Management Report and Recommendations 12/31/1998

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Honorable Mayor and Members of the City Council City of Link Lakes Page 4 Tax Increment Financing (TIF) District Administration Charges— As part of the audit we also noted that an administrative charge was charged against the TIF districts. With the recent law changes that clarified the definition of administrative charges, among other items, any administrative charges to a TIF district must be for documented expenses incurred in the management of the district. We recommend that as administrative charges (as well as any interfund transaction) are charged against the district, the City carefully document and retain the documentation for the charges. We also recommend that the City work closely with your TIF advisors, Ehlers and Associates, in determining whether any charges are eligible administrative charges and that they have been provided for in the TIF plan. Developer Escrow Accounts The City maintains a Trust and Agency Fund to account for the activity related to developer escrows. It is our understanding that developers deposit an escrow prior to a project beginning and that certain costs may be applied against this escrow. We noted that there are a few escrow accounts that carry a "negative" balance, which represents an additional receivable balance from the developer. We recommend that the City monitor these escrow balances and if they go negative that the developer be contacted so that an additional deposit can be made. In 1998, these "negative" balances totaled approximately $115,000, which is up approximately $30,000 from the 1997 balance of $85,000. Budgeting for Multi-Year Projects Currently the City adopts a budget for the operating funds of the City, including the general fund, program recreation, capital equipment and the utility funds. Current practice for project budgeting is to adopt a project budget as part of the Capital Improvements Program and the related bond issue. This budget is not entered into the finance system, however by entering these budgets into the finance, system budgetary controls can easily be added to the project expenditures. The current chart of accounts in use includes an account segment that is used for the project (each project is given a unique number) which accumulates the costs for each individual project. At the end of a project staff goes back over the expenditures to determine if there were costs charged to the project which should have gone against another project. By adding the budgets into the system at the beginning of the project it would assist in monitoring the expenditures on an ongoing basis and help to identify the revenue sources for the project. For multi year projects, the total budget would be entered in the first year. In the second year, the budgeted amounts would be reduced for the amounts recorded in the first year. The benefits to be derived include that all revenue sources are identified up front and that staff members from differing departments will work together to identify the expected project costs. This will help to reduce coding errors in processing payments.