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HomeMy WebLinkAboutVLAWMO Annual Financial Report 2006VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION ANNUAL FINANCIAL REPORT December 31, 2006 i z - This page intentionally left blank - VLAWMO Al Roleck Director of Finance City of Lino Lakes 600 Town Center Parkway Lino Lakes, MN 55014 March 29, 2007 Dear Mr. Roleck: Communities Gem Lake Lino Lakes North Oaks Water Service Vadnais Heights White Bear Lake White Bear Township The Vadnais Lake Area Water Management Organization (VLAWMO) in order to provide clear reporting to our member communities and to comply with Minnesota Statute 103B.231, has conducted an independent audit of its financial records for fiscal year 2006. The financial report is furnished for your information. Please contact the VLAWMO office with questions or comments: VLAWMO 800 EAST COUNTY ROAD E VADNAIS HEIGHTS, MN 55127 651-204-6070, FAX: 651-6-204-6173 or office@a,vlawmo.org. Sincerely, 'ate-Lce.� Stephanie McNamara Administration / Wetland Specialist 800 East Country Road E; Vadnais Heights, MN 55127; 651-204-6070, Fax: 651-204-6173 website: www.vlawmo.orq; email: office@vlawmo.org HLB Tautges Redpath, Ltd. Certified Public Accountants and Consultants AUDIT MANAGEMENT LETTER To the Board of Commissioners Vadnais Lake Area Water Management Organization Vadnais Heights, Minnesota REQUIRED COMMUNICATIONS We have audited the financial statements of the Vadnais Lake Area Water Management Organization for the year ended December 31, 2006, and have issued our report thereon dated March 21, 2007. Professional standards require that we provide you with the following information related to our audit. Our Responsibility under U.S. Generally Accepted Auditing Standards As stated in our engagement letter dated August 29, 2006, our responsibility, as described by professional standards, is to plan and perform our audit to obtain reasonable, but not absolute, assurance that the financial statements are free of material misstatement and are fairly presented in accordance with U.S. generally accepted accounting principles. Because an audit is designed to provide reasonable, but not absolute assurance and because we did not perform a detailed examination of all transactions, there is a risk that material misstatements may exist and not be detected by us. As part of our audit, we considered the internal control of the Vadnais Lake Area Water Management Organization. Such considerations were solely for the purpose of determining our audit procedures and not to provide any assurance concerning internal control. Significant Accounting Policies Management is responsible for the selection and use of appropriate accounting policies. In accordance with the terms of our engagement letter, we will advise management about the appropriateness of accounting policies and their application. The significant accounting policies used by the Vadnais Lake Area Water Management Organization are described in Note 1 to the financial statements. We noted no transactions entered into by the Vadnais Lake Area Water Management Organization during the year that were both significant and unusual, and of which, under professional standards, we are required to inform you, or transactions for which there is a lack of authoritative guidance or consensus. 4810 White Bear Parkway White Bear Lake, Minnesota 55110 I 651 426 7000 HLB Tautges Redpath, Ltd. is a member of IJLB International, a world-wide organization of accounting firms and business advisors. 651 426 5004 Fax I www.hlbtr.com To the Board of Commissioners Vadnais Lake Area Water Management Organization Page 2 REQUIRED COMMUNICATIONS Accounting Estimates 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. The Vadnais Lake Area Water Management Organization has an estimate for compensated absences payable, the portion of which will be due in one year. Audit Adjustments For purposes of this letter, professional standards define an audit adjustment as a proposed correction of the financial statements that, in our judgment, may not have been detected except through our auditing procedures. An audit adjustment may or may not indicate matters that could have a significant effect on the Vadnais Lake Area Water Management Organization's financial reporting process (that is, cause future financial statements to be materially misstated). In our judgment, none of the adjustments we proposed, whether recorded or unrecorded by the Vadnais Lake Area Water Management Organization, either individually or in the aggregate, indicate matters that could have a significant effect on the Vadnais Lake Area Water Management Organization's financial reporting process. 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 auditor's report. We are pleased to report that no such disagreements arose during the course of our audit. 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 government unit'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. Issues Discussed Prior to Retention of Independent Auditors 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 Vadnais Lake Area Water Management 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. To the Board of Commissioners Vadnais Lake Area Water Management Organization Page 3 REQUIRED COMMUNICATIONS Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing our audit. Closing This information is intended solely for the information and use of the Vadnais Lake Area Water Management Organization and management and is not intended to be and should not be used by anyone other than these specified parties. /TA /i / RC i /c+ HLB TAUTGES REDPATH, LTD.. White Bear Lake, Minnesota March 21, 2007 VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION TABLE OF CONTENTS Ref No. Page No. INTRODUCTORY SECTION Organization 3 FINANCIAL SECTION Independent Auditor's Report Basic Financial Statements: 7 Government -Wide Financial Statements: Statement of Net Assets Statement 1 10 Statement of Activities Statement 2 11 Fund Financial Statements: Balance Sheet - Governmental Funds Statement 3 12 Statement of Revenues, Expenditures and Changes in Fund Balance - Governmental Funds Statement 4 13 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds Statement 5 14 Notes to Financial Statements 15 Required Supplementary Information: Budgetary Comparison Schedule - General Fund Statement 6 26 Budgetary Comparison Schedule - Note to RSI 27 OTHER REPORTS Report on Internal Control 31 Schedule of Findings and Questioned Costs 35 Report on Compliance With Minnesota Legal Compliance Audit Guide For Local Government 41 - This page intentionally left blank - i n r-7 INTRODUCTORY SECTION 1 l l l l i - This page intentionally left blank - 1 1 2 VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION ORGANIZATION December 31, 2006 Name Board of Commissioners: Paul Emeott Jeff McDowell Steve Haselmann Neil Franey John Youngstrom Susan Rani Paul Peterson Position Chair Vice Chair Treasurer Commissioner Commissioner Commissioner Commissioner Governmental Unit City of Gem Lake City of Lino Lakes St. Paul Regional Water Services City of White Bear Lake City of North Oaks City of Vadnais Heights White Bear Township 3 - This page intentionally left blank - l 1 4 i� FINANCIAL SECTION 5 - This page intentionally left blank - 6 F L HLB Tautges Redpath, Ltd. Certified Public Accountants and Consultants INDEPENDENT AUDITOR'S REPORT To the Board of Commissioners Vadnais Lake Area Water Management Organization Vadnais Heights , Minnesota We have audited the accompanying financial statements of the Vadnais Lake Area Water Management Organization as of and for the year ended December 31, 2006. These financial statements are the responsibility of the Vadnais Lake Area Water Management Organization's management. Our responsibility is to express an opinion on these financial statements based on our audit. 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 Lexamining, 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 L respective financial position of the Vadnais Lake Area Water Management Organization as of December 31, 2006, and the respective changes in financial position for the year then ended in conformity with accounting principles generally accepted in the United States of America. L L March 21, 2007 L The WMO has not presented the Management's Discussion and Analysis that the Governmental Accounting Standards Board has determined is necessary to supplement, although not required to be a part of, the basic financial statements. The budgetary comparison information 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 required supplementary information. However, we did not audit the information and express no opinion on it. Lr HLB TAUTGES REDPATH, LTD. White Bear Lake, Minnesota 4810 White Bear Parkway White Bear Lake, Minnesota 55110 I 651 426 7000 651 426 5004 Fax I www.hlbtr.com HLB Tautges Redpath, Ltd. is a member of 1118 International, a world-wide organization of accountiny,fjrms and business advisors. - This page intentionally left blank - 1 t 1 1 1 i 1 1 1 1 1 1 1 BASIC FINANCIAL STATEMENTS 9 VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION STATEMENT OF NET ASSETS December 31, 2006 Statement 1 Assets: Cash and investments Primary Government Governmental Activities 2006 2005 $158,810 $168,284 Liabilities: Accounts payable 24,107 527 Escrow deposits payable 31,493 21,636 Due to other governments 7,318 5,920 Retainage payable - 30,101 Deferred revenue 38,878 72,791 Compensated absences payable: Due within one year 2,820 3,057 Total liabilities 104,616 134,032 Net assets: Unrestricted 54,194 34,252 Total net assets $54,194 $34,252 The accompanying notes are an integral part of these financial statements. 10 L L i VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION STATEMENT OF ACTIVITIES For The Year Ended December 31, 2006 Statement 2 Net (Expense) Revenue and Program Revenues Changes in Net Assets Operating Capital Primary Government Charges For Grants and Grants and Totals Functions/Programs Expenses Services Contributions Contributions 2006 2005 Primary government: Governmental activities: General government $81,950 $81,277 $2,777 $ $2,104 ($245) Programs 3,973 19,034 - 15,061 Projects 109,768 77,089 33,913 1,234 Total governmental activities $195,691 $177,400 $36,690 $0 18,399 (245) General revenues: Unrestricted investment earnings 104 192 Miscellaneous 1,439 5,009 Total general revenues 1,543 5,201 Change in net assets 19,942 4,956 Net assets - beginning as previously reported 34,252 147,574 Prior period adjustment - (118,278) Net assets as restated 34,252 29,296 Net assets ending $54,194 $34,252 The accompanying notes are an integral part of these financial statements. 11 VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION BALANCE SHEET GOVERNMENTAL FUNDS December 31, 2006 Statement 3 Assets 2006 2005 Cash and investments $158,810 $168,284 Liabilities and Fund Balances Liabilities: Accounts payable 24,107 527 Escrow deposits payable 31,493 21,636 Due to other governments 7,318 5,920 Retainage payable - 30,101 I ` Deferred revenue 38,878 72,791 Total liabilities 101,796 130,975 Fund balance: Unreserved: Designated: 171 Cash flow 57,014 37,309 Total liabilities and fund balance Fund balance reported above Amounts reported for governmental activities in the statement of net assets are different because: Long-term liabilities, including compensated absences payable, are not due and payable in the current period and therefore are not reported in the funds. Net assets of governmental activities $158,810 $168,284 $57,014 $37,309 (2,820) (3,057) $54,194 $34,252 The accompanying notes are an integral part of these financial statements. 12 VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE GOVERNMENTAL FUNDS For The Year Ended December 31, 2006 Statement 4 Revenues: 2006 2005 Intergovernmental: Member assessments $177,400 $66,118 Grants 36,690 238,777 Investment income 104 192 Other 1,439 5,009 Total revenues 215,633 310,096 Expenditures: Current: General government 82,188 66,379 Programs 3,974 1,215 Projects 109,768 234,487 Total expenditures 195,930 302,081 Revenues over expenditures 19,703 8,015 Fund balance - January 1, as previously reported 37,311 147,574 Prior period adjustment - (118,278) Fund balance - January 1, as restated 37,311 29,296 Fund balance - December 31 $57,014 $37,311 The accompanying notes are an integral part of these financial statements. 13 VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUND - GENERAL FUND For The Year Ended December 31, 2006 Statement 5 Amounts reported for governmental activities in the statement of activities (Statement 2) are different because: Net changes in fund balances - total governmental fiords (Statement 4) 2006 2005 $19,703 $8,013 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 239 (3,057) Change in net assets of governmental activities (Statement 2) $19,942 $4,956 The accompanying notes are an integral part of these financial statements. 14 VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS December 31, 2006 Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies of the Vadnais Lake Area Water Management Organization conform to generally accepted accounting principles as applied to governmental units by the Govemmental Accounting Standards Board (GASB). The following is a summary of significant accounting policies. A. FINANCIAL REPORTING ENTITY The Vadnais Lake Area Water Management Organization (the Organization) was created in the exercise of joining powers to meet the requirements of the Metropolitan Surface Water Management Act, re -codified as Minnesota Statutes chapters 103B and 103D. Its general purpose is to establish an organization to jointly and cooperatively develop a 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 Commissioners which consists of seven members, one from each of the following participating governmental units: City of North Oaks City of White Bear Lake St. Paul Regional Water Services City of Lino Lakes White Bear Township City of Vadnais Heights City of Gem Lake All property of the Organization is owned by the member's entities in proportion to the total contribution of each participating governmental unit as required by the previous annual budget. Effective January 1, 2007, the Organization approved a new joint powers agreement. The biggest change will be that the St. Paul Regional Water Services will no longer be a part of the joint powers. In 2006, the St. Paul Regional Water Services only accounted for 3.4% of the annual member assessments. The accounting policies of the Organization conform to generally accepted accounting principles as applicable to governmental units. VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS December 31, 2006 Component units are legally separate entities for which the Organization (primary government) is financially accountable, or for which the exclusion of the component unit would render the fmancial statements of the primary government misleading. The criteria used to determine if the primary government is financially accountable for a component unit include whether or not the primary government appoints the voting majority of the potential component unit's governing body, is able to impose its will on the potential component unit, is in a relationship of financial benefit or burden with the potential component unit, or is fiscally depended upon by the potential component unit. Based on these criteria, there are no organizations considered to be component units of the Organization. B. GOVERNMENT -WIDE AND FUND FINANCIAL STATEMENTS The govemment-wide financial statements (i.e., the statement of net assets and the statement of changes in net assets) report information on all of the nonfiduciary activities of the primary government. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by member contributions and intergovernmental revenues, are reported separately from business -type activities. There are no business -type activities, which rely to a significant extent on fees and charges for support. The statement of activities demonstrates the degree to which the direct expenses of a given function are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function. 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 business -type activity and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function. Grants not restricted to a specific program and other items not 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. C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING, AND FINANCIAL STATEMENT PRESENTATION The government -wide fmancial 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 fmancial statements are reported using the current financial resources measurement focus and the modified 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 government considers all revenues, except reimbursement grants, to be available 16 VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS December 31, 2006 if they are collected within 60 days of the end of the current fiscal period. Reimbursement grants are considered available if they are collected within one year of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures are recorded only when payment is due. Intergovernmental revenues, and interest associated with the current fiscal period are all considered to be 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 government. The government reports the following major governmental funds: General Fund is the general operating fund of the Organization. It is used to account for financial resources to be used for general administrative expenditures and for the construction and maintenance of projects of common benefit to 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 the Governmental Accounting Standards Board. The government has elected not to follow subsequent private -sector guidance. As a general rule the effect of interfund activity has been eliminated from the government -wide financial statements. Exceptions to this general rule are transactions that would be treated as revenues, expenditures or expenses if they involved external organizations, such as buying goods and services or payments in lieu of taxes, are similarly treated when they involve other funds of the Organization. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Amounts reported as program revenues include 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments. Internally dedicated resources are reported as general revenues rather than as program revenues When both restricted and unrestricted resources are available for an allowable use, it is the government's policy to use restricted resources first, then unrestricted resources as they are needed. D. BUDGETS AND BUDGETARY ACCOUNTING The Board of Commissioners adopts a budget for the general government operations of the Organisation on an annual basis. During the budget year, supplemental appropriations and deletions are or may be authorized by the Board. The modified accrual basis of accounting is used by the Organization for budgeting data. All appropriations end with the fiscal year for which they were made. The Organization monitors budget performance and all amounts over budget have been approved by the Board through the disbursement approval process. 17 VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS December 31, 2006 The Organization prepares a revenue and expenditure budget for its General Fund. Encumbrance accounting, under which purchase orders, contracts, and other commitments of monies are recorded in order to reserve that portion of the applicable appropriation, is not employed by the Organization. E. CASH AND INVESTMENTS Cash and investment balances are invested to the extent available in authorized investments. Investment income is allocated to individual funds on the basis of the fund's equity in the cash and investment pool. In accordance with the provisions of GASB No. 31, the Organization reports investments at fair value in the financial statements. The Organization reports all investments income, including changes in fair value of investments, as revenue in the operating statements. F. INVENTORIES The original cost of materials and supplies has been recorded as expenditures at the time of purchase. The Organization does not maintain significant amounts of inventories of materials and supplies. G. CAPITAL ASSETS Capital assets, which include property, plant, equipment and infrastructure assets, are reported in the governmental activities columns in the government -wide fmancial statements. Capital assets are defined by the government 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. As of December 31, 2006, the Organization does not own any capital assets as previously defined. H. LONG-TERM OBLIGATIONS r-; In the government -wide financial statements long-term debt is reported as a liability in the applicable governmental activities fund type statement of net assets. Bond premiums and discounts, as well as issuance costs, are immaterial and are expensed in the year of bond issuance. In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other fmancing sources 18 VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS December 31, 2006 while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. I. FUND EQUITY In the fund financial statements, governmental funds report reservations of fund balance for amounts not appropriable for expenditure or legally segregated for a specific future use. Designated fund balances represent tentative plans for future use of financial resources. J. INTERFUND TRANSACTIONS Interfund services provided and used are accounted for as revenues, expenditures or expenses. Transactions that constitute reimbursements to a fund for expenditures/expenses initially made from it that are properly applicable to another fund, are recorded as expenditures/expenses in the reimbursing fund and as reductions of expenditures/expenses in the fund that is reimbursed. All other interfund transactions are reported as transfers. K. USE OF ESTIMATES The preparation of financial statements in accordance with generally accepted accounting principles (GAAP) requires management to make estimates that affect amounts reported in the financial statements during the reporting period. Actual results could differ from such estimates. L. COMPENSATED ABSENCES Vested or accumulated vacation leave and other benefit amounts that are expected to be liquidated with expendable available financial resources are reported as an expenditure and a fund liability of the governmental fund that will pay it. 19 VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS December 31, 2006 M. RECONCILIATION OF GOVERNMENT -WIDE AND FUND FINANCIAL STATEMENTS 1. EXPLANATION OF CERTAIN DIFFERENCES BETWEEN THE GOVERNMENTAL FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE AND THE GOVERNMENT -WIDE STATEMENT OF ACTIVITIES The governmental fund statement of revenues, expenditures and changes in fund balance includes a reconciliation between net changes in fund balance — total governmental funds and changes in net assets of governmental activities as reported in the government -wide statement of activities. One element of that reconciliation states that "some expenses reported in the statement of activities do not require the use of current fmancial resources and therefore are not reported as expenditures in governmental funds." The details of this $239 difference is as follows: Compensated absences: At December 31, 2005 At December 31, 2006 Net adjustment to increase net changes in fund balances - total governmental funds to arrive at changes in net assets of governmental activities. Note 2 DEPOSITS AND INVESTMENTS A. DEPOSITS $3,059 (2,820) $239 In accordance with Minnesota Statutes, the Organization maintains deposits at those depository banks authorized by the Board, all of which are members of the Federal Reserve System. Minnesota Statutes require that all Organisation deposits be protected by insurance, surety bond, or collateral. The market value of collateral pledged must equal 110% of the deposits not covered by insurance or bonds. Minnesota Statutes require that securities pledged as collateral be held in safekeeping by the Organization Treasurer or in a financial institution other than that furnishing the collateral. Authorized collateral includes the following: a) United States government treasury bills, treasury notes, treasury bonds; b) Issues of United States government agencies and instrumentalities as quoted by a recognized industry quotation service available to the government entity; 20 VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS December 31, 2006 c) General obligation securities of any state or local government with taxing powers which is rated "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; d) Unrated general obligation securities of a local government with taxing powers may be pledged as collateral against funds deposited by that same local government entity: e) 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 f) Time deposits that are fully insured by any federal agency. At year end the carrying amount of the Organization's deposits was $158,810 and the bank balance was $159,201. The entire bank balance was covered by federal depository insurance or collateral held by the Organization's agent in the Organization's name. B. INVESTMENTS Minnesota Statutes authorize the Organization to invest in the following: a) Direct obligations or obligations guaranteed by the United States or its agencies, its instrumentalities or organizations created by an act of congress, excluding mortgage -backed securities defined as high risk. b) Shares of investment companies registered under the Federal Investment Company Act of 1940 and whose only investments are in securities described in (a) above, general obligation tax-exempt securities, or repurchase or reverse repurchase agreements. c) Obligations of the State of Minnesota or any of its municipalities as follows: 1) any security which is a general obligation of any state or local government with taxing powers which is rated "A" or better by a national bond rating service; 2) any security which is a revenue obligation of any state or local government with taxing powers which is rated "AA" or better by a national bond rating service; and 3) a general obligation of the Minnesota housing finance agency which is a moral obligation of the State of Minnesota and is rated "A" or better by a national bond rating agency. d) Bankers acceptance of United States banks eligible for purchase by the Federal Reserve System. e) Commercial paper issued by United States corporations or their Canadian subsidiaries, of the highest quality, and maturing in 270 days or less. f) Repurchase or reverse repurchase agreements with banks that are members of the Federal Reserve System with capitalization exceeding $10,000,000; a primary reporting dealer in U.S. government 21 VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS December 31, 2006 Note 5 DESIGNATIONS OF FUND EQUITY At December 31, 2006 and 2005 the Organization had the following fund equity reservations and designations: December 31, General Fund: Designated for cash flow 2006 2005 $57,014 $37,309 Note 6 LONG-TERM DEBT CHANGE IN LONG-TERM LIABILITIES Long-term liability activity for the year ended December 31, 2006, was as follows: Governmental activities: Compensated absences payable Balance Balance Due Within 12/31/05 Additions Deletions 12/31/06 One Year $3,057 $2,820 ($3,057) $2,820 $2,820 Compensated absences are generally liquidated by the General Fund. Note 7 EXCESS OF EXPENDITURES OVER APPROPRIATIONS IN INDIVIDUAL FUNDS For the year ended December 31, 2006, there were excess expenditures over appropriations in the General Fund as follows: General fund Note 8 RISK MANAGEMENT Under Budget Actual Budget $186,400 $195,930 ($9,530) 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. Property and casualty and worker's compensation liabilities are insured. The Organization retains risk for the deductible portions of the insurance. The amounts of these deductibles are considered immaterial to the general purposed financial statements. There were no significant reductions in insurance from the previous year or settlements in excess of insurance coverage for any of the past three fiscal years. 24 REQUIRED SUPPLEMENTARY INFORMATION VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE - GENERAL FUND For The Year Ended December 31, 2006 Statement 6 Revenues: Intergovernmental: Member assessments Grants Investment income Other Total revenues Budgeted Amounts Original Final Variance with Final Budget - 2006 Actual Positive 2005 Actual Amounts (Negative) Amounts $177,400 $177,400 $177,400 $ - $66,118 3,500 3,500 36,690 33,190 238,777 500 500 104 (396) 192 5,000 5,000 1,439 (3,561) 5,009 186,400 186,400 215,633 29,233 310,096 Expenditures: Projects 81,000 81,000 109,768 (28,768) 234,487 Programs: Monitoring 10,000 10,000 776 9,224 1,215 Maintenance 10,000 10,000 3,198 6,802 - General and administrative: Wages 59,568 59,568 53,880 5,688 44,019 Payroll taxes and employee benefits 7,432 7,432 7,432 6,221 Legal 1,500 1,500 2,465 (965) 326 Accounting and auditing 4,000 4,000 3,907 93 3,325 Contract services - - 265 (265) 868 Information systems 3,500 3,500 946 2,554 Insurance 2,700 2,700 2,562 138 2,544 Office (supplies, postage, and rent) 4,000 4,000 4,048 (48) 1,925 Staff training and expenses 700 700 1,175 (475) 1,190 Telephone - 1,854 (1,854) 667 Miscellaneous 2,000 2,000 3,654 (1,654) 5,294 Total expenditures 186,400 186,400 195,930 (9,530) 302,081 Revenues over expenditures $0 $0 19,703 $19,703 8,015 Fund balance - January 1, as previously reported 37,311 147,574 Prior period adjustment - (118,278) Fund balance - January 1, as restated 37,311 29,296 Fund balances - ending $57,014 $37,311 26 VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON SCHEDULE NOTE TO RSI December 31, 2006 Note A LEGAL COMPLIANCE — BUDGETS The General Fund budget is legally adopted on a basis consistent with accounting principles generally accepted in the United States of America. The legal level of budgetary control is at the fund level for the General Fund. 27 - This page intentionally left blank - I� L HLB Tautges Redpath, Ltd. Certified Public Accountants and Consultants REPORT ON COMPLIANCE WITH MINNESOTA LEGAL COMPLIANCE AUDIT GUIDE FOR LOCAL GOVERNMENT To the Board of Commissioners Vadnais Lake Area Water Management Organization Vadnais Heights, Minnesota We have audited the general purpose financial statements of the Vadnais Lake Area Water Management Organization, as of and for the year ended December 31, 2006 and have issued our report thereon dated March 21, 2007. 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 State Auditor pursuant to Minnesota Statutes 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, miscellaneous provisions and tax increment financing. Our study included all of the listed categories except miscellaneous provisions and tax increment financing because these are not applicable to the Vadnais Lake Area Water Management Organization. The results of our tests indicate that for the items tested, the Vadnais Lake Area Water Management Organization complied with the material terms and conditions of applicable legal provisions. This report is intended solely for the information and use of the Vadnais Lake Area Water Management Organization and management and is not intended to be and should not be used by anyone other than these specified parties. 14,5' 7i044 Seer414 tg: HLB TAUTGES REDPATH, LTD_. White Bear Lake, Minnesota March 21, 2007 4810 White Bear Parkway White Bear Lake, Minnesota 55110 I 651 426 7000 651 426 5004 Fax I www.hlbtr.com HLB Tautges Redpath, Ltd. is a member of IILB International, a world-wide organization of accounting41 firms and business advisors. - This page intentionally left blank - 42 l i i 1 1 9