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4 10 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 6City Council Regular Meeting Minutes June 25, 2013 Page 6 City Engineer IIubmer stated there is a two-year warranty on trees and replacement trees will be planted this fall. He added that information regarding replacement trees was included in a newsletter to residents. Mayor Faust requested an update regarding measures taken last summer at Mirror Lake. City Engineer Hubmer stated that staff has been working with Rice Creek Watershed District and the City of New Brighton on a petition to Rice Creek Watershed District requesting an evaluation of flood proofing options and this item will be presented to the City Council in July. E. 2012 Audit Presentation. Peggy Moeller, HLB Tautges Redpath, presenting, Ms. Moeller presented the 2012 audit results, including the Comprehensive Annual Financial Report (CAFR), State Legal Compliance Report, Report on Internal Controls, Audit Management Report, and Communication with 'I'liose Charged with Governance. She pointed out the financial statements are the responsibility of management and the role of the auditor is to report on the fair presentation of the financial statements. She stated the City once again received a clean or unmodified opinion during the 2012 audit. She advised the State Legal Compliance Report is required by statute and includes testing based on a checklist of seven categories and no findings were issued this year. She stated the auditors do not audit internal controls but are considered as a basis for designing the audit procedures and three fundings were noted in the Report on Internal Controls. She stated the Management Letter shows the General Fund balance increased $272,500 in 2012 and the total fund balance of $1,975,337 consists of $68,481 in non -spendable funds and $1,906,856 in unassigned funds. She advised the City has a minimum fund balance policy of 30-35% and the City's fund balance at December 31, 2012, was 40.75%. She noted the City has four funds with a negative fund balance and these funds are currently borrowing from other funds, noting the Internal Service Fund holds a long-term liability that the City likely would not have to pay all at once. She reviewed the Water and Sewer Enterprise Fund stating that water operations had 2012 net operating income of $88,626 and sewer operations had a loss in 2012 of $130,758. She also reviewed the Liquor Fund stating that 2012 net income before transfers was $529,273 and the City's operating expenses compare favorably to similar liquor operations. She indicated the HRA Fund ending balance was $1,149,187. She advised there were no difficulties encountered in performing the audit and there were no disagreements with management. Councilmember Stille requested further information regarding the audit findings. Ms. Moeller stated the finding regarding delegation of duties is a result of the small number of City staff and cannot be eliminated. She stated the other findings related to audit adjustments are typically the most common finding given by auditors because government accounting is so complex. She stated the third finding was a software issue with the finance department conversion that has been resolved following City staff's notification to the vendor. Councilmember Gray expressed concern regarding the software issue and stated this represented a significant amount of money that was not brought to the City's attention by the vendor.