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Home My WebLink About06(A) - Audit presentation by MMKR ReportCITY COUNCIL AGENDA REPORT MEETING DATE: PREPARED BY: PRESENTED BY: AGENDA ITEM: GOAL AREA OBJECTIVE: May 16, 2022 Jason Etter, Senior Accountant Cathy Erickson, Finance Director Consider Approval of the 2021 Annual Financial Report and Management Letter High-Value City Services 1.Establish financial stability for all funds. RECOMMENDED ACTION: ITEM: 6A Adopt the attached resolution accepting the 2021 Annual Financial Report and Management Letter. BACKGROUND: Introduction The 2021 annual audit was conducted in accordance with generally accepted auditing standards and represents an independent opinion of the financial activities during the year and position of the City of Prior Lake as of 12/31/2021. The purpose of the audit is to express an opinion about whether the financial statements prepared are fairly presented, in all material respects, and in conformity with accounting principles generally accepted in the United States of America. History All cities with a population of more than 2,500 are 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 city for this purpose. Current Circumstances Copies of the reports are included in the May 16th meeting packet that is distributed to Council members. Copies of the 2021 Annual Financial Report and Management Letter will also be available for the Council and public prior to the Council meeting on May 16th. 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 businesstype activities combined) is $236,371,668 and represents an increase of $16,599,199 from December 31, 2020. City of Prior Lake I 4646 Dakota Street SE I Prior Lake MN 55372 Item «ItemNum» Page | 2 Conclusion TheManagement Letter isintended tobringtotheCityCouncil’sattention anydeficiencies or conditions recommended forimprovement withinthedesign oradministration oftheCity’sfinancial operations andtofollow-uponprioryearfindings andrecommendations. Based ontheirauditoftheCity’sfinancial statements fortheyearended December 31, 2021: MMKR issued anunmodified opinion ontheCity’sfinancial statements. MMKR reported no deficiencies intheCity’sinternal control overfinancial reporting that theyconsidered tobematerial weaknesses. TheresultsofMMKR’stestingdisclosed noinstances ofnoncompliance required tobe reported under Government Auditing Standards. MMKR reported nofindings basedontestingoftheCity’scompliance withMinnesota laws andregulations. The Management Letteralsoincludes summaries andgraphs foroperational activity forthe General Fundandproprietary funds, comparative information forproperty taxesand governmental fundrevenues andexpenditures, andaccounting andauditing updates. GASBrequires thataManagement’sDiscussion andAnalysis (known asanMD&A) beassimilated intheAnnual Financial Report toprovide supplementary information tofacilitate agreater understanding oftheauditreport bythegeneral reader. Asinpreviousyears, theMD&Aincludes asectionattributed tothefinancial management policies oftheCity. Akeyelement withintheCity’s VisionandStrategic Planistheabilitytodemonstrate strong financial management and effective useofcommunity resources. In addition, theComprehensive Financial Management Policy CFMP) includes asection onFinancial Planning andReporting forthepurpose ofproviding accurate, currentandmeaningful information abouttheCity’soperations toguidedecision making andenhance andprotect theCity’sfinancial position.” Thissection oftheCFMPincludesfive (5) objectives/metricstobeincluded intheAnnual Financial Report. Theyinclude: o BondRating – Maintain orimprovecurrent Aa2bondrating. o General FundReserve Balance - Maintain aGeneral Fund unrestricted fund balance (which includes Committed, Assigned and Unassigned classifications) withinarange of40 – 50% ofprojected expenditures forthesubsequent year. o Property Taxes – Maintain orimprove property taxrank when compared toa broaderlistofmetroarea cities. o Property Taxes / Household – Maintainalevelofproperty taxes onaperhousehold basiswhich considers thecostofinflationandcommunity growth. o GeneralFund Expenditures / Household – Maintain alevelofGeneral Fund operational expenditures onaperhousehold basiswhichconsiders thecost of inflation andcommunity growth. Allfiveobjectives/metricsarediscussed andgraphically presented within theMD&Asectionofthe 2021Annual Financial Report. Item «ItemNum» Page | 3 FINANCIAL IMPACT: Theprimary results fortheGeneral Fund asindicated withinthe2021 Annual Financial Report are: 1) Actualrevenues were $16,164,607 (including transfers andsaleofassets) compared to amended budgeted revenues of $14,953,717or109% ofbudget. 2) Actual expenditures were $15,848,078 (including transfers out) compared toamended budgeted expenditures of $16,222,713or98% ofbudget. 3) Gross revenue exceeded expenditures/transfers by $316,529. The components ofthe 316,529. Attheendofthecurrentfiscalyear, thetotalfund balance fortheGeneral Fundwas $10,430,617 or62.9percent ofbudgeted 2022 expenditures andtransfers outof $16,585,887. Thefund balance ismaintained forcash flow, emergency purposes, etc. Thislevel ofreserve ishigher than the targeted range of40-50% asidentified intheCity’sComprehensive Financial Management Policy primarily due toreceipt offederal CARES Act fundsand cost-saving measures putinplaceto minimize thefinancial impact ofthepandemic. Ofthetotalfundbalance of $10,430,617, $573,420isassigned forthe2022 budget forprojects carried overfromfiscal2021. Theunassigned amount of $9,857,197 is59.4percentofbudgeted 2022expenditures andtransfers outof $16,585,887. Thetotalfundbalanceof $10,430,617reflects anincrease of $316,529from theprioryear. Theincrease infund balance isprimarily duetorevenues above budget by $1,180,868, expenditures lessthanbudget by $374,635andplanned use ofreserves of $1,268,996. The drivers intherevenueabovebudget werepermits andfeesduetobuilding units anddevelopment aboveplan. Expenditures were lessthanbudget primarily inPublic SafetyandParksdriven by supplies andequipment purchase delaysduetotheglobal supply chainissues, openPark department positions andcarryover ofmaintenance projects. Theamended budget reflected the useoffundbalance of $1,268,996primarily foratransfer totheFacilities Management Fund for capital projects, Police department mid-yearwageand workers compensation adjustments, and mid-yearhireoftheFiredepartment Assistant FireChief. Thetotal fundbalance of $10,430,617 reflects anincrease of $1,585,525from theamended budget. Theoriginal budget reflected useoffundbalance of $124,000toprimarily tooffset anticipated revenue shortfalls inaid forpoliceservices. Anamendment toincreasethespending ofthefund balance by $1,144,996primarily foratransfer totheFacilities Management Fund for capital projects, Police department mid-yearwageand workers compensation adjustments, and mid-yearhireoftheFiredepartment Assistant Fire Chief. Please feelfreetocontact Staff priortothemeeting ifyouhaveanyquestions orwouldliketo review theReportonamorecomprehensive basis. JimEichten ofthefirmMMKR & Co, P.A. willmakeabriefpresentation regarding theReport and Management Letter andrespond toanyquestions theCouncilmayhave. Additional Reporting Required ACityFinancial Reporting Form, whichisacondensed excerpt oftheofficial document, isrequired tobesubmitted totheOfficeoftheState Auditor byJune30, 2022, alongwiththisreport. Item «ItemNum» Page | 4 MMKR willalso complete thefederal Data Collection Form regarding thesingle auditof expenditure offederal funds. ALTERNATIVES: 1. Motion andsecondtoadopttheattached resolution accepting the2021AnnualFinancial Report andManagement Letterassubmitted. 2. Delayaction according toaspecific Councilreason. ATTACHMENTS: 1. Resolution - Consider Approval ofthe2021AnnualFinancial Report and Management Letter 2. MMKR 2021PriorLakeAuditPresentation 4646DakotaStreet SE PriorLake, MN 55372 RESOLUTION 22- ACCEPTING THE 2021 ANNUAL FINANCIAL REPORT AND MANAGEMENT LETTER Motion By: Second By: WHEREAS, Minnesota Statutes requires thattheCity’sfinancial records beannually audited; and, WHEREAS, theannual auditisconducted inconformance withgenerally accepted accounting principles; and, WHEREAS, thepurpose oftheaudit istoexpress anopinion about whetherthefinancial statements prepared bytheCityarefairlypresented inallmaterial respects in conformity withaccounting principles generally accepted inthe United States ofAmerica; and, WHEREAS, thefirmofMalloy, Montague, Karnowski, Radosevich andCo. P.A. (MMKR) havebeenretained bytheCityCouncil forthispurpose; and, WHEREAS, MMKR hassubmitted the2021AnnualFinancial Report andManagement Letter; and, WHEREAS, MMKRhasissuedanunmodified opinion withrespect totheCity’s2021 financial statements; and, WHEREAS, TheCitystaffandCityCouncil have carefullyexamined thesubmitted statements andreports andtheircontents ataregular City Council meeting. NOWTHEREFORE, BE ITHEREBY RESOLVED BY THE CITY COUNCIL OF PRIOR LAKE, MINNESOTA asfollows: 1. Therecitals setforthabove areincorporated herein. 2. TheCityCouncil herebyacceptsthe2021Annual Financial Report andManagement Letter. 3. Thestaffishereby directed tosubmit thereports totheOfficeoftheStateAuditor. 4. Passed andadopted bythePriorLakeCityCouncil this16thdayofMay2022. VOTE Briggs Thompson Burkart Braid Churchill Aye Nay Abstain Absent JasonWedel, CityManager CITY OF PRIOR LAKE AUDIT REPORT YEAR ENDED DECEMBER 31, 2021 James H. Eichten, CPA Opinion on Financial Statements Financial statements are fairly presented in accordance with accounting principles generally accepted in the United States of America Testing of Internal Controls and Compliance Internal controls over financial reporting Compliance with laws and regulations related to financial reporting AUDITOR’S ROLE Minnesota Legal Compliance Audit Compliance with Minnesota State Laws and Regulations Single Audit of Federal Awards Not required for fiscal 2021 AUDITOR’S ROLE Audit Summary Planned scope and timing of audit Audit opinions and findings MANAGEMENT REPORT Financial Report Unmodified or Clean Opinion Internal Controls Over Financial Reporting No Findings Legal Compliance Audit Findings No Findings AUDIT OPINIONS AND FINDINGS Audit Summary Governmental Funds Overview MANAGEMENT REPORT (CONT.) MANAGEMENT REPORT (CONT.) 1,000,000,000 2,000,000,000 3,000,000,000 4,000,000,000 5,000,000,000 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Taxable Market Value MANAGEMENT REPORT (CONT.) Tax Rates 2019 2020 2021 Average tax rate City 33.0 32.5 30.3 County 33.8 32.7 31.0 School 31.7 29.9 29.1 Special taxing 7.8 7.3 7.7 Total 106.3 102.4 98.1 City of Prior Lake Rates Expressed as a Percentage of Net Tax Capacity MANAGEMENT REPORT (CONT.) Year 2019 2020 2021 Population 2,500–10,000 10,000–20,000 20,000–100,000 26,849 27,222 27,917 Property taxes 540$ 517$ 537$ 475$ 498$ 514$ Tax increments 34 33 44 29 29 28 Franchise and other taxes 49 60 46 24 25 24 Special assessments 54 39 54 40 34 30 Licenses and permits 36 39 46 37 33 36 Intergovernmental revenues 474 367 273 154 178 104 Charges for services 113 89 91 125 85 175 Other 83 69 69 53 39 30 Total revenue 1,383$ 1,213$ 1,160$ 937$ 921$ 941$ December 31, 2020 City of PriorLakeState-Wide Governmental Funds Revenue per Capita With State-Wide Averages by Population Class MANAGEMENT REPORT (CONT.) Year 2019 2020 2021 Population 2,500–10,000 10,000–20,000 20,000–100,000 26,849 27,222 27,917 Current 176$ 140$ 118$ 112$ 121$ 117 315 288 320 230 246 261 146 122 112 73 73 75 100 112 95 72 60 72 95 108 104 7 6 8 832 770 749 494 506 533 Capital outlay and construction 586 429 331 375 161 325 Debt service 172 149 91 156 154 150 45 42 33 46 41 43 217 191 124 202 195 193 Total expenditures 1,635$ 1,390$ 1,204$ 1,071$ 862$ 1,051$ General government Governmental Funds Expenditures per Capita With State-Wide Averages by Population Class December 31, 2020 City of PriorLakeState-Wide Interest and fiscal charges Public safety Streets and highways Culture and recreation All other Principal MANAGEMENT REPORT (CONT.) 2021 2020 Change Fund balances of governmental funds Total by classification Nonspendable –$ 70,006$ (70,006)$ Restricted 8,086,463 7,321,154 765,309 Assigned 12,173,968 9,416,770 2,757,198 Unassigned 9,857,197 9,783,378 73,819 Total governmental funds 30,117,628$ 26,591,308$ 3,526,320$ Total by fund General 10,430,617$ 10,114,088$ 316,529$ Debt Service 2,583,668 2,834,191 (250,523) Construction 1,483,757 493,808 989,949 Special revenue nonmajor funds 4,526,053 3,622,398 903,655 Capital projects nonmajor funds 11,093,533 9,526,823 1,566,710 Total governmental funds 30,117,628$ 26,591,308$ 3,526,320$ Governmental Funds Change in Fund Balance Fund Balance as of December 31, MANAGEMENT REPORT (CONT.) 2017 2018 2019 2020 2021 Fund Balance $6,840,928 $7,213,402 $7,903,175 $10,114,088 $10,430,617 Cash and Inv (Net of Borrowing)$8,306,654 $8,938,262 $9,604,268 $11,068,473 $11,778,939 Expenditures and Transfers Out $13,208,933 $13,115,121 $13,350,330 $14,283,695 $15,848,078 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 16,000,000 18,000,000 General Fund Financial Position Year Ended December 31, MANAGEMENT REPORT (CONT.) Taxes Licenses and Permits Intergovernmental Charges for Services Fines and Forfeits All Other 2017 $8,779,030 $820,433 $1,657,988 $1,346,676 $2,250 $324,924 2018 $8,619,057 $994,613 $1,835,750 $1,357,049 $1,448 $385,047 2019 $9,007,634 $992,096 $1,925,225 $1,193,113 $996 $454,862 2020 $9,594,699 $900,601 $4,092,040 $1,081,405 $1,652 $351,608 2021 $10,125,022 $999,906 $2,322,956 $1,528,506 $38 $635,157 1,500,000 3,000,000 4,500,000 6,000,000 7,500,000 9,000,000 10,500,000 12,000,000 General Fund Revenue by Source Year Ended December 31, MANAGEMENT REPORT (CONT.) General Government Public Safety Public Works Culture and Recreation All Other 2017 $2,741,278 $5,239,456 $1,798,918 $1,677,597 $115,563 2018 $2,755,367 $5,746,524 $1,882,971 $1,850,587 $60,021 2019 $3,000,056 $6,071,462 $1,954,183 $1,889,264 $100,596 2020 $3,279,680 $6,693,505 $1,999,412 $1,628,772 $144,308 2021 $3,260,266 $7,261,344 $2,099,230 $1,982,787 $131,754 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 General Fund Expenditures by Function Year Ended December 31, 2021 MANAGEMENT REPORT (CONT.) Audit Summary Governmental Funds Overview Enterprise Funds Overview MANAGEMENT REPORT (CONT.) 2021 2020 Change Net position of enterprise funds Total by classification Investment in capital assets 68,923,937$ 69,058,053$ (134,116)$ Unrestricted 11,099,055 9,784,086 1,314,969 Total enterprise funds 80,022,992$ 78,842,139$ 1,180,853$ Total by fund Water 47,310,844$ 46,737,472$ 573,372$ Sewer 28,265,386 27,724,006 541,380 Water Quality 4,446,762 4,380,661 66,101 Total enterprise funds 80,022,992$ 78,842,139$ 1,180,853$ Enterprise Funds Change in Financial Position Net Position as of December 31, MANAGEMENT REPORT (CONT.) 2017 2018 2019 2020 2021 Oper Revenue $3,796,097 $3,967,706 $3,792,321 $4,784,064 $5,569,995 Oper Expenses $2,621,448 $2,679,154 $2,983,966 $3,243,683 $3,212,458 Oper Income (Loss)$1,174,649 $1,288,552 $808,355 $1,540,381 $2,357,537 Inc Before Depr $1,912,281 $2,092,678 $1,696,804 $2,495,708 $3,346,673 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000 4,500,000 5,000,000 5,500,000 6,000,000 Water Enterprise Fund Year Ended December 31, MANAGEMENT REPORT (CONT.) 2017 2018 2019 2020 2021 Oper Revenue $3,090,773 $3,270,026 $3,622,033 $4,399,718 $4,761,256 Oper Expenses $2,771,143 $2,892,003 $3,281,824 $3,360,286 $3,365,918 Oper Income (Loss)$319,630 $378,023 $340,209 $1,039,432 $1,395,338 Inc Before Depr $789,288 $889,932 $904,035 $1,653,925 $2,036,083 250,000 500,000 750,000 1,000,000 1,250,000 1,500,000 1,750,000 2,000,000 2,250,000 2,500,000 2,750,000 3,000,000 3,250,000 3,500,000 3,750,000 4,000,000 4,250,000 4,500,000 4,750,000 5,000,000 Sewer Enterprise Fund Year Ended December 31, MANAGEMENT REPORT (CONT.) 2017 2018 2019 2020 2021 Oper Revenue $925,988 $986,338 $1,060,295 $1,175,189 $1,206,566 Oper Expenses $633,557 $600,030 $611,654 $623,317 $730,212 Oper Income (Loss)$292,431 $386,308 $448,641 $551,872 $476,354 Inc Before Depr $402,799 $508,197 $583,068 $668,423 $594,451 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000 1,000,000 1,100,000 1,200,000 1,300,000 Water Quality Enterprise Fund Year Ended December 31, Audit Summary Governmental Funds Overview Enterprise Funds Overview Legislative Updates Accounting and Auditing Updates MANAGEMENT REPORT (CONT.) Clean Opinion on Financial Statements No Findings Reported Improved General Fund Financial Results Improved Enterprise Fund Financial Results Continued Ongoing Assessment of Financial Projections and Results Including General, Other Operational and Enterprise Fund Activities SUMMARY