HomeMy WebLinkAbout06(D) - 2022 Annual Financial Report and Management Letter ReportITEM: 6DCITYCOUNCILAGENDAREPORT
MEETING DATE: May 15, 2023
PREPARED BY: Jason Etter, Senior Accountant
PRESENTED BY: Cathy Erickson, Finance Director
AGENDA ITEM: Resolution Approving 2022 Annual Financial Report and
Management Letter
RECOMMENDED ACTION:
Adopt the attached resolution accepting the 2022 Annual Financial Report and Management
Letter.
BACKGROUND:
The 2022 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 12/31/2022. 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.
All cities with apopulation 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.
Copies of the reports are included in the May 15 meeting packet that is distributed to Council
members. Copies of the 2022 Annual Financial Report and Management Letter will also be
available for the Council and public prior to the Council meeting on May 15. 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
249,330,916 and represents an increase of $12,959,248 from December 31, 2021.
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.
Based on their audit of the City’s financial statements for the year ended December 31, 2022:
MMKR issued an unmodified opinion on the City’sfinancial statements.
MMKR reported no deficiencies in the City’s internal control over financial reporting that
they considered to be material weaknesses.
City ofPrior Lake | 4646 Dakota Street SE | Prior Lake MN 55372
Item 6D
Page | 2
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 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.” This section of the CFMP
includes five (5) objectives/metrics to be included in the Annual Financial Report.
They include the following:
Bond Rating – Maintain or improve current AA+ bond rating;
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;
Property Taxes – Maintain or improve property tax rank when compared to a broader list
of metro area cities;
Property Taxes / Household – Maintain a level of property taxes on a per household basis
which considers the cost of inflation and community growth.
General Fund Expenditures / Household – Maintain alevel of General Fund operational
expenditures on a per household basis which considers the cost of inflation and
community growth.
All five objectives/metrics are discussed and graphically presented within the MD&A section of
the 2022 Annual Financial Report.
FINANCIAL IMPACT:
The primary results for the General Fund as indicated within the 2022 Annual Financial Report
are:
Actual revenues were $16,265,147 (including transfers and sale of assets) compared to
amended budgeted revenues of $16,535,887 or 98% of budget.
Actual expenditures were $16,237,367 (including transfers out) compared to amended
budgeted expenditures of $16,864,687 or 96% of budget.
Gross revenue exceeded expenditures/transfers by $27,780.
At the end of the current fiscal year, the total fund balance for the General Fund was $10,458,397
or 55.6 percent of budgeted 2023 expenditures and transfers out of $18,810,399. The fund
balance is maintained for cash flow, emergency purposes, etc. This level of reserve is higher than
the targeted range of 40-50% as identified in the City’s Comprehensive Financial Management
Item 6D
Page | 3
Policy to ensure adequate reserves as the city prepares for additional expenditures with a full-
time fire staffing model.
Of the total fund balance of $10,458,397, $566,010 is assigned for the 2023 budget for projects
carried over from fiscal 2022. The unassigned amount of $9,892,387 is 52.6 percent ofbudgeted
2023 expenditures and transfers out of $18,810,399.
The total fund balance of $10,458,397 reflects an increase of $27,780 from the prior year.
The increase in fund balance is primarily due to revenues less than budget by $270,740,
expenditures less than budget by $627,630 and planned use of reserves of $328,800. The drivers
inthe revenue below budget were single-family building permits/fees below plan along with
several multi-family residential development projects pushed to 2023. Expenditures were less
than budget primarily in Public Safety, Streets, and Parks driven by delayed street maintenance
projects and open positions throughout the year. The amended budget reflected the use of fund
balance of $328,800 primarily for Police department and Emergency Management equipment and
supplies and Streets maintenance projects.
The total fund balance of $10,458,397 reflects an increase of $356,580 from the amended budget.
The original budget reflected the use of fund balance of $50,000 for completion of a community
survey. An amendment to increase the spending of the fund balance by $278,800 primarily for
Police department and Emergency Management equipment and supplies and Streets
maintenance projects.
Please feel free to contact Staff prior to the meeting if you have any questions or would like to
review the Report on amore 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.
A City Financial Reporting Form, which is a condensed excerpt of the official document, is
required to be submitted to the Office of the State Auditor by June 30, 2023, along with this report.
MMKR will also complete the federal Data Collection Form regarding the alternative compliance
examination of expenditure of federal funds.
ALTERNATIVES:
1. Motion and second to adopt the attached resolution accepting the 2022 Annual Financial
Report and Management Letter as submitted.
2. Delay action according to a specific Council reason.
ATTACHMENTS:
1. Resolution - Consider Approval of the 2022 Annual Financial Report and Management
Letter
2. MMKR Powerpoint Presentation
4646 Dakota Street SE
Prior Lake, MN 55372
RESOLUTION 23-
ACCEPTING THE 2022 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 ofthe audit is toexpress 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 inthe 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 2022 Annual Financial Report and Management
Letter; and
WHEREAS, MMKR has issued an unmodified opinion with respect to the City’s 2022
financial statements; and
WHEREAS, The City staff and City Council have carefully examined the submitted
statements and reports and their contents at a 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 2022 Annual Financial Report and Management Letter.
3. The staff is hereby directed to submit the reports to the Office of the State Auditor.
thPassedandadoptedbythePriorLakeCityCouncilthis15 day of May.
VOTE Briggs Braid Burkart Churchill Lake
Aye
Nay
Abstain
Absent
Jason Wedel, City Manager
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CITY OF PRIOR LAKE
AUDIT REPORT
YEAR ENDED DECEMBER 31, 2022
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 2022
Alternative Compliance Examination Engagement
▪Examination of Coronavirus State and Local Fiscal
Recovery Fund (CSLFRF) Spending
AUDITOR’S ROLE
Audit Summary
▪Planned scope and timing of audit
▪Audit opinions and findings
MANAGEMENT REPORT
Financial Report
▪Unmodified or Clean Opinion
▪Implementation of GASB #87 Leases
Internal Controls Over Financial Reporting
▪No Findings
Legal Compliance Audit Findings
▪No Findings
Alternative Compliance Examination
Engagement
▪No Findings
AUDIT OPINIONS AND FINDINGS
Audit Summary
Governmental Funds Overview
MANAGEMENT REPORT (CONT.)
MANAGEMENT REPORT (CONT.)
2022 2021 Change
Fund balances of governmental funds
Total by classification
Restricted 7,200,029$ 8,086,463$ (886,434)$
Assigned 15,815,073 12,173,968 3,641,105
Unassigned 9,892,387 9,857,197 35,190
Total governmental funds 32,907,489$ 30,117,628$ 2,789,861$
Total by fund
General 10,458,397$ 10,430,617$ 27,780$
Debt Service 2,283,109 2,583,668 (300,559)
Construction 3,510,306 1,483,757 2,026,549
Special revenue nonmajor funds 4,264,918 4,526,053 (261,135)
Capital projects nonmajor funds 12,390,759 11,093,533 1,297,226
Total governmental funds 32,907,489$ 30,117,628$ 2,789,861$
Governmental Funds Change in Fund Balance
Fund Balance
as of December 31,
MANAGEMENT REPORT (CONT.)
Year 2020 2021 2022
Population 2,500–10,000 10,000–20,000 20,000–100,000 27,222 27,917 28,408
Property taxes 560$ 529$ 557$ 498$ 514$ 536$
Tax increments 38 36 49 29 28 29
Franchise and other taxes 52 66 53 25 24 58
Special assessments 59 41 56 34 30 26
Licenses and permits 45 46 53 33 36 26
Intergovernmental revenues 421 293 202 178 104 243
Charges for services 135 111 110 85 175 59
Other 60 39 26 39 30 (6)
Total revenue 1,370$ 1,161$ 1,106$ 921$ 941$ 971$
December 31, 2021
City of Prior LakeState-Wide
Governmental Funds Revenue per Capita
With State-Wide Averages by Population Class
MANAGEMENT REPORT (CONT.)
Year 2020 2021 2022
Population 2,500–10,000 10,000–20,000 20,000–100,000 27,222 27,917 28,408
Current
168$ 131$ 116$ 121$ 117$ 124$
327 296 327 246 261 286
144 124 112 73 75 73
108 124 107 60 72 78
101 79 77 6 8 6
848 754 739 506 533 567
Capital outlay
and construction 525 407 317 161 325 292
Debt service
168 161 110 154 150 152
48 41 34 41 43 39
216 202 144 195 193 191
Total expenditures 1,589$ 1,363$ 1,200$ 862$ 1,051$ 1,050$
General government
Governmental Funds Expenditures per Capita
With State-Wide Averages by Population Class
December 31, 2021
City of Prior LakeState-Wide
Interest and fiscal charges
Public safety
Streets and highways
Culture and recreation
All other
Principal
MANAGEMENT REPORT (CONT.)
2018 2019 2020 2021 2022
Fund Balance $7,213,402 $7,903,175 $10,114,088 $10,430,617 $10,458,397
Cash and Inv (Net of Borrowing)$8,938,262 $9,604,268 $11,068,473 $11,778,939 $11,599,508
Expenditures and Transfers Out $13,115,121 $13,350,330 $14,283,695 $15,848,078 $16,237,367
$–
$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
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
2022 $10,838,670 $752,021 $2,795,110 $1,370,410 $2,998 $(46,221)
$(1,500,000)
$–
$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
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
2022 $3,518,433 $8,083,971 $2,074,630 $2,209,617 $126,878
$–
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
$9,000,000
General Fund Expenditures by Function
Year Ended December 31,
MANAGEMENT REPORT (CONT.)
Audit Summary
Governmental Funds Overview
Enterprise Funds Overview
MANAGEMENT REPORT (CONT.)
2022 2021 Change
Net position of enterprise funds
Total by classification
Net investment in capital assets 73,472,594$ 68,923,937$ 4,548,657$
Unrestricted 12,457,095 11,099,055 1,358,040
Total enterprise funds 85,929,689$ 80,022,992$ 5,906,697$
Total by fund
Water 49,935,870$ 47,310,844$ 2,625,026$
Sewer 30,742,355 28,265,386 2,476,969
Water Quality 5,251,464 4,446,762 804,702
Total enterprise funds 85,929,689$ 80,022,992$ 5,906,697$
Enterprise Funds Change in Financial Position
Net Position
as of December 31,
MANAGEMENT REPORT (CONT.)
2018 2019 2020 2021 2022
Oper Revenue $3,967,706 $3,792,321 $4,784,064 $5,569,995 $5,595,073
Oper Expenses $2,679,154 $2,983,966 $3,243,683 $3,212,458 $3,755,290
Oper Income (Loss)$1,288,552 $808,355 $1,540,381 $2,357,537 $1,839,783
Inc Before Depr $2,092,678 $1,696,804 $2,495,708 $3,346,673 $2,877,384
$–
$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.)
2018 2019 2020 2021 2022
Oper Revenue $3,270,026 $3,622,033 $4,399,718 $4,761,256 $4,814,666
Oper Expenses $2,892,003 $3,281,824 $3,360,286 $3,365,918 $3,741,083
Oper Income (Loss)$378,023 $340,209 $1,039,432 $1,395,338 $1,073,583
Inc Before Depr $889,932 $904,035 $1,653,925 $2,036,083 $1,757,988
$–
$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.)
2018 2019 2020 2021 2022
Oper Revenue $986,338 $1,060,295 $1,175,189 $1,206,566 $1,254,521
Oper Expenses $600,030 $611,654 $623,317 $730,212 $900,535
Oper Income (Loss)$386,308 $448,641 $551,872 $476,354 $353,986
Inc Before Depr $508,197 $583,068 $668,423 $594,451 $451,879
$–
$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
Accounting and Auditing Updates
MANAGEMENT REPORT (CONT.)
Clean Opinion on Financial Statements
Implementation of GASB #87 Leases
No Findings Reported
Improved Governmental Fund Financial
Results
Improved Enterprise Fund Financial Results
Audit Process Completed as Planned
SUMMARY