HomeMy WebLinkAbout5A - 1995 Financial Audit
AGENDA #:
PREP ARED BY:
SUBJECT:
DATE:
INTRODUCTION:
BACKGROUND:
DISCUSSION:
STAFF AGENDA REPORT
5A
RAEPH TESCHNER, FINANCE DIRECTOR
CONSIDER APPROVAL OF AUDITORS' MANAGEMENT
LETTER REGARDING 1995 FINANCIAL AUDIT REPORT
AUGUST 5, 1996
Attached for your review is the Auditors' Management Letter as
prepared by Abdo, Abdo & Eick as a result of their preparation of
the City's 1995 financial statements. The letter is intended to bring
to the City Council's attention reportable conditions, if any, as to
deficiencies within the design or operation of the City's internal
financial control structure. Also, it is intended to set forth any
recommendations that would further improve financial disclosure
of the organization.
The City of Prior Lake's 1995 Annual Financial Report was
presented to the City Council on June 17, 1996 for your
consideration. Upon adoption of the report Staff published an
excerpt of the financial report and forwarded a copy to the State
Auditor's Office as required by Minnesota State Statutes.
As indicated within the context of the management letter no
reportable material weaknesses were discovered during the
preparation of the audit. Under other matters, the importance of an
adequate fund balance is addressed along with a recommendation to
maintain a substantial fund balance reserve.
A graphic summary of the City's results of operations within the
General Fund depicting revenues and expenditures is included.
Also discussed is the change in reporting status concerning
individual reporting schedules for each debt service fund as well as
for the individual tax increment districts that have been established
RECOMMENDATION: Gerry Eick of the firm Abdo, Abdo & Eick will make a brief
presentation with respect to the contents of the management letter.
Staff would therefore recommend that the City Council accept. the
management letter as part of the audit submission.
/"
~6tion and second to accept the management letter as submitted
y:: order.
Approved by:
16200 ~6tffetll A
., Prior Lake. Minnesota 55372-1714 / Ph. (612) 447-4230 / Fax (612) 447-4245
AN EQUAL OPPORTUNITY' EMPLOYER
APIX)
.....'
CERTIAED PUBLIC ACCOUNTANTS
AND CoNSULTANTS
Mayor and Council
City of Prior Lake
Prior Lake, Minnesota
Dear Mayor and Council:
In planning and performing our audit of the general purpose financial
statements of the City of Prior Lake for the year ended December 31, 1995, we
considered its internal control structure in order to determine our auditing
procedures for the purpose of expressing our opinion on the financial
statements and not to provide assurance on the internal control structure.
Reportable conditions involve matters coming to our attention relating to
significant deficiencies in the design or operation of the internal control
structure that, in our judgment, could adversely affect the City's ability to
record, process, summarize and report financial data consistent with the
assertions of management in the financial statements.
~ A material weakness is a reportable condition in which the design or
operations of one or more of the internal control structure elements does not
reduce to a relatively low level the risk that errors or irregularities in
amounts that would be material in relation to the financial statements being
audited may occur and not be detected within a timely period by employees in
the normal course of performing their assigned functions.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be
reportable conditions and, accordingly, would not necessarily disclose all
reportable conditions that are also considered to be material weaknesses as
defined above. We noted no matters involvin the internal control structure
and its operation that we consider to be a mater~a wea ness as e ~ned above.
As we continue to work with your City we will make comments or recommendation
that we feel appropriate to make your community better. Our perspective is
usually driven by financial aspects. Our comments can also relate to
operations and useful methodologies working successfully outside your
community. It is our way of sharing our experience and knowledge. Our value
to your City should extent beyond our audit opinion. If there is anything we
can do to help, let us know.
Member of American Institute of Certified Public Accountants Private Companies Practice Section
liS EAST HICKORY mar. Sl.iTt i.lZ
PO. 30X HlI6
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Page Two
AID.)
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CERTIFIED PuBLIC Ao.:Ol):-.lTANTS
,~NO C1NSULTANTS
Other Matters
The following are areas that came to our attention during the audit that we
feel should be reviewed:
General Fixed Asse~s
,Currently, the City doe~not have detailed property and fixed asset
records. Adequate accounting records for genera~ ~~xed assets are
necessary to help assure that governmental property, plant and equipment
are not stolen, misused or subjected to undue wear and tear. Fixed assets
provide necessary information for insurance purposes. Adequate records of
general fixed assets are required to permit financial reporting in
conformity with generally accepted accounting principles.
We commend the City for it~ pl~ns to establish detailed property records
_for prop~rty plant ana 8quipmQnt~ An inventory of all equi~ment will ce
made in 1996 as dollars are rovided within the 199~e.r..a..ting ht1tilJ~~ -e.o.
uc a ~xed asset appraisal. As indicated by staff, VRM (Valuation
Resource Management) will be preparing an inventory and maintaining such
records on an annual basis.. The original acquisition cost or best
estimate of original cost should be used to establish the correct basis.
The original cost of the City's land, land improvements and buildings
should be obtained from the City records if possible. If these cost
figures are not available, consideration should be given to using an
appraisal done on a historical cost basis or making estimates of the
figures.
Fund Balance
amounts of fund balance
each six-
As you can see from the following information, there is still a need to
continue to maintain fund balance in order to keep pace with the increasing
operating budget.
~
1994
1995
Fund Balance
December 31
51 485 015
1 968 019(1)
Budget
Year
1995
1996
General
Fund
Budaet
54 819 755
5 447 005
Percent
of Fund
Balance to
Budaet
30.8\
36.1
(U The City has reserved 51,600,000 for cash flow purposes consistent with
Council policy to set the reserve at 30\ of the operating budget
The financial strength shown by good Fund Balances can affect many areas.
One in particular involves annual Bond Rating's. This has a direct impact
on the cost of borrowing and the cost of projects. As the City continues
to grow and demand bigger budgets and more services, the security of. strong
Fund Balance will have many benefits.
Page Three
Financial Position and Results of Operations
General Pund
AID)
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CERTlFTED PuBLIC ACCOUNTANTS
AND CONSULTANTS
The financial statements of the General Fund are presented on pages 24
through 28 of the 1995 Annual Financial Report. All general governmental
functions of the City which are not accounted for in separate funds are
included in the General-Pund. Revenues and transfers for the General Fund
for 1995 totaled $5,372,029, an increase of $662,873 or 14~1% over 1994.
This information is presented in graphic form below.
Revenue Source
Taxes
Licenses and permits
Intergovernmental
revenues
Charges for services
Fines and forfeits
Interest
Other revenue
Transfers from other
funds
Total Revenues and
Transfers
Percent
of
Total
44.9%
6.8
1994
$2 184 096
289 025
1995
$2 414 816
367 182
1 545 517
534 103
70 602
68 070
196 741
28.8
9.9
1.3
1.3
3.7
1 381 678
505 946
46 353
50 972
101 088
175 000
---L1.
150 000
$5 372 031
~%
$4 709 158
General Fund Revenues by Source
Intergovernmental
28.8-J_
Fines and Forfeits
1.3-1.
Charges for Services
9.9-J_
Increase
(Decrease)
From 1994
$ 230 720
78 157
163 839
28 157
24 249
17 098
95 653
25 000
$ 662 873
Taxes
44.9-/_
Page Four
AllX)
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CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
Expenditures and transfers for the General Fund for 1995 totaled
$4,889,027. This is a decrease of 1.2% under the 1994 General Fund
expenditures and transfers of $4,955,918. This information is presented in
graphic form below.
Percent Increase
...... of (Decrease)
Proaram 1995 Total 1994 From 1994
Current
General government $1 054 864 21.5% $ 963 498 $ 91 366
Public safety 1 732 454 35.4 1 605 5S0 126 904
Public works 664 674 13.7 581 925 82 749
Economic development 37 068 .8 44 765 (7 697)
Culture and recreation 740 757 15.1 688 290 52 467
Contingency 38 930 ~ 144 347 (105 417)
Total current 4 268 747 87.3 4 028 375 240 372
Capital outlay 105 840 2.2 199 343 (93 S03)
Debt service 29 039 .6 29 039
Transfers to other funds 485 401 ~ 728 200 (242 799)
Total Expenditures
and Transfers $4 889 027 ~% $4 955 918 $ (66 891)
General Fund Expenditures by Department
Transfers
Economic 9.9%
Development
0.8-Jo
Public Works
13.8%
Debt Service
0.60/0
General Govemment
21.50/0
Page Five
AP!X)
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CERTIFIED PUSUC ACCOUNTANTS
AND CONSULTANTS
General Fund Expenditures by Object
Contingency
O.SO/o
Capital Outlay
2.20/.
Personal Services
60.4%
Transfers
9.9%
Supplies
7.2.".
Other Services and
Charges
18.9%
Debt Service Funds
Historically, the City's financial report has aggregated all debt service.
For 1995 and forward each bond issue's fund will be presented on combining
schedules. This presentation allows users to evaluate individual issues
and provides information to consider levies as maturity dates are reached.
Prepayments can be monitored against the City's ability to invest funds for
more than an issue's cost. Generally, projects in the repayment phase can
be tracked and the affects of any significant deferred revenues can be
monitored. When aggregated, the consequences of these conditions are not
available to statement users.
Tax Increment Re~orts
During 1996 the City staff is updating its project records on each
individual tax increment project. Past financial reports have combined
some of the expenditures. The 1995 report has been prepared to allocate
costs by project. As the 1996 work is completed, allocations will be made
between projects. The fund balances of the debt service and capital
project funds for tax increments well be reconciled. Any differences are
expected to be minor.
Page Six
APlX)
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CERTIFIED PUBLIC ACCOUNT ANTS
AND CONSULTANTS
This report is intended solely for the use of management and Council. The
comments and recommendations in the report are purely constructive in nature,
and should be read in this context.
Our audit would not necessarily disclose all weaknesses in the system, because
it was based on selected tests of the accounting records and related data.
If you have any 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 staff.
aJ.ab~ aa"L?... '>'E:~ L
March 21, 1996
Minneapolis, Minnesota
ABDO, ABDO & EICK
Certified Public Accountants
NOTICE:
Agenda item #6A: CONSIDER PROPOSED MERGER OF
TRIAX/DD CABLE COMPANY.
Agenda materials for this item will be distributed to the
City Council on Friday, August 2, 1996 together with the
Update Memorandum.
TRIDD.DOC