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4646 Dakota Street SE
�INNES�� Prior Lake, MN 55372
CITY COUNCIL AGENDA REPORT
MEETING DATE: MAY 28, 2013
AGENDA #: 10A
PREPARED BY: JERILYN ERICKSON, FINANCE DIRECTOR
PRESENTED BY: JIM EICHTEN, MMKR & CO, P.A.
AGENDA ITEM: CONSIDER APPROVAL OF 2012 ANNUAL FINANCIAL REPORT AND
MANAGEMENT LETTER
DISCUSSION: I ntroduction
The 2012 annual audit was conducted in accordance with generally
accepted auditing standards and represents an independent opinion of the
financial activities during the year of 2012 and position of the City of Prior
Lake as of 12/31/2012. 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.
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The City of Prior Lake is required by state statute to complete an audit each
year. The firm of Malloy, Montague, Karnowski, Radosevich & Co, P.A.
(MMKR) has been retained by the Council for this purpose.
Current Circumstances
Copies of the 2012 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 $148,537,497 and represents an increase of
$5,609,546 from December 31, 2011.
Conclusion
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 and to follow-up on
prior year findings and recommendations.
ISSUES: Based on their audit of the City's financial statements for the year ended
December 31, 2012:
• MMKR issued an unqualified opinion on the City's financial
statements;
• MMKR reported no deficiencies in the City's internal control over
financial reporting that they considered to be material weaknesses;
• The results of MMKR's testing disclosed no instances of
noncompliance required to be reported under Government Auditing
Standards;
• MMKR reported no findings based on their testing of the City's
compliance with Minnesota laws and regulations.
The auditors also follow up on prior year findings and recommendations. In
2011, the following findings were reported:
1) The City recorded a prior period adjustment to fairly state capital
assets and net assets at December 31, 2010; and
2) The auditors identified an adjusting journal entry which was
necessary to make the financial statements fairly stated (also related
to capital assets).
3) The City is required to obtain a Contractor's Withholding Affidavit
Certificate (IC134) before making final settlement with any contractor
under a contract requiring the employment for wages by said
contractor or subcontractors. The City did not obtain the required
certificate for one contract that the auditors tested that was
completed in 2011.
4) The City is required to make prompt payment of local government
bills within a standard payment period of 35 days from the receipt of
goods and services. One disbursement the auditors tested was not
paid within the statutory time limit.
5) Each person claiming payment from the City is required to make the
following written declaration: "I declare under penalties of law that
this account, claim or demand is just and correct and that no part of
it has been paid." This declaration was not obtained for
disbursements made using checks during 2011.
6) One mutual fund the City invested in during fiscal 2011 was not
rated in one of the two highest rating categories for mutual funds.
All findings had been corrected in 2012 and, as such, have been
eliminated from the 2012 list of findings.
The Management Letter also includes summaries and graphs for
operational activity for the General Fund and enterprise funds, comparative
information for property taxes and governmental fund revenues and
expenditures, and accounting and auditing updates.
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
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report card. All are discussed and graphically presented within the MD&A
section of the 2012 annual financial report.
The primary results for the General Fund as indicated within the 2012
Annual Financial Report are:
1) Actual revenues were $12,871,576 (including transfers in) compared
to budgeted revenues of $12,030,173 or 107% of budget.
2) Actual expenditures were $13,646,421 (including transfers out)
compared to budgeted expenditures of $13,944,977 or 98% of
budget.
3) Gross expenditures exceeded revenues by an amount of $774,845.
The 2012 year-end General Fund balance (which is maintained for cash
flow, emergency purposes, etc) decreased to $6,972,362 which represents
a reserve of 57.2% of the 2013 General Fund Budget.
The unassigned fund balance for the General Fund at December 31, 2012
is $6,281,374 which represents 51.5% of budgeted 2013 expenditures.
This level of reserve is greater than the targeted level of 45% as identified in
the City's Comprehensive Financial Management Policy.
ALTERNATIVES: The following alternatives are available to the City Council:
1. Accept the 2012 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 including MMKR's Unqualified Opinion on the
City's financial statements for the fiscal year ended December 31, 2012 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, 2013 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. Jim Eichten of the firm MMKR & Co, P.A. will make a brief
presentation regarding the Report and Management Letter and respond to
any questions the Council may have.
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