HomeMy WebLinkAbout7A - 2008 Annual Financial Report
DISCUSSION:
Introduction
Included with this agenda report is a copy of the Annual Financial Report for year
ended December 31,2008 and the Management Letter prepared by the certified
public accountant firm of Abdo, Eick and Meyers LLP. The audit was conducted
in accordance with generally accepted auditing standards and represents an
independent opinion of the financial activities and position of the City of Prior
Lake during the year of 2008. The purpose of the audit is to express opinions
about whether the financial statements prepared are fairly presented, in all
material respects, in conformity with accounting principles generally accepted in
the United States of America.
Historv
The city of Prior Lake is required by state statute to complete an audit each year.
The firm of Abdo, Eick and Meyers LLP has been retained by the council for this
purpose.
Current Circumstances
The Annual Financial Report represents the financial reporting model that
reflects GASB Statement No. 34 as required by the Governmental Accounting
Standards Board (GASB). This format represents a consolidation of the city's
financial reporting activity into two groups; governmental activities and business-
type activities that includes a statement of net assets. A statement of net assets
is included that identifies capital assets (i.e. land, buildings and improvements)
and long-term liabilities. As stated in the Financial Report, the City's overall net
asset financial position is $128,917,046 and represents an increase of
$5,549,462 from December 31, 2007. The majority of the increase is from the
construction or purchase of capital assets.
The Management Letter is intended to bring to the City Council's attention any
deficiencies or conditions recommended for improvement within the design or
administration of the City's financial operations. Just as with the 2007 audit, two
significant audit findings have been identified: 1) limited segregation of duties
and 2) preparation of financial statements. With regard to the first audit finding,
Management recognizes that it is not economically feasible to correct this
finding, is aware of the deficiency, is in the process of implementing
compensating controls, and is relying on oversight by Management and the
Council to monitor this deficiency. Our response for the second finding is that
the City's Management accepts the degree of risk associated with this condition
and thoroughly reviews a draft of the financial statements. The auditors have
stated "This [preparation of financial statements] is not unusual for us to do with
an organization of your size."
The Management Letter also includes summaries and graphs for operational
activity for the General Fund, special revenue funds, capital projects funds, debt
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ALTERNATIVES:
RECOMMENDED
MOTION:
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Frank BOYl1Ct
ATTACHMt1
service funds and enterprise funds. The auditors discuss the importance of
maintaining an adequate fund balance for cash flow purposes and overall long
term financial strength.
GASB requires that a Management's Discussion and Analysis (known as an
MD&A) be assimilated in the Annual Financial Report to provide supplementary
information to facilitate a greater understanding of the audit report by the general
reader. Within this year's MD&A is a section attributed to the financial
management policies of the City. A key element within the City's 2030 Vision and
Strategic Plan is the ability to demonstrate strong financial management.
Establishing "Financial Performance Gold Standards", provides the City a
measure of its financial health. Seven (7) objectives have been identified to
serve as a fiscal accountability report card. All are discussed and graphically
presented within the MD&A section of the 2008 annual financial report.
Conclusion
The primary results for the General Fund as indicated within the 2008 Annual
Financial Report are:
1.) Actual revenues were $12,021,394 (including transfers in) compared to
budgeted revenues of $12,426,431 or 97% of projection.
2.) Operating expenditures were $11,552,625 (including transfers out)
compared to budgeted expenditures of $12,426,431 or 93% of budget.
3.) Gross revenues exceeded expenditures by an amount of $468,769.
The 2008 year-end General Fund balance (which is maintained for cash flow and
emergency purposes) increased to $5,489,435 which represents a reserve of
44% of the 2009 General Fund Budget. This level of reserve exceeds the
Council-recognized minimum 30% threshold but is less than the City auditor's
recommendation of 50%. It falls within the acceptable level of 35-50% as defined
by the State Auditor's Office.
The following alternatives are available to the City Council:
1. Accept the 2008 Annual Financial Report and Management Letter as
submitted.
2. Delay action according to a specific Council reason.
Alternative 1. Staff recommends acceptance of the Management Letter and the
Annual Financial Report for the fiscal year ended December 31, 2008 as
submitted. A City Financial Reporting Form, which is basically a condensed
excerpt of the official document, is required to be submitted to the Office of the
State Auditor by June 30, 2009 along with this report.
Please feel free to contact Staff prior to the meeting if you have any questions or
would like to review the Report on a more comprehensive basis. Steve McDonald
of the firm Abdo, Eick and Meyers LLP will make a brief presentation regarding
the Report and Management Letter and respond to any questions the Council
ay have.
.t1anager
1. Management Letter