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HomeMy WebLinkAbout9A 2014 Annual Finance Report and Management Letter PR1O4 U tri 4646 Dakota Street SE Prior Lake,MN 55372 CITY COUNCIL AGENDA REPORT MEETING DATE: MAY 26, 2015 AGENDA#: 9A PREPARED BY: CATHY ERICKSON, ACCOUNTING MANAGER PRESENTED BY: JIM EICHTEN, MMKR & CO, P.A. AGENDA ITEM: CONSIDER APPROVAL OF A RESOLUTION APPROVING THE 2014 ANNUAL FINANCIAL REPORT AND MANAGEMENT LETTER DISCUSSION: Introduction The 2014 annual audit was conducted in accordance with generally accepted auditing standards and represents an independent opinion of the financial activities during the year of 2014 and position of the City of Prior Lake as of 12/31/2014. 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 2014 Annual Financial Report and Management Letter are included with this agenda report. Copies were also distributed electronically to Council members on May 18, 2015. 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 $159,582,600 and represents an increase of $4,195,212 from December 31, 2013. 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, 2014: • 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 no findings based on testing of the City's compliance with Minnesota laws and regulations. The auditors also follow up on prior year findings and recommendations. In 2013, the following findings were reported: • one finding based on their testing of the City's compliance with Minnesota laws and regulations: There were five out of twenty-five timesheets tested that 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. • one recommendation that the City implement proper segregation of duties within the cash receipt process that would involve an independent review of a system report of receipts for the day compared to the cash deposited for the day. Additionally, they recommended that the City adjust individual responsibilities to further segregate duties to have someone separate from the cash collection process reconcile the report to the bank deposit prepared for the day. All findings had been corrected in 2014, and as such, have been eliminated from the 2014 list of findings. 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 Vision and Strategic Plan is the ability to demonstrate strong financial management and effective use of community resources. 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 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; 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 2014 Annual Financial Report. The primary results for the General Fund as indicated within the 2014 Annual Financial Report are: 1) Actual revenues were $12,352,487 (including transfers in) compared to budgeted revenues of$11,951,815 or 103% of budget. 2) Actual expenditures were $13,007,098 (including transfers out) compared to amended budgeted expenditures of$13,445,210 or 97% of budget. 3) Gross expenditures exceeded revenues by an amount of$654,611. The 2014 year-end General Fund balance (which is maintained for cash flow, emergency purposes, etc.) decreased to $5,776,647 which represents a reserve of 46% of the 2015 General Fund budgeted expenditures. The unassigned fund balance for the General Fund at December 31, 2014 is $5,775,937 which represents 46% of 2015 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 26. Preparation of the audit this year was particularly challenging. Of course Jerilyn's departure left us with fewer resources to complete this task although she had made a herculean effort to get key aspects of the report done before leaving. The new BS&A Software is not fully installed and vetted adding to the work to be done. We are proud of Cathy's many efforts which allowed this work to be completed on schedule. 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 3 Auditor by June 30, 2015 along with this report. Staff will see that this happens. ALTERNATIVES: The following alternatives are available to the City Council: 1. Adopt the attached resolution accepting the 2014 Annual Financial Report and Management Letter as submitted. 2. Delay action according to a specific Council reason. RECOMMENDED Alternative 1. MOTION: 4 013PRtptiU 4646 Dakota Street SE 'tovxssolt' Prior Lake, MN 55372 RESOLUTION 15-xxx A RESOLUTION ACCEPTING THE 2014 ANNUAL FINANCIAL REPORT AND MANAGEMENT LETTER Motion By: Second By: WHEREAS, Minnesota Statutes requires that the city's financial records be annually audited; and, WHEREAS, the annual audit is conducted in conformance with generally accepted accounting principles; and WHEREAS, the purpose of the audit is to express an opinion about whether the financial statements prepared by the city are fairly presented in all material respects in conformity with accounting principles generally accepted in the United States of America; and, WHEREAS, the firm of Malloy, Montague, Karnowski, Radosevich and Co. P.A. (MMKR) have been retained by the city council for this purpose; and, WHEREAS, MMKR has submitted the 2014 Annual Financial Report and Management Letter; and, WHEREAS, MMKR has issued an unmodified opinion with respect to the city's 2014 financial statements; and, WHEREAS, the city staff and city council have carefully examined the submitted statements and reports and their contents at a work session and regular city council meeting. NOW THEREFORE, BE IT HEREBY RESOLVED BY THE CITY COUNCIL OF PRIOR LAKE, MINNESOTA as follows: 1. The recitals set forth above are incorporated herein. 2. The city council hereby accepts the 2014 Annual Financial Report and Management Letter. 3. The staff is hereby directed to submit the reports to the Office of the State Auditor. PASSED AND ADOPTED THIS 26th DAY OF MAY, 2015. VOTE Hedberg Keeney McGuire Morton Thompson Aye ❑ ❑ ❑ ❑ ❑ Nay ❑ ❑ ❑ ❑ ❑ Abstain ❑ ❑ ❑ ❑ ❑ Absent ❑ ❑ ❑ ❑ ❑ Frank Boyles, City Manager