HomeMy WebLinkAbout7A - Abdo, Abdo & Eick 1997 Audit Report
MEETING DATE:
AGENDA #:
PREPARED BY:
AGENDA ITEM:
JUNE 1, 1998
7A
RALPH TESCHNER
CONSIDER APPROVAL OF 1997 AUDIT REPORT AND
MANAGEMENT LETTER
DISCUSSION:
Councilmembers were distributed a copy of the 1997 Financial
Report and Management Letter as prepared by the certified public
accountant firm of Abdo, Abdo and Eick. The report was given to
you directly to afford sufficient time to review the document before
the June 1 meeting. 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 1997.
History
Approximately three years ago on July 17, 1995 the City Council
approved Resolution 95-61 which authorized the engagement of the
Abdo, Abdo and Eick Company to provide auditing services for
1995, 1996 and 1997 plus an option for 1998-2000. The cost for
their professional services to prepare the 1997 CAFR
(comprehensive annual financial report) was approved in an amount
of $10,260.00.
The City Council approved Resolution 94-27 on June 6, 1994 which
authorized a working capital designation or General Fund reserve of
30% of the current year's Operating Budget, based upon the
availability of sufficient funds. Any remaining portion is to be
allocated by the Council as unreserved fund balance. Each year the
Council is to review these excess amounts for the purpose of
allocating the excess reserves to other City funds on an as needed
basis.
Current Circumstances
Final budget figures show a surplus of $225,643.00. The surplus
occurred because of actual revenues of $6,268,232 compared to
budgeted revenues of $6,153,718 or 102% of projection. Operating
expenditures were $6,042,589 (excluding the $450,000 transfer to
establish the Revolving Equipment Fund) compared to budgeted
expenditures of6,153,718 or 98% of budget.
Because the Council last year appropriated a total of $450,000 from
the General Fund to create the Revolving Equipment Fund the
16200 ~g,w~~tP}iI:v~cS.E., Prior Lake, Minnesota 55372-1714 / Ph. (612) 447-4230 / Fax (612) 447-4245
AN EQUAL OPPORTUNITY EMPLOYER
General Fund balance was reduced from the recommended 30%
working capital threshold to 26.6%. It should be restored to the 30%
level over the next three years under normal budget experience.
Contained within the financial report is a legal compliance audit
which was performed to ensure compliance with Minnesota Statutes
in the areas of; contracting and bidding, deposits and investments,
conflicts of interest, public indebtedness and claims and
disbursements.
According to the auditor's tests, the City has complied with the
applicable legal provisions as they apply to the five 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 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, under a section entitled "Fund Balance", the auditors
discuss the importance of maintaining an adequate fund balance for
cash flow purposes and to establish overall long term financial
strength.
ALTERNATIVES:
The following alternatives are available to the City Council:
1. Accept 1997 Audit Report and Management Letter as submitted.
2. Delay action according to specific Council reason.
RECOMMENDATION: Staff would recommend approval of the management letter and the
financial report for the fiscal year ended December 31, 1997 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, 1998 along
with this report.
Please feel free to contact Staff prior to the meeting if you have any
questions. Gerry Eick of the firm Abdo, Abdo and Eick will make a
brief presentation regarding the report and management letter.
RECOMMENDED
MOTION:
Mot"
dit Report and Management Letter.
REVIEWED BY:
H:IAUDI1\AUDAGEN.DOC
Certified ?uhlic Accountants & Consultants
115 East Hickory Street
Suite 302
P.O. Box 3166
Mankato, MN 56002-3166
COMMUNICA nON WITH AUDIT COMMITTEE OR ITS EQUIVALENT
Mayor and Council
City of Prior Lake
Prior Lake, Minnesota
Dear Mayor and Council:
In planning and performing our audit of the general purpose fmancial statements of the City of Prior Lake for the year ended
December 31, 1997, we considered its internal control structure in order to determine our auditing procedures for the purpose
of expressing our opinion on the fmancial statements and not to provide assurance on the internal control. Reportable
conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of internal
control that, in our judgment, could adversely affect the City's ability to record, process, summarize and report financial data
consistent with the assertions of management in the fmancial statements.
A material weakness is a reportable condition in which the design or operations of one or more of the internal control
structure elements does not reduce to a relatively low level the risk that errors or irregularities in amounts that would be
material in relation to the fmancial statements being audited may occur and not be detected within a timely period by
employees in the normal course of performing their assigned functions.
Our consideration of the internal control would not necessarily disclose all matters in the internal control that might be
reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be
material weaknesses as defmed above. We noted no matters involving the internal control and its operation that we consider
to be a material weakness as defmed above.
As we continue to work with your City we will make comments or recommendation that we feel appropriate to make your
community better. Our perspective is usually driven by fmancial aspects. Our comments can also relate to operations and
useful methodologies working successfully outside your community. It is our way of sharing our experience and knowledge.
Our value to your City should extend beyond our audit opinion. If there is anything we can do to help, let us know.
507.625.2727 . Fax 507.388.9139
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Page Two
Fund Balance
Minnesota municipalities must maintain substantial amounts of fund balance in order to meet their liquidity and working
capital needs as an operating entity. A substantial portion of your revenue sources (taxes and intergovernmental
revenues) are received in the fifth month of each six-month cycle.
As you can see from the following information, there is still a need to continue to maintain fund balance in order to keep
pace with the increasing operating budget.
Percent
General of Fund
Fund Balance Budget Fund Balance to
Year December 31 Year Budget Budget
1994 $1,485,015 1995 $4,819,755 30.8%
1995 1,968,019 1996 5,447,005 36.1
1996 2,039,480 1997 6,153,718 38.9
1997 1,815,122 1998 6,830,198 26.6
The fmancial strength shown by good fund balances can affect many areas. One in particular involves the annual bond
rating. This has a direct impact on the cost of borrowing and the cost of projects. As the City continues to grow and
demand bigger budgets and more services, the security of strong fund balance will allow for a continuous flow of
services regardless of when revenues are received. During 1997 the City deliberately drew on General Fund balance by
making a transfer of $450,000 to establish a capital revolving fund. This will have long-term benefit. The City plans to
build fund balance in the future.
The following is an analysis of the General Fund's unreserved fund balances for the past four years compared to the
following year's budget.
Unreserved fund Balance! Budget Comparison
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
36.1%
38.9%
26.6%
%,000,000
1,000,000
o
1994
1995
1996
1997
__Actual Fund Balance
___Budgeted
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Page Three
Financial Position and Results of Operations
General Fund
The financial statements of the General Fund are presented on pages 22 through 27 of the 1997 Annual Financial
Report. All general governmental functions of the City which are not accounted for in separate funds are included in
the General Fund. Revenues and transfers for the General Fund for 1997 totaled $6,268,232, an increase of
$548,926 or 9.60% over 1996. This information is presented in graphic form below.
Percent Increase
of (Decrease)
Revenue Source 1997 Total 1996 From 1996
Taxes $ 3,164,046 50.5 % $ 2,720,824 $ 443,222
Licenses and permits 366,341 5.8 506,258 (139,917)
Intergovernmental revenues 1,622,544 25.9 1,556,022 66,5~2
Charges for services 603,373 9.6 515,735 87,638
Fines and forfeits 78,582 1.3 61,119 17,463
Interest 74,134 1.2 81,145 (7,011)
Other revenue 184,212 2.9 103,203 81,009
Transfers from other funds 175,000 2.8 175,000 0
Total Revenues and
Transfers $ 6,268,232 100.0% $ 5,719,306 $ 548,926
General Fund Revenues by Source
Other Revenue
4.1%
Taxes
50.5%
Intergovernmental
25.9%
Fines and Forfeits
1.3%
Charges for Services
9.6%
Transfers
2.8%Licenses and Permits
5.8%
Page Four
Expenditures and transfers for the General Fund for 1997 totaled $6,492,589. This is an increase of 15.0%
over the 1996 General Fund expenditures and transfers of $5,647,844. This information is presented in
graphic form be/ow.
Percent Increase
of (Decrease)
Program 1997 Total 1996 From 1996
Current
General government $ 1,229,790 18.9 % $ 1,100,699 $ 129,091
Public safety 1,981,812 30.6 1,893,864 87,948
Public works 733,802 11.3 651,777 82,025
Culture and recreation 946,569 14.6 878,654 67,915
Economic development 52,455 0.8 46,000 6,455
Contingency 151,964 2.3 110,911 41,053
Total current 5,096,392 78.5 4,681,905 414,487
Capital outlay 160,437 2.5 142,316 18,121
Transit 301,171 4.6 0 301,171
Transfers to other funds 934,589 14.4 823,623 110,9b6
$ 6,492,589 100.0% $ 5,647,844 $ 844,745
General Fund Expenditures by Department
Transfers
14.4%
General Government
18.9%
Culture and
Recreation
14.6%
Public Safety
30.6%
Contingency
2.3%
Public Work
11.3%
Economic
Development
0.8%
Capital Outlay
2.5%
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Page Five
General Fund Expenditures by Object
Contingency Reserve
2.7%
Supplies
8.1%
Other Services and
Charges
26.0%
Personal Services
60.3%
Capital Outlay
2.9%
This report is intended solely for the use of management and Council. The comments and recommendations in the report are
purely constructive in nature, and should be read in this context.
Our audit would not necessarily disclose all weaknesses in the system, because it was based on selected tests of the
accounting records and related data.
If you have any questions or wish to discuss any of the items contained in this letter, please feel free to contact us at your
convenience. We wish to thank you for the continued opportunity to be of service, and for the courtesy and cooperation
extended to us by your staff.
March 26, 1998
Minneapolis, Minnesota
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ABDO, ABDO, EICK & MEYERS, LLP
Certified Public Accountants