Management Report and Recommendations 12/31/1999

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Honorable Mayor and Members of the City Council City of Lino Lakes Page 2 Auditor Comments Use of repurchase agreements and financial statement disclosure under GASB 3 For its main depository account, the city uses overnight repurchase agreements that have one -day maturities. The use of "overnight" repurchase agreements can be an efficient and effective way to increase the yield on cash balances. Repurchase agreements are similar to collateralized deposits, they both involve giving cash to another party who promises to return the cash plus interest and pledges securities as collateral for the promise. Govemment entities may enter into repurchase agreements with banks. Banks are subject to the regulatory oversight of several government agencies but are not subject to the Federal Bankruptcy Code. This means that in the event of a bankruptcy filing by the bank the repurchase agreement may not be protected and such assets could be used to satisfy creditors. In addition, repurchase agreements are not covered by insurance. Repurchase agreements are not _ covered by FDIC insurance because they are not considered deposits. Similarly, SIPC insurance does not extend to repurchase agreements. Because the repurchase agreements are not insured, nor are they investments held by the city, such investments are considered a category 3 custodial risk investment under Government Accounting Standards Board Statement No. 3. When entering into repurchase agreements it is important to know the company in which the repurchase agreement is invested and to become satisfied with the dealer's creditworthiness. Computerization of special assessment records. During the course of the audit a significant amount of time was required to be spent (by staff and auditors) updating the City's special assessment records. There are many items that must be tracked throughout the special assessment process; the adopted assessment roll, the annual special assessment levy (principal and interest), property owner prepayments and remaining deferred balances. The current method of tracking this process is predominately done manually and requires manual tracking and verifying of assessments. Because of the importance and dollar amount of the special assessments, the number of parcels to be accounted for and number of separate assessment rolls for each parcel, we recommend that the city investigate computerizing the special assessment records. This will not only assist in maintaining the deferred receivable balances and the certification of the annual spread levy but it will also prove valuable in the certification of payoff balances for individual property owners. Centralization of Bid Records Minnesota Statutes require that specific bidding procedures be followed for contracts entered into by the City meeting certain dollar value criteria. One of the requirements is that documentation of the bidding process be retained. During the course of the audit, it was noted that certain supporting documentation for the contracts selected for testing was unavailable. We suggest the bidding process be centralized and appropriate procedures be implemented or reviewed to ensure compliance with Statutes and that proper documentation is retained.