Loading...
HomeMy WebLinkAboutOther Auditor Reports 12/31/2010CITY OF LINO LAKES, MINNESOTA OTHER AUDIT REPORTS YEAR ENDED DECEMBER 31, 2010 CITY OF LINO LAKES, MINNESOTA TABLE OF CONTENTS YEAR ENDED DECEMBER 31, 2010 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 REPORT ON MINNESOTA LEGAL COMPLIANCE OTHER REQUIRED AUDITOR COMMUNICATIONS 4 5 NEW ACCOUNTING AND REPORTING STANDARDS 8 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, 2010, which collectively comprise the City's basic financial statements and have issued our report thereon dated May 31, 2011. 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. ( An independentmember of Nexia International 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 to more efficiently run the City's operations or enhance its internal controls. We herein submit the following suggestions to the City 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 2010 Annual Financial Report. As of December 31, 2010, three capital project funds have deficit fund balances equaling a combined deficit of $1,362,396. 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 $57,167 for 2010. One of the other two 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 $18,424 for 2010. The last one is a new fund (Traffic Signal) this year and expenditures are in excess of revenues of $5,838. 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. 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. (2) Honorable Mayor and Members of the City Council City of Lino Lakes 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 May 31, 2011 (3) 1-P LarsonAllen LLP LarsenAllerf LLP CPAs, Consultants & Advisors www.larsonaIlen.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, 2010, which collectively comprise the City's basic financial statements and have issued our report thereon dated May 31, 2011. 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 Political Subdivisions, 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 Political Subdivisions 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. Minneapolis, Minnesota May 31, 2011 I—P LarsonAllen LLP (4) An independent member of Nexia International EMa'LKNAIIONAL LarsenAllerf LLP CPAs, Consultants & Advisors www.larsonaIlen.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, 2010, which collectively comprise the City's basic financial statements and have issued our report thereon dated May 31, 2011. 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 November 17, 2010, 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. 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'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 Political Subdivisions, promulgated by the State Auditor pursuant Minnesota Statute 6.65. (5) An independent member of Nexia International EM raxyATIONAL 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 18, 2011. 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 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 2010. 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, 2010. 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. Z 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 May 31, 2011. 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 May 31, 2011 (7) 1-P LarsonAllen LLP New Accounting and Reporting Standards 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. The Financial Reporting Entity In November 2010, the GASB issued Statement No. 61, The Financial Reporting Entity: Omnibus an amendment of GASB Statements No. 14 and No. 34. Statement No. 61 is effective for financial reporting in fiscal year 2013 and modifies previous requirements for the assessment of potential component units (for example the City's Economic Development Authority) in determining what should be included in the City's financial statements. The Statement also modifies the display and disclosure requirements for component units. As a result, the method for including component units in the City's financial statements will need to be re-evaluated and potentially changed in fiscal year 2013. In preparation for evaluating the inclusion of component units under the new guidance in GASB Statement No. 61, the City should revisit the formative documents of its component units including charters, resolutions, bylaws, articles of incorporation, etc. BE GASB Codification In December 2010, the GASB issued Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre -November 30, 1989 FASB and AICPA Pronouncements. As discussed in the City's accounting policy disclosures in its financial statements, the City historically followed Financial Accounting Standards Board (FASB) guidance issued before November 30, 1989, for purposes of reporting financial activity of proprietary funds such as the Water and Sewer Funds, and GASB guidance issued on and after November 30, 1989, all of which is considered acceptable methods for financial reporting of proprietary funds. However, GASB has accumulated and codified pre - November 30, 1989 FASB guidance deemed applicable to proprietary funds into an all-inclusive Statement No. 62. Statement No. 62 is very thorough, detailed and extensive — over 300 pages in length — and thus will require thoughtful implementation in fiscal year 2012. M