, and $4,817, respectively. The Organization's contributions were equal to
the contractually required contributions for each year as set by state statute.
Note 5: OTHER INFORMATION
Risk Management
The Organization is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors
and omissions; injuries to employees; and natural disasters for which the Organization carries insurance. The
Organization pays annual premiums for its workers compensation and property and casualty insurance. Settled claims
have not exceeded the Organization's coverage in any of the past three fiscal years.
Liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably
estimated. Liabilities, if any, include an amount for claims that have been incurred but not reported (IBNRs). The
Organization's management is not aware of any incurred but not reported claims.
-40-
OTHER REPORTS
VADNAIS LAKE AREA WATER
MANAGEMENT ORGANIZATION
VADNAIS HEIGHTS, MINNESOTA
YEAR ENDED
DECEMBER 31, 2009
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THIS PAGE IS LEFT BLANK
INTENTIONALLY
-42-
ABDO
Oil o SICK04 &
i mEuRsup
Certified Public Accountants & Consultants
5201 Eden Avenue
Suite 370
Edina, MN 5.5436
REPORT ON MINNESOTA LEGAL COMPLIANCE
Board of Directors
Vadnais Lake Area Water Management Organization
Vadnais Heights, Minnesota
We have audited the financial statements of the governmental activities and each major fund of the Vadnais Lake Area Water
Management Organization (the Organization), Vadnais Heights, Minnesota, as of and for the year ended December 31, 2009, and
have issued our report thereon dated March 24, 2010.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the
provisions of the Minnesota Legal Compliance Audit Guide for Local Government, promulgated by the Minnesota Office of the
State Auditor pursuant to Minnesota statute, section 6.65. Accordingly, the audit included such tests of the accounting records and
such other auditing procedures, as we considered necessary in the circumstances.
The Minnesota Legal Compliance Audit Guide for Local Government covers seven main categories of compliance to be tested:
contracting and bidding, deposits and investments, conflicts of interest, public indebtedness, claims and disbursements, tax
increment financing and other miscellaneous provisions. Our study included all of the listed categories.
The results of our tests indicate that for the items tested, the Organization complied with the material terms and conditions of
applicable legal provisions.
This report is intended solely for the information and use of the Board of Directors, migement and the Minnesota Office of the
State Auditor, and is not intended to be and should not be used by anyone other than these specified parties.
Oa)
March 24, 2010 ABDO, EICK & MEYERS, LLP
Minneapolis, Minnesota Certified Public Accountants
952.835.9090 • Fax 952.835 3261
www.aemepas.com
-43-
• ABDO
w. Jt IEICK
0414 _ MEi'ERSLLP
Certed Public Accountants & Consultants
•
5201 Eden Avenue
Suite 370
Edina, MN 554.36
REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING BASED ON AN AUDIT OF
FINANCIAL STATEMENTS
Board of Directors
Vadnais Lake Area Water Management Organization
Vadnais Heights, Minnesota
In planning and performing our audit of the financial statements of the governmental activities and each major fund of the Vadnais
Lake Area Water Management Organization (the Organization) as of and for the year ended December 31, 2009, in accordance
with auditing standards generally accepted in the United States of America, we considered the Organi7ation's internal control over
financial reporting as a basis for designing our auditing procedures 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 Organization's internal control over
financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Organisation's intemal control over
financial reporting.
Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and
was not designed to identify all deficiencies in internal control over financial reporting that might be significant deficiencies or
material weaknesses and therefore, there can be no assurance that all such deficiencies have been identified. However, as
discussed below, we identified certain deficiencies in intemal control over financial reporting that we consider to be material
weaknesses and other deficiencies that we consider to be significant deficiencies.
A deficiency in internal control over financial reporting 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 combination of deficiencies in internal control, such that
there is a reasonable possibility that a material misstatement of the Organi7ation's financial statements will not be prevented, or
detected and corrected on a timely basis. We consider the deficiencies presented as findings 2009-3and 2009-4 in the schedule of
findings and responses to be material weaknesses in internal control over financial reporting.
A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less
severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider the
deficiencies presented as findings 2009-land 2009-2 in the schedule of findings and responses to be significant deficiencies in
internal control over financial reporting.
952.835.9090 • Fax 952.835.3261
www.aemepas.com
-44-
In addition, we noted other matters involving the internal control and its operation that we have reported to management of the
Organization in a separate letter dated March 24, 2010.
The Organization's written responses to the significant deficiencies and material weaknesses identified in our audit have not been
subjected to the audit procedures applied in the audit of the financial statements and, accordingly, we express no opinion on them.
This report is intended solely for the information and use of the Board of Directors, management and the Minnesota Office of the
State Auditor, and is not intended to be and should not be used by anyone other than these specified parties.
March 24, 2010 ABDO, EICK & MEYERS, LLP
Minneapolis, Minnesota Certified Public Accountants
952.835.9090 • Fax 952.835i261
www.aemcpas.com
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VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION
VADNAIS HEIGHTS, MINNESOTA
SCHEDULE OF FINDINGS AND RESPONSES
DECEMBER 31, 2009
Finding Description
2009-1 Limited Segregation of Duties - Cash Disbursements and Cash Receipts
Condition:
Criteria:
Cause:
During our audit we reviewed procedures over cash disbursements and cash receipts
and found the Organization to have limited segregation of duties related to these
procedures.
There are four general categories of duties: authorization, custody, record keeping
and reconciliation. In an ideal system, different employees perform each of these four
major functions. In other words, no one person has control of two or more of these
responsibilities.
As a result of the limited number of staff, the Organization is not able to completely
segregate all accounting functions. For both transaction cycles, one person is
performing two or more of the major functions described above.
Effect: The existence of this limited segregation of duties increases the risk of fraud and
errors.
Recommendation: While we recognize the current staff is not large enough to eliminate this deficiency,
we recommend the following compensating controls be implemented by the
Organization. For cash disbursements, we suggest that the Administrator be removed
as an authorized signatory. For cash receipts, we suggest that someone other than the
Administrator either prepare the deposit slip or take it to the bank.
Management Response: Efforts have been made to increase the internal control available by segregating
duties. A part-time bookkeeper reconciles bank statements, prepares checks and
monthly financial reports. The program coordinator or water resource technician
opens and initials bank statements. The administrator reviews payments and reports,
makes deposits and can be one of two required signatures on checks. Monthly
expenditures within budget are authorized by the Technical Commission at their
monthly meeting. The Board officers are check signers and the Board must approve
any changes to budgeted expenses.
For now, the Organization accepts the degree of risk associated with any further
segregation of duties.
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VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION
VADNAIS HEIGHTS, MINNESOTA
SCHEDULE OF FINDINGS AND RESPONSES - CONTINUED
DECEMBER 31, 2009
F Description
2009-2 Preparation of Financial Statements
Condition:
We were requested to draft the audited financial statements and related footnote
disclosures as part of our regular audit services. Ultimately, it is nkipagement's
responsibility to provide for the preparation of your statements and footnotes, and the
responsibility of the auditor to determine the fairness of presentation of those
statements. However, based on recent auditing standards, it is our responsibility to
inform you that this deficiency could result in a material misstatement to the financial
statements that could have been prevented or detected by your management.
Essentially, the auditors cannot be part of your internal control process.
Criteria: Internal controls should be in place to provide reasonable assurance over financial
reporting.
Cause: From a practical standpoint, we both prepare the statements and determine the
fairness of the presentation at the same time in connection with our audit. This is not
unusual for us to do with organizations of your size.
Effect:
The effectiveness of the internal control system relies on enforcement by
management. The effect of deficiencies in internal controls can result in undetected
errors in financial reporting.
Recommendation: It is your responsibility to make the ultimate decision to accept this degree of risk
associated with this condition because of cost and other considerations. We have
instructed management to review a draft of the auditor prepared financials in detail
for accuracy; we have answered any questions that management might have, and have
encouraged research of any accounting guidance in connection with the adequacy and
appropriateness of classification of disclosures in your statements. We are satisfied
that the appropriate steps have been taken to provide you with the completed
financial statements. While the Organization is reviewing the financial statements we
recommend a disclosure checklist is utilized to ensure all required disclosures are
presented and the Organization should agree its financial software to the numbers
reported in the financial statements.
Management Response: For now, the Organization's mlivigement accepts the degree of risk associated with
this condition and thoroughly reviews a draft of the financial statements.
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THIS PAGE IS LEFT BLANK
INTENTIONALLY
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VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION
VADNAIS HEIGHTS, MINNESOTA
SCHEDULE OF FINDINGS AND RESPONSES - CONTINUED
DECEMBER 31, 2009
F Description
2009-3 Material Audit Adjustments
Condition: During our audit, adjustments were needed to correct beginning balances, record
accounts payable, record interest revenue and other miscellaneous entries.
Criteria: The financial statements are the responsibility of the Organization's management.
Cause: The Organization's staff has not prepared a year-end trial balance reflecting all
necessary accounting entries.
Effect: This indicates that it would be likely that a misstatement may occur and not be
detected by the Organization's system of internal control. The audit firm cannot
serve as a compensating control over this deficiency.
Recommendation: We recommend that management review each journal entry, obtain an understanding
of why the entry was necessary and modify current procedures to ensure that future
corrections are not needed.
Management Response: The Organization's bookkeeper and administrator will work with the auditing staff to
incorporate the adjustments into the Organization's accounting software.
2009-4 Authorized Bank Signatories
Condition:
Criteria:
Cause:
Effect:
During our audit, we requested confirmations of authorized bank signatories from the
Organizations depository. We discovered that a number of the Organization's former
Board members were still listed as authorized signors.
Internal controls should be in place to ensure that former employees and Board
members do not have access to the Organization's bank accounts.
Former Board members were not formally removed as authorized signors.
The effectiveness of the internal control system relies on enforcement by
management. The effect of deficiencies in internal controls can result in undetected
errors or misappropriation of assets of the Organization.
Recommendation: We recommend that the Organization remove the former Board members
immediately upon their term expiring and also to periodically confirm authorized
signors at the Organizations depository to ensure that only current employees and
Board members have authorization as signors.
Management Response: The Organization's Board and management are working with the bank to update the
signature cards and remove unauthorized signors. The updates will be complete by
the spring of 2010.
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