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HomeMy WebLinkAbout9B 2013 Financial Report and Management Letter C FRID 4646 Dakota Street SE NESPrior Lake. MN 55372 CITY COUNCIL AGENDA REPORT MEETING DATE: MAY 27, 2014 AGENDA #: 9B PREPARED BY: JERILYN ERICKSON, FINANCE DIRECTOR PRESENTED BY: JIM EICHTEN, MMKR & CO, P.A. AGENDA ITEM: CONSIDER APPROVAL OF 2013 ANNUAL FINANCIAL REPORT AND MANAGEMENT LETTER DISCUSSION: Introduction The 2013 annual audit was conducted in accordance with generally accepted auditing standards and represents an independent opinion of the financial activities during the year of 2013 and position of the City of Prior Lake as of 12/31/2013. The purpose of the audit is to express an opinion 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. History 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 2013 Annual Financial Report and Management Letter are included with this agenda report. Copies were also distributed electronically to Councilmembers on May 16, 2014. 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 $155,387,388 and represents an increase of $7,229,062 from December 31, 2012. 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, 2013: • MMKR issued an unmodified 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 one finding based on their testing of the City's compliance with Minnesota laws and regulations: > Five out of twenty -five timesheets tested did not have a signed declaration stating the wages received were for actual time worked as required by Minnesota Statutes. These five timesheets noted were for payments to volunteer firefighters. The Management Response to this audit finding is included in the "Schedule of Findings and Questioned Costs" section of the Annual Financial Report as follows: "There is no disagreement with the audit finding. The City's staff has since added the required payroll declaration." There were no findings that needed to be corrected and therefore, followed up from 2012. The Management Letter also includes summaries and graphs for operational activity for the General Fund and proprietary 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. In addition, the Comprehensive Financial Management Policy (CFMP) includes a section on Financial Planning and Reporting for the purpose of providing "accurate, current and meaningful information about the City's operations to guide decision making and enhance and protect the City's financial position." The Council recently updated this section of the CFMP to include five (5) objectives /metrics to be included in the Annual Financial Report. They include: 1) Bond Rating — Maintain or improve current Aa2 bond rating; 2) General Fund Reserve Balance - Maintain a General Fund unrestricted fund balance (which includes Committed, Assigned and Unassigned classifications) within a range of 40 — 50% of projected expenditures for the subsequent year; 3) Property Taxes — Maintain or improve property tax rank when compared to a broader list of metro area cities; 2 4) Property Taxes / Household — Maintain a level of property taxes on a per household basis which takes into account the cost of inflation and community growth. 5) General Fund Expenditures / Household — Maintain a level of General Fund operational expenditures on a per household basis which takes into account the cost of inflation and community growth. All five objectives /metrics are discussed and graphically presented within the MD&A section of the 2013 Annual Financial Report. The primary results for the General Fund as indicated within the 2013 Annual Financial Report are: 1) Actual revenues were $11,732,430 (including transfers in) compared to budgeted revenues of $11,501,328 or 102% of budget. 2) Actual expenditures were $12,273,534 (including transfers out) compared to amended budgeted expenditures of $12,332,384 or 99.5% of budget. 3) Gross expenditures exceeded revenues by an amount of $541,104. The 2013 year -end General Fund balance (which is maintained for cash flow, emergency purposes, etc.) decreased to $6,431,258 which represents a reserve of 49.5% of the 2014 General Fund budgeted expenditures. The unassigned fund balance for the General Fund at December 31, 2013 is $5,397,818 which represents 41.6% of 2014 General Fund budgeted expenditures. This level of reserve is within the targeted range of 40 -50% as identified in the City's Comprehensive Financial Management Policy. 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. Mr. Eichten will also be making a presentation during the Council Workshop on May 27. Additional Reporting Required 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, 2014 along with this report. ALTERNATIVES: The following alternatives are available to the City Council: 1. Accept the 2013 Annual Financial Report and Management Letter as submitted. 2. Delay action according to a specific Council reason. RECOMMENDED Alternative 1. MOTION: 3