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HomeMy WebLinkAboutOther Auditor Reports 12/31/2009CITY OF LINO LAKES, MINNESOTA OTHER AUDIT REPORTS YEAR ENDED DECEMBER 31, 2009 CITY OF LINO LAKES, MINNESOTA TABLE OF CONTENTS DECEMBER 31, 2009 Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Governmental Auditing Standards Report on Minnesota Legal Compliance Other Required Auditor Communications Page 7 New Accounting and Reporting Standards 10 LarsenAllen" LLP CPAs, Consultants & Advisors www.larsonaller.com REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Honorable Mayor and Members of the City Council City of Lino Lakes, Minnesota We have audited the financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City of Lino Lakes, Minnesota (the City) as of and for the year ended December 31, 2009, which collectively comprise the City's basic financial statements and have issued our report thereon dated June 21, 2010. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered the City'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 City's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the City's financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Ik- ( An independentmember of Nexia International IN'fERNAT10NAL Honorable Mayor and Members of the City Council City of Lino Lakes Compliance and Other Matters As part of obtaining reasonable assurance about whether the City's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. During the course of our audit, certain items came to our attention that we feel could be addressed by the City of Lino Lakes to more efficiently run the City's operations or enhance its internal controls. We herein submit the following suggestions to the City of Lino Lakes for their consideration. Auditor Comments: Capital Project Deficits The financial statements for the capital project funds are presented in Statements 3, 5, 13, and 14 of the 2009 Annual Financial Report. As of December 31, 2009, two capital project funds have deficit fund balances equaling a combined deficit of $1,395,134. While this is an on-going comment, we would like to recognize the significant improvements made related to fund balance deficits over the past five years. The following describes the status of each of these funds: - One of the deficits is very typical for any city operating a TIF fund (TIF 1-11). This fund showed positive operating results with revenues in excess of expenditures of $140,917 for 2009. - The second has specifically been addressed by the Council and a plan is being implemented to reduce the deficit over the near future (Dedicated Parks). This fund showed negative operating results with expenditures in excess of revenues of $15,264 for 2009. Area and Unit Charge Fund On January 11, 1988, the City Council approved Resolution 1-88, which established the Area and Unit Charge Fund for the City. The purpose of this fund is to collect various area and unit charges to be used to meet debt payments. Before October 1 of each year, the City estimates the required transfer needed to meet debt payments for the subsequent year. In December, these estimated amounts are transferred to the various debt funds. We recommend that the City continue to closely monitor actual versus projected area and unit assessment collections to assure that debt payment requirements will be met. Designations of balances required for debt service is necessary to define discretionary construction balances available to the City. The financing plan for the following bond issues have pledged area and unit charges for the repayment of debt service: Improvement and Utility Bonds of 2004A Water Revenue Bonds of 1999B The Improvement and Utility Bonds of 2004A have future debt service requirements (principal and interest) totaling $1,281,336. (2) Honorable Mayor and Members of the City Council City of Lino Lakes Area and Unit Charge Fund (Continued) During 2009, transfers of $81,300, $447,400, $71,122 and $114,537 were made to the Improvement Refunding Bonds of 2003A, Improvement Bonds of 2005B, Utility Revenue Bonds of 2006D and TIF Bonds 2007A debt service funds. DEBT SERVICE FUNDS Debt service funds are a type of governmental fund used to account for the accumulation of resources for the payment of principal and interest on general obligation debt (other than enterprise fund debt). Debt service funds may have one or a combination of revenue sources pledged to retire debt including property taxes, tax increments, special assessments and area and unit charges. The diverse nature of the type of debt included in the same fund type requires careful analysis to determine the adequacy of the fund balance and projected fund balance. The following schedule extracts information from Exhibits 2 and 3 of the 2009 Annual Financial Report to assist in this analysis. The following schedule compares outstanding debt with assets pledged for debt retirement. This comparison provides a means to judge (at least on a preliminary basis) the financial position of each individual debt service fund. Note: Deferred revenue in the above table does not include the future scheduled "interest portion" of the adopted assessment rolls. The Improvement Refunding Bonds of 2003A, Improvement Bonds of 2005B, Utility Revenue Bonds of 2006D and TIF Bonds 2007A Bonds also include a pledge from the Area and Unit Fund that has not been included above. (3) December 31, 2009 Deferred Total Remaining Over Fund Deferred Tax Resources Debt Service (Under) Fund Description Balance Revenue Total Levies Available Scheduled Funded General Debt: Certificates of Indebtedness $ 123,353 $ 11,972 $ 135,325 $ 604,354 $ 739,679 $ 575,575 $ 164,104 Lease Revenue Bonds of 1998A 480,304 7,430 487,734 - 487,734 120,750 366,984 Public Project Revenue Bonds 1999C 358,929 5,016 363,945 - 363,945 92,295 271,650 Tax Abatement Bonds 2006C 56,033 4,572 60,605 3,522,599 3,583,204 3,406,572 176,632 Utility Revenue Bonds 2006D 34,836 147,432 182,268 - 182,268 551,819 (369,551) CIP Refunding Bonds 2006E 141,708 7,706 149,414 3,633,630 3,783,044 3,600,400 182,644 TIF Bonds 2007A 155,038 - 155,038 5,619,261 5,774,299 5,270,207 504,092 $ 1,350,201 $ 184,128 $ 1,534,329 $ 13,379,844 $ 14,914,173 $ 13,617,618 $ 1,296,555 Special Assessment Debt: Improvement Bonds of 2002A $ 250,676 $ 77,477 $ 328,153 $ 23,476 $ 351,629 $ 119,305 $ 232,324 Improvement Bonds of 2002B 798,878 299,368 1,098,246 - 1,098,246 1,084,447 13,799 Improvement Bonds of 2003A 96,244 154,916 251,160 - 251,160 801,270 (550,110) Improvement Bonds of 2003B 73,623 45,027 118,650 109,004 227,654 171,413 56,241 Improvement Bonds of 2004A 286,879 147,513 434,392 1,387,402 1,821,794 1,281,345 540,449 Improvement Bonds of 2005A (558,443) 5,625,797 5,067,354 6,279,455 11,346,809 6,401,435 4,945,374 Refunding Imp. Bonds of 2005B 600,848 270,388 871,236 2,536,998 3,408,234 2,891,657 516,577 $ 1,548,705 $ 6,620,486 $ 8,169,191 $ 10,336,335 $ 18,505,526 $ 12,750,872 $ 5,754,654 Note: Deferred revenue in the above table does not include the future scheduled "interest portion" of the adopted assessment rolls. The Improvement Refunding Bonds of 2003A, Improvement Bonds of 2005B, Utility Revenue Bonds of 2006D and TIF Bonds 2007A Bonds also include a pledge from the Area and Unit Fund that has not been included above. (3) Honorable Mayor and Members of the City Council City of Lino Lakes DEBT SERVICE FUNDS (CONTINUED) The above table provides a means for monitoring the status of the debt service funds. For the General Debt funded solely by property taxes, it appears that there are adequate planned levies to retire the debt when the future lease revenues scheduled to be received from the school district are included. While in total the City has a surplus of total resources available over remaining scheduled debt service based on the calculation above, certain individual funds are operating at a deficit. These deficits will need to be funded by future adopted assessment rolls, special assessment levies, investment earnings, transfers from other funds, property taxes or other available means. Factors to consider when analyzing debt service funds: • Are all the anticipated assessment rolls being adopted as soon as appropriate? • Have all the planned financing sources been identified, such as pledged amounts from the area and unit fund or future MSA funds? • Are there significant "prepayments" received from property owners? In the current investment environment, will the earnings the City will receive on these prepayments be lower than the interest rate that was being charged on the adopted assessment roll? The Area and Unit Fund is committed to the debt service of some special assessment bonds as well as toward the water revenue bonds. The City's five-year operating plan addresses the above issues and therefore, this comment is simply a reminder of the extent that repayment of certain debt is based on pledged sources from the Area and Unit fund. Cash Receipts During our audit, we performed walk throughs on the park and recreation cash receipting process. It was noted during our procedures that there is not a review process in place for credits applied to customers accounts. To provide proper control over the credit application process, we recommend an individual from outside the department review credits applied to individual customer accounts for reasonableness. Information Technology Disaster Recovery Plan — We noted that the City has not established a formal, written business continuity or disaster recovery plan to be used in the event of a disaster. We therefore recommend the City develop a written plan to support the recovery of the technical infrastructure that can be used for testing and training purposes. In addition, the plan should be constructed in a format that could be followed by individuals not familiar with City operations in the event "key" information technology personnel are affected by the disaster event and are not available to execute recovery activities. (4) Honorable Mayor and Members of the City Council City of Lino Lakes Review of Reconciliations/Payroll Registers During the audit it was also noted that although there is procedures in place to review reconciliations and payroll registers, there is no documentation of this review. We recommend the individual reviewing the reconciliations and payroll registers to date and initial to show proper documentation of review. Conclusion We welcome the opportunity to discuss the points mentioned in this letter or any other accounting and procedural issues in order to coordinate our efforts with you, the mutual objective being the development of more effective accounting procedures for the City. We understand that some of the aforementioned points are in the process of implementation or may already have been implemented; however, these points are noted so that effective follow-up can be accomplished. We sincerely appreciate all the courtesies and cooperation extended to us by you and the staff of the City, and thank you for the opportunity to be of service to you. We look forward to working with you in the future. This report is intended solely for the information and use of the City Council, finance committee, management, the Office of the State Auditor, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Minneapolis, Minnesota June 21, 2010 (5) LarsonAllen LLP LarsenAllerf LLP CPAs, Consultants & Advisors www.larsonallen.com REPORT ON MINNESOTA LEGAL COMPLIANCE Honorable Mayor and Members of the City Council City of Lino Lakes, Minnesota We have audited the financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City of Lino Lakes, Minnesota as of and for the year ended December 31, 2009, which collectively comprise the City's basic financial statements and have issued our report thereon dated June 21, 2010. We conducted our audit in accordance with auditing standards generally accepted in the United States of America, the standards applicable to financial audits contained in Governmental Auditing Standards, issued by the Comptroller General of the United States, and the provisions of the Minnesota Legal Compliance Audit Guide for Local Government, promulgated by the State Auditor pursuant to Minnesota Statute 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, miscellaneous provisions, and tax increment financing. Our study included all of the listed categories. The results of our tests indicate that, with respect to the items tested, the City of Lino Lakes, Minnesota complied with the material terms and conditions of applicable legal provisions. This report is intended solely for the use of the City of Lino Lakes, Minnesota, the Office of the State Auditor, and other state agencies, and is not intended to be and should not be used by anyone other than these specified parties. LarsonAllen LLP Minneapolis, Minnesota June 21, 2010 ( An independentmember of Nexia International IN'rLKNATIONAL LarsenAllerf LLP CPAs, Consultants & Advisors www.larsonallen.com OTHER REQUIRED AUDITOR COMMUNICATIONS Honorable Mayor and Members of the City Council City of Lino Lakes, Minnesota We have audited the financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City of Lino Lakes, Minnesota (the City) for the year ended December 31, 2009, which collectively comprise the City's basic financial statements and have issued our report thereon dated June 21, 2010. Professional standards require that we provide you with the following information related to our audit. Our Responsibility under U.S. Generally Accepted Auditing Standards and Government Auditing Standards As stated in our engagement letter dated July 28, 2009, 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 U.S. generally accepted accounting principles. Our audit of the financial statements does not relieve you or management of your responsibilities. As part of our audit, we considered the internal control of the City of Lino Lakes. Such considerations were solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we performed tests of the City of Lino Lake's compliance with certain provisions of laws, regulations, contracts, and grants. However, the objective of our tests was not to provide an opinion on compliance with such provisions. 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. 2. 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. 3. We are also responsible for communicating matters regarding the provisions of the Minnesota Legal Compliance Audit Guide for Local Government, promulgated by the State Auditor pursuant Minnesota Statute 6.65. ( An independentmember of Nexia International IN'rLKNATIONAL Honorable Mayor and Members of the City Council City of Lino Lakes Other Information in Documents Containing Audited Financial Statements Our auditors' opinion, the audited financial statements, and the notes to financial statements should only be used in their entirety. Inclusion of the audited financial statements in a client prepared document, such as an annual report, should be done only with our prior approval and review of the document. Our responsibility for other information in documents containing the City's financial statements and our auditors' report does not extend beyond the financial information identified in our auditors' report. We have no responsibility for determining whether such other information is properly stated and do not have an obligation to perform any procedures to corroborate other information contained in such documents. Planned Scope and Timing of the Audit We performed the audit according to the planned scope and timing previously communicated to you in our meeting about planning matters on January 19, 2010. Significant Audit Findings Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City of Lino Lakes 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 2009. We noted no transactions entered into by the City 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: Estimated useful lives of depreciable capital assets - Management's estimate of useful lives for depreciable assets is based on guidance recommended by authoritative accounting literature and past experiences. The useful life of a depreciable asset determines the amount of depreciation that will be recorded in any given reporting period as well as the amount of accumulated depreciation that is reported at the end of a reporting period. Estimated year-end valuation of investments at fair value — Management's estimate of the fair value of investments is based on published market values at December 31, 2009. We evaluated the key factors and assumptions used to develop the above estimates in determining that it is reasonable in relation to the financial statements taken as a whole. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. N Honorable Mayor and Members of the City Council City of Lino Lakes 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 did not identify and we did not notify them of any uncorrected financial statement misstatements. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter that could be significant to the financial statements or the auditors' 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 June 21, 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 City's financial statements or a determination of the type of auditors' 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 City's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. This report is intended solely for the use of the City Council, finance committee, and management of the City of Lino Lakes and is not intended to be, and should not be used by anyone other than these specified parties. Minneapolis, Minnesota June 21, 2010 N LarsonAllen LLP New Accounting and Reporting Standards Accounting and Financial Reporting for Easements The Governmental Accounting Standards Board issued Statement No. 51, which is applicable to the City for the year ending December 31, 2010. The purpose of Statement No. 51 is to eliminate the inconsistencies in accounting and reporting between governmental entities related to intangible items such as easements, rights, patents, trademarks, software, and donated assets. The area that GASB No. 51 will affect the City is in regards to easements. The City would only need to record easements acquired in 2010 and thereafter, but has the option to retroactively record easements back to 1980. Fund Balance Reporting Changes In March 2009, Governmental Accounting Standards Board issued GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. The requirements of this Statement are effective for the City's fiscal year ending December 31, 2011. Governments that wish to implement earlier than that date are encouraged to do so. Statement 54 distinguishes between fund balance amounts that are considered non -spendable, such as fund balance associated with inventories, and other amounts that are classified based on the relative ability to be spent. Beginning with the most non -spendable classification, fund balances will be reported in the following classifications: • Restricted—amounts constrained by external parties, constitutional provision, or enabling legislation. • Committed—includes amounts that can be used only for the specific purposes determined by a formal action of the government's highest level of decision-making authority • Assigned—amounts a government intends to use for a particular purpose. In governmental funds other than the general fund, assigned fund balance represents the remaining amount that is not restricted or committed. • Unassigned—amounts that are not constrained at all will be reported in the general fund or to report deficit balances in other governmental funds. The statement interprets certain terms within the definition of special revenue funds. The statement also specifies how economic stabilization or "rainy -day" amounts should be reported. For financial reporting purposes, stabilization should be regarded as a "restricted" or "committed" classification only if the government details the circumstances or conditions that signal the need for stabilization in sufficient detail. Otherwise, these amounts should be reported as "unassigned" in the general fund. (1o) An independent member of Nexia International INTERNAT10NAL