HomeMy WebLinkAbout10A 2010 Financial Management LetterCITY OF PRIOR LAKE
PRIOR LAKE, MINNESOTA
MANAGEMENT LETTER
FOR THE YEAR ENDED
DECEMBER 31, 2010
May 5, 2011
Management, Honorable Mayor and City Council
City of Prior Lake
Prior Lake, Minnesota
We have audited the financial statements of the governmental activities, the business - type activities, each major fund, and the
aggregate remaining fund i nformation of the City of Prior Lake , Minnesota (the City) as of and for the year ended
December 31, 2010 . Professional standards require that we provide you with information about our responsibi lities under
generally accepted auditing standards, as well as certain information related to the planned scope and timing of our audit. We have
communicated such information in our letter to you dated November 23, 20 10 . Professional standards also require that we
communicate to you the following information related to our audit.
Our Responsibility u nder Auditing Standards Generally Accepted in the United States of America
As stated in our engagement letter, our res ponsibility, as described by professional standards, is to express opinions about whether
the financial statements prepared by management with your oversight are fairly presented, in all material respects, in confor mity
with accounting principles generally accepted in the United States of America. Our audit of the financial statements does not
relieve you or management of your responsibilities.
Our responsibility is to plan and perform the audit to obtain reasonable, but not absolute, assurance that the fi nancial statements
are free of material misstatement. As part of our audit, we considered the internal control over financial reporting of the City. Such
considerations were solely for the purpose of determining our audit procedures and not to provide any assurance concerning such
internal control over financial reporting . We are responsible for communicating significant matters related to the audit that are, in
our professional judgment, relevant to your responsibilities in overseeing the financial reporti ng process. However, we are not
required to design procedures specifically to identify such matters.
Significant Audit Findings
Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragra ph and
was not designed to identify all deficiencies in internal control over financial reporting that might be significant deficien cies or
material weaknesses and therefore, there can be no assurance that all such deficiencies have been identified. Howeve r, as
discussed on the following page, we identified a certain deficienc ies in internal control over financial reporting that we consider to
be a significant deficiency.
A deficiency in internal control over financial reporting exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct
misstatements on a timely basis. A material weakness is a deficiency or combination of deficiencie s in internal control, such that
there is a reasonable possibility that a material misstatement of the City’s financial statements will not be prevented, or d etected
and corrected on a timely basis. We did not identify any deficiencies in internal control that we consider to be material
weaknesses.
A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less
severe than a material weakness, yet important enough to merit attention by t hose charged with governance. We consider the
deficiencies presented as findings 2010 - 1 and 2010 - 2 on the following page s to be significant deficiencies in internal control ove r
financial reporting.
City of Prior Lake
May 5, 2011
Page 2
2010 - 1 : Limited Segregation of Dutie s
Condition:
During our audit, we reviewed procedures over investments, cash disbursements, cash receipts, and
capital assets and found the City to hav e limited segregation of duties related to these procedures.
Criteria:
There are four general categories of duties: authorization, custody, record keeping and
reconciliation. In an ideal system, different employees perform each of these four major functi ons.
In other words, no one person has control of two or more of these responsibilities.
Cause: Investments:
D uring the year the City implemented procedures to separate duties but occasionally
the finance director initiated the investment transactions, m aintained and posted activity to the
finance system and reco nciled the investment accounts.
Cash disbursements
: During the year, the accounting clerk had access to the check stock, prepared
the checks, entered transactions into the accounting system, ha d access to the City’s automated
check signing machine and had bank reconciliation responsibilities.
Cash receipts
: During the year, the accounting clerk had responsibility over setting up vendors,
opening the mail, posting transactions to the general l edger, preparing the deposit and reconciling
the bank account.
Capital Assets:
During the year, the accounting clerk had responsibility over tracking capital assets
purchases, recordi ng and reconciling the activity .
Effect:
The existence of this limi ted segregation of duties increases the risk of fraud and error .
Recommendation:
The current system is very efficient but we recommend that the City review processes and consider
modifying procedures to ensure a better separation is created .
Managemen t Response:
It is expected that the improvement in investment procedures will be sufficient to eliminate this
portion of the finding in 2011. Also, during the year the City implemented positive pay procedures
for the cash disbursing function. This should a llow for sufficient compensating control over the
disbursement cycle. Management is still relying on oversight by management and the Council to
monitor this deficiency.
City of Prior Lake
May 5, 2011
Page 3
2010 - 2 : Preparation of Financial Statements
Condition:
As in prior years, we were requested to draft the audited financial statements and related footnote
disclosures as part of our regular audit services. Recent auditing standards require auditors to
communicate this situation to the Council as a n internal control deficiency. Ultimately, it is
management’s responsibility to provide for the preparation of your statements and footnotes, and
the responsibility of the auditor to determine the fairness of presentation of those statements. It is
our res ponsibility to inform you that this deficiency could result in a material misstatement to the
financial statements that could have been prevented or detected by your management. Essentially,
the auditors can not be part of your internal control process.
Cr iteria
: Internal controls should be in place to provide reasonable assurance over financial reporting.
Cause
: From a practical standpoint we do both for you at the same time in connection with our audit. This
is not unusual for us to do with an organiz ation of your size.
Effect
: The effectiveness of the internal control system relies on enforcement by management. The effect
of deficiencies in internal controls can result in undetected errors in financial reporting.
Recommendation
: It is your respons ibility to make the ultimate decision to accept this degree of risk associated with
this condition because of cost or other considerations. As in prior years, we have instructed
management to review a draft of the auditor prepared financials in detail for their accuracy; we
have answered any questions they might have, and have encouraged research of any accounting
guidance in connection with the adequacy and appropriateness of classification of disclosure in
your statements. We are satisfied that the approp riate steps have been taken to provide you with
the completed financial statements. While the City is reviewing the financial statements we
recommend that a disclosure checklist be utilized to ensure all required disclosures are presented
and the City shou ld agree its financial software to the numbers reported in the financial statements.
Management Response
: For now, the City’s management accepts the degree of risk associated with this condition and
thoroughly reviews a draft of the financial statements.
Compliance
As part of obtaining reasonable assurance about whether the City’s financial statements are free of material misstatement, we
performed tests of compliance with certain provisions of laws, regulations, contracts and grants, noncompliance wit h which could
have a direct and material effect on the determination of financial statement amounts. However providing an opinion on
compliance with those provisions was not an objective of our audit. While our audit provides a reasonable basis for our opi nion, it
does not provide a legal determination on the City’s compliance with those requirements. We noted no instances of
noncompliance with Minnesota statutes.
Planned Scope and Timing of the Audit
We performed the audit according to the planned scope and timing previously communicated to you.
City of Prior Lake
May 5, 2011
Page 4
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies u sed
by the City are described in Note 1 to the financial statements. No new accounting policies were adopted and t he application of
existing policies was not changed during the year. We noted no transaction entered into by the governmental unit during the year
for which there is a lack of author itative guidance or consensus. All significant transactions have been recognized in the financial
statements in the proper period .
Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s
k nowledge and experience about past and current events and assumption about future events. Certain accounting estimates are
particularly sensitive because of their significance to the financial statements and because of the possibility that future e vents
af fecting them may differ significantly from those expected. The most sensitive estimates affecting the City’s financial statements
were depreciation on capital assets, allocation of expenses and payroll, compensated absences, and other postemployment benef i ts
payable.
Management’s estimate of these accounting estimates is based on estimated or historical cost and the estimated useful lives o f
capital assets. We evaluated the key factors and assumptions used to develop these accounting estimates in determin ing that it is
reasonable in relation to the financial statements taken as a whole.
The disclosures in the financial statements are neutral, consistent, and clear. Certain financial statement disclosures are p articularly
sensitive because of their signifi cance to financial statement users.
Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management in performing and completing our audit.
Corrected and Uncorrected Misstatements
Professional sta ndards require us to accumulate all known and likely misstatements identified during the audit, other than those
that are trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatement s.
In addition, no ne of the misstatements detected as a result of audit procedures and corrected by management were material, either
individually or in the aggregate, to the financial statements taken as a whole. There were no entr ies that would meet the
requirements discus sed above.
Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a financial accounting, reportin g, or
auditing matter, whether or not resolved to our satisfaction , that could be signi ficant to the financial statements or the auditor’s
report. We are pleased to report that no such disagreements arose during the course of our audit.
Management Representations
We have requested certain representations from management that are included in the management representation letter dated
May 5, 2011 .
Management Consultations with Other Independent Accountants
In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to
obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting principle to the
governmental unit’s financial statements or a determination of the type of auditor’s opinion th at may be expressed on those
statements, our professional standards require the consulting accountant to check with us to determine that the consultant ha s all
the relevant facts. To our knowledge, there were no such consultations with other accountants.
City of Prior Lake
May 5, 2011
Page 5
Other Audit Findings or Issues
We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with
management each year prior to retention as the City ’s auditors. However, these discussions occurred in the normal course of our
professional relationship and our responses were not a condition to our retention.
Financial Position and Results of Operations
Our principal observations and recommendations are summarized on the following pages. These re commendations resulted from
our observations made in connection with our audit of the City’s financial statements for the year ended December 31, 2010 .
General Fund
The General fund is used to account for resources traditionally associated with government, which are not required legally or
by sound principal management to be accounted for in another fund. The General fund balance in creased $ 1,038,611 from
2009 . The fund balance of $ 7,075,367 is 58 percent of the 20 11 budgeted expenditures. We recommend the fund balance be
maintained at a level sufficient to fund operations until the major revenue sources are received in June. We feel a reserve o f
approximately 35 to 50 percent of planned expenditures and transfers out is adequate to meet working capital and small
emergency needs.
Statement of Position
The Office of the State Auditor (the OSA) has issued a relating to fund balance stating “a loca l
government should identify fund balance separately between reserved and unreserved fund balance. The local government may
assign and report some or all of the fund balance as designated and undesignated.” The OSA also recommends local
governments adopt a formal policy on the level of unreserved fund balance that should be maintained in the general and special
revenue funds. This helps address citizen concerns as to the use of fund balance and tax levels. The City Council has adopted a
comprehensive financ ial management policy that considers the components of fund balance, target reserve levels and uses.
This is a good response to the OSA recommendation.
The purposes and benefits of a fund balance are as follows:
Expenditures are incurred somewhat evenly throughout the year. However, property tax and state aid revenues are not
received until the second half of the year. An adequate fund balance will provide the cash flow required to finance the
governmental fund expenditures.
The City is vulnerable to le gislative actions at the State and Federal level. The State continually adjusts the local
government aid and property tax credit formulas. An adequate fund balance will provide a temporary buffer against
those aid adjustments and levy limits.
Expenditure s not anticipated at the time the annual budget was adopted may need immediate Council action. These
would include capital outlay, replacement, lawsuits and other items. An adequate fund balance will provide the
financing needed for such expenditures.
A strong fund balance will assist the City in obtaining, maintaining or improving its bond rating. The result will be
better interest rates in future bond sales.
City of Prior Lake
May 5, 2011
Page 6
A table summarizing the General fund balance in relation to budget follows:
Percent
of Fund
Unreserved General
Balance to
Fund Balance Budget Fund
Budget
Year December 31 Year Budget
2006 $ 5,276,400 2007 $ 11,685,807 45 %
2007 5,020,666 2008 12,426,431 40
2008 5,489,435 2009 12,476,974 44
2009 6,036,756 2010 12,120,546 50
2010 7,075,367 2011 12,188,313 58
General Fund Balance as a Percent of Budget
$14,000,000
$12,000,000
$12,426,431
$12,476,974
$11,685,807
$12,188,313
$12,120,546
$10,000,000
$8,000,000
58.0%
$6,000,000
50.0%
$4,000,000
44.0%
45.0%
40.0%
$2,000,000
$ -
2006 2007 2008 2009 2010 2011
Actual Fund Balance Budget
We have compiled a peer group average derived from information available on the website of the Office of the State Auditor
nd
Class which have populations between 20,000 and 100,000. In 2009 , the most recent year of available
for Cities of the 2
data, the average General fund balance as a percentage of expenditures was 50 percent in the peer group.
City of Prior Lake
May 5, 2011
Page 7
The 2010 operati ons are summarized as follows:
Final
Budgeted Actual Variance with
Amounts Amounts Final Budget
Revenues $ 11,789,629 $ 12,314,634 $ 525,005
Expenditures 10,339,946 9,819,179 520,767
Excess of revenues over expenditures 1,449,683 2,495,455 1,045,772
Other financing sources (uses)
Transfers in 325,000 325,000 -
Transfers out (1,780,600) (1,781,844) (1,244)
Sale of capital assets 5,917 - (5,917)
Total other financing sources (uses) (1,449,683) (1,456,844) (7,161)
Net change in fund balances - 1,038,611 1,038,611
Fund balances, January 1 6,036,756 6,036,756 -
Fund balances, December 31 $ 6,036,756 $ 7,075,367 $ 1,038,611
The largest revenue variances were as follows:
Taxes were $1 45 thousand ove r budget
License and permits were $ 140 thousand over budget
Charges for services and interest on investments were both over budget by $139 thousand
The largest expen diture variances were as follows:
Total general government expenditures w ere $ 217 thousand under budget
Total public safety expenditures were $164 thousand under budget
Total culture and recreation expenditures were $ 72 thousand under budget
City of Prior Lake
May 5, 2011
Page 8
A more deta iled comparison of actual General fund revenue s and transfers with the prior two year s is as follows:
Percent
of
Per
Source Total
2008 2009 2010 Capita
Taxes $ 8,498,514 $ 8,829,063 $ 9,201,132 72.9 % $ 404
Licenses and permits 455,955 363,397 410,309 3.2 18
Intergovernmental 1,239,244 1,278,069 1,356,875 10.7 60
Charges for services 952,319 843,638 948,747 7.5 42
Fines and forfeitures 192,428 161,065 126,206 1.0 6
Interest on investments 278,478 128,489 229,676 1.8 10
Miscellaneous 104,456 52,966 41,689 0.3 2
Transfers in 300,000 325,000 325,000 2.6 14
Total revenues and transfers $ 12,021,394 $ 11,981,687 $ 12,639,634 100.0 % $ 554
The past three years revenue s and transfers are graphically presented as follows:
Revenues and Transfers
$10,000,000
$9,000,000
$8,000,000
$7,000,000
$6,000,000
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
$ -
2008 2009 2010
Taxes Intergovernmental Charges for services Other
City of Prior Lake
May 5, 2011
Page 9
A more detailed comparison of actual expenditures a nd transfers with the prior t wo year s is as follows:
Percent
Peer Group
of
Per Per
Program Total
2008 2009 2010 Capita Capita
Current
General government $ 2,288,191 $ 2,105,114 $ 2,081,530 17.9 % $ 91 $ 81
Public safety 3,793,626 3,844,824 4,033,412 34.7 177 216
Public works 1,724,639 1,905,452 1,732,532 14.9 76 86
Culture and recreation 1,768,109 1,665,672 1,612,325 13.9 71 55
Economic development 110,567 30,360 41,151 0.4 2 12
Contingency 90,000 7,346 6,450 0.1 - -
Total current 9,775,132 9,558,768 9,507,400 81.9 417 450
Capital outlay 201,218 256,870 311,779 2.7 14 3
Transfers out 1,576,275 1,724,978 1,781,844 15.4 78 -
Total expenditures
and transfers $ 11,552,625 $ 11,540,616 $ 11,601,023 100.0 % $ 509 $ 453
The above chart compares the amount the City spends per capita, in comparison to a peer group. The peer group average is
derived from 2009 information available on the website of the Office of the State Auditor for Cities o f the 2nd class which
have populations between 20,000 and 100,000.
The prior three years expenditures and transfers are graphically presented as follows:
Expenditures and Transfers
$4,500,000
$4,000,000
$3,500,000
$3,000,000
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$ -
2008 2009 2010
General government Public safety Culture and recreation Transfers out Other
City of Prior Lake
May 5, 2011
Page 10
Nonmajor Special Revenue Funds
Nonmajor s pecial reven ue funds are used to account for revenue that is to be used for a specific purpose. A summary of the
special revenue funds and fund balances is shown below:
Fund Balances
December 31,
Increase
Fund
2010 2009 (Decrease)
Capital Park $ 129,901 $ 146,549 $ (16,648)
Severance Compensation 519,899 410,497 109,402
ED Federal Revolving Loan 109,327 105,254 4,073
ED Minnesota Revolvoing Loan 84,897 81,736 3,161
DAG 665,349 759,161 (93,812)
Cable Franchise 42,080 42,080 -
EDA 103,124 99,192 3,932
Total $ 1,654,577 $ 1,644,469 $ 10,108
City of Prior Lake
May 5, 2011
Page 11
Capital Projects Funds
The following funds account for capital projects:
Fund Balances
December 31,
Increase
Fund
2010 2009 (Decrease)
Major
Construction $ 712,882 $ 642,912 $ 69,970
Nonmajor
Downtown Redevelopment 39,778 38,297 1,481
Tax Increment 166,599 139,702 26,897
Revolving Equipment 1,514,099 1,216,724 297,375
Trunk Reserve 1,006,516 1,072,986 (66,470)
Street Oversizing 400,520 532,379 (131,859)
Water Storage 245,618 117,061 128,557
Tax Increment 1-3 Lakefront 100,998 80,004 20,994
Tax Increment 3-1 Creekside 45,343 37,300 8,043
Tax Increment 4-1 On-site 3,455 2,743 712
Tax Increment 5-1 Premiere 2,165 1,045 1,120
Tax increment 6-1 Shepherds Path 77,373 47,695 29,678
Building 282,237 284,585 (2,348)
Revolving Park Equipment 207,435 100,000 107,435
Subtotal 4,092,136 3,670,521 421,615
Total $ 4,805,018 $ 4,313,433 $ 491,585
City of Prior Lake
May 5, 2011
Page 12
Debt Service Funds
Debt service funds are a type of govern mental fund to account for the accumulation of resources for the payment of interest
and principal on debt (other than enterprise fund debt).
Debt service funds may have one or a combination of the following revenue sources pledged to retire debt as follo ws:
Property taxes - Primarily for general City benefit projects such as parks and municipal buildings. Property taxes
may also be used to fund special assessment bonds which are not fully assessed.
Tax increments - Pledged exclusively for tax increment/ economic development districts.
Capitalized interest portion of bond proceeds - After the sale of bonds, the project may not produce revenue (tax
increments or special assessments) for a period of one to two years. Bonds are issued with this timing differ ence
considered in the form of capitalized interest.
Special assessments - Charges to benefited properties for various improvements.
In addition to the above pledged assets, other funding sources may be received by Debt Service funds as follows:
Residua l project proceeds from the related capital projects fund
Investment earnings
State or federal grants
Transfers from other funds
City of Prior Lake
May 5, 2011
Page 13
All bonds have adequate resources at year end to pay their obligations. The table below summarizes the obligations
outstandin g.
Total Total Bonds Maturity
Description
Cash Assets Outstanding Date
314 Fire Hall Bonds $ - $ - $ 3,490,000 2031
316 Park Referendum - - 4,500,000 2017
317 City Hall 2005 - - 9,280,000 2029
318 Fire Station #2 - - 515,000 2013
350 Water Revenue PW Building - - 665,000 2014
351 Water Treatment Plant - - 8,170,000 2032
545 Frog Town 80,503 90,032 135,000 2011
547 150th Mitchell Condons 320,865 546,563 840,000 2013
549 Tax Increment 2004 23,880 23,880 310,000 2024
550 Breezy Point 289,853 529,978 1,100,000 2014
551 Fish Point 683,557 1,649,730 1,270,000 2015
553 CSAH 82 19,041 20,831 915,000 2017
554 Street Reconstruction 2007 25,547 27,581 1,040,000 2017
555 Brooksville Hills 2008 88,949 429,493 1,050,000 2017
556 Brooksville Hills II/Maple Glen 2nd 159,365 468,626 1,550,000 2019
557 CR 12 & 2010 Reconstruction 129,242 241,153 1,235,000 2020
Total $ 1,820,802 $ 4,027,867 $ 36,065,000
The Finance Director reviews the outstanding balance and evaluates the amount needed for levy each year. This is a good
practice and ensures the City will have sufficient resources to provide for future debt service.
City of Prior Lake
May 5, 2011
Page 14
Enterprise Funds
Water
The Water and Sewer Ut ilit ies services were accounted for in the same enterprise fund in 2009. In 2010, the water and sewer
services were separated and each reported in their own fund. The operations for the past three years are graphically presente d
below:
2008 2009 2010
Percent Percent Percent
Total Total Total
Operating revenues $ 4,779,603 100.0 % $ 4,960,514 100.0 % $ 2,357,741 100.0 %
Operating expenses 3,739,096 78.2 4,905,399 98.9 2,246,959 95.3
Operating income 1,040,507 21.8 55,115 1.1 110,782 4.7
Nonoperating revenues 545,503 11.4 191,827 3.9 54,456 2.3
Income before contributions
and transfers 1,586,010 33.2 246,942 5.0 165,238 7.0
Contributions from developers - - 995,291 20.1 1,728,990 73.3
Contributions from other funds 2,575,161 53.9 13,043,493 262.9 740,672 31.4
Transfers out (1,003,826) (21.0) (1,320,952) (26.6) (1,327,556) (56.3)
Change in net assets $ 3,157,345 66.1 % $ 12,964,774 261.4 % $ 1,307,344 55.4 %
Cash and temporary investments $ 7,088,699 $ 6,576,440 $ 2,960,186
Water Summary
$8,000,000
$7,000,000
$6,000,000
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
$ -
2008 2009 2010
Operating revenues Operating expenses
Nonoperating revenues (expenses) Income before transfers
Cash and investments
The current margins are generating positive cash flow and the cash balance will provide for future expansion and maintenance
of the system. The spilt of water and sewer operation will enha nce the quality of information and comparability will be
improved each year.
City of Prior Lake
May 5, 2011
Page 15
Sewer
The Water and S ewer Utilities services were accounted for in the same enterprise fund in 2009. In 2010, the water and sewer
services were separated and each reported in their own fund. The operations for the first year of operations in its own fund are
presented below:
2010
Percent
Total
Operating revenues $ 2,298,769 100.0 %
Operating expenses 2,384,793 103.7
Operating loss (86,024) (3.7)
Nonoperating
revenues 118,716 5.2
Income before contributions
and transfers 32,692 1.4
Contributions from developers 1,834,579 79.8
Contributions from other funds 1,691,265 73.6
Transfers out (474,096) (20.6)
Change in net assets $ 3,084,440 134.2 %
Cash and temporary investments $ 2,960,085
The current margins generated cash flow from operations of $365 thousand in 2010. The spilt of water and sewer operation
will enhance the quality of information.
City of Prior Lake
May 5, 2011
Page 16
Water Quality
The operations for the past three years are graphically presented below:
2008 2009 2010
Percent Percent Percent
Total Total Total
Operating revenues $ 352,130 100.0 % $ 429,510 100.0 % $ 434,889 100.0 %
Operating expenses 237,671 67.5 361,369 84.1 430,826 99.1
Operating income 114,459 32.5 68,141 15.9 4,063 0.9
Nonoperating revenues 35,196 10.0 44,933 10.5 73,961 17.0
Income before
transfers and contributions 149,655 42.5 113,074 26.4 78,024 17.9
Contributions from developers 215,193
Contributions from other funds 7,740
Transfers out - - (36,461) (8.5) (111,103) (25.5)
Change in net assets $ 149,655 42.5 % $ 76,613 17.9 % $ 189,854 (7.6) %
Cash and temporary investments $ 492,056 $ 667,041 $ 645,227
Water Quality Summary
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$ -
2008 2009 2010
Operating revenues Operating expenses Nonoperating revenues
Income before transfers Cash and investments
The decrease in cash is mainly due to transfers out to other funds. Although the cash balance appears adequate, the City
should continue to evaluate operations annually to ensure rates are sufficient.
City of Prior Lake
May 5, 2011
Page 17
Transit
The operations for the past three years are graphically presented below:
2008 2009 2010
Percent Percent Percent
Total Total Total
Operating revenues $ 133,186 100.0 % $ 126,492 100.0 % $ 126,867 100.0 %
Operating expenses 553,681 415.7 593,148 468.9 646,686 509.7
Operating loss (420,495) (315.7) (466,656) (368.9) (519,819) (409.7)
Nonoperating revenues 603,833 453.4 617,052 487.8 560,527 441.8
Change in net assets $ 183,338 137.7 % $ 150,396 118.9 % $ 40,708 32.1 %
Cash and
temporary investments $ 1,488,839 $ 1,708,860 $ 1,726,287
Transit Summary
$2,000,000
$1,800,000
$1,600,000
$1,400,000
$1,200,000
$1,000,000
$800,000
$600,000
$400,000
$200,000
$ -
2008 2009 2010
Operating revenues Operating expenses Nonoperating revenues
Change in net assets Cash and investments
Most of the f unding for transit services comes from governmental units and their revenue is reported in the nonoperating
revenue (expenses) category representing MVET (Motor Vehicle Excise Tax) S tate transit aid.
City of Prior Lake
May 5, 2011
Page 19
Taxes per Capita (Funding Ratio)
This dollar amount is arrived at by dividing the total tax revenues by the population of the city and represents the amount o f taxes
for each citizen of the city for the year. The higher this amount is, the more reliant the city is on taxes to fund its operati ons.
Capital Assets Percentage (Common - size Ratio)
This percentage represents the percent of governmental or business - type capital assets that are left to b e depreciated. The lower
this percentage, the older the city’s capital assets are and may need major repairs or replacements in the near future. A higher
percentage may indicate newer assets being constructed or purchased and may coincide with higher debt ratios or bonded debt per
capita.
Current Expenditures per Capita (Funding Ratio)
This dollar amount is arrived at by dividing the total current governmental expenditures by the population of the City and
represents the amount of governmental expenditure for each citizen of the City during the year. Since this is generally based on
ongoing expenditures, we would expect consistent annual per capita results.
Capital Expenditures per Capita (Funding Ratio)
This dollar amount is arrived at by dividing the t otal governmental capital outlay expenditures by the population of the City and
represents the amount of capital expenditure for each citizen of the City during the year. Since projects are not always recurring,
the per capita amount will fluctuate from ye ar to year.
Future Statute and Accounting Standard Changes
The following Governmental Accounting Standards Board (GASB) Statements have been issued and may have an impact on
future City financial statements:
GASB Statement No. 54 - Fund Balance
This st atement was issued in March of 2009 and is effective for periods beginning after June 15, 2010.
This new standard is intended to improve the usefulness of information provided to financial report use r s about fund balance
by providing clearer, more structu red fund balance classifications, and clarifying the definitions of existing governmental fund
types.
GASB No. 54 distinguishes fund balance between amounts that are considered nonspendable, such as fund balance associated
with inventories, and other amou nts that are classified based on the relative strength of the constraints that control the
purposes for which specific amounts can be spent. The following classifications and definitions will be used:
Restricted
- amounts constrained by external parties, constitutional provision, or enabling legislation
Committed
- amounts constrained by a government using its highest level of decision - making authority
Assigned intends
- amounts a government to use for a particular purpose
Unassigned -
amounts that are not constrained at all will be reported in the general fund .
In addition to the classifications of fund balance, the standard clarified the definitions of individual governmental fund ty pes,
for example, special revenue funds, debt service funds, and capital project funds.
City of Prior Lake
May 5, 2011
Page 20
GASB Statement No. 59 – Financial Instruments Omnibus
Summary
The objective of this Statement is to update and improve existing standards regarding financial reporting and disclosure
requirements of certain financial instruments and ex ternal investment pools for which significant issues have been identified
in practice. This Statement provides for the following amendments:
Statement 31 is clarified to indicate that a 2a7 - like pool, as described in Statement 31, is an external investmen t pool
that operates in conformity with the Securities and Exchange Commission's (SEC) Rule 2a7 as promulgated under
the Investment Company Act of 1940, as amended.
Statement No. 40, Deposit and Investment Risk Disclosures, is amended to indicate that int erest rate risk information
should be disclosed only for debt investment pools — such as bond mutual funds and external bond investment
pools — that do not meet the requirements to be reported as a 2a7 - like pool.
The provisions of this Statement are effective for financial statements for periods beginning after June 15, 2010. Earlier
application is encouraged.
How the Changes in This Statement Will Improve Financial Reporting
The requirements of this Statement will improve financial reporting by providing mo re complete information, by improving
consistency of measurements, and by providing clarifications of existing standards. Emphasizing the applicability of SEC
requirements to 2a7 - like external investment pools provides practitioners with improved guidance. Finally, limiting interest
rate risk disclosures for investments in mutual funds, external investment pools, and other pooled investments to debt
investment pools provides better guidance regarding the applicability of interest rate risk disclosures.
* * * * *
This report is intended solely for the information and use of Council, management and the Minnesota Office of the State Auditor
and is not intended and should not be used by anyone other than those specified parties.
Our audit would not necessaril y disclose all weaknesses in the system because it was based on selected tests of the accounting
records and related data. The comments and recommendations in the report are purely constructive in nature, and should be read
in this context.
If you have an y questions or wish to discuss any of the items contained in this letter, please feel free to contact us at your
convenience. We wish to thank you for the continued opportunity to be of service and for the courtesy and cooperation extended
to us by your st aff.
May 5, 2011 ABDO, EICK & MEYERS, LLP
Certified Public Accountants
Minneapolis, Minnesota