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HomeMy WebLinkAboutCompliance Report 1982ARNE H. CARLSON STATE AUDITOR SUITE 400; 555 PARK STREET ST. PAUL, MINNESOTA 55103 For Further Information: FOR IMMEDIATE RELEASE (612) 296 -2551 May 5, 1982 STATE AUDITOR ARNE CARLSON ISSUES LINO LAKES FISCAL HEALTH PROFILE A State Auditor's report issued today shows Lino Lakes to be a growing community. State Auditor Arne Carlson in his report stated, "We see more growing communities around the Metro area than in other parts of the state. Growth is measured by an expansion in population which promotes additional housing units which in turn increases the taxable value of property. It is also evident that an attractive environment has been created in the city as the per capita income increased much more than the rate of inflation through 1979." Carlson's office has designed the Minnesota Financial Health Program (MFHP) a five -year fiscal stress analysis (1979 -1980) for cities with populations of 2,500 or more. Carlson, Beth Sullivan, Director of MFHP, and Paul Damrow, Fiscal Analyst for MFHP, have offered their services to assist cities in interpreting their individual profiles. In further explaining the report, Carlson said, "Although revenues show a rather erratic pattern, almost $1 million dollars was due to the levying of special assessments. Without that levy, revenues would have increased slightly more than inflation." "This is the reason that calling attention to the fact that looking at a five -year pattern is important." Carlson continued by pointing out that a healthy pattern of revenues and expenditures is evidenced by the fact that in three out of the four years revenues exceeded current expenditures. "And," Carlson continued, "while current expenditures have more than doubled, they remain comparable to other cities in the same size category." Carlson then pointed to intergovernmental revenues which have increased by 71.39% but still remain less than cities of similar size. "Revenue from the state increased by 103% and 17.25% from the federal government." "When we look at intergovernmental revenues and know that there have been cut -backs from those sources, we examine the undesignated general fund balance." Carlson reported that their findings show ithe fund balance stood at $21,287 in 1980. "This does not provide you with a great deal of flexibility to meet cash flow needs. The amount is 1.26% of total expenditures and less than 10% of the money received from intergovernmental sources. You might want to look seriously at increasing the amount to act as a buffer in these times of uncertain funding from intergovernmental sources." "We see the impact of special assessments again when we look at the per capita debt burden. Although the per capita debt has increased significantly, 70% is in special assessments." Carlson continued, "All of this debt is backed by the full faith and credit of the city but probably should be paid from special assessments rather than general tax revenue." "Your financial management is to be commended for keeping the debt burden at $257 as the average for cities of a similar size is $600." Carlson continued his formal report with two items of caution: 1) The water and sewer utilities lost money in 1980, and if you haven't already increased those rates you might consider it, and 2) If you amend your budget because of budget overruns you should include the information as part of your audit report. Carlson, in explaining the Minnesota Financial Health Program, said, "This is a service our office performs for municipalities that identifies, measures and helps to resolve fiscal problems. When public officials can monitor debt service payments, enterprise funds, revenues and expenditures and other financial indicators over a period of years, they will be able to identify areas of fiscal stress." "It is important to look at the trends over the period from 1976 to 1980 for which the data was collected and not to look at the individual years. There are variables such as special assessments or grants that show large increases in one year, and the decrease the following year should not be a cause for alarm. We look at the whole five year period and the patterns of revenues and expenditures for those years. The profile proves a framework for assembling and analyzing information. Although some conclusions have been drawn from the study, the actual reasons can only be answered by those who manage the financial affairs of the city." Carlson said that very few comparisons among cities will be made at this time as there is no uniform method of reporting financial data. Municipal Finance Officers felt that in order for the Minnesota Financial Health Program to be a successful and helpful project a uniform chart of accounts and reporting needed to be developed. Therefore, the Office designed a new and comprehensive chart which was distributed to Finance Officers in December. This effort will enable future profiles to contain more comparative information. Carlson reported that Minnesota is the first state in the nation to provide the data such as that presented to cities through the Minnesota Financial Health Program, and that cities can use this report as a basis for future fiscal planning. "Our Office stands ready to provide assistance, when requested, to cities as they seek alternative courses of action to improve their overall financial health," said Carlson. -30- Summary This report covers five years Lino Lakes is a fast growing community. The City has a healthy patten of revenues and disbursements /3 of the 4 years - revenues exceeded expenditures. Expenditures have more than doubled in that time frame, but so have revenues - The per capita debt burden in Lino Lakes is $257.00.- the average for other comparable size cities is $600.00. One cautious comment - water and sewer lost money in 1980 and d rate adjustment should be considered. Had never seen an "A" bond rating for a City the size of Lino Lakes. Per capita income increase much more than the rate of inflation over the period of the study. Complimented the City Auditors for putting the City on a Modified Accrual accounting basis - most Cities this size have not yet gone to that system. Anfinson is highly regarded at the State level and the manner in which the City's audit is presented was complemented. Ilmun I NM ARNE H. CARLSON STATE AUDITOR STATE OF MINNESOTA OFFICE OF THE STATE AUDITOR SUITE 400 555 PARK STREET SAINT PAUL 55103 February 16, 1982 The Honorable Benjamin Benson, Mayor and Members of the Lino Lakes City Council 1189 Main Street Lino Lakes, Minnesota 55014 Pursuant to Minn. Stat. Sec. 6.54, we have recently completed an examination of certain records of the City of Lino Lakes. 296 -2551 We met with the petitioners and determined it to be in the public interest to limit the scope of our examination to the legal compliance concerns of the petitioners. This scope limitation •.. resulted in no duplication of the financial work previously done by the city's independent auditors. Vow Wang Revenue Flow The petitioners expressed concern and questioned why the "Total (Memorandum Only)" column of the combined statement of revenues, expenditures and changes in fund balance of the 1980 financial statements disclosed expenditures to be greater than revenues by $690,635. The bulk of this excess ($689,146) is from the "special assessment funds" column. This column is an aggregate of all special assessment funds held by the city. Our examination showed that this excess of expenditures over revenues in the special assessment fund was due to the sale of special assessment bonds and the receipt of those bond proceeds in 1979. This created a surplus in 1979. Expenditures from the bond proceeds for the special assessment project were then made in the subsequent year of 1980. Interfund Transfers Petitioners questioned the legality of certain interfund transfers in the years 1979 to 1981. Our examination disclosed the following: In 1981 the City of Lino Lakes transferred $72,680.00 from a closed out special assessment fund (bond issue dated 10- 15 -74) to the general revenue fund. The $72,680.00 residual of this fund represented delinquent assessment collections, and related penalties and interest. Since all claims, bonds and other obligations of this special assessment fund had been satisfied, we find this transfer to be proper and in accordance with Minn. Stat. Sec. 435.203. AN EQUAL OPPORTUNITY EMPLOYER Wag taw The Honorable Benjamin Benson and Members of the City Council February 16, 1982 Page Two In 1980 the City of Lino Lakes transferred $26,000.00 from four special assessment funds to the general revenue fund. This transfer represented reimbursement to the city for the administrative costs that had been previously incurred but never charged on the four projects. Although the city is unable to detail exact costs attributed to these projects, it was advised by its bond consultant that 1 -2% of project cost was an appropriate charge for administrative costs. The City estimated its administrative costs to be 1.58% of $1,648,200.00 (total affected special assessment projects). The Attorney General has stated that the use of a percentage rate for city administrative charges as a cost of a special assessment project is permissible so long as the sums charged are not in excess of the reasonable value of the services rendered. See Op. Atty Gen. 408 -C, August 1, 1957. We recommend that detailed time cards be prepared and maintained as support for all future administrative costs, especially costs which can be charged directly to funds other than the general fund. In 1979 and 1980 the City of Lino Lakes transferred $7,570.00 from dedicated park funds to the general revenue fund. These transfers represented reimbursement of park maintenance expenses incurred in 1979 and 1980 which were previously paid out of the general revenue fund. Budgets Questions were raised by the petitioners regarding the proposed Lino Lakes fiscal year 1982 budget which was published in the September 24, 1981 issue of the Circulating Pines. The concern was that this proposed budget projected expenditures exceeding revenues by $20,035.00. City officials stated that the budget as printed was a rough proposal and was published for the purpose of disclosing proposed use of revenue sharing receipts and expenditures, as well as a notification of a public hearing on same. Further, the final 1982 city budget that was accepted by the Council showed projected revenues to be $942,510.00 and projected expenditures of $891,570.00, a surplus of $50,940.00. Other Findings A resolution passed at the City Council meeting of January 14, 1980 increased Council member expense payments to $50.00 per month, with an effective date of February 1, 1980. Auditors were informed that this allowance is for travel and other necessary Own VIIIN The Honorable Benjamin Benson and Members of the City Council February 16, 1982 Page Three expenses which may be incurred while engaging in City business. Minnesota Statutes do not provide for this type of unaccounted for expense allowance, and, therefore, this practice should be discontinued. We recommend that when expenses are incurred by members of the City Council, itemized claims supported by receipts be submitted for reimbursement, as provided for in Minn. Stat. Sec. 412.271. Public Hearing Minutes Interviews with City officials and staff verified the petitioners' complaint that the minutes of the public hearing regarding a sewer project held on May 27, 1981 and continued on July 15, 1981 may be incomplete. This hearing commenced at City Hall, but because of a large turnout the hearing was moved to the church. The City Clerk stated that the tape recorder was tested at City Hall prior to the hearing and was in good working order, but when the equipment was used at the church the recorder malfunctioned. Auditors were told that the minutes of these hearings were recon- structed from recollections of the City Council and staff. The official minutes of Council proceedings are not signed by the Mayor as required by Lino Lakes City Ordinance Number 20, Rule 26. The minutes, as bound in the official minutes book, contain many typographical errors and are abbreviated to the point that in some cases the essence and intent of what happened is lost or cannot be accurately discerned. We recommend that the City Clerk proofread the typed minutes and compare them to the tape recording prior to submitting them for City Council approval and the Mayor's signature. In addition, we noted that in at least one instance contract bid estimates were opened and the official minutes did not identify the bidders' names but only the amounts. Further, the minutes of this same meeting disclosed only the name of the successful bidder and not the bid amount, thus making it impossible for the reader to determine whether the lowest responsible bid was accepted. We recommend that the minutes of the official Council proceedings include the bidders' names and amounts of their bids. Also, when the successful bidder is determined by the Council, the minutes should reflect clearly the bidder's name and the amount of the bid. If the lowest bid is not accepted, the minutes should also state the reasons for rejecting the lowest bid and accepting a higher bid. The Honorable Benjamin Benson and Members of the City Council February 16, 1982 Page Four We also noted that when the budget was approved by the City Council the official minutes indicated only approval of the budget and the vote of the Council. The minutes did not state any budget detail and summary or totals of anticipated revenue and expenditures. The absence of these details does not provide sufficient identification, documentation or data source to convey the information that should be contained in a budget. We recommend that when the City Council adopts a budget the minutes of the official proceedings reflect specific anticipated revenue source data, specific anticipated expenditure data as well as budget revenue and expenditure totals, and that the specific budget be incorporated by reference in the minutes. We recognize that the detail of the minutes is within the discretion of the City Council, however, it is the responsibility of the City Clerk and City Council to insure that the official minutes as bound in the official minutes book be readable and sufficiently detailed to determine what transpired and to enable the taxpayers to evaluate how well or how poorly the affairs of the City have been managed. If we can be of any further assistance, do not hesitate to contact our office. Arne H. Carlson State Auditor