HomeMy WebLinkAbout10A - 2009 Annual Financial Report
MEETING DATE:
AGENDA #:
PREPARED BY:
AGENDA ITEM:
DISCUSSION:
4646 Dakota Street SE
Prior Lake. MN 55372
CITY COUNCIL AGENDA REPORT
MAY 17,2009
10A
JERIL YN ERICKSON, FINANCE DIRECTOR
CONSIDER APPROVAL OF 2009 ANNUAL FINANCIAL REPORT AND
MANAGEMENT LETTER
Introduction
A copy of the 2009 Annual Financial Report was distributed with the May 7
Weekly Update to provide council members with the additional time to
review the document prior to the May 17 workshop and council meeting.
Included with this agenda report is a copy of the 2009 Management Letter
prepared by the accounting firm of Abdo, Eick and Meyers LLP.
The 2009 annual audit was conducted in accordance with generally
accepted auditing standards and represents an independent opinion of the
financial activities during the year of 2009 and position of the City of Prior
Lake as of 12/31/2009. 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 consolidates the City's
financial reporting activity into two groups (governmental activities and
business-type activities) and includes a statement of net assets. A
statement of net assets 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 (governmental and business-
type activities combined) is $129,434,594 and represents an increase of
$495,964 from December 31,2008. 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
2008 report, two significant audit findings have been identified: 1) limited
segregation of duties and 2) preparation of financial statements.
R:\Council\2010 Agenda Reports\05 17 10\2009 Audit ReportdotR:\Council\201O Agenda Reports\05 17 10\2009 Audit Report.dot
With regard to the first audit finding, Abdo believes that different employees
should complete financial tasks to create a self checking process.
Management recognizes that it is not economically feasible to add
employees simply to correct this finding. Since we are aware of the
deficiency, we are in the process of implementing compensating controls,
and relying on greater oversight by Management and the Council to
mitigate this deficiency.
The second finding is that the City staff should be preparing the financial
report rather than relying upon the auditing firm to do so each year. Our
response for the second finding is that we do not have sufficient staff
members to author the audit ourselves. 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 (Abdo) 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 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. As in previous years, the MD&A includes 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 2009 annual financial report.
Conclusion
The primary results for the General Fund as indicated within the 2009
Annual Financial Report are:
1.) Actual revenues were $12,087,937 (including transfers in)
compared to budgeted revenues of $12,576,974 or 96% of budget.
2.) Operating expenditures were $9,815,638 (excluding transfers out
for debt service and a contribution to the Revolving Park Equipment
Fund) compared to budgeted expenditures of $10,951,240 or 89.6%
of budget. Including transfers, actual expenditures were
$11,540,616 or 91.8% of budgeted expenditures.
3.) Gross revenues exceeded expenditures by an amount of $547,321.
The 2009 year-end General Fund balance (which is maintained for cash
flow and emergency purposes) increased to $6,036,756 which represents a
reserve of 50% of the 2010 General Fund Budget. This level of reserve
falls within the acceptable level of 35-50% as defined by the State Auditor's
Office.
R:\Council\2010 Agenda Reports\05 17 10\2009 Audit Report.dot
2
ALTERNATIVES:
RECOMMENDED
MOTION:
The following alternatives are available to the City Council:
1. Accept the 2009 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 31,2009
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, 2010 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 may have.
R:\Council\2010 Agenda Reports\05 17 10\2009 Audit Report.dot
3