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HomeMy WebLinkAboutVLAWMO Annual Financial Report 2018CliftonLarsonAllen LLP CLAconnect.com Board of Directors Vadnais Lake Area Water Management Organization Vadnais Heights, Minnesota We have audited the financial statements of the governmental activities and the major fund of Vadnais Lake Area Water Management Organization (the Organization) as of and for the year ended December 31, 2018, and have issued our report thereon dated April 24, 2019. We have previously communicated to you information about our responsibilities under auditing standards generally accepted in the United States of America, as well as certain information related to the planned scope and timing of our audit. Professional standards also require that we communicate to you the following information related to our audit. Significant audit findings Qualitative aspects of accounting practices Accounting policies Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the Organization 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 2018. We noted no transactions entered into by the Organization 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 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: • Management's estimate of the useful lives of capital assets is based on authoritative guidance and past experience. We evaluated the key factors and assumptions used to develop the useful lives of capital assets in determining that it is reasonable in relation to the financial statements taken as a whole. • Management's estimate of the amount of the year-end compensated absences payable to employees is based on historical trends and anticipated leave time activity. • Management's estimate of the City's proportionate share of Public Employees' Retirement Association of Minnesota net pension liabilities as well as the related deferred inflows and outflows of resources is based on guidance from GASB Statement No. 68, GASB Statement No. 71, and the plans' allocation tables. The plans' allocation tables allocate a portion of the plans' net pension liabilities based on the City's contributions during the plans' fiscal years as a percentage of total contributions received for the related fiscal year by the plans. 13 A member of QInternational Nexia Board of Directors Vadnais Lake Area Water Management Organization Page 2 Financial statement disclosures Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. There were no particularly sensitive financial statement disclosures. The financial statement disclosures are neutral, consistent, and clear. Difficulties encountered in performing the audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Uncorrected misstatements Professional standards require us to accumulate all misstatements identified during the audit, other than those that are clearly 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. Corrected misstatements The following material and immaterial misstatements detected as a result of audit procedures were corrected by management: • Recording special assessments receivable. • Recording accrued wages and other payables. Disagreements with management For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditors' report. No such disagreements arose during our audit. Management representations We have requested certain representations from management that are included in the management representation letter dated April 24, 2019. 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 Organization'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. Significant issues discussed with management prior to engagement We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to engagement as the Organization's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our engagement. Board of Directors Vadnais Lake Area Water Management Organization Page 3 Other audit findings or issues We have provided a separate letter to you dated April 24, 2019, communicating internal control related matters identified during the audit. Other information in documents containing audited financial statements With respect to the required supplementary information (RSI) accompanying the financial statements, we made certain inquiries of management about the methods of preparing the RSI, including whether the RSI has been measured and presented in accordance with prescribed guidelines, whether the methods of measurement and preparation have been changed from the prior period and the reasons for any such changes, and whether there were any significant assumptions or interpretations underlying the measurement or presentation of the RSI. We compared the RSI for consistency with management's responses to the foregoing inquiries, the basic financial statements, and other knowledge obtained during the audit of the basic financial statements. Because these limited procedures do not provide sufficient evidence, we did not express an opinion or provide any assurance on the RSI. *** This communication is intended solely for the information and use of the board of directors and management of Vadnais Lake Area Water Management Organization and is not intended to be, and should not be, used by anyone other than these specified parties. LLB CliftonLarsonAllen LLP Minneapolis, Minnesota April 24, 2019 CliftonLarsonAllen LLP CLAconnectcom Board of Directors and Management Vadnais Lake Area Water Management Organization Vadnais Heights, Minnesota In planning and performing our audit of the financial statements of the govemmental activities and the major fund of the Vadnais Lake Area Water Management Organization (the Organization) as of and for the year ended December 31, 2018, in accordance with auditing standards generally accepted in the United States of America, we considered the Organization's internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances 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 Organization's internal control. Accordingly, we do not express an opinion on the effectiveness of the Organization's intemal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and, therefore, material weaknesses or significant deficiencies may exist that were not identified. However, as discussed below, we identified a certain deficiency in internal control that we consider to be a material weakness. A deficiency in intemal 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 Organization's financial statements will not be prevented, or detected and corrected, on a timely basis. Material weaknesses We consider the following deficiencies in the Organization's internal control to be material weaknesses. Financial reporting process The board of directors and management share the ultimate responsibility for the Organization's intemal control system. While it is acceptable to outsource various accounting functions, the responsibility for internal control cannot be outsourced. The Organization engages CliftonLarsonAllen LLP (CLA) to assist in preparing its financial statements and accompanying disclosures, including adjustments for the conversion from modified to full accrual balances. Adjustments also included recording special assessments receivable and other receivables and payables. However, as independent auditors, CLA cannot be considered part of the Organization's internal control system. As part of its internal control over the preparation of its financial statements, including disclosures, the Organization has implemented a comprehensive review procedure to ensure that the financial statements, including disclosures, are complete and accurate. Such review procedures should be performed by an individual possessing a thorough understanding of accounting principles generally accepted in the United States of America and knowledge of the Organization's activities and operations. 13 A member of QInternational Nexia Board of Directors and Management Vadnais Lake Area Water Management Organization Page 2 Material weaknesses (continued) Financial reporting process (continued) The Organization's personnel have not monitored recent accounting developments to the extent necessary to enable them to prepare the Organization's financial statements and related disclosures, to provide a high level of assurance that potential omissions or other errors that are material would be identified and corrected on a timely basis. If the financial statements are not properly monitored, the financial statements on a monthly basis may not be consistent with the annual financial statements. The outsourcing of this service is not unusual in organizations of your size and is a result of management's cost benefit decision to use our accounting expertise rather than to incur internal resource costs. Other deficiencies in internal control and other matters During our audit, we became aware of other deficiencies in intemal control and other matters that are opportunities to strengthen your intemal control and improve the efficiency of your operations. While the nature and magnitude of the other deficiencies in intemal control were not considered important enough to merit the attention of the board of directors they are considered of sufficient importance to merit management's attention and are included herein to provide a single, comprehensive communication for both those charged with governance and management. Documentation and review During our testing of internal controls, it was noted in several areas the documentation of review was not retained or indicated on the supporting statements. These areas include payroll registers, bank reconciliations, and joumal entries. We recommend the Organization review their policies and procedures and ensure a formal review process is in place for all areas. These review processes should include proper documentation of the reviews. Credit cards During our testing of credit card disbursements, it was noted the Administrator's credit card statements are being reviewed by the Water Resource Technician. Proper level of authority should be reviewing activity to ensure appropriate charges. We recommend the Administrator's activity be reviewed by a member of the board of directors periodically and that this review is documented. Fund balance policy During our preparation of the financial statements, it was noted the Organization is not meeting their own fund balance policy of keeping unassigned fund balance at 35-50% of next year's budgeted expenditures. In prior year unassigned fund balance was 13% of next year's budgeted expenditures and in the current year unassigned fund balance was 32%. Not aligning with policies related to fund balance can lead to cash flow problems in the future. We recommend reviewing the next year's budget and reviewing the fund balance policy to ensure proper cash flow and adherence to such policy. Board of Directors and Management Vadnais Lake Area Water Management Organization Page 3 We will review the status of these comments during our next audit engagement. We have already discussed many of these comments and suggestions with various Organization personnel, and we will be pleased to discuss them in further detail at your convenience, to perform any additional study of these matters, or to assist you in implementing the recommendations. This communication is intended solely for the information and use of management, board of directors, and others within the Organization, and is not intended to be, and should not be, used by anyone other than these specified parties. L7 CliftonLarsonAllen LLP Minneapolis, Minnesota April 24, 2019 VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION YEAR ENDED DECEMBER 31, 2018 VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION TABLE OF CONTENTS YEAR ENDED DECEMBER 31, 2018 INTRODUCTORY SECTION BOARD OF DIRECTORS AND APPOINTED OFFICIALS 1 FINANCIAL SECTION INDEPENDENT AUDITORS' REPORT 2 MANAGEMENT'S DISCUSSION AND ANALYSIS 4 BASIC FINANCIAL STATEMENTS GOVERNMENT -WIDE FINANCIAL STATEMENTS STATEMENT OF NET POSITION 13 STATEMENT OF ACTIVITIES 14 FUND FINANCIAL STATEMENTS GOVERNMENTAL FUNDS BALANCE SHEET 15 RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET POSITION 16 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES 17 RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES 18 GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL 19 NOTES TO FINANCIAL STATEMENTS 20 REQUIRED SUPPLEMENTARY INFORMATION SCHEDULE OF EMPLOYER'S SHARE OF PERA NET PENSION LIABILITY - GENERAL EMPLOYEES RETIREMENT FUND 40 SCHEDULE OF EMPLOYER'S SHARE OF PERA CONTRIBUTIONS - GENERAL EMPLOYEES RETIREMENT FUND 40 OTHER REQUIRED REPORT INDEPENDENT AUDITORS' REPORT ON MINNESOTA LEGAL COMPLIANCE 41 INTRODUCTORY SECTION VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION BOARD OF DIRECTORS AND APPOINTED OFFICIALS YEAR ENDED DECEMBER 31, 2018 Name BOARD OF DIRECTORS Title Member City Dan Jones Chairperson White Bear Lake Jim Lindner Vice -Chair Gem Lake Rob Rafferty Treasurer Lino Lakes Marty Long Board Member North Oaks Ed Prudhon Board Member White Bear Township Terry Nyblom Board Member Vadnais Heights Name TECHNICAL COMMISSION Title Member City Jim Grisim Chairperson White Bear Lake Bob Larson Treasurer North Oaks Gloria Tessier Commissioner Gem Lake Marty Asleson Commissioner Lino Lakes Paul Duxbury Commissioner White Bear Township (1) FINANCIAL SECTION CliftonLarsonAllen LLP CLAc onnectcom INDEPENDENT AUDITORS' REPORT Board of Directors Vadnais Lake Area Water Management Organization Vadnais Heights, Minnesota Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities and the major fund of the Vadnais Lake Area Water Management Organization (the Organization), Vadnais Heights, Minnesota, as of and for the year ended December 31, 2018, and the related notes to the financial statements, which collectively comprise the Organization's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of intemal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express opinions 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 from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's intemal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 13 A member of QInternational Nexia (2) Board of Directors Vadnais Lake Area Water Management Organization Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the govemmental activities and the major fund of the Organization as of December 31, 2018, and the respective changes in financial position and the budgetary comparison for the General Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. Report on Summarized Comparative Information We have previously audited Vadnais Lake Area Water Management Organization's 2017 financial statements of the governmental activities and major fund, and we expressed unmodified opinions on those financial statements in our report dated April 25, 2018. In our opinion, the summarized comparative information presented herein as of and for the year ended December 31, 2017 is consistent, in all material respects, with the audited information from which is has been derived. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 4 through 12, the schedule of employer's share of PERA net pension liability, and the schedule of employer's share of PERA contributions on page 40 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Organization's basic financial statements. The introductory section is presented for purposes of additional analysis and is not a required part of the basic financial statements. The introductory section has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on it. CliftonLarsonAllen LLP Minneapolis, Minnesota April 24, 2019 (3) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2018 As management of the Vadnais Lake Area Water Management Organization (the Organization), Vadnais Heights, Minnesota, we offer readers of the Organization's financial statements this narrative overview and analysis of the financial activities of the Organization for the fiscal year ended December 31, 2018. We encourage readers to consider the information presented here in conjunction with the financial statements, which follow this section. Financial Highlights • The assets and deferred outflows of resources of the Organization exceeded its liabilities and deferred inflows of resources at the close of the most recent fiscal year by $810,122 (net position). Of this amount, $309,277 (unrestricted net position) may be used to meet the Organization's ongoing obligations. • The Organization's total net position increased by $266,076 • As of the close of the current fiscal year, the Organization's General Fund reported combined ending fund balances of $607,317, an increase of $190,268 in comparison with the prior year. • The ending General Fund balance was $607,317. Of this balance, $340,591 is committed purposes disclosed in the financial statements. • The Organization's unrestricted cash and temporary investments as of December 31, 2018 increased to $687,715 from $458,142 as of December 31, 2017. (4) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2018 Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the Organization's basic financial statements. The Organization's basic financial statements are comprised of three components: 1) govemment-wide financial statements, 2) General Fund financial statements, and 3) notes to the financial statements. This report also contains other required supplemental information in addition to the basic financial statements themselves. The financial statements also include notes that explain some of the information in the financial statements and provide more detailed data. Figure 1 shows how the required parts of this annual report are arranged and relate to one another. Figure 1 Required Components of the Organization's Annual Financial Report Management's Discussion and Analysis Government -Wide Financial Statements Summary Basic Financial Statements General Fund Financial Required Supplementary Information Notes to the Financial Statements Detail (5) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2018 Overview of the Financial Statements (Continued) Figure 2 summarizes the major features of the Organization's financial statements, including the portion of the Organization government they cover and the types of information they contain. The remainder of this overview section of management's discussion and analysis explains the structure and contents of each of the statements. Figure 2 Major Features of the Government -Wide and Fund Financial Statements Fund Financial Statements Government -Wide Statements General Fund Scope Entire Organization The activities of the Organization Required financial statements • Statement of Net Position • Statement of Activities • Balance Sheet • Statement of Revenues, Expenditures, and Changes in Fund Balances Accounting Basis and measurement focus Accrual accounting and economic resources focus Modified accrual accounting and current financial resources focus Type of asset/liability information All assets and liabilities, both financial and capital, and short-term and long- term Only assets expected to be used up and liabilities that come due during the year or soon thereafter; no capital assets included Type of deferred outflows/inflows of resources information All deferred outflows/inflows of resources, regardless of when cash is received or paid Only deferred outflows of resources expected to be used up and deferred inflows of resources that come due during the year or soon thereafter; no capital assets included Type of inflow/outflow information All revenues and expenses during year, regardless of when cash is received or paid Revenues for which cash is received during or soon after the end of the year, expenditures when goods or services have been received and payment is due during the year or soon thereafter Government -Wide Financial Statements The government -wide financial statements are designed to provide readers with a broad overview of the Organization's finances, in a manner similar to a private -sector business. The statement of net position presents information on all of the Organization's assets and liabilities, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the Organization is improving or deteriorating. The statement of activities presents information showing how the Organization's net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., grants and earned but unused vacation and sick leave). The governmental activities of the Organization include general and administrative, programs, and projects. (6) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2018 Fund Financial Statements A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The Organization, like other state and local government, uses fund accounting to ensure and demonstrate compliance with finance -related legal requirements. The Organization currently only uses a general fund. General Fund The General Fund is used to account for essentially the same functions reported as govemmental activities in the government -wide financial statements. However, unlike the government -wide financial statements, the General Fund financial statements focus on near -term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government's near -term financing requirements. Because the focus of the General Fund is narrower than that of the government -wide financial statements, it is useful to compare the information presented for the General Fund with similar information presented for govemmental activities in the government -wide financial statements. By doing so, readers may better understand the long-term impact by the government's near -term financing decisions. Both the General Fund balance sheet and the General Fund statement of revenues, expenditures and changes in fund balance provide a reconciliation to facilitate this comparison between the General Fund and govemmental activities. The Organization adopts an annual appropriated budget for its General Fund. A budgetary comparison statement has been provided for the General Fund to demonstrate compliance with this budget. Notes to the Financial Statements The notes provide additional information that is essential to a full understanding of the data provided in the govemment-wide and fund financial statements. Government -Wide Financial Analysis As noted earlier, net position may serve over time as a useful indicator of a govemment's financial position. In the case of the Organization, assets and deferred outflows of resources exceeded liabilities and deferred inflows of resources by $810,122 at the close of the most recent fiscal year. The largest portions of the Organization's net position are unrestricted and available to meet the ongoing needs of the Organization. The Organization has a total of 62% classified as investment in capital assets (e.g., land, buildings, machinery, and equipment). The Organization uses these capital assets to provide services to its member cities; consequently, these assets are not available for future spending. (7) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2018 Government -Wide Financial Analysis (Continued) Vadnais Lake Area Water Management Organization's Summary of Net Position December 31, Increase 2018 2017 (Decrease) ASSETS Current $ 1,572,820 $ 1,336,785 $ 236,035 Capital, Net of Accumulated Depreciation 500,845 408,909 91,936 Total Assets 2,073,665 1,745,694 327,971 DEFERRED OUTFLOWS OF RESOURCES Deferred Pension Resources 59,386 107,344 (47,958) LIABILITIES Current 970,284 941,608 28,676 Noncurrent 271,547 316,951 (45,404) Total Liabilities 1,241,831 1,258,559 (16,728) DEFERRED INFLOWS OF RESOURCES Deferred Pension Resources 81,098 50,433 30,665 NET POSITION Net Investment in Capital Assets 500,845 408,909 Unrestricted 309,277 135,137 91,936 174,140 Total Net Position $ 810,122 $ 544,046 $ 266,076 At the end of the current fiscal year, the Organization is able to report positive balances in both categories of net position. (8) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2018 Government -Wide Financial Analysis (Continued) Vadnais Lake Area Water Management Organization's Changes in Net Position December 31, Increase 2018 2017 (Decrease) REVENUES Program: Charges for Services $ 756,604 $ 652,720 $ 103,884 Operating Grants and Contributions 176,599 321,057 (144,458) General: Unrestricted Investment Eamings 7,565 2,319 5,246 Total Revenues 940,768 976,096 (35,328) EXPENSES General and Administrative 446,811 492,069 (45,258) Programs 26,241 33,107 (6,866) Projects 201,640 128,359 73,281 Total Expenses 674,692 653,535 21,157 CHANGE IN NET POSITION 266,076 322,561 (56,485) Net Position - January 1 544,046 221,485 322,561 NET POSITION - DECEMBER 31 $ 810,122 $ 544,046 $ 266,076 (9) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2018 Government -Wide Financial Analysis (Continued) Expenses and Program Revenues — Governmental Activities 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 General Government Programs Projects ■ Expenses ■ Revenues (10) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2018 Government -Wide Financial Analysis (Continued) Revenues by Source — Governmental Activities Operating Grants and Contributions 18.8% General Revenues 0.8% Financial Analysis of the General Fund As noted earlier, the Organization uses fund accounting to ensure and demonstrate compliance with finance -related legal requirements. General Fund The focus of the Organization's General Fund is to provide information on near -term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the Organization's financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government's net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the Organization's General Fund reported an ending fund balance of $607,317 an increase of $190,268 in comparison with the prior year. Approximately 44% of the total amount, $266,726, constitutes unassigned fund balance, which is available for spending at the Organization's discretion. The remainder fund balance of $340,591 is committed for purposes described in the notes to the financial statements. As a measure of the General Fund's liquidity, it may be useful to compare total fund balance to total fund expenditures. Total fund balance represents 81% of 2018 fund expenditures and 46% of 2017 fund expenditures. General Fund Budgetary Highlights The Organization's General Fund budget was not amended during the year. Actual revenues were over budget by $172,845, mainly due to intergovernmental grants exceeding budget by $151,278. Expenditures were under budget with a variance of $17,423 mostly due to project costs being lower than anticipated. VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2018 Capital Asset and Debt Administration Capital Assets The Organization's investment in capital assets for its governmental activities as of December 31, 2018, amounts to $500,845 (net of accumulated depreciation). Additional information on the Organization's capital assets can be found in Note 3 of this report. Economic Factors and Next Year's Budgets The Organization considered and prepared the 2019 budget based on the following factors: • Revenue is primarily from the storm sewer utility assessment, with occasional income from grants, service fees, and interest. • Expenditures fall into three main categories: Programs, projects, and general and administration. • Programs include: monitoring and data analysis, sustainable lake plans, cost -share, education and outreach, maintenance, and 30% of payroll for five employees. • Projects include capital projects such as the Sucker Lake channel restoration, year four of the bacteria source monitoring on Lambert Creek, Lambert Creek hydrologic study, and development of the Whitaker Treatment wetland project occupying 40% of payroll for five employees. • Operations and administration include office rent and supplies, bookkeeping and general and program audit, information systems, insurance, and 30% payroll for five employees and legal expenses. All of these factors were considered in preparing the Organization's budget for the 2019 fiscal year. Requests for Information This financial report is designed to provide a general overview of the Organization's finances for all those with an interest in the Organization's finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to Stephanie McNamara, Administrator, Vadnais Lake Area Water Management Organization, 800 County Road E East, Vadnais Heights, MN 55127. (12) BASIC FINANCIAL STATEMENTS VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION STATEMENT OF NET POSITION DECEMBER 31, 2018 Govemmental Activities ASSETS Cash and Temporary Investments $ 687,715 Restricted Cash 29,661 Receivables: Accounts 3,259 Special Assessments 852,185 Capital Assets: Depreciable Assets, Net of Accumulated Depreciation 500,845 Total Assets 2,073,665 DEFERRED OUTFLOWS OF RESOURCES Deferred Pension Resources 59,386 LIABILITIES Accounts Payable 68,858 Escrow Deposits Payable 29,638 Salaries Payable 22,618 Due to Other Government 7,292 Uneamed Revenue 830,878 Compensated Absences Payable: Due Within One Year 11,000 Due in More than One Year 33,001 Net Pension Liability: Due in More than One Year 238,546 Total Liabilities 1,241,831 DEFERRED INFLOWS OF RESOURCES Deferred Pension Resources 81,098 NET POSITION Net Investment in Capital Assets 500,845 Unrestricted 309,277 Total Net Position $ 810,122 See accompanying Notes to Financial Statements. (13) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION STATEMENT OF ACTIVITIES YEAR ENDED DECEMBER 31, 2018 Program Revenues Net Revenue (Expense) and Changes in Net Position Charges Operating Capital for Grants and Grants and Govemmental Functions/Programs Expenses Services Contributions Contributions Activities GOVERNMENTAL ACTIVITIES General and Administrative $ 446,811 $ 756,604 $ 173,839 $ $ 483,632 Programs 26,241 - (26,241) Projects 201,640 2,760 (198,880) Total $ 674,692 $ 756,604 $ 176,599 $ 258,511 GENERAL REVENUES Unrestricted Investment Eamings 7,565 CHANGE IN NET POSITION 266,076 Net Position - January 1 544,046 NET POSITION - DECEMBER 31 $ 810,122 See accompanying Notes to Financial Statements. (14) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION BALANCE SHEET GENERAL FUND DECEMBER 31, 2018 (WITH SUMMARIZED COMPARATIVE INFORMATION AS OF DECEMBER 31, 2017) 2018 2017 ASSETS Cash and Temporary Investments $ 687,715 $ 458,142 Restricted Cash 29,661 29,643 Receivables: Accounts 3,259 75,503 Special Assessments 852,185 773,497 Total Assets $ 1,572,820 $ 1,336,785 LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES LIABILITIES Accounts Payable $ 68,905 $ 85,376 Escrow Deposits Payable 29,591 29,591 Salaries Payable 22,618 32,176 Due to Other Govemment 7,292 10,461 Uneamed Revenue 830,878 752,436 Total Liabilities 959,284 910,040 DEFERRED INFLOWS OF RESOURCES Unavailable Revenue - Special Assessments 6,219 9,696 FUND BALANCES Committed 340,591 316,550 Unassigned 266,726 100,499 Total Fund Balances 607,317 417,049 Total Liabilities, Deferred Inflows of Resources, and Fund Balances $ 1,572,820 $ 1,336,785 See accompanying Notes to Financial Statements. (15) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION RECONCILIATION OF THE BALANCE SHEET TO THE STATEMENT OF NET POSITION DECEMBER 31, 2018 Amounts reported for the governmental activities in the statement of net position are different because: Total Fund Balances - Govemmental $ 607,317 Capital assets used in governmental activities are not financial resources and therefore are not reported as assets in govemmental funds. Cost of Capital Assets 636,318 Less: Accumulated Depreciation (135,473) Noncurrent liabilities are not due and payable in the current period and therefore are not reported as liabilities in the funds. Compensated Absences Payable (44,001) Pension Liability (238,546) Some receivables are not available soon enough to pay for the current periods expenditures, and therefore are unavailable in the funds. Special Assessments 6,219 Govemmental funds do not report long-term amounts related to pensions. Deferred Outflows of Pension Resources 59,386 Deferred Inflows of Pension Resources (81,098) Total Net Position - Govemmental Activities $ 810,122 See accompanying Notes to Financial Statements. (16) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION STATEMENTS OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GENERAL FUND YEAR ENDED DECEMBER 31, 2018 (WITH SUMMARIZED COMPARATIVE INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2017) 2018 2017 REVENUES Charges for Services $ 758,935 $ 652,306 Intergovernmental Grants 176,278 361,049 Interest on Investments 7,565 2,319 Miscellaneous 1,467 2,432 Total Revenues 944,245 1,018,106 EXPENDITURES Current: General and Administrative 434,160 454,060 Programs 22,141 32,407 Projects 297,676 429,995 Total Expenditures 753,977 916,462 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES Fund Balances - January 1 FUND BALANCES - DECEMBER 31 190,268 101,644 417,049 315,405 $ 607,317 $ 417,049 See accompanying Notes to Financial Statements. (17) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES TO THE STATEMENT OF ACTIVITIES YEAR ENDED DECEMBER 31, 2018 Amounts reported for the govemmental activities in the statement of activities are different because: Total Net Change in Fund Balances - Governmental Funds $ 190,268 Capital outlays are reported in govemmental funds as expenditures. However in the statement of activities, the cost of those assets is allocated over the estimated useful lives as depreciation expense. Depreciation Expense (26,735) Capital Outlays 118,671 Certain revenues are recognized as soon as they are eamed. Under the modified accrual basis of accounting, certain revenues cannot be recognized until they are available to liquidate liabilities of the current period. Special Assessments (3,478) 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 govemmental funds. Pension Expense (10,740) Compensated Absences (1,910) Change in Net Position - Governmental Activities $ 266,076 See accompanying Notes to Financial Statements. (18) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL GENERAL FUND YEAR ENDED DECEMBER 31, 2018 (WITH COMPARATIVE ACTUAL AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2017) 2018 2017 Budgeted Amounts Actual Variance with Actual Original Final Amounts Final Budget Amount REVENUES Charges for Services $ 745,400 $ 745,400 $ 758,935 $ 13,535 $ 652,306 Intergovernmental Grants 25,000 25,000 176,278 151,278 361,049 Interest on Investments 500 500 7,565 7,065 2,319 Miscellaneous 500 500 1,467 967 2,432 Total Revenues 771,400 771,400 944,245 172,845 1,018,106 EXPENDITURES General and Administrative: Wages 327,500 327,500 281,092 46,408 300,091 Payroll Taxes and Employee Benefits 83,000 83,000 74,781 8,219 80,106 Legal 3,000 3,000 4,996 (1,996) 4,020 Professional Services 8,400 8,400 19,179 (10,779) 20,039 Information Systems 21,500 21,500 16,012 5,488 15,050 Insurance 5,200 5,200 5,251 (51) 5,110 Office 23,700 23,700 20,106 3,594 20,362 Staff Training 4,000 4,000 3,573 427 2,727 Telephone - - 3,240 (3,240) 2,640 Miscellaneous 5,200 5,200 5,930 (730) 3,915 Programs: Monitoring 39,000 39,000 22,141 16,859 32,407 Maintenance 5,000 5,000 5,000 Projects 245,900 245,900 297,676 (51,776) 429,995 Total Expenditures 771,400 771,400 753,977 17,423 916,462 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 190,268 155,422 101,644 Fund Balances - January 1 417,049 417,049 417,049 - 315,405 FUND BALANCES - DECEMBER 31 $ 417,049 $ 417,049 $ 607,317 $ 155,422 $ 417,049 See accompanying Notes to Financial Statements. (19) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2018 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Reporting Entity The Vadnais Lake Area Water Management Organization (the Organization), Vadnais Heights, Minnesota, was established to meet the requirements of the Metropolitan Surface Water Management the Act, re -codified as Minnesota statutes, chapters 103-b and 103-d. The general purpose of the Organization is to establish a jointly and cooperatively developed 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 (8) 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 directors which consists of six members, one from each of the following governmental units: City of North Oaks, City of White Bear Lake, City of Lino Lakes, White Bear Township, City of Vadnais Heights, and City of Gem Lake. The board of directors exercises legislative authority and determines all matters of policy. The board of directors appoints personnel responsible for the proper administration of all affairs relating to the Organization's activities. The Organization has considered all potential units for which it is financially accountable, and other organizations for which the nature and significance of their relationship with the Organization are such that exclusion would cause the Organization's financial statements to be misleading or incomplete. The Governmental Accounting Standards Board (GASB) has set forth criteria to be considered in determining financial accountability. These criteria include appointing a voting majority of an organization's governing body, and (1) the ability of the primary govemment to impose its will on that organization, or (2) the potential for the organization to provide specific benefits to, or impose specific financial burdens on the primary government. The Organization has no component units that meet the GASB criteria. Government -Wide and General Fund Financial Statements The government -wide financial statements (i.e., the statements of net position and the statements of activities) report information on all of the nonfiduciary activities of the Organization. (20) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2018 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Government -Wide and Fund Financial Statements (Continued) The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Amounts reported as 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 segment, and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for the General Fund. Measurement Focus, Basis of Accounting, and Basis of Presentation The govemment-wide financial 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. The General Fund financial 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 Organization considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Charges for service, assessments to members, grants, and interest associated with the current fiscal period are all considered 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 Organization. Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the year in which the resources are measurable and become available. (21) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2018 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Measurement Focus, Basis of Accounting and Basis of Presentation (Continued) Nonexchange transactions, in which the Organization receives value without directly giving equal value in return, include grants, entitlement, and donations. Eligibility requirements include timing requirements, which specify the year when the resources are required to be used or the year when use is first permitted, matching requirements, in which the Organization must provide local resources to be used for a specified purpose, and expenditure requirements, in which the resources are provided to the Organization on a reimbursement basis. On a modified accrual basis, revenue from nonexchange transactions must also be available before it can be recognized. Unearned revenue arises when assets are recognized before revenue recognition criteria have been satisfied. Grants and entitlements received before eligibility requirements are met are also recorded as unearned revenue. The Organization reports the following major governmental fund: The General Fund is the Organization's primary operating fund. It accounts for all financial resources of the Organization. When both restricted and unrestricted resources are available for use, it is the Organization's policy to use restricted resources first, then unrestricted resources as they are needed. As a general rule the effect of interfund activity has been eliminated from government -wide financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources, and Net Position/Fund Balance Deposits and Investments The Organization's cash and temporary investments are considered to be cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition. Investments are reported at fair value. (22) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2018 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources, and Net Position/Fund Balance (Continued) Deposits and Investments (Continued) The Organization may also invest idle funds as authorized by Minnesota statutes, as follows: 1. Direct obligations or obligations guaranteed by the United States or its agencies. 2. Shares of investment companies registered under the Federal Investment Company Act of 1940 and received the highest credit rating, rated in one of the two highest rating categories by a statistical rating agency, and have a final maturity of 13 months or Tess. 3. General obligations of a state or local government with taxing powers rated "A" or better; revenue obligations rated "AA" or better. 4. General obligations of the Minnesota Housing Finance Agency rated "A" or better. 5. Bankers' acceptances of United States banks eligible for purchase by the Federal Reserve System. 6. Commercial paper issued by United States banks corporations or their Canadian subsidiaries, of highest quality category by at least two nationally recognized rating agencies, and maturing in 270 days or Tess. 7. Repurchase or reverse repurchase agreements and securities lending agreements with financial institutions qualified as a "depository" by the government entity, with banks that are members of the Federal Reserve System with capitalization exceeding $10,000,000, a primary reporting dealer in U.S. government securities to the Federal Reserve Bank of New York, or certain Minnesota securities broker - dealers. 8. Guaranteed Investment Contracts (GIC's) issued or guaranteed by a United States commercial bank, a domestic branch of a foreign bank, a United States insurance company, or its Canadian subsidiary, whose similar debt obligations were rated in one of the top two rating categories by a nationally recognized rating agency. The Minnesota Municipal Money Market (4M) fund operates in accordance with appropriate state laws and regulations. The 4M fund is an external investment pool not registered with the Securities and Exchange Commission (SEC); however, it follows the same regulatory rules of the SEC under rule 2a7. The reported value of the pool is the same as the fair value of the pool shares. Financial statements of the 4M fund can be obtained by contacting RBC Global Asset Management at 100 South Fifth Street, Suite 2300, Minneapolis, MN 55402-1240. (23) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2018 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources, and Net Position/Fund Balance (Continued) Restricted Assets Certain assets of the Organization are set aside for repayment of individual property owners once they meet specific criteria. Accounts Receivable Accounts receivable include amounts billed for services provided before year-end. Special Assessments Special assessments represent storm sewer utility charges. These assessments are recorded as receivables upon certification to the County. Special assessments are recognized as revenue in the year they are collected or received in cash or within 60 days after year-end. General Fund special assessments receivables are offset by deferred inflows of resources or unearned revenue in the fund financial statements. Capital Assets Capital assets, which include property, plant, and equipment, are reported in the applicable governmental activities columns in the govemment-wide financial statements. Capital assets are defined by the Organization 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 acquisition 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. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets is included as part of the capitalized value of the assets constructed. Property, plant, and equipment of the Organization are depreciated using the straight-line method over the following estimated useful lives: Infrastructure 15 — 30 Years Equipment 5 — 7 Years (24) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2018 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources, and Net Position/Fund Balance (Continued) Deferred Outflows of Resources In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The Organization has only one item that qualifies for reporting in this category. Accordingly, the item, deferred pension resources, is reported only in the statements of net position. This item results from actuarial calculations and current year pension contributions made subsequent to the measurement date. Compensated Absences It is the Organization's policy to permit employees to accumulate earned but unused vacation and sick benefits, which will be paid to the employee upon separation without the considerations of number of years of service. A liability for these amounts is reported in the General Fund only if they have matured, for example, as a result of employee resignations and retirements. The General Fund is used to pay employee benefits upon termination for govemmental and proprietary funds. Pensions For purposes of measuring the net pension liability, deferred outflows/inflows of resources, and pension expense, information about the fiduciary net position of the Public Employees Retirement Association (PERA) and additions to/deductions from PERA's fiduciary net position have been determined on the same basis as they are reported by PERA except that PERA's fiscal year-end is June 30. For this purpose, plan contributions are recognized as of employer payroll paid dates and benefit payments and refunds are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Deferred Inflows of Resources In addition to liabilities, the statement of financial position and fund financial statements will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The govemment has only one type of item, which arises only under a modified accrual basis of accounting, that qualifies as needing to be reported in this category. Accordingly, the item, unavailable revenue, is reported only in the General Fund balance sheet. The General Fund reports unavailable revenues from one source: special assessments. The unavailable amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. Furthermore, the Organization has an additional item which qualifies for reporting in this category. The item, deferred pension resources, is reported only in the statements of net position, and results from actuarial calculations. (25) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2018 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources, and Net Position/Fund Balance (Continued) Fund Balance In the General Fund financial statements, fund balance is divided into five classifications based primarily on the extent to which the Organization is bound to observe constraints imposed upon the use of resources reported in the General Fund. These classifications are defined as follows: Nonspendable — Amounts that cannot be spent because they are not in spendable form, such as prepaid items. Restricted — Amounts related to externally imposed constraints established by creditors, grantors, or contributors; or constraints imposed by state statutory provisions. Committed — Amounts constrained for specific purposes that are internally imposed by formal action (resolution) of the board of directors, which is the Organization's highest level of decision -making authority. Committed amounts cannot be used for any other purpose unless the board of directors modifies or rescinds the commitment by resolution. Assigned — Amounts constrained for specific purposes that are internally imposed. In the General Fund, assigned amounts represent intended uses established by the board of directors itself or by an official to whom the governing body delegates the authority. The board of directors has adopted a fund balance policy which delegates the authority to assign amounts for specific purposes to the Administrator. Unassigned — The residual classification for the General Fund and also negative residual amounts in other funds. The Organization considers restricted amounts to be spent first when both restricted and unrestricted fund balance is available. Additionally, the Organization would first use committed, then assigned, and lastly unassigned amounts of unrestricted fund balance when expenditures are made. The Organization has formally adopted a fund balance policy for the General Fund. The Organization's policy is to maintain a minimum unassigned fund balance of 35% to 50% of budgeted operating expenditures for cash -flow timing needs. (26) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2018 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Assets, Deferred Outflows of Resources, Liabilities, Deferred Inflows of Resources, and Net Position/Fund Balance (Continued) Net Position Net position represents the difference between assets and liabilities. Net position is displayed in three components: Net investment in Capital Assets — Consists of capital assets, net of accumulated depreciation reduced by any outstanding debt attributable to acquire capital assets. Restricted Net Position — Consist of net position balances restricted when there are limitations imposed on their use through external restrictions imposed by creditors, grantors, laws, or regulations of other governments. Unrestricted Net Position — All other net position balances that do not meet the definition of "restricted" or "net investment in capital assets." Comparative Data/Reclassifications Comparative total data for the prior year has been presented for the fund financial statements in order to provide an understanding of the change in financial position. Certain amounts presented in prior year data have been reclassified in order to be consistent with the current year's presentation. NOTE 2 STEWARDSHIP, COMPLIANCE, AND ACCOUNTABILITY Budgetary Information Annual budgets are prepared on a basis consistent with accounting principles generally accepted in the United States of America for the General Fund. All annual appropriations lapse at year-end. The Organization does not use encumbrance accounting. During the budget year, supplemental appropriations and deletions are or may be authorized by the board of directors. The budget was not amended by the board of directors in 2018. (27) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2018 NOTE 3 DETAILED NOTES ON ACCOUNTS Deposits and Investments Deposits Custodial credit risk for deposits and investments is the risk that in the event of a bank failure, the Organization's deposits may not be returned or the Organization will not be able to recover collateral securities in the possession of an outside party. In accordance with Minnesota statutes and as authorized by the board of directors, the Organization maintains deposits at those depository banks which are members of the Federal Reserve System. Minnesota statutes require that all Organization 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, or irrevocable standby letters of credit from Federal Home Loan Banks. Authorized collateral in lieu of a corporate surety bond includes: • United States government Treasury bills, Treasury notes, Treasury bonds; • Issues of United States government agencies and instrumentalities as quoted by a recognized industry quotation service available to the government entity; • 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; • General obligation securities of a local government with taxing powers may be pledged as collateral against funds deposited by that same local government entity; • 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 • Time deposits that are fully insured by any federal agency. Minnesota statutes require that all collateral shall be placed in safekeeping in a restricted account at a Federal Reserve Bank, or in an account at a trust department of a commercial bank or other financial institution that is not owned or controlled by the financial institution furnishing the collateral. The selection should be approved by the Organization. At year-end, the Organization's carrying amount of deposits was $28,745 and the bank balance was $29,661. The entire bank balance was covered by federal depository insurance. (28) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2018 NOTE 3 DETAILED NOTES ON ACCOUNTS (CONTINUED) Deposits and Investments (Continued) Investments The Organization does not have an investment policy and is permitted to invest its idle funds as authorized by Minnesota Statutes as follows: • Direct obligations or obligations guaranteed by the United States or its agencies. • Shares of investment companies registered under the Federal Investment Company Act of 1940 and received the highest credit rating, are rated in one of the two highest rating categories by a statistical rating agency and all of the investments have a final maturity of 13 months or Tess. • General obligations rated "A" or better; revenue obligations rated "AA" or better. • General obligations of the Minnesota Housing Finance Agency rate "A" or better. • Bankers' acceptances of United States banks eligible for purchase by the Federal Reserve System. • Commercial paper issued by United States banks corporations or their Canadian subsidiaries, of highest quality category by a least two nationally recognized rating agencies, and maturing in 270 days or Tess. • Guaranteed investment contracts guaranteed by United States commercial banks or domestic branches of foreign banks or United States insurance companies if similar debt obligations of the issuer or the collateral pledged by the issuer is in the top two rating categories. • Repurchase or reverse purchase agreement and securities lending agreements financial institutions qualified as a "depository" by the government entity, with banks that are members of the Federal Reserve System with capitalization exceeding $10,000,000, a primary reporting dealer in U.S. govemment securities to the Federal Reserve Bank of New York, or certain Minnesota securities broker -dealers. Interest rate risk — Interest rate risk is defined as the risk that changes in interest rates will adversely affect the fair value of an investment. Investments are categorized to give an indication of the level of interest rate risk assumed at year-end. Investments as of December 31, 2018 are as follows: Type of Investments Fair Value Credit Segmented and Quality/ Time Carrying Ratings (1) Distribution (2) Amount Pooled Investments: Minnesota Trust Term Series N/A Less than 6 Months $ 383,024 Minnesota Municipal Money Market Fund N/A Less than 6 Months 304,691 Total Investments $ 687,715 (1) Ratings are provided by Moody's where applicable to indicate associated credit risk. (2) Interest rate risk is disclosed using the segmented time distribution method. N/A Indicates not applicable or available. (29) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2018 NOTE 3 DETAILED NOTES ON ACCOUNTS (CONTINUED) Deposits and Investments (Continued) investments (Continued) The investments of the Organization are subject to the following risks: Credit Risk — Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. Ratings are provided by various credit rating agencies and where applicable, indicate associated credit risk. Minnesota statutes limit the Organization's investments to the list on page 29 of the notes. Custodial Credit Risk — The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, a government will not be able to recover the value of investment or collateral securities that are in the possession of an outside party. Concentration of Credit Risk — Concentration of credit risk is the risk of loss attributed to the magnitude of a government's investment in a single issuer. Interest Rate Risk — Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The Organization does not have an investment policy that addresses the risks described above. The Minnesota Municipal Money Market Fund Trust and the US Bank Money Market are money market accounts that are valued at amortized cost with maturities of investments of one year or less. The Minnesota Municipal Money Market Trust Fund does not have its own credit rating. PMA Financial Network, Inc., who administers the Minnesota Municipal Money Market Fund Trust, holds an organization credit rating of AA by Standard & Poor's. A reconciliation of cash and temporary investments as shown in the financial statements of the Organization follows: Carrying Amounts of Deposits $ 28,745 Investments 688,607 Cash on Hand 24 Total $ 717,376 Cash and Investments Unrestricted $ 687,715 Restricted 29,661 Total 717,376 (30) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2018 NOTE 3 DETAILED NOTES ON ACCOUNTS (CONTINUED) Fair Value Measurements The Organization uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The Organization follows an accounting standard that defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value, and requires expanded disclosures about fair value measurements. In accordance with this standard, the Organization has categorized its investments, based on the priority of the inputs to the valuation technique, into a three -level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. Financial assets and liabilities recorded on the combined statement of financial position are categorized based on the inputs to the valuation techniques as follows: Level 1 — Financial assets and liabilities are valued using inputs that are unadjusted quoted prices in active markets accessible at the measurement date of identical financial assets and liabilities. The inputs include those traded on an active exchange, such as the New York Stock Exchange, as well as U.S. Treasury and other U.S. government and agency mortgage -backed securities that are traded by dealers or brokers in active over- the-counter markets. Level 2 — Financial assets and liabilities are valued based on quoted prices for similar assets, or inputs that are observable, either directly or indirectly for substantially the full term through corroboration with observable market data. Level 3 — Financial asset and liabilities are valued using pricing inputs which are unobservable for the asset, inputs that reflect the reporting entity's own assumptions about the assumptions market participants and would use a pricing the asset. Assets measured at fair value on a recurring basis: Type December 31, 2018 Level 1 Level 2 Level 3 Total N/A $ - $ - $ $ Subtotal $ - - $ $ Investments Held at Amortized Cost 688,607 Total Investments $ 688,607 (31) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2018 NOTE 3 DETAILED NOTES ON ACCOUNTS (CONTINUED) Fair Value Measurements (Continued) The Minnesota Municipal Money Market Fund Trust is an external investment pool (the Pool) that is managed to maintain a dollar -weighted average portfolio maturity of no greater than 60 days and seeks to maintain a constant net asset value (NAV) per share of $1.00. The Pool elects to measure its investments at amortized cost in accordance with accounting statements issued by the Government Accounting Standards Board. Restricted Assets The Organization set aside the following cash balances for repayment of individual property owners: Mitigation Restricted Cash $ 29,661 Capital Assets Capital asset activity for the year ended December 31, 2018 was as follows: Beginning Ending Balance Increases Decreases Balance Governmental Activities Capital Assets, Being Depreciated: Infrastructure $ 181,219 $ 431,944 $ - $ 613,163 Equipment 23,155 23,155 Construction in Process 313,273 118,671 (431,944) Total Capital Assets Being Depreciated 517,647 550,615 (431,944) 636,318 Less Accumulated Depreciation for: Infrastructure (95,379) (23,936) (119,315) Equipment (13,359) (2,799) (16,158) Total Accumulated Depreciation (108,738) (26,735) (135,473) Total Govemmental Activities $ 408,909 $ 523,880 $ (431,944) $ 500,845 The full depreciation expense amount was charged to projects. Operating Lease The Organization entered into a lease agreement with the City of Vadnais Heights for office space. The lease agreement has an effective period beginning January 1, 2018 and will be terminated on December 31, 2020. The lease agreement calls for monthly payments for office space, as well as amounts for the Organizations portion of normal operating expenses, such as: janitorial, secretarial, office supplies, postage, utilities, IT support, and any other costs that arise. (32) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2018 NOTE 3 DETAILED NOTES ON ACCOUNTS (CONTINUED) Operating Lease (Continued) The Organization paid $20,106 and 20,362 for rent and other office expenses in 2018 and 2017, respectively. The Organization's future obligations for rent and office expenses under their new lease are as follows: Year Ending December 31, Amount 2019 $ 21,780 2020 22,200 Total $ 43,980 Unearned Revenue The General Fund reports unearned revenue in connection with receivables for revenues that have been received, but not yet earned. At the end of the current fiscal year, the various components of unearned revenue reported were as follows: Uneamed Special Assessments Receivable $ 830,878 Changes in Long -Term Liabilities Long-term liability activity for the year ended December 31, 2018 was as follows: Beginning Ending Current Balance Increases Decreases Balance Portion Governmental Activities Compensated Absences Payable $ 42,090 $ 28,138 $ (26,227) $ 44,001 $ 11,000 Govemment-Type Activity Long -Term Liabilities $ 42,090 $ 28,138 $ (26,227) $ 44,001 $ 11,000 (33) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2018 NOTE 3 DETAILED NOTES ON ACCOUNTS (CONTINUED) Fund Balance Classifications At December 31, 2018, portions of the Organization's fund balance are not available for appropriation due to board of directors' action (committed). The following is a summary of the commitments: Commitments: Insurance $ 400 Information Systems 2,500 Legal Assistance 3,000 Storm Sewer Utility 2,000 Training 1,000 Misc and Mileage 1,000 Admin-Payroll 32,500 Monitoring & Equipment 9,200 Goose Lake 113,696 Birch Lake 18,923 Pleasant Charley 5,000 Education and Marketing 3,500 Sucker Vadnais 64,900 Lambert Creek Restoration 50,000 Community Blue 4,300 Landscape 1,500 Facilities Maintenance 27,172 Total Committed $ 340,591 NOTE 4 DEFINED BENEFIT PENSION PLANS — STATEWIDE Plan Description The Organization participates in the following cost -sharing multiple -employer defined benefit pension plans administered by the Public Employees Retirement Association of Minnesota (PERA). PERA's defined benefit pension plans are established and administered in accordance with Minnesota statutes, chapters 353 and 356. PERA's defined benefit pension plans are tax -qualified plans under Section 401 (a) of the Internal Revenue Code. General Employees Retirement Fund (GERF) All full-time and certain part-time employees of the Organization are covered by the General Employees Plan. General Employees Plan (GERF) members belong to the Coordinated Plan. Coordinated Plan members are covered by Social Security. (34) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2018 NOTE 4 DEFINED BENEFIT PENSION PLANS — STATEWIDE (CONTINUED) Benefits Provided PERA provides retirement, disability, and death benefits. Benefit provisions are established by state statute and can only be modified by the state Legislature. Vested, terminated employees who are entitled to benefits, but are not receiving them yet, are bound by the provisions in effect at the time they last terminated their public service. Benefit increases are provided to benefit recipients each January. Increases are related to the funding ratio of the plan. If the General Employees Plan is at least 90% funded for two consecutive years, benefit recipients are given a 2.5% increase. If the plan has not exceeded 90% funded, or have fallen below 80%, benefit recipients are given a 1% increase. A benefit recipient who has been receiving a benefit for at least 12 full months as of June 30 will receive a full increase. Members receiving benefits for at least one month but less than 12 full months as of June 30 will receive a pro rata increase. The benefit provisions stated in the following paragraphs of this section are current provisions and apply to active plan participants. Vested, terminated employees who are entitled to benefits but are not receiving them yet are bound by the provisions in effect at the time they last terminated their public service. General Employees Fund Benefits General Employees Plan benefits are based on a members highest average salary for any five successive years of allowable service, age, and years of credit at termination of service. Two methods are used to compute benefits for PERA's Coordinated Plan members. Members hired prior to July 1, 1989, receive the higher of Method 1 or Method 2 formulas. Only Method 2 is used for members hired after June 30, 1989. Under Method 1, the accrual rate for Coordinated Plan members is 1.2% of average salary for each of the first 10 years of service and 1.7% of average salary for each additional year. Under Method 2, the accrual rate for Coordinated Plan members is 1.7% of average salary for all years of service. For members hired prior to July 1, 1989, a full annuity is available when age plus years of service equal 90 and normal retirement age is 65. For members hired on or after July 1, 1989, normal retirement age is the age for unreduced Social Security benefits capped at 66. Contributions Minnesota Statutes Chapter 353 sets the rates for employer and employee contributions. Contribution rates can only be modified by the state Legislature. General Employees Fund Contributions Coordinated Plan members were required to contribute 6.50% of their annual covered salary in fiscal year 2018 and the Organization was required to contribute 7.50% for Coordinated Plan members. The Organization's contributions to the General Employees Fund for the year ended December 31, 2018 and 2017, were $21,847 and $23,227, respectively. The Organization's contributions were equal to the required contributions as set by state statute. (35) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2018 NOTE 4 DEFINED BENEFIT PENSION PLANS — STATEWIDE (CONTINUED) Pension Costs General Employees Fund Pension Costs At December 31, 2018, the Organization reported a liability of $238,546 for its proportionate share of the General Employees Fund's net pension liability. The Organization's net pension liability reflected a reduction due to the state of Minnesota's contribution of $16 million to the fund in 2018. The state of Minnesota is considered a nonemployer contributing entity and the State's contribution meets the definition of a special funding situation. The state of Minnesota's proportionate share of the net pension liability associated with the Organization totaled $7,929. The net pension liability was measured as of June 30, 2018, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The Organization proportion of the net pension liability was based on the Organization contributions received by PERA during the measurement period for employer payroll paid dates from July 1, 2017, through June 30, 2018, relative to the total employer contributions received from all of PERA's participating employers. At June 30, 2018, the Organization's proportion was 0.0045% which was an increase of 0.0002% as its proportion measured as of June 30, 2017. For the year ended December 31, 2018, the Organization recognized pension expense of $31,748 for its proportionate share of GERF's pension expense. In addition, the Organization recognized an additional $1,839 as pension expense (and grant revenue) for its proportionate share of the state of Minnesota's contribution of $16 million to the General Employees Fund. At December 31, 2018, the Organization reported its proportionate share of General Employees Plan's deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows of Inflows of Resources Resources Differences Between Expected and Actual Experience $ 6,314 $ 6,957 Changes in Actuarial Assumption 22,787 26,803 Net Difference Between Projected and Actual Earnings on Plan Investments 24,376 Changes in Proportion 19,769 22,962 Contributions to GERF Subsequent to the Measurement Date 10,516 Total $ 59,386 $ 81,098 (36) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2018 NOTE 4 DEFINED BENEFIT PENSION PLANS — STATEWIDE (CONTINUED) Pension Costs (Continued) General Employees Fund Pension Costs (Continued) $10,516 reported as deferred outflows of resources related to pensions resulting from the Organization's contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, 2019. Other amounts reported as deferred outflows and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year Ending December 31, Amount 2019 $ 10,432 2020 (10,672) 2021 (27,010) 2022 (4,978) Actuarial Assumptions The total pension liability in the June 30, 2018 actuarial valuation was determined using the following actuarial assumptions: Inflation 2.50% Per Year Active Member Payroll Growth 3.25% Per Year Investment Rate of Return 7.50% Salary increases were based on a service -related table. Mortality rates for active members, retirees, survivors, and disabilitants were based on RP-2014 tables for males or females, as appropriate, with slight adjustments to fit PERA's experience. Benefit increases for retirees are assumed to be 1 % per year for all future years for the General Employees Plan through 2044 and then 2.5% thereafter. Actuarial assumptions used in the June 30, 2018 valuation were based on the results of actuarial experience studies. The most recent six -year experience study in the General Employees Plan was completed in 2015. The following changes in actuarial assumptions occurred in 2018: General Employees Fund • The mortality projection scale was changed from MP-2015 to MP-2017. • The assumed benefit increase was changed from 1.00% per year through 2044 and 2.50% per year thereafter to 1.25% per year. (37) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2018 NOTE 4 DEFINED BENEFIT PENSION PLANS — STATEWIDE (CONTINUED) Actuarial Assumptions (Continued) The State Board of Investment, which manages the investments of PERA, prepares an analysis of the reasonableness on a regular basis of the long-term expected rate of return using a building-block method in which best estimate ranges of expected future rates of return are developed for each major asset class. These ranges are combined to produce an expected long-term rate of return by weighting the expected future rates of return by the target asset allocation percentages. The target allocation and best estimates of geometric real rates of return for each major asset class are summarized in the following table: Long -Term Target Expected Real Asset Class Allocation Rate of Return Domestic Stock 36.00% 5.10% International Stock 17.00 5.30 Bonds 20.00 0.75 Alternative Assets 25.00 5.90 Cash 2.00 Total 100.00% Discount Rate The discount rate used to measure the total pension liability in 2018 was 7.50%. The projection of cash flows used to determine the discount rate assumed that contributions from plan members and employers will be made at rates set in Minnesota Statutes. Based on these assumptions, the fiduciary net positions of the General Employees Fund, the Police and Fire Fund, and the Correctional Fund were projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Pension Liability Sensitivity The following presents the Organization's proportionate share of the net pension liability for all plans it participates in, calculated using the discount rate disclosed in the preceding paragraph, as well as what the Organization's proportionate share of the net pension liability would be if it were calculated using a discount rate one percentage point lower or one percentage point higher than the current discount rate: GERF City Proportionate Share of NPL 1% 1% Decrease (6.50%) Current (7.50%) Increase (8.50%) $ 387,668 $ 238,546 $ 115,450 (38) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2018 NOTE 4 DEFINED BENEFIT PENSION PLANS — STATEWIDE (CONTINUED) Pension Plan Fiduciary Net Position Detailed information about each pension plan's fiduciary net position is available in a separately issued PERA financial report that includes financial statements and required supplementary information. That report may be obtained on the internet at www.mnpera.orq. NOTE 5 OTHER INFORMATION Risk Management 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 for which the Organization carries insurance. The Organization pays annual premiums for its workers' compensation and property and casualty insurance. Settled claims have not exceeded the Organization's coverage in any of the past three fiscal years. Liabilities are reported when it is probable that a loss has occurred and the amount of the Toss can be reasonably estimated. Liabilities, if any, include an amount for claims that have been incurred but not reported (IBNRs). The Organization's management is not aware of any incurred but not reported claims. (39) REQUIRED SUPPLEMENTARY INFORMATION VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION REQUIRED SUPPLEMENTARY INFORMATION DECEMBER 31, 2018 Schedule of Employer's Share of PERA Net Pension Liability — General Employees Retirement Fund Fiscal Year Ending 6/30/2018 6/30/2017 6/30/2016 6/30/2015 Organization's Proportion of the Net Pension Liability 0.0041 % 0.0041 0.0041 0.0041 States Proportionate Organization's Share of the Proportionate Net Pension Share of the Liability Net Pension Associated Liability with the City (a) (b) $ 238,546 $ 306,429 332,900 212,483 Organization's Covered Total Payroll (a+b) (c) $ 238,546 $ 291,293 306,429 309,693 332,900 286,044 212,483 242,844 Organization's Proportionate Share of the Net Pension Liability as a Percentage of Covered Payroll ((a+b)/c 81.9 % 98.9 116.4 87.5 Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 47.9 % 68.9 78.2 78.2 Schedule of Employer's Share of PERA Contributions — General Employees Retirement Fund Contributions in Relation to the Statutorily Statutorily Required Required Year Contribution Contribution Ending (a) (b) 12/31/18 $ 21,847 $ 21,847 12/31/17 23,227 23,227 12/31/16 19,128 19,128 12/31 /15 19,530 19,530 Contributions as a Contribution Organization's Percentage of Deficiency Covered Covered (Excess) Payroll Payroll (a-b) (c) (b/c) $ $ 291,293 7.50 % 309,693 7.50 255,040 7.50 260,400 7.50 Note: Information is required to be presented for 10 years. However, until a full 10-year trend is compiled, the Organization will present information for only those years for which information is available. NOTES TO SCHEDULE OF CHANGES IN NET PENSION LIABILITIES AND RELATED RATIOS The following changes in actuarial assumptions occurred in 2018: General Employees Fund • The mortality projection scale was changed from MP-2015 to MP-2017. • The assumed benefit increase was changed from 1.00% per year through 2044 and 2.50% per year thereafter to 1.25% per year. (40) VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION REQUIRED SUPPLEMENTARY INFORMATION DECEMBER 31, 2018 NOTES TO SCHEDULE OF CHANGES IN NET PENSION LIABILITIES AND RELATED RATIOS (CONTINUED) The following changes in plan provisions and actuarial assumptions occurred in 2017: General Employees Fund • The State's special funding contribution increased from $6 million to $16 million. • The Combined Service Annuity (CSA) Toads were changed from 0.80% for active members and 60.00% for vested and nonvested deferred members. The revised CSA loads are now 0.00% for active member liability, 15.00% for vested deferred member liability, and 3.00% for nonvested deferred member liability. • The assumed post -retirement benefit increase rate was changed from 1.00% per year for all years to 1.00% per year through 2044 and 2.50% per year thereafter. The following changes in actuarial assumptions occurred in 2016: General Employees Fund • The assumed post -retirement benefit increase rate was changed from 1.00% per year through 2035 and 2.50% per year thereafter to 1.00% per year for all years. • The assumed investment return was changed from 7.90% to 7.50%. The single discount rate was changed from 7.90% to 7.50%. • Other assumptions were changed pursuant to the experience study dated June 30, 2015. The assumed future salary increases, payroll growth, and inflation were decreased by 0.25% to 3.25% for payroll growth and 2.50% for inflation. The following changes in plan provisions and actuarial assumptions occurred in 2015: General Employees Fund • On January 1, 2015 the Minneapolis Employees Retirement Fund was merged into the General Employees Fund, which increased the total pension liability by $1.1 billion and increased the fiduciary plan net position by $892 million. Upon consolidation, state and employer contributions were revised; the State's contribution of $6 million, which meets the special funding situation definition, is due September 2015. • The assumed post -retirement benefit increase rate was changed from 1.00% per year through 2030 and 2.50% per year thereafter to 1.00% per year through 2035 and 2.50% per year thereafter. (41) OTHER REQUIRED REPORT CliftonLarsonAllen LLP CLAconnectcom INDEPENDENT AUDITORS' REPORT ON MINNESOTA LEGAL COMPLIANCE Board of Directors Vadnais Lake Area Water Management Organization Vadnais Heights, Minnesota We have audited, in accordance with auditing standards generally accepted in the United States of America, the financial statements of the governmental activities and the major fund of the Vadnais Lake Area Water Management Organization (the Organization), Vadnais Heights, Minnesota, as of and for the year ended December 31, 2018, and the related notes to the financial statements, which collectively comprise the entity's basic financial statements, and have issued our report thereon dated April 24, 2019. The Minnesota Legal Compliance Audit Guide for Other Political Subdivisions, promulgated by the State Auditor pursuant to Minnesota statute §6.65, contains six categories of compliance to be tested: contracting and bidding, deposits and investments, conflicts of interest, claims and disbursements, miscellaneous provisions, and tax increment financing. Our audit considered all of the listed categories except that we did not test for compliance with the provisions for tax increment financing because the Organization does not have any established tax increment financing districts. In connection with our audit, nothing came to our attention that caused us to believe that the Organization failed to comply with the provisions of the Minnesota Legal Compliance Audit Guide for Other Political Subdivisions. However, our audit was not directed primarily toward obtaining knowledge of such noncompliance. Accordingly, had we performed additional procedures, other matters may have come to our attention regarding the Organization's noncompliance with the above referenced provisions, insofar as they relate to accounting matters. The purpose of this report is solely to describe the scope of our testing of compliance relating to the provisions of Minnesota Legal Compliance Audit Guide for Other Political Subdivisions and the results of that testing, and not to provide an opinion on compliance. Accordingly, this report is not suitable for any other purpose. LLB CliftonLarsonAllen LLP Minneapolis, Minnesota April 24, 2019 13 A member of 0 International Nexia (41)