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2 City Council Regular Meeting Minutes June 28, 2011 Page 5 VI. GENERAL. BUSINESS OF COUNCIL. A. 2010 Audit Presentation. Peggy Moeller, Tautges, Redpath presenting, 5 Peggy Moeller, CPA, presented the City's 2010 Audit, including a list of the reports issued as 6 part of the audit, and stated that once again, the City received a "clean opinion" on its 2010 7 financial statements. She reviewed the State legal compliance report as required by Minnesota 8 Statute §6.65 and the checklist provided by the Office of State Auditor, adding that they 9 performed testing in all seven areas and there were no findings of noncompliance for 2010. She 10 advised that two deficiencies were reported in the Internal Control Report and the Finance 11 Department's response is included in this report. She explained that the 2010 findings include 12 lack of segregation of duties and oversight of financial statement preparation, adding that these 13 are common findings for cities with a small finance department and it is difficult to eliminate 14 these findings completely. She reviewed the Management Letter, including information 15 pertaining to the General Fund balance, allocation of the General Fund balance at December 31, 16 2010, the City's minimum fund balance policy, water /sewer enterprise funds, liquor fund, and 17 HRA. She pointed out that the sewer and water fund had an operating loss and the current rates 18 do not cover depreciation on the City's infrastructure. She also reviewed the auditor's required 19 communications with the City Council and noted that there were no difficulties encountered in 20 performing the audit and there were no disagreements with management. She advised that 21 GASB Statement No. 54, a new standard for fund balance reporting and fund type definition, 22 will be implemented in 2011. She explained that GASB No. 54 includes five new categories for 23 fund balance reporting and Council action will be required to report funds as committed. She 24 stated that the main change to the fund type definitions has to do with special revenue funds, 25 which requires these funds to have a specific revenue source committed or restricted for specific 26 purposes. 27 28 Councilmember Stille asked if there is any way for the City to mitigate the risk associated with 29 the two deficiencies related to oversight and financial statement preparation. 30 31 Ms. Moeller replied that the finding has to do with the fact that the City's auditor cannot be part 32 of the City's internal controls and the finding is that there is no one on staff who can do the 33 disclosure checklist. She stated that she did not feel the risk was significant because Tautges 34 Redpath specializes in governmental accounting, they do disclosure checklists, and the City does 35 not have anyone on staff so the technical finding cannot be completely eliminated. 36 37 Finance Director Larson stated that whenever a new GASB requirement is put in place, he works 38 with several other cities and finance directors to determine the most effective way to implement 39 the requirement. He added that he will also be attending ongoing seminars presented by 40 Minnesota GFOA and further information will be presented to the City Council in a worksession. 41 42 Councilmember Stille stated that the issues with the water and sewer funds should be brought 43 back to the City Council in worksession. 44 45 Finance Director Larson indicated that he is currently working with Ehlers on this issue and it is 46 anticipated that Ms. Kvilvang will attend the August worksession.