HomeMy WebLinkAbout10A 2010 Annual Financial Report and Management LetterPRIG\
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4646 Dakota Street SE
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CITY COUNCIL AGENDA REPORT
MEETING DATE: MAY 16, 2010
AGENDA #: 10A
PREPARED BY: JERILYN ERICKSON, FINANCE DIRECTOR
PRESENTED BY: STEVE MCDONALD, MANAGING PARTNER,
ABDO, EICK & MEYERS LLP
AGENDA ITEM: CONSIDER APPROVAL OF 2010 ANNUAL FINANCIAL REPORT AND
MANAGEMENT LETTER
DISCUSSION: Introduction
The 2010 annual audit was conducted in accordance with generally
accepted auditing standards and represents an independent opinion of the
financial activities during the year of 2010 and position of the City of Prior
Lake as of 12/31/2010. 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.
Hi story
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
Copies of the 2010 Annual Financial Report and Management Letter are
included with this agenda report.
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 $141,812,944 and represents an increase of
$12,378,350 from December 31, 2009. The majority of the increase is from
developer- contributed 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
2009 report, 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, Abdo believes that different employees
should complete financial tasks to create a self checking process. During
2011, staff implemented procedures to segregate the investment function
which should eliminate this portion of the finding in 2011. Staff has also
implemented positive pay procedures for the cash disbursement function
which should provide a compensating control over the disbursement cycle.
Staff continues to explore opportunities for segregating responsibilities and
implementing compensating controls.
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 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 2010 annual financial report.
The Council has indicated that they would like to review the current
financial management policies and consider additional objectives in 2011.
The June 20, 2011 workshop is dedicated to discussing financial
benchmarks.
Conclusion
The primary results for the General Fund as indicated within the 2010
Annual Financial Report are:
1.) Actual revenues were $12,639,634 (including transfers in)
compared to budgeted revenues of $12,120,546 or 104% of budget.
2.) Operating expenditures were $9,819,179 (excluding transfers out
for debt service and a contribution to the Revolving Park Equipment
Fund) compared to budgeted expenditures of $10,339,946 or 95%
of budget. Including transfers, actual expenditures were
$11,601,023 or 96% of budgeted expenditures.
3.) Gross revenues exceeded expenditures by an amount of
$1,038,611.
The 2010 year -end General Fund balance (which is maintained for cash
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flow, emergency purposes) increased to $7,075,367 which represents a
reserve of 58% of the 2011 General Fund Budget. This level of reserve is
greater than the acceptable level of 35 -50% as defined by the State
Auditor's Office and the target level identified in the Comprehensive
Financial Management Policy (adopted 04/18/2011).
Per Council direction, the combined Water & Sewer Fund was segregated
into two funds as of 12/31/2010: Water Fund and Sewer Fund. Historical
data for the combined fund was not restated into two separate funds.
ALTERNATIVES: The following alternatives are available to the City Council:
1. Accept the 2010 Annual Financial Report and Management Letter
as submitted.
2. Delay action according to a specific Council reason.
RECOMMENDED Alternative 1. Staff recommends acceptance of the Management Letter and
MOTION: the Annual Financial Report for the fiscal year ended December 31, 2010
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, 2011 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.
Reviewed by:
Frank Boyles, City Manager
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