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16200 Eagle Creek Avenue S.E.
Prior Lake, MN 55372-1714
CITY COUNCIL AGENDA REPORT
MAY 1, 2006
10 B
Ralph Teschner, Finance Director
CONSIDER APPROVAL OF 2005 ANNUAL FINANCIAL REPORT AND
MANAGEMENT LETTER
Introduction
Included with this agenda report is a copy of the 2005 Financial Report along
with the management letter prepared by the certified public accountant firm of
Abdo, Eick and Meyers as required by Minnesota Statutes. The audit was
conducted in accordance with generally accepted auditing standards and
represents an independent opinion of the financial results and status of the
City of Prior Lake during the year of 2005.
Current Circumstances
The audit report represents the new financial reporting model that reflects
GASB Statement No. 34 as required by the Governmental Accounting
Standards Board (GASB). This format represents a consolidation of the city's
financial reporting activity into two groups; governmental activities and
business-type activities that includes a statement of net assets. A statement of
net assets is included that identifies capital fixed assets, i.e. land, buildings
and improvements. As stated in the financial report the city's overall net asset
financial position is $109,681,232.
Contained within the financial report is a legal compliance audit which was
performed to ensure compliance with Minnesota Statutes in the six areas of;
contracting and bidding, deposits and investments, conflicts of interest, public
indebtedness, claims and disbursements and miscellaneous provisions. Also
attached is a Management Letter prepared by the auditors that provides
highlights of the report as well as any applicable recommendations.
According to the auditor's tests, the City has complied with the applicable legal
provisions as they apply to the six main categories stated above. Also noted
within their report on internal control is the fact that no matters involving
internal control structure and operation were observed to contain material
weaknesses as defined by GAS (Government Auditing Standards).
The audit has been prepared in accordance with generally accepted
accounting principals. The primary results of the General Fund as indicated
within the 2005 audit are:
1.) Actual revenues of $9,906,429 (including transfers in), compared to
budgeted revenues of $9,716,031 (adjusted for building fund transfer)
or 102% of projection.
2.) Operating expenditures were $9,196,249 compared to budgeted
expenditures of $9,716,031 or 95% of budget.
www.cityofpriorlake.com
Phone 952.447.4230 / Fax 952.447.4245
3.) Gross revenues exceeded expenditures in the amount of $710,180 and
a net of $426.541.00 after including the $283,639 Building Fund
contribution authorized by RS 05-158.
The 2005 year-end General Fund balance (which is maintained for cash flow
and emergency purposes) increased to $4,2Q7,~70 that represents a reserve
of 40% of the 2006 General Fund Budget or above the council recognized
minimum 30% threshold, and consistent with the auditor's recommendation of
40-50%. Also, it falls within the acceptable level of 35-50% as defined by the
State Auditor's Office.
ALTERNATIVES:
The Management Letter is intended to bring to the City Council's attention
deficiencies or conditions recommended for improvement within the design or
administration of the City's financial operations. A graphic summary of the
City's results of operations within the General Fund depicting revenues and
expenditures is included. Also, the auditors discuss the importance of
maintaining an adequate fund balance for cash flow purposes and to establish
overall long term financial strength.
The following alternatives are available to the City Council:
RECOMMENDED
MOTION:
1. Accept the 2005 Annual Financial Report and Management Letter as
submitted.
2. Delay action according to a specific Council reason.
Alternative 1. Staff recommends acceptance of the management letter and the
financial report for the fiscal year ended December 31,2005 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, 2006 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. Steve
McDonald of the firm Abdo, Eick and Meyers will make a brief presentation
regarding the report and management letter and respond to any questions the
Council may have.
1. 2005 Annual Financial Report
2. Management Letter
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