HomeMy WebLinkAboutManagement Report and Recommendations 12/31/1985CITY OF LINO LAKES, MINNESOTA
MANAGEMENT REPORT AND RECOMMENDATIONS
DECEMBER 31, 1985
VOTO, REARDON, TAUTGES & CO., LTD.
CERTIFIED PUBLIC ACCOUNTANTS
Birch Lake Professional Building • 1310 E. Hwy. 96 • White Bear Lake, MN 55110 • Phone 426 -3263
To the Honorable Mayor and
Members of the City Council
City of Lino Lakes, Minnesota
ROBERT J. VOTO, CPA
TIMOTHY E. REARDON, CPA
ROBERT G. TAUTGES, CPA
The Annual Financial Report of the City is complete and has been transmitted
to the City Council. In conjunction with our examination of the financial
statements, we have prepared this report to assist the City in the analysis of:
• Financial results.
• Financial trends.
• Internal control systems (and weaknesses, if any).
• The fund balances of the various funds of the City.
• Compliance procedures related to Federal and State regulations
and /or statutes as they directly relate to financial matters.
• Actual and potential effects of State legislation regarding
the financing of City government.
Based on the above areas, we offer recommendations for improvement as
appropriate with a summary of such recommendations on the last page of this
report. Additionally, we are available to discuss the contents of this report
with the City Council upon request.
STATE LEGISLATION - EFFECTS ON FINANCING LOCAL GOVERNMENT
The two most prevalent revenue sources for Minnesota cities are property
taxes and State shared revenues. The limits for each of these revenue sources
is established by State statutes. In order for City government to responsibly
budget services and at the same time protect the financial integrity of the
city, State legislation must be closely monitored. To assist the City in this
regard, we have gathered historical data and each year have prepared reports for
our client cities. As the 1986 legislative session progresses, we will continue
efforts in this regard.
MEMBERS OF AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS • PRIVATE COMPANIES PRACTICE SECTION
MINNESOTA SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
MUNICIPAL FINANCE OFFICERS ASSOCIATION • MINNESOTA ASSOCIATION OF SCHOOL BUSINESS OFFICIALS
WENN
City of Lino Lakes, Minnesota
Management Report, Page 2
General and Special Revenue Funds
The General and Special Revenue Funds of the City are maintained to account for the
current and capital outlay expenditures that are common to cities. The City maintains a
General Fund and a Special Revenue Fund (Revenue Sharing). Financial reporting stan-
dards in effect allow a city to reasonably compare its financial operations with its
prior year or other similar cities.
Total revenue for these funds for the past three years have been as follows:
-- Local taxes
Licenses and permits
Intergovernmental revenue:
State
Federal
Charges for services
Court fines
Interest on Investments
Other
Totals
1985
Amount Percent
S 550,302 39.86%
110,343 7.99
455,467 32.98
41,693 3.02
98,179 7.11
68,492 4.96
7,356 .53
49.009 3.55
1984
Amount Percent
$ 510,245 44.05%
91,332 7.88
1983
Amount Percent
$ 355,684 38.21%
75,096 8.07
403,127 34.80 349,076 37.50
36,227 3.13 30,575 3.29
75,254 6.50 80,697 8.67
26,784 2.31 24,263 2.61
3,607 .31 1,771 .19
11.791 1.02 13 , 591 1.46
$1,380,841 100.00% 51,158,367 100.00%
S 930.753 100.00%
$600)000
$500,000
$400,000
$300,000
$200,000
$100,000
so
General & Special Revenue Funds
Property State Aids Licenses Charges Federal Cart trterest ec
Taxes & Permits far norm* Fines A11 Other
Services
1983 0 1984 D 1985
City of Lino Lakes, Minnesota
Management Report, Page 3
Court fines have increased as a result of a change in operating procedure at Anoka
County. The City now receives two thirds of fines (as opposed to one third in prior
years). Other revenue reflects the sale of land of $28,000 in 1985.
Since 1979, State aids and local property taxes used to finance the General Fund of
the City of Lino Lakes were as follows:
Year
1979
1980
1981
1982
1983
1 984
1985
State Aids
Amount Percent
$184,184 35.05%
239,622 39.57
300,971 41.92
283,089 36.63
349,076 37.50
403,127 34.80
455,059 32.96
Property Taxes
Amount Percent
$166,149 31.62%
171,440 28.32
212,914 29.78
305,804 39.57
355,684 38.21
510,245 44.04
550,302 39.86
A graph of the above primary funding sources is as follows:
General & Special Revenue Funds
1979 1980 1981 1982 1983 1984 19185
■ State Aids
0 Property Taxes
WNW
City of Lino Lakes, Minnesota
Management Report, Page 4
The above total State aids
State Aids 1979
Local Government AId $127,963
Homestead Credits
Police AId
MSA - Streets
Other Aids
Totals
Percent change
consist of the following amounts:
1980 1981 1982 1983
1984 1985
$146,504 1157,862 $148,794 1171,011 1185,196 $196,177
43,450 78,792 112,911 111,829 139,767 188,906 227,711
10,158 11,296 12, 188 14,326 14,245 13,970 13,509
8,080 -0- 13,110 13,935 13,935
2.613 3.030 9.930 8. 140 10.943 1, 120 3,727
$184.184 $239.622 $300.971 $283.089 $349,076 $403,127 $455,059
30.10% 25.60% (5.94%) 23.31% 15.48% 12.88%
'- Local government aid had decreased in 1982, but changes to the allocation formula
and total amount allocated to the City increased the 1983 local government aid for the
City by $22,217. The City received in 1983 an amount equal to the 1982 allocation
before State aid cuts due to the State budget situation. The 1985 increase represents a
5.99% increase. The City was budgeted (by the State) to receive $219,700 of local
government aid in 1986. Current discussions indicate that this amount may be cut by 8 %.
This would result in a $17,800 loss to the City. Additionally the State is proposing an
8% cut in Homestead Credits. This cut would reduce general fund revenue by an addi-
tional $19,200. Also, the City's bond fund would lose $1,000 in 1986.
City of Lino Lakes, Minnesota
Management Report, Page 5
Total expenditures for these funds for the past three years have been as follows:
1985 1984 1983
Amount Percent Amount Percent Amount Percent
Current:
General government $ 290,098 25.31% $ 259,556 25.74% $ 220,144 25.49%
Public safety 429,545 37.48 382,907 37.97 366,917 42.48
Highways and streets 287,822 25.11 279,375 27.70 219,429 25.40
Parks 64,261 5.60 49,744 4.93 42,019 4.86
Other 15,320 1.34 10,050 1.00 5,597 .65
Capital outlay 59,089 5.16 26,875 2.66 9,646 1.12
Totals $1,146,135 100.00% $1,008,507 100.00% $ 863,752 100.00%
A graphic illustration of the above expenditures is as follows:
$450,000
$400,000
$350p00
$3oap00
$25op00
$200,400
$1 so,o00
$1 00,000
$30,000
$0
General & Special Revenue Funds
General Ptblic Safety Highways & Parks Capital Outlay
& Other
Government Streets
• 1983 0 1984 • 1983
Details of the above expenditure categories are presented in Statements 7 and 9 of
the Annual Financial Report.
City of Lino Lakes, Minnesota
Management Report, Page 6
Combined Financial Statements
The Combined Financial Statements of the City are presented in Statements 1 through
5 of the 1985 Annual Financial Report. The following comments relate to those state-
ments.
Cash and Investments
Cash and Investments held by the City at December 31, 1985 totaled $2,605,143 as com-
pared to the 1984 balance of $541,791. The increase in cash primarily represents 1985
bond proceeds. Additionally, the City increased the fund balance of the General Fund
(see later comments). Cash and investments are summarized as follows:
December 31, Increase
Description 1985 1984 (Decrease)
Treasurer's balance - checking $ 5,792 $(23,450) $ 29,242
Petty cash 150 150
Investments:
Certificate of deposits 1,800,000 300,000 1,500,000
Small Business Administration
(SBA) 75,252 80,926 (5,674)
FNMA Pool 507,353 507,353
Government National
Mortgage Association 98,727 (98,727)
NOW account 216,596 85,438 131,158
Totals $2,605,143 $541,791 $2,063,352
The City had interest earnings on investments of $45,284 in 1984 as compared to 1985
earnings of $53,501. The increase in interest earnings was caused by an increase in the
average cash available (to invest due to issuance of the 1985 Certificates of
Indebtedness and the 1985 G.O. Improvement Bonds and increased fund balance). In 1984,
rates ranged from 8.5% to 12.25% and in 1985 ranged from 7.0% to 12.25 %.
During 1985 and 1984, the City maintained an average negative balance of approxima-
- tely $61,000 and $24,000 respectively in the City's checking account. These negative
balances are "book" balances only. These balances indicate that the City is depositing
cash which is not needed for current expenses into interest bearing accounts. We recom-
mend that the City continue this practice of minimal balances in the City's checking
account.
City of Lino Lakes, Minnesota
Management Report, Page 7
The City currently has a federally secured investment of the Small Business
Administration (SBA). This type of investment is acceptable for Minnesota cities.
There have been notices from the SBA that payments from the borrower have been late and
therefore payments to the City have been delayed. As stated above, the SBA investment
is secured by the Federal government. We recommend that the City monitor compliance
with payment terms.
The City has also invested $507,366 in a Federal National Mortgage Association
Adjustable Rate Mortgage Pool (referred to as Fannie Maes). These notes yield a higher
rate than short term rates available. The notes do not mature, however, until 2024.
The higher yield could substantially diminish if the City is required to sell these
investments under adverse market conditions (i.e., during rising market interest rates).
Conversely, during a period of declining interest rates, the City would realize a gain
on the sale of this investment.
Generally, the amount which a City commits to a long -term investment should be
available to maintain in that investment until maturity (or until favorable market con-
ditions exist for sale). The City has invested excess bond monies which may require
disbursement within one year. Under these circumstances, "risk to market" is a factor.
The higher yield available on these long -term investments is attractive, however, the
amount invested long term should be made with consideration of City's projected cash
flow needs.
MIMS
MEM
City of Lino Lakes, Minnesota
Management Report, Page 8
Due From Other Governmental Units
Included in Due From Other Governmental Units are various Federal and State Grants
Receivable that the City has earned as of December 31, 1985. The following schedule
details these amounts.
Description
December 31,
1985 1984
State:
Fines and forfeits $ 4,699 $ 4,973
Federal:
Community Development Block Grant 8,397 24,863
Federal Revenue Sharing 11,022 10,347
LAWCON 1,640 29,386
Local:
MWCC - Maintenance Agreement 5,108 3,610
Final cost allocation 4,095 2,240
City of Centerville -
Building Inspector Contract 360
Police contract 11,269 11,212
MWCC - SAC overpayment 421
Metro Council - Section 8 408
Total
$ 47,059 $ 86,991
The City currently receives approximately $14,000 annually in MSA maintenance
monies. The City also has available approximately $275,000 annually in MSA construc-
tion allotments. These construction allotments ordinarily can be used to finance
construction costs relating to MSA designated streets. Unused construction allotments
total approximately $544,000 at December 31, 1985. The City may be able to justify
and request up to 25% of such annual total allotments for maintenance purposes (i.e.,
25% of $289,000 or $72,250 per year). This could increase the total MSA receipts of
the City during periods in which the City does not have qualifying MSA construction
-' projects. We recommend that the City consider this option.
City of Lino Lakes, Minnesota
Management Report, Page 9
Taxes Receivable
Delinquent taxes receivable were as follows for 1982 through 1985:
1985 1984 1983 1982
Delinquent balance - January 1
Current levy
Total receivable
$ 86,141 $ 84,603 $ 81,671 $ 44,254
775,000 690,000 587,845 544,842
861,141 774,603 669,516 589,096
Receipts:
County:
Current 514,978 467,696 380,063 332,566
Delinquent 19,630 33,045 34,223 23,750
State 226,529 187,721 170,627 139,283
Total receipts 761,137 688,462 584,913 495,599
Unadjusted balance 100,004 86,141 84,603 93,497
Homestead credit loss 11,826
Delinquent balance $100,004 $ 86,141 $ 84,603 $ 81,671
Total collections as a percent ..._
of current levy
98% 100% 99% 91%
In 1983 and 1984, the collection rates were much improved over the preceding years.
Property taxes are a primary revenue source of the City. The reduction in property tax
collections should be reviewed. The County maintains detail of delinquent property
taxes by parcel. We recommend that the City request a delinquent listing of property
taxes to determine if such delinquencies are concentrated in certain areas of the City,
and more importantly, to determine if an adverse trend is developing. This may be of
particular importance in 1986 in light of the proposed reduction in homestead credits
from the State.
In 1982 the State arbitrarily reduced homestead credits received by the City. No
replacement aid was provided. The State is currently proposing a 1986 cut in homestead
credits. This (8 %) cut would reduce homestead credit revenue of the City by approxima-
tely $20,200. We recommend that the City continue efforts to monitor State financial
legislation to react to proposals on a timely basis.
IMMID
City of Lino Lakes, Minnesota
Management Report, Page 10
Special Assessments Receivable
Special assessments receivable consisted of the following:
Delinquent
Deferred
City property
Total
Dece
1985
$ 271,588
491,159
129,819
$ 892,566
tuber 31,
1984
$ 182,722
610,715
129,819
$ 923,256
Increase
(Decrease)
$ 88,866
(119,556)
$(30,690)
Delinquent assessments consist of amounts which were spread for collection in 1985
and prior years which have not yet been received. For 1982 through 1985, special
assessment collections were as follows:
... Delinquent balance - January 1
Add:
Current installment
Delinquent - previously not
spread for collection
Amount collectible
Less:
Current collections
Delinquent collections
Total collections
1985 1984 1983 1982
$182,722 $123,970 $ 31,780 -$ 16,356
183,830 201,280 227,230 215,629
8,446
366,552 333,696 259,010 231,985
63,292 124,395 123,535 185,968
31,672 25,945 6,578 14,237
94,964 150,340 130,113 200,205
Adjustments -0- (634) (4,927) -0-
Delinquent balance - December 31 $271,588 $182,722 $123,970 $ 31,780
Total collections as a percent
of current levy 52% 75% 57% 93%
As the above schedule shows, special assessment collection rates have fluctuated
substantially over the past several years. The ability of the City to collect special
assessments is vital to the financing of the Special Assessment Debt Service Funds of
the City. The primary funding of debt payments is special assessments. Timely collec-
tion of special assessments are required to assure timely availability of cash to meet
the scheduled debt payments. If the City continues to experience high delinquency
City of Lino Lakes, Minnesota
Management Report, Page 11
rates, the funds which rely on assessments will be unable to meet scheduled bond maturi-
ties on a timely basis. We recommend that the City monitor the collection rate and pro-
vide supplemental financing if assessment collections are not adequate to meet bonded
debt payments.
The amount listed as "City property" totaled $129,819 at December 31, 1985.
The City acquired these properties in order to recover the assessments levied against
these properties. The City has received clearance to permit development of these lots
from various authorities (Army Corps of Engineers and State DNR). The City intends to
sell the properties and recover the related assessments in 1986. The City has deter-
mined that the amounts are not fully recoverable. As such, we recommend that the City
levy the portion of scheduled property taxes required to meet bonded debt payments.
The City collects special assessments through Anoka County. This agency arrangement
has advantages to the City primarily in saving administrative time and effort required
to bill and collect special assessments. A certain level of control, however, is lost
through the agency arrangement insofar as accounting records are located and maintained
at both the County and the City. Correlation of these records is required to assure
accurate tabulation of receivables and amounts received. In order to assure that the
City's best interests are guarded, the City should improve internal records with regard
to special assessments and compare such records periodically to County records. For
1985, the City accountant assisted audit personnel in reconciling such records.
The above procedures will allow the City greater assurance that all of its special
assessments are properly spread for collection. Additionally, the City will have the
ability to generate year end balances for annual financial reporting with greater ease
and accuracy. The increased level of control required is partially a function of
increased assessment activity. Special assessments receivable (City -wide) was less than
$100,000 in 1979. Assessments receivable were nearly $900,000 at December 31, 1985 and
will exceed $2,000,000 after the Rice Lake Estates Project is assessed.
City of Lino Lakes, Minnesota
Management Report, Page 12
The pending implementation of the in -house computer system will allow for automated
tests of special assessment balances. We recommend that the City develop appropriate
spread sheets related to special assessments to improve internal record keeping and to
assist the City in calculating its annual assessment levy. We are available to assist
the City in implementing such a system.
Assessments related to the Baldwin Lake Improvements and Weber's Addition are
collected through a developer's agreement. The assessments, however, are apparently
not recorded as a lien against the property (at the County). We recommend that such a
lien be effected to further protect the City's interest.
Fixed Assets
MON
The City does not currently maintain accounting records of its general fixed assets.
This situation is not uncommon for Metropolitan suburban communities. The benefits of a
fixed asset system are improved financial reporting, better availability of insurance
... information, availability of data base for determining capital replacement needs and an
overall improved safeguard over City assets. The implementation of such a system may
not be a priority of the City at this time. We recommend, however, that the City con-
sider the benefits of implementing a general fixed asset system at some future date.
The acquisition of an in -house computer may improve the efficiency of establishing fixed
asset records.
City of Lino Lakes, Minnesota
Management Report, Page 13
Fund Equity
Fund
Fund Balance:
General Fund
Special Revenue Fund:
Revenue Sharing
Debt Service:
1985 Certificates of Indebtedness
Capital Projects:
Parks and Playgrounds
Capital Improvements
Community Development Block Grant
LAWCON Grant
City Hall Expansion
Special Assessment:
Improvement Bonds of 1977
Improvement Bonds of 1980
Improvement Bonds of 1981
Improvement Bonds of 1982
Improvement Bonds of 1983
Improvement Bonds of 1984
(amount to be provided)
Improvement Bonds of 1985
(amount to be provided)
Interim Construction Fund
Lakes Addition #7
Baldwin Lake Mobile Home Court
Tomahawk Trail
Reiling Road
Rice Lake Estates
Totals
Retained Earnings:
Sewer and Water Fund
Grand Totals
Fund Position (Deficit)
December 31,
1985 1984
$ 428,299
12,230
292
122,341
117,797
(133)
(43, 302)
-0-
15,757
44,169
16,662
223,457
13,382
$ 242,923
12,173
-0-
Increase
(Decrease)
$ 185,376
57
292
111,162 11,179
14,394 103,403
(14,474) 14,341
(41,027) (2,275)
(50,866) 50,866
14,551 1,206
44,593 (424)
15,364 1,298
221,557 1,900
11,211 2,171
(1,478) (1,140) (338)
(1,641,551)
(16,108)
(22,675)
10,491
305
(2,539)
1,565,507
842,903
15,616
- 0- (1,641,551)
- 0- (16,108)
(22,584) (91)
8,473 2,018
(15,411) - 15,716
(2,189) (350)
1,565,507
548,710 294,193
7,285 8,331
$ 858,519 $ 555,995 $ 302,524
The following section of this report relates to the various changes in the fund
positions.
MINNOW
MEM
City of Lino Lakes, Minnesota
Management Report, Page 14
General Fund
The financial statements for the General Fund are presented in Statement 6 and 7 of
the 1985 Annual Financial Report. The fund balance of the General Fund was $428,299 at
December 31, 1985 representing a $185,400 increase in fund balance during 1985 as result
of the following:
Budgeted decrease in fund balance $ (54,100)
Actual revenues over (under) budgeted revenues:
Tax collections $ 1,800
Licenses and permits 19,500
Intergovernmental revenue 5,600
Charges for services 51,400
Court fines 44,500
Miscellaneous 38,600
Net revenue over budget
Actual expenditures under (over)
budgeted expenditures:
General government 25,000
Public safety 17,000
Highways and streets 47,300
Parks 2,300
Other (14,600)
Net expenditures under budget
Actual net transfers out under budget
161,400
77,000
1,100
Total improvement $ 185,400
�- Statement 7 of the 1985 Annual Financial Report presents additional detail relating
to the above budget variances.
The overall fund balance of the General Fund has been as follows for the past
several years:
Fund Balance (Deficit)
Increase
Year Ended (Decrease) in
December 31, Designated Undesignated Undesignated
1978 $ 11,464 $ 51,249
1979 14,655 50,652 $ (597)
1980 18,766 (19,730) (70,382)
1981 19,876 30,109 49,839
1982 46,466 13,355 (16,754)
1983 51,084 80,032 66,677
1984 116,770 126,153 46,121
1985 77,624 350,675 224,522
City of Lino Lakes, Minnesota
Management Report, Page 15
The City increased the overall fund balance by $185,400 in 1985. A portion of the
balance is committed to specific uses as follows:
• LAWCON (special levy) which must be used for matching
expenditures or be substantiated through the
allocation of "in -kind" costs.
• Prepaid insurance
Total
$ 30,000
47,624
$ 77,624
A graphic illustration of fund balance compared to expenditures and transfers out is
as follows:
$1 X00
$1,100
$1,000
$900
$800
$700
$600
$500
$400 --t
$300 ,-
$200
$100
($100)
1978 1979 1980 1981 1982 1983 1984 1985
$1,200
$1,100
$1,000
$900
;800
$700
$600
$500
$400
$300
$200
$100
($100)
0 Expenditures and Transfers -46 Fud Balance
The amount of General Fund reserve required to meet emergency and /or unanticipated
expenditures is not readily quantifiable. Rather, the level of this requirement must be
established by the City based on the history of the City and the philosophy of
"adequate" reserve coverage.
The reserve requirement to deal with unforeseen intergovernmental revenue reductions
is also difficult to quantify. State and Federal legislation dealing with shared aids
is somewhat unpredictable. The City must strive to remain current on the effects of
changing legislation and budget such aids accordingly. A reserve balance in the City's
General Fund will mitigate the adverse effects of aid reductions which are received
after expenditure budget commitments are made.
City of Lino Lakes, Minnesota
Management Report, Page 16
The City's minimum cash flow reserve requirement is measurable. For the City of
Lino Lakes, the minimum required surplus is $528,000 computed as follows:
_ 1986 Budgeted Levy (Includes Homestead Credit)
1986 Anticipated Local Government Aid
Total
$ 835,500
220,000
$1,055,500
Minimum Required Cash -Flow Reserve (One -Half of Total) $ 528,000
The City improved the financial position and undesignated reserve balance of the
General Fund substantially in 1985. This increase (plus incremental increases over the
past several years) will allow the City to better manage the impending State aid reduc-
tions of 1986.
Reserve for
Emergency/
Unanticipated
Expenditures
Reserve for Cash Flow
( timing difference between
expenditure dates and
major revenue receipts )
Reserve for
Capital Outlay
Replacement
-------------------------------- - - - - --
ADEOUATE
GENERAL FUND
RESERVE BALANCE
Reserve for
Intergovernmental
Revenue Reductions
Reserve for
Special City
Council Projects
City of Lino Lakes, Minnesota
Management Report, Page 17
The level of fund balance of the City's General Fund is one indicator of the finan-
cial strength or independence of a city. This often becomes critical during periods of
high inflation; decreasing State aids; and, poor economic growth. With adequate reser-
ves, these external factors are more manageable by the City. We commend the City for
the improvements made in recent years to the General Fund reserve balance. These impro-
vements indicate a responsible approach to City government which will assure the con-
tinued ability of the City to deliver basic required services on a timely basis.
Special Revenue Funds
The financial statements of the Special Revenue Funds are presented in Statements 8
and 9 of the 1985 Annual Financial Report. A special revenue fund is a classification
of funds to account for revenues segregated by City ordinance or Federal or State
Statutes for specific purposes. The City maintains the Federal Revenue Sharing Fund as
the only Special Revenue Fund of the City. The fund balance of the Federal Revenue
Sharing fund of $12,230 at December 31, 1985 consists of the fourth quarter allotment
receivable ($11,022) and accumulated interest earned over the past year. The City has
appropriated the 1986 entitlement for the Fire and Police Departments.
The rules and regulations of the Office of Revenue Sharing are considerable (and are
subject to frequent change). Certain requirements deal with publications of notices.
The City did meet all the publications requirements for 1985 with minor exceptions. We
recommend that the City publish all required notices and monitor the notices to assure
compliance with Revenue Sharing regulations.
Current pending Federal legislation indicates that Revenue Sharing will be
eliminated. Additionally, the 1986 entitlement may be cut by at least 8 %. We recommend
that the City anticipate the effects of such legislation and prepare plans for substi-
tute financing of expenditures which have been funded by Revenue Sharing (or plan to
eliminate programs for which adequate funding is no longer available).
W NW
N IMBI
City of Lino Lakes, Minnesota
Management Report, Page 18
Debt Service Funds
Debt Service Funds are governmental type funds used to account for accumulation or
resources for (and the payment of) principal and interest on general debt. The City had
one general debt bond issue outstanding during 1985 (the 1985 Certificates of
Indebtedness).
The following schedule reflects the projected final fund balance of the 1985
Certificates of Indebtedness Debt Service fund. This projection is based on future
scheduled tax levies and future bond principle and interest payments. It does not
include future investment interest earnings which would increase the projected reserve
balance.
Fund Balance 12/31/85
Future tax levies
Future bond principle and interest
Projected reserve
Year of final maturity
$ 292
126,000
121,831
$ 4,461
12/1/88
The above schedule indicates that the 1985 Certificates are adequately financed.
However, the interest payments are due June 1st and December 1st of each year.
Principle payments are due December 1st of each year. The City does not receive its tax
remittances until mid -July and mid - December. Therefore, this fund will experience a
temporary cash overdraft in June and December of each year until final bond maturity.
We recommend that for future issues, the City prepare cash flow schedules to assure that
adequate cash will be on hand in the fund prior to scheduled debt payments.
City of Lino Lakes, Minnesota
Management Report, Page 19
Capital Project Funds
The financial statements for the City's Capital Project Funds are presented in
Statements 12 and 13 of the 1985 Annual Financial Report. A Capital Project Fund is a
classification of funds to account for receipts and disbursement of monies used for
acquisition and construction of capital facilities other than those financed by special
assessment funds. The fund balances of the Capital Project Funds at December 31, 1985
and 1984 were:
Fund
Parks and Playground
Capital Improvements
Community Development Block Grant
LAWCON Grant
City Hall Expansion
Totals
December 31,
1985 1984
$ 122,341
117,797
(133)
(43,302)
-0-
$ 196,703
$ 111,162
14,394
(14,474)
(41,027)
(50,866)
$ 19,189
Increase
(Decrease)
$ 11,179
103,403
14,341
(2,275)
50,866
$177,514
Parks and Playground
This fund was established to account for dedicated park fees. The City uses the
Parks and Playgrounds Fund to collect both ordinance restricted fees and donations from
various groups. The fund balance of $122,341 at December 31, 1985 is available for
expenditures by the City to fund capital outlay and maintenance of dedicated park lands.
The City normally collects park dedication fees upon subdivision. The City has made
exceptions for several developers to allow for payment upon development (as opposed to
subdivision). The amount of these park dedication fees receivable was $5,060 at
December 31, 1985.
City of Lino Lakes, Minnesota
Management Report, Page 20
Capital Improvements Fund
The 1985 Certificates were issued to finance the acquisition of equipment for
various departments of the City. The following schedule reflects the budget and actual
expenditures for this certificate:
1985
Description Budget Actual
Police Cars $ 25,000
Dump Truck with Plow 60,000
Mini Dump Truck with Plow 17,000
Equipment Trailer 3,000
Street Sweeper 3,000 $ 3,000
Crack Filling Machine 6,000
Public Works Vehicle 4,725 4,725
Totals $ 118,725 $ 7,725
The certificates were sold for proceeds of $107,500. The above schedule reflects
- anticipated purchases of $118,725. The excess purchases (over the $107,500 1985
Certificates of Indebtedness) is to be financed by the balance remaining in this fund
from prior years as well as future interest earnings. The remaining equipment is sche-
duled to be purchased in 1986.
The following schedule summarizes the activity of this fund through December 31,
1985.
Proceeds for issuance of 1981 certificates
Proceeds for issuance of 1985 certificates
Interest earnings:
1 981
1982
1983
1984
1 985
Property taxes
Transfer from Debt Service Fund
Total revenue and other sources
Expenditures:
1981
1982
1983
1984
1985
$ 111,400
107,500
1,288
9,901
1,758
1,300
1,192
7,688
2,390
$ 2,707
55,136
50,506
10,546
7,725
$ 244,417
Total expenditures 126,620
Fund balance - December 31, 1985 $ 117,797
City of Lino Lakes, Minnesota
Management Report, Page 21
After the scheduled purchases of equipment are made in 1986, the remaining fund
balance should be closed to the 1985 Certificates of Indebtedness Debt Service Fund (or
be expended on qualifying equipment purchases).
Community Development Block Grant
The Community Development Block Grant (CDBG) Fund was established in 1982 to account
for the financial activity related to the projects to be funded by the CDBG program.
The City entered into an agreement with Anoka County to receive CDBG funds. The County
of Anoka, along with other governmental units, were awarded the Grant. The City of Lino
Lakes is considered to be a sub- grantee and must comply with the provisions of the grant
agreement. The City has determined the compliance procedures that are required to be
documented in City records. Proper documentation with the grant agreement has aided the
City in receiving the monies applied for in reimbursement of City expenditures.
The CDBG allotments for 1982 to 1985 have been appropriated for the Alexander House
and the Senior Citizen Facility. Anoka County has not allocated additional CDBG amounts
for the City in 1986. This is consistent with the overall allotment plan. The City has
$14,374 left in Anoka County's 1985 CDBG allotment as follows:
Budget Original
Year Allotment
Allocated to
Alexander
House
1982 $ 84,889 $ 10,000
1983 39,179
1983
(Supplemental) 12,434
1984 25,000 3,000
1985 66,098
County
Reimbursements
$ 74,889
49,179
12,434
57,525
6,199
$ 227,600 $ 13,000 $ 200,226
County
Approved
Transfers
$ 10,000
Remaining
Balance
35,525
(45,525) $ 14,374
$ -0- $ 14,374
The City has several 1985 and prior year expenditures which should be submitted for
reimbursement in 1986.
City of Lino Lakes, Minnesota
Management Report, Page 22
1985 included $5,362 of expenditures for the Senior Citizens Council. The City,
with consent from Anoka County, has elected to fund the start up costs of the senior
Citizens Council with CDBG monies. The City has determined that the Senior Citizen
Council should be self sustaining and not require any future City support.
The Senior Council's expenditures for its non - City /CDBG financial activities are not
included in the City's financial statements. The Senior Council may be required to
apply for tax exempt status under the Internal Revenue Code as well as file tax returns.
Our office is currently researching this item and will forward our recommendations to
City staff upon completion of our research.
The City experienced difficulty in reconciling grant reimbursement requests to
actual disbursements coded to the Community Development Block Grant fund. This was
caused by primarily two factors:
• One construction contract for the expansion of City hall as well as the
construction of the Senior Citizens Facility.
• Delay in submitting grant reimbursement requests for project costs incurred from
1982 through 1984 until 1985.
A substantial amount of time was needed in reconciling the various reimbursement
requests. We recommend that in the future, the City submit grant reimbursement requests
at least quarterly to assure that all disbursements are reimbursed promptly and accura-
tely.
This fund had a cash overdraft of $7,688 at December 31, 1985. A portion of the
overdraft will be reimbursed in 1986 with additional CDBG monies. A portion of a
contractor invoice submitted exceeded Anoka County's allocation for that program year by
$2,217 and was therefore denied reimbursement. These costs will require City financing
or may be covered by the 1986 allotment. We recommend that upon project close -out, all
costs not reimbursed with CDBG funds be funded through a transfer from City Council
approved sources.
City of Lino Lakes, Minnesota
Management Report, Page 23
City Hall Expansion
In 1983, the City expanded the CDBG project to include City Hall upgrading. This
part of the construction has been presented separately in the Capital Project financial
statements. In 1985 the City closed this fund through a transfer from the General Fund.
LAWCON Grant
The LAWCON Grant Fund was established to account for the grant awarded to the City
for the development of Country Lakes Park. Total grant awarded was $115,713. This
grant agreement requires the grantee to properly document all expenditures related to
the grant agreement. Documentation of these expenditures is necessary in order for the
grantee to earn the grant monies approved.
We recommend that the City develop controls to insure that all expenditures related
to grants are properly documented and required requests for payments to the granting
agency are filed on a timely basis.
The fund deficit of this fund is a result of the following activity since inception:
Revenue:
State Grant (28% of expenditures)
Federal Grant (30% of expenditures)
Interest on investments
Total revenue
$ 31,613
33,872
5,069
Expenditures:
Contractor 92,985
Engineering 13,642
Other 7,229
Total expenditures
$ 70,554
113,856
Fund balance (deficit) - December 31, 1985 $(43,302)
The above fund deficit ($43,302) is the City share of expenditures to date. The
total anticipated project funding is as follows:
State $ 56,367
Federal 59,346
City 82,107
Total estimated
project $ 197,820
roma
Mow
Mow
City of Lino Lakes, Minnesota
Management Report, Page 24
The scope of the improvements may change if the beach part of the project has a
silting problem. The completion of the grant (and the construction of the beach house)
will be delayed pending the outcome of the beach improvement. The City has received a
time extension until December 31, 1986 to complete the project.
The City has levied property taxes to fund a portion of its share ($30,000 levied
for collection in 1982). These taxes are a part of the designated fund balance of the
City's General Fund. A portion of this designation may be expended directly from the
General Fund through "in kind" costs (i.e., administrative and other efforts which meet
certain grant criteria). As the City incurs expenditures, we recommend that the City
fund the City share from the General Fund or other designated City sources (i.e., Parks
and Playground Fund).
Special Assessment Funds
The financial statements of the Special Assessment Funds are presented in Statements
14 and 15 of the 1985 Annual Financial Report. A Special Assessment Fund is organized
to account for both the construction and financing of assessable improvement projects.
The accounting principles employed by the Special Assessment Fund - Debt Service
Accounts are such that future interest on bonds payable is not reflected in the Balance
_ Sheet until the year it becomes payable and future interest on special assessments is
not reflected until the year it becomes receivable. Therefore, the financial position
of these funds do not reflect future interest receivable or payable. Scheduled future
tax levies are not reflected as income until the year of collection. In order to pro-
ject the final fund surplus or shortage these three items must be considered.
The nature of a Special Assessment - Debt Service Fund is such that it will not
reflect a fund deficit. In a fund which would reflect a deficit an "amount to be provi-
ded" is reported to increase the fund equity to zero. This "amount to be provided" is
each funds' supplemental financing requirement. This supplemental financing primarily
City of Lino Lakes, Minnesota
Management Report, Page 25
will consist of future tax levies (scheduled and /or unscheduled) but can be realized
through future interest on investments, permanent transfers in and /or other City Council
designated sources.
Presented herewith, are projected financial positions of the various Special
Assessment Debt Funds of the City (excluding the Temporary Improvement Bonds of 1985)
based on scheduled future tax levies, future interest payable on bonds, and estimated
future interest receivable on deferred assessments. Future interest on investments are
not considered due to the uncertainties involved.
Debt Service Fund
Improvement Bonds of 1977
Improvement Bonds of 1980
Improvement Bonds of 1981
Improvement Bonds of 1982
Improvement Bonds of 1983
Improvement Bonds of 1984
Totals
Fund
Position
12/31/85
$ 15,757
44, 169
16,662
223,457
13,382
(1 ,478)
$ 311.949
Scheduled Future Interest Projected Year of
Future Add: Deduct: Fund Final
Tax Levies Assessments Bonds Position Maturity
$ 900 $ 948 $ 15,709 1987
2,300 3,300 43,169 1986
12,600 11,387 17,875 1991
$ 190,535 98,500 185,110 327,382 1991
43,400 32,500 24,282 1993
725 12 ,200 13, 509 (2� 062) 1994
$ 191.260 $ 169.900 $ 246, 754
Total projected fund position
Less: City property assessments included in projections
Adjusted projected fund position
Statutory reserve (5% of unmatured bond requirements)
Excess projected fund position
426,355
129,819
296,536
54,600
$ 241.936
The overall actual and projected fund positions of the Special Assessment Funds
indicate that these bond funds are adequately financed at December 31, 1985. The reader
should be cautioned that the above projected position is based upon fund balances and
that these funds may experience cash overdraft balances due to timing of assessment
collections (i.e., delinquencies).
Moe
City of Lino Lakes, Minnesota
Management Report, Page 26
Improvement Bonds of 1977
The projected balance of $15,700 represents a $1,200 increase during 1985. This
increase was a result of the following:
Projected balance - January 1, 1985
Interest on investments
Projected balance - December 31, 1985
$ 14,500
1,200
$ 15,700
We recommend that the City monitor the projected balance and develop a plan for the
intended use of the balance available upon final payment in 1987.
Improvement Bonds of 1980
The projected fund position of $43,200 decreased by $800 during 1985 as follows:
Projected balance - January 1, 1985
Change in future interest on assessments
Projected balance - December 31, 1985
$ 44,000
(800)
$ 43,200
During 1984, this fund experienced a collection rate on current assessments of 17%
Immo
for the major assessment roll. This amounted to a $42,000 increase in delinquent
assessments related to one major property owner. In 1985 this collection rate improved
to 53 %. However, delinquent assessment now total $90,600. We recommend that the City
monitor this situation to insure timely availability of cash assets to meet bond prin-
cipal and interest payments. The fund has a cash deficit of nearly $40,000 at December
31, 1985.
The City should also provide supplemental financing in the form of supplemental tax
levies if determined to be necessary.
Improvement Bonds of 1981
The Improvement Bonds of 1981 have a positive projected balance of $17,875 at
December 31, 1985. We recommend that the City monitor the results of this fund
annually.
City of Lino Lakes, Minnesota
Management Report, Page 27
Improvement Bonds of 1982
The Improvement Bonds of 1982 are adequately financed based on assets provided for
payment of the bonds. The fund, however, is carrying assessments on City property
totaling $129,819 for which payment terms have not been established (see previous
comments). The City has advertised for bids on the sale of the City property in 1986
(see earlier commentary). There is also $177,800 of delinquent assessments receivable.
The fund experienced a 1985 collection rate on current assessments receivable of
13% causing an increase in delinquent assessments of $86,000. The fund does have future
scheduled tax levies of $190,535. The City, however, cancelled the 1984/85 levy of
$36,262 and the 1985/86 levy of $40,967.
The City should prepare projections on this fund to insure that adequate cash assets
will be available on a timely basis to meet bond principal and interest payments as they
become due.
Improvement Bonds of 1983
The Improvement Bonds of 1983 have a positive projected balance of $24,282 at
December 31, 1985. We recommend that the City monitor the results of this fund
annually.
Improvement Bonds of 1984
The Improvement Bonds of 1984 has a projected deficit of $2,062 at December 31,
1985. This projected deficit is the result of an under- assessment of the project as
follows:
Actual costs - December 31, 1985 $ 35,400
Estimated additional costs 1,500
Capitalized interest -0-
Total 36,900
Amount assessed 30,370
Difference $ 6,530
We recommend that the City review the financing of this fund and provide additional
financing if required.
City of Lino Lakes, Minnesota
Management Report, Page 28
Temporary Improvement Bonds of 1985
The Temporary Improvement Bonds of 1985 were issued to finance Weber's Addition
(Tomahawk Trail) and the Rice Lake Estates Addition. Final payment on these bonds is
due November, 1988 at which time definitive bonds will be required. Weber Addition was
completed and assessed in 1985. Bids were requested for Rice Lake Estates in January,
1986. This project is scheduled for completion and assessment in the fall of 1986.
This project accounts for over 98% of the $1,850,000 bond issue. The debt service fund
presently has enough funds to pay scheduled debt interest payments through May, 1987.
If the Rice Lake Estates Project is not completed and assessed prior to October, 1986,
this fund could have a potential cash shortage by November, 1987 as follows:
Cash Balance 12/31/85 (Bond Proceeds) $ 185,925
Assessment Remittance (100% collection)
Weber's Addition 1986
1987
Estimated Interest Earnings 1986
1987
Bonded Debt Requirements:
1986
1987
6,130
5,641
8,800
1,600
(123,950)
(123,950)
Potential Shortage 12/31/87 $ (39,804)
We recommend that the City monitor the progress of this project and adopt
assessments for the Rice Lake Estates project in 1986 for collection in 1987.
Construction Funds
Lakes Addition #7
Lakes Addition #7 has had the following transactions from inception:
1982 and 1983 and
Prior 1984 1985 Total
Miscellaneous Revenue $ 183 $ -0- $ -0- $ 183
Preliminary Construction Costs $ 22,767 -0- $ 91 22,858
Fund balance (deficit) - December 31, 1985 $(22,675)
City of Lino Lakes, Minnesota
Management Report, Page 29
The above deficit should be funded through a permanent bond sale to finance the pro-
ject. If the project is not ordered, the City may charge the developer directly through
a letter of credit arrangement. We recommend that the City review the status of this
fund and take action to eliminate the accumulated cash overdraft.
Baldwin Lake Mobile Home Court
This project was financed by the $100,000 Improvement Bonds of 1983. The project
consisted of installations of sewer service lines to the mobile home court. The project
was completed and assessed in 1983. The fund is carrying a liability to MWCC for sewer
availability charges of $24,400. We recommend that the City remit this money to MWCC in
1986.
This project is complete at December 31, 1985. We recommend that this fund be
closed in 1986 to the Improvement Bonds of 1983 Debt Service Fund. Council authoriza-
tion is required to effect this closing.
Tomahawk Trail /Weber's Addition
The City completed this sanitary sewer project in 1985. The project was assessed in
1985.
This project was bonded for in 1985 with the Rice Lake Estates Project. We recom-
mend that this fund be closed in 1986 to the Improvement Bonds of 1985 Debt Service
Fund. Council authorization is required to effect this closing.
Reiling Road
This project was financed by the Improvement Bonds of 1984. This project was
substantially complete in 1985. Final payment to the contractor has been withheld
pending settlement of a dispute with adjacent property owners. The fund deficit at
December 31, 1985 was $2,539. We recommend that the City eliminate this deficit in 1986
through a City Council designated transfer.
City of Lino Lakes, Minnesota
Management Report, Page 30
Interim Construction
This fund was established in 1985 to account for the preliminary construction costs
prior to permanent bonding or other financing determination. We concur with the City in
establishing this fund.
1985 activity of this fund was for preliminary costs of the 4th Avenue bridge pro-
ject and the 80th Avenue project. Costs incurred to date are as follows:
Engineering
4th Avenue 80th Avenue Total
$ 16,021 $ 87 $ 16,108
▪ Rice Lakes Estates Addition
The City began this project in 1985. The project is scheduled for completion in
1986. We recommend that this fund be closed to the Temporary Improvement Bond after
final completion of construction.
Administrative Construction Charges
The City incurs expenditures in the General Fund through use of administrative time
and effort in the completion of construction projects. It is appropriate for the City
to charge an interfund administrative fee for these services during the construction
▪ phase of the project. A common basis for the fee is a percent of the project or of the
contract (either a flat percent or a sliding percent based on the size of the project).
Maw
During 1984, the City established a policy regarding administrative charges
(Resolution #84 -4). The policy includes a "step down" administrative charge based on
the size of the project. We concur with this approach and, in our opinion, the percen-
tages used are reasonable and comparable to those used by other suburban metropolitan
cities.
The policy (as implemented) requires one time transfers of administrative charges
from the special assessment construction funds. The City has made such administrative
• charges in 1985 for projects bonded for with the 1985 issue.
City of Lino Lakes, Minnesota
Management Report, Page 31
Enterprise Fund
The Enterprise Fund of the City of Lino Lakes financial statements are presented in
the 1985 Annual Financial Report in Statements 16 through 18.
Presented below are condensed comparative operating statements. Contributed depre-
ciation has not been included in these presentations.
For The Year Ended December 31,
1985 1984
Amount Percent Amount Percent
Operating Income:
Water billings $ 7,640 14.94% $ 6,011 13.26%
Sewer billings 39,084 76.41 36,417 80.33
Other 4,428 8.65 2,909 6.41
Total operating income 51,152 100.00 45,337 100.00
Operating Expenses:
Personal services 12,438 24.32 14,831 32.71
MWCC 25,954 50.74 23,866 52.64
Repairs and maintenance 3,061 5.98 4,088 9.02
Depreciation 984 1.92 838 1.85
Other 8,689 16.99 8,494 18.73
Total operating expenses 51,126 99.95 52,117 114.95
Income (Loss) From Operations
26 .05%
(6,780) (14.95 %)
Other Income /(Expenses):
MWCC maintenance agreement 8,305 7,138
Net Income /(Loss) $ 8,331 $ 358
The operating results of the Water and Sewer Utility Fund increased by $8,000 from
1984. The increased revenue was primarily the result of increased connections to sewer
and water. The City should review rates annually and make adjustments to the rates
based on costs incurred and expected to be incurred.
The Metropolitan Waste Control Commission (MWCC) bills the City annually on an esti-
mated basis. These estimated billings are adjusted at a later date and the City is then
billed the additional amount or given a refund. These estimated billings vary from year
to year and may cause material variances in annual profits or losses of the utility
fund. The MWCC billings for the period 1977 to 1985 were as follows:
MIA
City of Lino Lakes, Minnesota
Management Report, Page 32
Billings from MWCC
Estimated Final
Percent Percent
Year Amount Change Amount Change
1977 $ 3,046 $ 1,573
1978 3,560 16.8% 3,662 132.8%
1979 8,312 133.5 6,171 68.5
1980 6,858 (17.5) 7,123 15.4
1981 11,357 65.6 10,213 43.4
1982 15,504 36.5 14,592 42.9
1983 19,027 22.7 23,866 63.6
1984 26,107 37.2 22,011 (8.4)
1985 30,050 15.1 Not available
1986 33,283 10.8 Not available
A graph of the above data is as follows:
135,000
$3o,000
$25000
$20,000
$15,000
$1o,000
$5,000
MWCC Billings
1977 1978 1979 1980 1981 1982 1983 1984 1985 1986
■ Estimated Billings J Actual Billings
There are two basic factors which contribute to increased billings from the MWCC.
The first is increased use of the system. The estimated increased usage for 1986 over
1985 for the City of Lino Lakes is 8.6 %. The second factor which increases the billings
from MWCC is their increased cost to process gallonage. Their cost to process (per
million gallons) increased from an estimated $859 to an estimated $876. This represents
City of Lino Lakes, Minnesota
Management Report, Page 33
an increase of 2 %. The combination of these factors increased the City's estimated cost
in 1986 by 11 %. As the system gains users, the increased usage part of the overall
increase should be offset by the billings to new users. The per unit portion of the
increase, however, must be borne in full by existing users or be subsidized by overall
City operations.
The City has no control over the billings from the MWCC for the sewer treatment
costs. This operating expense comprises 66% of the 1985 customer billings for sewer
service charges. The City must set rates at levels adequate to pay for the pass through
costs from MWCC plus other city expenses. In view of this arrangement with MWCC, the
City's ability to exercise control over its sewer operations is limited. The City can
be construed to be acting as an agent for the MWCC with regard to sanitary sewer opera-
tions.
Agency Funds
The City maintained three Agency Funds in 1985 as follows:
• Contractor's Deposits
• Minnesota Housing Revenue Bonds
• Investment Fund
An Agency Fund is designed to account for transactions for other individuals, pri-
vate organizations and /or other funds.
The Contractor's Deposits Fund is used to account for "pass through" types of expen-
ditures relating to prospective developers. The City pays certain legal, engineering
and planning amounts to assure compliance with various City ordinances relating to
pertinent applications. The City receives deposits and /or bills the various developers
for costs incurred. We recommend that the City continue to maintain detail records of
amounts due from developers and that adequate deposits are received prior to incurring
expenses on a developer's behalf.
City of Lino Lakes, Minnesota
Management Report, Page 34
The Minnesota Housing Revenue Bonds Fund was used to account for the application
process related to housing bonds. The remaining balance was transferred to the General
Fund in 1985.
The Investment Fund is used to "pool" the available cash of the City for efficient
investment. Interest is allocated to City funds based on the average cash available in
that fund throughout the year.
Franchise Agreement - Gas Utility
Portions of the City of Lino Lakes have gas service through a franchise agreement
- between the City of Circle Pines and the City of Lino Lakes. The City of Circle Pines
operates the gas utility. A summary of net income from 1978 through 1984 is'as follows:
Net Income
Circle Pines Lino Lakes Total
Percent Percent Percent
- Year Amount of Total Amount of Total Amount of Total
1978 $ 23,736 53.5% $ 20,602 46.5% $ 44,338 100.0%
1979 39,104 75.6 12,630 24.4 51,734 100.0
1980 22,563 86.2 3,605 13.8 26,168 100.0
1981 6,215 41.7 8,676 58.3 14,891 100.0
1982 70,955 78.4 19,587 21.6- 90,542 100.0
1983 61,151 73.9 21,642 26.1 82,793 100.0
1984 40,821 71.8 16,043 28.2 56,864 100.0
Seven Year
Totals $264,545 72.0% $102,785 28.0% $367,330 100.0%
The City of Lino Lakes may receive payment of net income after the accumulated
retained earnings deficit is eliminated. The retained earnings for the gas utilities
have been as follows:
Retained Earnings (Deficit)
City of City of
Circle Pines Lino Lakes
December 31, Amount Amount Total
1978 $ 85,581 $(108,627) $(23,046)
1979 124,685 (95,997) 28,688
1980 147,248 (92,392) 54,856
1981 153,463 (83,716) 69,747
1982 224,418 (64,129) 160,289
1983 285,569 (42,487) 243,082
1984 326,390 (26,444) 299,946
City of Lino Lakes, Minnesota
Management Report, Page 35
The preceding two schedules indicate that the Circle Pines gas utility operation has
been more profitable than the Lino Lakes operation. Additionally, the Circle Pines gas
utility has a positive retained earnings balance in excess of $326,000 while the Lino
Lakes retained earnings account is in a deficit position.
The City of Lino Lakes has certain rights with regard to the gas utility franchise
agreement. One of those rights is a purchase option. The 25 year franchise agreement
expires in the latter part of 1986.
The City has taken the following actions regarding the gas utility operations:
• Successfully worked to gain special State legislation to allow a greater number
of members on the Joint Gas Utility Commission.
• Reviewed optional criteria for representation on the Commission to allow for a
fair and equitable method of appointing members from each City.
• Started the process of analyzing accounting methods of allocating expenses be-
tween each City's gas operation. This data will be used to establish terms of a
renewed gas utility franchise agreement.
We recommend that the City continue efforts to establish a revenue franchise
agreement which will produce a share of disposable net income to the City of Lino Lakes.
Internal Accounting Controls
As part of our examination, we made a study and evaluation of the system of
internal accounting control of the City of Lino Lakes to the extent we considered
necessary to evaluate the system, as required by generally accepted auditing
standards. The purpose of our study and evaluation was to determine the nature,
timing and extent of the auditing procedures necessary for the expression of an
opinion on the City's financial statements. Our study was more limited than
would be necessary to express an opinion on the system of internal accounting
control taken as a whole or on any of the categories of controls identified.
The City of Lino Lakes is responsible for establishing and maintaining a
system of internal accounting control. The objective of internal accounting
control is to provide reasonable, but not absolute, assurance as to the safe-
guarding of assets against loss from unauthorized use or disposition, and the
reliability of financial records for preparing financial statements and main-
taining accountability for assets. The concept of reasonable assurance recogni-
zes that the cost of a system of internal accounting control should not exceed
the benefits derived and also recognizes that the evaluation of these factors
necessarily requires estimates and judgments by management.
City of Lino Lakes, Minnesota
Management Report, Page 36
There are inherent limitations that should be recognized in considering the
potential effectiveness of any system of internal accounting control. In the
parformance of most control procedures, errors can result from misunderstanding
of instructions, mistakes of judgment, carelessness, or other personal factors.
Control procedures whose effectiveness depends upon segregation of duties can be
circumvented by collusion. Similarly, control procedures can be circumvented
intentionally by management either with respect to the execution and recording of
transactions or with respect to the estimates and judgments required in the pre-
- paration of financial statements.
Also, projection of any evaluation of the system to future periods is subject
to the risk that the procedures may become inadequate because of changes in con-
_
ditions and that the degree of compliance with the procedures may deteriorate.
Our study and evaluation made for the limited purpose described in the first
paragraph would not necessarily disclose all material weaknesses in the system.
Accordingly, we do not express an opinion on the system of internal accounting
control of the City of Lino Lakes taken as a whole. However, our study and eva-
-, luation disclosed that a substantial portion of the accounting processes are per-
formed by a single employee. Ideal conditions call for segregation of duties to
establish a system of internal testing of procedures performed. Additionally,
our evaluation disclosed that the City does not maintain a system of control over
INNOIN
fixed assets. These conditions are common to cities of this size. Any modifica-
tion of internal controls in these areas must be viewed from a cost /benefit
perspective.
These conditions were considered in determining the nature, timing, and
extent of the audit tests to be applied in our examination of the December 31,
1985 financial statements, and this report does not affect our report on the
financial statements dated February 3, 1986.
This report is intended solely for the use of the City of Lino Lakes and
should not be used for any other purpose.
Computer System
The City has purchased a computer system in 1985. The City is implementing a system
for water and sewer customer billings and collections in 1986. The City compared the
results of the 4th quarter 1985 computer billing with its manual system and will be
using the computerized system for all future utility billings.
In 1986 the City will be implementing a computerized payroll system as well as its
general ledger system.
City of Lino Lakes, Minnesota
Management Report, Page 37
The conversion from a manual system to an in -house system requires revamping of
internal control procedures. A partial listing of areas to review is as follows:
• Input Controls. Including input authorization, changes to input data,
input error detection controls, etc.
• Process Controls. Including validation of data prior to processing,
error detection features of systems, periodic tests of system functions,
etc.
• Output Controls. Including test of output for accuracy, distribution of
output controls, retention of output system, etc.
• Program Controls. System to assure that existing programs are not
altered without authorization and that authorized program changes are
effected and that all programs (and changes thereto) are properly docu-
mented completely and accurately.
• System Security. To assure only authorized use of the system and to
safeguard data that would otherwise be lost through error (or disaster
such as fire).
• Development of user manuals.
• Scheduling of system's user priority.
• Segregation of duties.
The above areas should be addressed by the City to assure a successful implemen-
tation of the overall system. These features will better assure safeguarding of City
interests and the overall integrity of the system. We are available to assist the City
in its implementation process upon request.
MINN
City of Lino Lakes, Minnesota
Management Report, Page 38
Summary
During 1986, the City should:
• Monitor State legislation as it affects the financing of operations for the City
of Lino Lakes. (Page 1)
• Monitor compliance with payment terms for SBA investment and consider "risk to
market" factor with regard to long -term investments. (Page 7)
• Consider a request to increase MSA maintenance monies. (Page 8)
• Request a delinquent property tax listing from the County to assist the City in
monitoring collection rates for property taxes. (Page 9)
• Levy scheduled property taxes which may be required to pay for assessments on
"City property ". (Page 11)
• Monitor the special assessment process to monitor collection rates and assure
that the City's financial interests are protected. (Pages 11 and 12)
• Consider additional security through filing a lien against properties which have
assessments related to the Baldwin Lake improvements and Weber's Addition.
(Page 12)
• Consider the benefits of establishing a fixed assets system. (Page 12)
• Continue efforts to monitor and improve the reserve balance of the City's
General Fund. (Pages 14 to 17)
• Continue efforts to monitor rules and regulations related to Revenue Sharing and
plan for substitute financing of expenditures which had been funded by that
program. (Page 17)
• Continue to monitor grant conditions related to the CDBG program and close the
CDBG Fund in 1986. (Page 22)
• Review procedures related to LAWCON grant expenditures to assure proper documen-
tation and timely requests for reimbursement. (Page 23)
• Fund City share of expenditures related to the LAWCON grant. (Page 24)
• Monitor the various balances and projected balances of the City's Special
Assessment Debt Funds. (Pages 24 to 28)
• Monitor the project status of Special Assessment Construction Funds and remit
the $24,400 which is due to the MWCC. (Pages 28 to 30)
• Monitor Water and Sewer Operations and increased charges from MWCC to assure
that rates are maintained at adequate levels to fund operations.
(Pages 31 to 33)
City of Lino Lakes, Minnesota
Management Report, Page 39
• Continue efforts to maintain detail records related to contractors deposits and
receive adequate deposits prior to incurring expenses on a developer's behalf.
(Page 33)
• Continue to monitor the terms of a new proposed Gas Utility Franchise Agreement.
(Pages 34 to 35)
• Continue to monitor the implementation process for the computer system and
review the various additional internal controls which should be addressed.
(Pages 36 to 37)
Respectfully submitted
/4j • ' J4""4'd', / &^
VOTO, REARDON, TAUTGES & CO., LTD.
Certified Public Accountants
March 27, 1986