9.a) Auditors Report and Financial Statements for Year Ended December 31, 2011-CliftonLarsonAllen Meeting Date: 4/17/2012
Agenda Item: G� � �
City Council Agenda Report
City of Scandia
14727 209th St. North
Scandia, MN 55073 (651) 433-2274
Action Requested: Accept the Auditors Report and Financial Statements for the year
ended December 31, 2011 and direct publication of the summary
financial statement as required by state law.
Deadline/Timeline: N/A
Background: Representatives of CliftonLarsonAllen will be at the April 17 City
Council meeting to present the audit report and answer any questions.
Recommendation: I recommend that the Council receive the report and, unless additional
discussion is needed at a subsequent meeting, accept the report.
Attachments/ • Letter to City Council from CliftonLarsonAllen for Year Ended
Materials provided: December 31, 2011
• Financial Statements for Year Ended December 31, 2011
ContaCt(s): Dennis Hoogeveen, Partner
John Lorenzini, Senior
CliftonLarsonAllen, 612-376-4500
Prepared by: Anne Hurlburt, Administrator
(audit 2011)
Page 1 of 1
04/13/12
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CliftanLarsonAtlen
c�ty coun�il
City of Scandia
Scandia, Minnesota
We have audited the financial statements of the governmental activities, tbe business-type activities, each major
fund, and the aggregate remaining fund information of the City of Scandia, Minnesota (the City) for the year
ended December 31, 2011, and have issued our report thereon dated April 6, 2012. Professional standards require
that we provide you with the following information relatcd to our audit.
Our responsibility under U.S. Generally Accepted Auditing Standards and Government Auditing Standards
As stated in our engagement letter dated February 6, 2012, our responsibility, as described by professional
standards, is to express opinions about whether the financial statements prepared by management with your
oversight are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting
principles. Our audit of the financial statements does not relieve you or management of your responsibilities.
As part of our audit, we considered the internal control of the City. Such considerations were solely for the
purpose of determining our audit procedures and not to provide any assurance concerning such internal control.
As part of obtaining reasonable assurance about whether the financial statements are free of material
misstatement, we performed tests of the City's compliance with certain provisions of laws, regulations, contracts,
and grants. However, the objective of our tests was not to provide an opinion on compliance with such provisions.
1. Our responsibility is to plan and perform the audit to obtain reasonable, but not absolute, assurance that
the financial statements are free of material misstatement.
2. We are responsible for communicating significant matters related to the audit that are, in our professional
judgment, relevant to your responsibilities in overseeing the financial reporting process. However, we are
not required to design procedures specifically to identify such matters.
3. We are also responsible for communicating matters regarding the provisions of the Minnesota Legal
Compliance Audit Guide for Political Subdivisions,promulgated by the State Auditor pursuant Minnesota
Statute 6.65.
Planned scope and timing of the audit
We performed the audit according to the planned scope and timing previously communicated to you in our
meeting about planning matters on February 6, 2012.
Significant audit findings
Qualitative aspects of accounting practices
Management is responsible for the selection and use of appropriate accounting policies. In accordance with the
terms of our engagement letter, we will advise management about the appropriateness of accounting policies and
their application. 'I'he significant accounting policies used by City of Scandia are described in Note 1 to the
financial statements. As discussed in Note 1 to the financial statements, the City adopted GASB 54,Fund Balance
Reporting and Governmerttal Fund Tvpe Defnitions. Aside from the implementation of this standard, no other
accounting policies were adopted and the application of existing policies was not changed during 2011.
City Council
City of Scandia
Page 2
Significant audit findings (continued)
Qualitative aspects of accounting practices (continued)
We noted no transactions entered into by the City during the year for which there is a lack of authoritative
guidance ar consensus. All significant transactions have bcen recognized in the financial statements in the proper
period.
Accounting estimates are an integral part of the financial statements prepared by management and are based on
management's knowledge and experience about past and current events and assumptions about future events.
Certain accounting estimates are particularly sensitive because of their significance to the financial statements and
because of the possibility that future events affecting them may differ significantly from those expected. Tbe most
sensitive estimate affecting the financial statements was:
Estimated useful lives of depreciable capital assets - Management's estimate of useful lives for depreciable
assets is based on guidance recommended by authoritative accounting literature and past experiences. The
useful life of a depreciable asset determines tbe amount of depreciation that will be recorded in any given
reporting period as well as the amount of accumulated depreciation that is reported at the end of a reporting
period.
We evaluated the key factars and assumptions used to develop the above estimates in determining that it is
reasonable in relation to the financial statements taken as a whole.
The financial statement disclosures are neutral, consistent, and clear.
Difficulties encountered in performing the audit
We encountered no significant difficulties in dealing with management in performing and completing our audit.
Corrected and uncorrected misstatements
Professional standards require us to accumulate all known and likely misstatemcnts identified during the audit,
other than thosc that are trivial, and communicate them to the appropriate level of management. We proposed
audit adjustments to convert the City's records from cash to accrual basis as a result of audit procedures in the
areas of cash, receivables, accounts payable, accrued liabilities, fund balance, net assets, revenues and
expenditures. These audit adjustments were recorded by management.
Disagreements with management
For purposes of this letter, professional standards define a disagreement with managemcnt as a financial
accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to
the financial statements or the auditors' report. We are pleased to report that no such disagreements arose during
the course of our audit.
Management representations
We have requested certain representations from management that are included in the management representation
letter dated Apri16, 2012.
City Council
Ciry of Scandia
Page 3
Management consultations with other independent accountants
In some cases, management may decide to consult with other accountants about auditing and accounting matters,
similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an
accounting principle to the Ciry's financial statements ar a determination of the type of auditors' opinion that may
be expressed on those statements, our professional standards require the consulting accountant to check with us to
determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with
other accountants.
Other audit findings or issues
We generally discuss a variety of matters, including the application of accounting principles and auditing
standards, with management each year prior to retention as the City's auditors. However, these discussions
occurred in the normal course of our professional relationship and our responses were not a condition to our
retention.
Other information in documents containing audited financial statements
Our responsibility for the supplementary information accompanying the financial statements, as described by
professional standards, is to evaluate the presentation of the supplementary information in relation to the financial
statements as a whole and to report on whether the supplementary information is fairly stated, in all material
respects, in relation to the financial statements as a whole. With respect to the supplementary information
accompanying the financial statements, we made certain inquiries of management and evaluated the form,
content, and methods of preparing the information to determine that tbe information complies with U.S. generally
accepted accounting principles, the method of preparing it has not changed from the prior period, and the
information is appropriate and complete in relation to our audit of the financial statements. We compared and
reconciled the supplementary information to the underlying accounting records used to prepare the financial
statements or to the financial statements themselves. We have issued our report thereon dated April 6, 2012.
Other information is being included in documents containing the audited financial statements and the auditors'
report thereon. Our responsibility for such other information does not extend beyond the financial information
idcntified in our auditors' report. We have no responsibility for determining whether such other information is
properly stated and do not have an obligation to perform any procedures to corroborate other information
contained in such documents. As required by professional standards, we read the other information in order to
identify material inconsistencies between the audited financial statements and the other inforination. We did not
identify any material inconsistencies between the other information and the audited financial statements.
With respect to the required supplementary information (RSI) accompanying the financial statements, we made
certain inquiries of management about the methods of preparing the RSI, including wbether the RSI has been
measured and presented in accordance with prescribed guidelines, whether the methods of ineasurement and
preparation have been changed from the prior period, and whether there were any significant assumptions or
interpretations underlying the measurement or presentation of the RSL We compared the RSI for consistency with
management's responses to the foregoing inquiries, the basic financial statements, and other knowledge obtained
during the audit of the basic financial statements. Because these limited procedures do not provide sufficient
evidence, we did not express an opinion or provide any assurance on the RSI.
Our auditors' opinion, the audited financial statements, and the notes to financial statements should only be used
in their entirery. Inclusion of the audited financial statements in a document you prepare, such as an annual report,
should be done only with our prior approval and review of the document.
* * * * * *
Ciry Council
City of Scandia
Page 4
This report is intended solely for the use of the City Council and management of the City of Scandia and is not
intended to be and should not be used by anyone other than these specified parties.
;�.�.��r.��'z%,�.�'L..�
CliftonLarsonAllen LLP
Minneapolis,Minnesota
April 6, 2012
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CITY OF SCANDIA, MINNESOTA
' FINANCIAL STATEMENTS AND
SUPPLEMENTARYINFORMATION
' YEAR ENDED DECEMBER 31, 2011
,
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City of Scandia
� 14727 209th Street North
' Scandia, Minnesota 55073
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' CITY OF SCANDIA, MINNESOTA
TABLE OF CONTENTS
' YEAR ENDED DECEMBER 31, 2011
tI. INTRODUCTORY SECTION
' Elected and Appointed Officials
II. FINANCIAL SECTION
' Independent Auditors' Report 1
REQUIRED SUPPLEMENTARY INFORMATION
' Management's Discussion and Analysis 3
Basic Financial Statements
' Statement of Net Assets 13
Statement of Activities 14
' Balance Sheet— Governmental Funds 16
Reconciliation of the Governmental Funds Balance Sheet to the Statement of
Net Assets — Governmental Activities 17
' Statement of Revenues, Expenditures, and Changes in Fund Balance —
Governmental Funds 18
' Reconciliation of the Governmental Funds Statement of Revenues,
Expenditures, and Changes in Fund Balance to the Statement of Activities —
Governmental Activities 19
' Statement of Net Assets — Proprietary Funds 20
Statement of Revenues, Expenses, and Changes in Net Assets — Proprietary
' Funds 21
Statement of Cash Flows — Proprietary Funds 22
Statement of Net Assets— Fiduciary Fund 23
' Notes to Basic Financial Statements 24
Required Supplementary Information — Budgetary Comparison Information
' Schedule of Revenues, Expenditures and Changes in Fund Balance — Budget
and Actual — General Fund 42
' Notes to Required Supplementary Information 44
Combining Fund Financial Statements
, Combining Balance Sheet— Nonmajor Governmental Funds 45
Combining Statement of Revenues, Expenditures and Changes in Fund
Balance — Nonmajor Governmental Funds 46
' Statement of Changes in Assets and Liabilities — Fiduciary Funds 47
'
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' CITY OF SCANDIA, MINNESOTA
TABLE OF CONTENTS (CONTINUED)
' YEAR ENDED DECEMBER 31, 2011
' III. OTHER REQUIRED REPORTS
' Report on Minnesota Legal Compliance 48
Report on internai Control over Financial Reporting and on Compliance and Other
Matters Based on an Audit of Financial Statements Performed in Accordance with
' Government Auditing Standards 49
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' I.
' INTRODUCTORY
SECTION
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' CITY OF SCANDIA, MINNESOTA
ELECTED AND APPOINTED OFFICIALS
, DECEMBER 31, 2011
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Elected Position
, Randall Simonson Mayor
' Connie Amos Council Member
Chris Ness Council Member
, Sally Swanson Council Member
Jim Schnieder Council Member
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Appointed
' Anne Huriburt Administrator
' Colleen Firkus Treasurer
Brenda Eklund Deputy Clerk
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' II.
' FINANCIAL
SECTION
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' �� CliftonLarsonAllen LLP
tivww.cl iftoniarsonallen.com
CliftonLarsonAllen
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, INDEPENDENT AUDITORS' REPORT
'
' Honorable Mayor
Members of the City Council and Citizens
City of Scandia, Minnesota
' We have audited the accompanying financial statements of the governmental activities, the business-
type activities, each major fund, and the aggregate remaining fund information of the City of Scandia,
' Minnesota as of and for the year ended December 31, 2011, which collectively comprise the City's
basic financial statements as listed in the tabie of contents. These financial statements are the
responsibility of the City's management. Our responsibility is to express opinions on these financial
statements based on our audit.
' We conducted our audit in accordance with auditing standards generally accepted in the United States
of America and the standards applicable to financial audits contained in Government Auditing
' Standards, issued by the Comptroller General of the United States. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
' amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a reasonable basis for our
' opinions.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
' respective financial position of the governmentai activities, the business-type activities, each major
fund, and the aggregate remaining fund information of the City of Scandia, Minnesota as of
December 31, 2011, and the respective changes in financial position and, where applicable, cash flows
thereof for the year then ended in conformity with accounting principles generally accepted in the
, United States of America.
As discussed in the notes to the basic financial statements, the City adopted the provisions of
' Government Accounting Standards Board Statement No. 54, Fund Balance Reporting and
Governmental Fund Type Definitions, as of and for the year ended December 31, 2011. The statement
results in the City reporting nonspendable, restricted, assigned, and unassigned fund balances in its
' governmental funds.
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' (1)
Honorable Mayor '
Members of the City Council and Citizens
'
In accordance with Government Auditing Standards, we have also issued a report dated April 6, 2012 '
on our consideration of the City of Scandia, Minnesota's internal control over financial reporting and on
our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and '
other matters. The purpose of that report is to describe the scope of our testing of internal control over
financial reporting and compliance and the results of that testing and not to provide an opinion on the
internal control over financial reporting or on compliance. That report is an integral part of an audit '
performed in accordance with Government Auditing Standards and should be considered in assessing
the results of our audit.
Accounting principles generally accepted in the United States of America require that the '
management's discussion and analysis and budgetary comparison information as listed on the table of
contents be presented to supplement the basic financial statements. Such information, although not a
part of the basic financial statements, is required by the Governmental Accounting Standards Board, '
who considers it to be an essential part of financial reporting for placing the basic financial statements
in an appropriate operational, economic, or historical context. We have applied certain limited
procedures to the required supplementary information in accordance with auditing standards generally '
accepted in the United States of America, which consisted of inquiries of management about the
methods of preparing the information and comparing the information for consistency with
managemenYs responses to our inquiries, the basic financial statements, and other knowledge we '
obtained during our audit of the basic financial statements. We do not express an opinion or provide
any assurance on the information because the limited procedures do not provide us with sufficient
evidence to express an opinion or provide any assurance. '
Our audit was conducted for the purpose of forming opinions on the financial statements that
collectively comprise the City's basic financial statements. The combining fund financial statements are
presented for purposes of additional analysis and are not a required part of the basic financial '
statements. The combining fund financial statements are the responsibility of management and were
derived from and relate directly to the underlying accounting and other records used to prepare the
financial statements. The information has been subjected to the auditing procedures applied in the '
audit of the basic financial statements and certain additional procedures, including comparing and
reconciling such information directly to the underlying accounting and other records used to prepare the
financial statements or to the financial statements themselves, and other additional procedures in ,
accordance with auditing standards generally accepted in the United States of America. In our opinion,
the information is fairly stated in all material respects in relation to the basic financial statements taken
as a whole. '
Our audit was conducted for the purpose of forming opinions on the financial statements that
collectively comprise the City's basic financial statements. The introductory section is presented for
purposes of additional analysis and is not a required part of the basic financial statements. Such '
information has not been subjected to the auditing procedures applied in the audit of the basic financial
statements, and accordingly, we do not express an opinion or provide any assurance on it.
'
�L LL�
CliftonLarsonAllen LLP '
Minneapolis, Minnesota
April 6, 2012 '
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, REQUIRED SUPPLEMENTARY INFORMATION
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' CITY OF SCANDIA, MINNESOTA
MANAGEMENT'S DISCUSSION AND ANALYSIS
� YEAR ENDED DECEMBER 31, 2011
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As management of the City, we offer readers of the City's financial statements this narrative overview
� and analysis of the financial activities of the City for the fiscai year ended December 31, 2011.
Financial Highlights
� o The City's net assets of its governmental activities increased by $214,468 during the year to
$10,249,522 at year-end.
o The total fund balance of the General Fund increased by $155,023 during the year to
' $1,253,676 at year-end.
o The net assets of the City's business-type activities (201 Sewer Enterprise Fund) decreased by
' $27,266 during the year to $1,030,302.
Overview of the Financial Statements
' This discussion and analysis is intended to serve as an introduction to the City's basic financial
statements. The City's basic financial statements comprise three components: 1) government-wide
financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report
' also contains other supplementary information in addition to the basic financial statements.
Government-Wide Financial Statements
' The government-wide financial statements are designed to provide readers with a broad overview of
the City's finances, in a manner similar to a private-sector business.
' The statement of net assets presents information on all of the City's assets and liabilities, with the
difference between the two reported as net assets. Over time, increases or decreases in net assets
may serve as a useful indicator of whether the financial position of the City is improving or deteriorating.
' The statement of activities presents information showing how the City's net assets changed during the
most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving
rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses
' are reported in this statement for some items that will only result in cash flows in future fiscal periods
(e.g., uncollected taxes and earned but unused vacation leave).
' Both of the government-wide financial statements distinguish functions of the City that are principally
supported by taxes and intergovernmental revenues (governmental activities) from other functions that
are intended to recover all or a significant portion of their costs through user fees and charges
' (business-type activities). The governmental activities of the City include general government, public
safety, public works, parks and recreation, and other. The only business-type activities of the City are
the sewer operations.
' The government-wide financial statements can be found on pages 14-16 of this report.
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CITY OF SCANDIA MINNESOTA �
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MANAGEMENT'S DISCUSSION AND ANALYSIS
YEAR ENDED DECEMBER 31, 2011 �
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Fund Financial Statements
A fund is a grouping of related accounts that is used to maintain control over resources that have been �
segregated for specific activities or objectives. The City, like other state and local governments, uses
fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of
the funds of the City can be divided into two categories: governmental funds and proprietary funds. �
Governmental Funds. Governmental funds are used to account for essentially the same functions
reported as governmental activities in the government-wide financial statements. However, unlike the '
government-wide financial statements, governmental fund financial statements focus on near-term
inflows and outflows of spendable resources, as well as on balances of spendable resources available
at the end of the fiscal year. Such information may be useful in evaluating a government's near-term
financing requirements. '
Because the focus of governmental funds is narrower than that of the government-wide financial
statements, it is useful to compare the information presented for governmental funds with similar '
information presented for governmental activities in the government-wide financial statements. By doing
so, readers may better understand the long-term impact by the governmenYs near-term financing
decisions. Both the governmental fund balance sheet and the governmental fund statement of '
revenues, expenditures and changes in fund balances provide a reconciliation to facilitate this
comparison between governmental funds and governmental activities.
The City maintains several individual governmental funds. Information is presented separately in the ,
governmental fund balance sheet and in the governmental fund statement of revenues, expenditures
and changes in fund balances for the General Fund, 2007 Improvement Bond Debt Service Fund, and
the Equipment Replacement Capital Project Fund. Data from the other governmentai funds are �
combined into a singie, aggregated presentation. Individual fund data for each of these nonmajor
governmental funds is provided in the form of combining statements elsewhere in these financial
statements. '
The City adopts an annual appropriated budget for its General Fund. A budgetary comparison
statement has been provided for the General Fund to demonstrate compliance with this budget. '
The basic governmental fund financial statements can be found on pages 16-19 of this report.
Proprietary Funds. The proprietary funds are used to report the same functions presented as ,
business-type activities in the government-wide financial statements. The City uses enterprise funds to
account for its business-type activities.
Proprietary funds provide the same type of information as the government-wide financial statements, '
only in more detail. The proprietary fund financial statements provide separate information for the 201
Sewer Enterprise Fund which is considered to be a major fund of the City. '
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' CITY OF SCANDIA, MINNESOTA
MANAGEMENT'S DISCUSSION AND ANALYSIS
' YEAR ENDED DECEMBER 31, 2011
'
Fund Financial Statements (Continued)
' Proprietary Funds (Continued)
The basic proprietary fund financial statements can be found on pages 20-22 of this report.
' Notes to Financial Statements
The notes provide additional information that is essential to a full understanding of the data provided in
the government-wide and fund financial statements. The notes to financial statements can be found on
, pages 24-41 of this report.
Other Information
, The combining statements referred to earlier in connection with nonmajor governmental funds are
presented immediately following the notes to financial statements. Combining and individual fund
statements and schedules can be found on pages 45-46 of this report.
' Government-Wide Financial Analysis
The City's financial statements are presented in accordance with the requirements of Governmental
, Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements and
Management's Discussion and Analysis-for State and Local Governments. Comparative information is
included in these tables to highlight changes in financial position, shown in Exhibits 1-2.
' The government-wide statements report the City's net assets and how they have changed. Net assets,
the difference between the City's assets and liabilities, are one way to measure the City's financial
position. Over time, increases or decreases in the City's net assets can be used as an indicator of the
' City's financial position.
The City's financial position is the product of many factors. For example, the determination of the City's
, investment in capital assets, net of related debt involves many assumptions and estimates, such as
current and accumulated depreciation amounts. A conservative versus a liberal approach to
depreciation estimates, as well as capitalization policies, will produce a very significant difference in the
' calculated amounts. For these reasons, it is important to view the net assets balance as a starting point
to evaluate future years' results, rather than to focus on the current balance.
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CITY OF SCANDIA, MINNESOTA '
MANAGEMENT'S DISCUSSION AND ANALYSIS
YEAR ENDED DECEMBER 31, 2011 '
'
EXHIBIT 1: CITY OF SCANDIA'S NET ASSETS
Governmental Activities Business-Type Activities Totals '
2011 2010 2011 2010 2011 2010
Current and Other Assets $ 2,632,021 $ 2,190,041 $ 219,098 $ 196,684 $ 2,851,119 $ 2,386,725
Capital Assets,Net 9,401,146 9,623,907 840,000 870,000 10,241,146 10,493,907 '
Total Assets 12,033,167 11,813,948 1,059,098 1,066,684 13,092,265 12,880,632
Current Liabilities 247,863 169,408 28,796 9,116 276,659 178,524
Long-Term Liabilities 1,535,782 1,609,486 - - 1,535,782 1,609,486 '
Total Liabilities 1,783,645 1,778,894 28,796 9,116 1,812,441 1,788,010
Net Assets:
Invested in Capital Assets '
Net of Related Debt 7,884,454 8,031,460 840,000 870,000 8,724,454 8,901,460
Restricted for Debt Retirement 596,540 509,529 - - 596,540 509,529
Restricted for Road Maintenance 122,573 121,144 - - 122,573 121,144
Unrestricted 1,645,955 1,372,921 190,302 187,568 1,836,257 1,560,489 '
Total NetAssets $ 10,249,522 $ 10,035,054 1,030,302 1,057,568 11,279,824 11,092,622
As noted earlier, net assets may serve over time as a useful indicator of a government's financial '
position. In the case of the City, assets exceeded liabilities by $11,279,824 at the close of the most
recent fiscal year. The largest portion of the City's net assets (77%) reflects its investment in capital
assets (e.g., land, buildings, machinery and equipment), less any related debt used to acquire those
assets that are still outstanding. The City uses these capital assets to provide services to citizens: ,
consequently, these assets are not available for future spending. Although the City's investment in its
capital assets is reported net of related debt, it should be noted that the resources needed to repay this
debt must be provided from other sources, since the capital assets themselves cannot be used to ,
liquidate these liabilities. The City's debt is repaid primarily through special assessments, property tax
levies for debt of governmental activities and user charges provide the financing for the debt of the
business-type activities. '
An additional portion of the City's net assets (6%) represents resources that are subject to external
restrictions on how they may be used. The remaining balance of unrestricted net assets ($1,836,257) '
may be used to meet the City's ongoing obligations to citizens and creditors.
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' CITY OF SCANDIA, MINNESOTA
MANAGEMENT'S DISCUSSION AND ANALYSIS
' YEAR ENDED DECEMBER 31, 2011
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EXHIBIT 2: CHANGES IN NET ASSETS
' Governmental Activities Business-Type Activities Totals
2011 2010 2011 2010 2011 2010
REVENUES
' Proqram Revenues
Charges for Services $ 357,179 $ 210,529 $ 66,203 $ 61,236 $ 423,382 $ 271,765
Operating Grants and Contributions 44,380 40,717 44,380 40,717
Capital Grants and Contributions 25,799 36,945 - 5,475 25,799 42,420
' General Revenues
Property Taxes 1,921,044 1,844,625 1,921,044 1,844,625
Grants and Contributions Not
Restricted for a Particular Purpose 9,330 9,691 - - 9,330 9,691
' Other 16,973 22,022 1,205 1,358 18,178 23,380
Total Revenues 2,374,705 2,164,529 67,408 68,069 2,442,113 2,232,598
EXPENSES
' General Government 687,731 451,020 - = 687,731 451,020
Public Safety 425,673 473,909 425,673 473,909
Public Works 848,899 784,751 - - 848,899 784,751
Parks and Recreation 133,215 96,149 - - 133,215 96,149
' Interest and Fiscal Charges 68,364 72,542 - - 68,364 72,542
Sewer 91,029 67,359 91,029 67,359
Total Expenses 2,163,882 1,878,371 91,029 67,359 2,254,911 1,945,730
� TRANSFERS 3,645 3,645 (3,645) (3,645) - -
CHANGE IN NET ASSETS 214,468 289,803 (27,266) (2,935) 187,202 286,868
Net Assets-Beginning of Year 10,035,054 9,745,251 1,057,568 1,060,503 11,092,622 10,805,754
' NET ASSETS-END OF YEAR 10,249,522 10,035,054 1,030,302 1,057,568 11,279,824 11,092,622
Governmental Activities. Governmental activities increased the City's net assets by $214,468.
' Business-Type Activities. Business-type expenses (the 201 Sewer Enterprise Fund) decreased the
City's net assets by $27,266.
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CITY OF SCANDIA MINNESOTA '
,
MANAGEMENT'S DISCUSSION AND ANALYSIS '
YEAR ENDED DECEMBER 31, 2011
,
The following is a graphical representation of the various sources of the City's governmental revenues
(excluding transfers) of$2,374,705: ,
Governmental Activities Revenue by Source 2011
o Fees,Charges,and '
Other ■OperatingGrantsand
o Other General Revenue 15°/o ontributions ,
1% � 2%
❑Capital Grantsand
— --_ Contributions
1% '
❑Grants and Contributions
n o t Restri cted fo r a
■PropertyTaxes Particula�rPurpose '
81% 0%
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The following is a graphical representation of the various sources of the City's governmental expenses '
of$2,163,882 and program revenues of$427,358:
Expenses and Program Revenues- Governmental Activities '
$900,000 --- ---- --
o Expenses 'i '
$800,000 ■Program Revenues �
$700,000
$600,000 '
$500,000 II
$400,000 � '
$300,000 I
$200,000 � ,
$100,000 I
$- 'General Government Public Safety Public Works Parks and Interest and Fiscal
Recreation Charges
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' CITY OF SCANDIA, MINNESOTA
MANAGEMENT'S DISCUSSION AND ANALYSIS
' YEAR ENDED DECEMBER 31, 2011
' The followin is a ra hical re resentation of the various sources of the Cit 's business-t e revenues
9 9 p P Y YP
' of$67,408:
Business-Type Activities Revenue by Source 2011
' Oth er
r2%
I
' - - � — -
- � _ -- --
' �,� .
.��`�... �.�
' Ch arg es fo r Serv ices
98%
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The following is a graphical representation of the various sources of the City's business-type expenses
' of$91,029 and program revenues of$66,203:
Expenses and Program Revenues-Business-Type Activities
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$95,000
' ❑Expenses �
■Program Revenues i
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$85,000
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' $75,000
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$65,000
' Sewer
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CITY OF SCANDIA, MINNESOTA '
MANAGEMENT'S DISCUSSION AND ANALYSIS
YEAR ENDED DECEMBER 31, 2011 '
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Financial Analysis of the GovernmenYs Funds
As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance- ,
related legal requirements.
Governmental Funds. The focus of the City's governmental funds is to provide information on near- '
term inflows, outflows and balances of spendab/e resources. Such information is useful in assessing
the City's financing requirements. In particular, unassigned fund ba/ance may serve as a useful
measure of a government's net resources available for spending at the end of the fiscal year.
At of the end of the current fiscal year, all of the City's governmental funds together reported combined '
ending fund balances of $2,177,482, an increase of $413,569 in comparison with the prior year. Of the
$2,177,482 fund balance, 73% ($1,583,285) constitutes unrestricted fund balance, which is available '
for spending at the City's discretion. The unrestricted fund balance is broken into two categories,
assigned and unassigned. Unassigned fund balance represents 51°/o ($1,107,750) and assigned fund
balance represents 22% ($475,535). The remainder of the fund balance consists of nonspendable and '
restricted fund balance. Nonspendable fund balance constitutes 1% ($23,353) and restricted fund
balance constitutes 26% ($570,844).
The General Fund is the chief operating fund of the City. At the end of the current year, fund balance of '
the General Fund was $1,253,676, an increase of $155,023 over the prior fiscal year. Key factors in
this change in fund balance are as follows: ,
o Actual expenditures totaled $1,715,854 (excluding transfers) for 2011 compared to budgeted
expenditures of$1,856,441, a net favorable variance of$140,587.
o Actual revenues totaled $1,977,232 for 2011 compared to budgeted revenues of $1,978,028, a '
net unfavorable variance of $796 (before transfers). Revenue from Zoning and Hearing Fees
were $50,632 less than budgeted due to the timing of reimbursements for planner services.
Licenses and permit revenue was $15,207 more than budgeted, and intergovernmental revenue '
was $31,345 more than budgeted due to better than anticipated building activity and state aids.
Because property tax revenues are not received until the middle of the budget year, it is important that '
the City carry fund balances sufficient to cover anticipated expenses for the first half of the budget year.
If not, the City would be forced to borrow (and pay interest on) the funds necessary to meet basic
expenses such as payroll. The $1,107,750 of unassigned fund balance in the General Fund is '
adequate for cash flow purposes.
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' CITY OF SCANDIA, MINNESOTA
MANAGEMENT'S DISCUSSION AND ANALYSIS
' YEAR ENDED DECEMBER 31, 2011
'
General Fund Budgetary Highlights
' Detail of the General Fund original budget, final budget and actual revenues and expenditures can be
found beginning on page 42 of this report. The net change in the General Fund Balance was $155,023.
The City Council approved the following budget amendments during the year:
' o Increase miscellaneous revenues (donations and other) by $4,283 due to additional donations
to be used to purchase rescue equipment.
' o Increase capital outlay expenditures increased by $4,283 to purchase rescue equipment.
o Decreased salary expenditures by $14,505 due to changes in staffing.
Actual expenditures were less than budgets in several departments. Spending in the Public Works
' Department was $88,262 less than budgeted (largely due to under-spending for contractual road
maintenance, engineering, and gravel/salt budgets), spending in the Public Safety Department was
$35,282 less than budgeted ($22,441 related to fire and $9,157 related to police), and spending in the
' General Government departments (Administration, and Finance, Elections, Planning and Building and
City Council) was $26,634 less than budgeted, which largely explains the net spending of $140,587
less than the overall General Fund Budget..
' Proprietary Funds. The City's proprietary funds provide the same type of information found in the
government-wide financial statements, but in more detail.
' Unrestricted net assets of the 201 Sewer operations at the end of the year amounted to $193,269.
Capital Asset and Debt Administration
' Capital Assets. The City's investment in capital assets for its governmental and business type
activities as of December 31, 2011, amounts to $10,241,146 (net of accumulated depreciation). This
investment in capital assets includes land, construction in process, buildings, equipment and vehicles,
' other improvments, the sewer system, and infrastructure. This represents a decrease in the City of
Scandia's investment in capital assets (net of accumulated depreciation) of 2.4%.
CITY OF SCANDIA'S CAPITAL ASSETS
' (Net of Depreciation)
Governmental Business-Type
Activities Activities Totals
' 2011 2010 2011 2010 2011 2010
Land $ 487,735 $ 487,735 $ - $ - $ 487,735 $ 487,735
Construction in Process 111,852 39,295 - - 111,852 39,295
' Buildings 2,232,670 2,193,375 = = 2,232,670 2,193,375
Equipment and Vehicles 1,371,717 1,334,741 1,371,717 1,334,741
Infrastructure 9,359,242 9,353,763 - - 9,359,242 9,353,763
Other Improvements 162,647 162,647 - - 162,647 162,647
' SewerSystem - - 1,500,000 1,500,000 1,500,000 1,500,000
Less:Accumulated Depreciation (4,324,717) (3,947,649) (660,000) (630,000) (4,984,717) (4,577,649)
Total $ 9,401,146 $ 9,623,907 $ 840,000 $ 870,000 $ 10,241,146 $ 10,493,907
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' (11)
CITY OF SCANDIA, MINNESOTA '
MANAGEMENT'S DISCUSSION AND ANALYSIS
YEAR ENDED DECEMBER 31, 2011 '
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Capital Asset and Debt Administration (Continued)
Long-Term Debt. At the end of the current fiscal year, the City had total bonded debt outstanding of '
$1,540,000. All debt is backed by the full faith and credit of the City.
CITY OF SCANDIA'S OUTSTANDING DEBT '
(General Obligation)
Governmental Activities Business-Type Activities Totals
2011 2010 2011 2010 2011 2010 '
LONG-TERM OBLIGATIONS
Long-Term Debt:
General Obligation Notes $ 1,540,000 $ 1,620,000 $ - $ - $ 1,540,000 $ 1,620,000
Unamortized Bond Discount (23,308) (27,553) - - (23,308) (27,553) '
Compensated Absences 19,090 17,039 - - 19,090 17,039
Total $ 1,535,782 $ 1,609,486 �- �- 1,535,782 $ 1,609,486
Additional information on long-term debt is presented in Note 4 of this report. '
Economic Factors and Next Year's Budgets and Rates
o The City Council has approved a balanced budget for the General Fund for 2012. Staff will '
continually monitor the budget and recommend any revisions that are deemed necessary to the
City Council.
o During the current economic downturn the City will continue to experience slow or no growth, '
and the revenues from permits and interest income will continue to be below historic levels.
Staff will continue to monitor the changes in this area to prepare for 2013 budget discussions, '
which will begin in June of 2012.
Requests for Information '
This financial report is designed to provide a general overview of the City's finances for all those with an
interest in the City's finances. Questions concerning any of the information provided in this report or
requests for additional financial information should be addressed to the City of Scandia, 14727 '
209th St. N., Scandia, Minnesota 55073 (telephone 651-433-2274).
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' BASIC FINANCIAL STATEMENTS
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' CITY OF SCANDIA, MINNESOTA
STATEMENT OF NET ASSETS
, DECEMBER 31, 2011
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Governmental Business-Type
' Activities Activities Totals
ASSETS
Cash and Investments $ 2,366,775 $ 204,889 $ 2,571,664
Receivables:
' Taxes and Other 74,725 7,288 82,013
Special Assessments 153,901 6,921 160,822
Unamortized Issuance Costs 13,267 - 13,267
, Prepaid Items 18,253 = 18,253
I nventory 5,100 5,100
Capital Assets, Non Depreciable 599,587 - 599,587
' Capital Assets, Net of Accumulated Depreciation 8,801,559 840,000 9,641,559
Total Assets 12,033,167 1,059,098 13,092,265
' LIABILITIES
Accounts and Contracts Payable 214,457 28,796 243,253
Accrued Payroll, Taxes and Benefits 23,663 - 23,663
Interest Payable 6,813 - 6,813
, Unearned Revenue 2,930 - 2,930
Noncurrent Liabilities:
Due Within One Year 319,035 - 319,035
' Due in More Than One Year 1,216,747 - 1,216,747
Total Liabilities 1,783,645 28,796 1,812,441
' NET ASSETS
Invested in Capital Assets, Net of Related Debt 7,884,454 840,000 8,724,454
Restricted for Debt Retirement 596,540 - 596,540
' Restricted for Road Maintenance 122,573 - 122,573
Unrestricted 1,645,955 190,302 1,836,257
Total Net Assets $ 10,249,522 $ 1,030,302 $ 11,279,824
'
'
'
'
'
'
See accompanying Notes to Basic Financial Statements.
' (13)
CITY OF SCANDIA, MINNESOTA '
STATEMENT OF ACTIVITIES
YEAR ENDED DECEMBER 31, 2011 '
,
Program Revenues '
Operating Capital Grants
Charges for Grants and and
FUNCTIONS/PROGRAMS Expenses Service Contributions Contributions
Government Activities: '
General Government $ 687,731 $ 251,084 $ - $ -
Public Safety 425,673 32,574 38,307 -
Public Works 848,899 22,982 - 25,799 ,
Parks and Recreation 133,215 43,273 6,073 -
Interest and Fiscal Charges 68,364 7,266 - -
Total Governmental Activities 2,163,882 357,179 44,380 25,799 '
Business-Type Activities:
Sewer 91,029 66,203 - -
Total Primary Government $ 2,254,911 $ 423,382 $ 44,380 $ 25,799 '
GENERALREVENUES '
Taxes:
Property Taxes, Levied for General Purposes
Grants and Contributions not Restricted for a Particular Purpose '
Investment Earnings
Gain on Sale of Capital Assets
Transfers
Total General Revenues '
CHANGE IN NET ASSETS
Net Assets - Beginning of Year ,
NET ASSETS - END OF YEAR
'
'
'
'
1
'
See accompanying Notes to Basic Financial Statements.
(14) '
'
'
' Net Ex ense Revenue and
� P )
, Changes in Net Assets
Governmental Business-Type
Activities Activities Total
' $ (436,647) $ - $ (436,647)
(354,792) - (354,792)
' (800,118) = (800,118)
(83,869) (83,869)
(61,098) - (61,098)
' (1,736,524) - (1,736,524)
- (24,826) (24,826)
, (1,736,524) (24,826) (1,761,350)
' 1,921,044 - 1,921,044
' 9,330 = 9,330
15,032 1,205 16,237
1,941 1,941
3,645 (3,645) -
, 1,950,992 (2,440) 1,948,552
214,468 (27,266) 187,202
' 10,035,054 1,057,568 11,092,622
$ 10,249,522 $ 1,030,302 $ 11,279,824
'
'
'
'
'
,
' (15)
CITY OF SCANDIA, MINNESOTA '
BALANCE SHEET
GOVERNMENTAL FUNDS '
DECEMBER 31, 2011
'
200� '
Improvement Equipment Nonmajor
General Bond Replacement Governmental
Fund Debt Service Fund Funds Totals
ASSETS '
Cash and Investments $ 1,331,117 $ 226,785 $ 347,046 $ 461,827 $ 2,366,775
Taxes Receivable 59,706 59 - 30 59,795
Special Assessments Receivable - 153,901 - - 153,901
Other Receivables 14,930 - - - 14,930 '
Prepaid Items 18,253 - - - 18,253
Inventory 5,100 - - 5,100
Total Assets $ 1,429,106 $ 380,745 $ 347,046 $ 461,857 $ 2,618,754 '
LIABILITIES AND FUND BALANCES
Liabitities:
Accounts and Contracts Payable $ 102,605 $ - $ 111,852 $ - $ 214,457 '
Accrued Payroll,Taxes and Benefits 23,663 - - - 23,663
Deferred Revenue 49,162 153,960 - 30 203,152
Total Liabilities 175,430 153,960 111,852 30 441,272
Fund Balances: '
Nonspendable:
Prepaid Items 18,253 - - - 18,253
Inventory 5,100 - - - 5,100 ,
Restricted for:
Debt Service - 226,785 - 221,486 448,271
Road Maintenance 122,573 - - - 122,573 ,
Assigned for:
Infrastructure Improvement Projects - - - 227,405 227,405
Acquisition and Development of Parks - - - 12,936 12,936
Equipment Replacement - - 235,194 - 235,194 '
Unassigned 1,107,750 - - - 1,107,750
Total Fund Balances 1,253,676 226,785 235,194 461,827 2,177,482
Total Liabilities and Fund Balances $ 1,429,106 $ 380,745 $ 347,046 $ 461,857 $ 2,618,754 '
,
'
'
'
'
See accompanying Notes to Basic Financial Statements.
(16) '
' CITY OF SCANDIA, MINNESOTA
RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET
' TO THE STATEMENT OF NET ASSETS
GOVERNMENTAL ACTIVITIES
DECEMBER 31, 2011
'
� TOTAL FUND BALANCES FOR GOVERNMENTAL FUNDS $ 2,177,482
Total net assets reported for governmental activities in the statement of
' net assets is different because:
Capital assets used in governmental activities are not financial
' resources and, therefore, are not reported in the funds.
Capital Assets $ 13,725,863
' Less Accumulated Depreciation (4,324,717) 9,401,146
Some receivables, including special assessments, are reported as
' deferred revenue in the fund financial statements but are recognized
as revenue when earned in the government-wide statements.
These deferred revenues consist of:
' Special Assessments on Tax Roll 46,232
Other Special Assessments 153,990 200,222
' Bond and equipment certificate issuance costs are reported as
expenditures in the governmental funds and are shown as assets
net of accumulated amortization on the statement of net assets. 13,267
' Some liabilities are not due and payable in the current period and,
therefore, are not reported in the funds. These liabilities consist of:
' Long-Term Obligations (1,535,782)
Accrued Interest on Long-Term Debt (6,813) (1,542,595)
' TOTAL NET ASSETS OF GOVERNMENTAL ACTIVITIES $ 10,249,522
'
'
'
'
'
See accompanying Notes to Basic Financial Statements.
' (17)
CITY OF SCANDIA MINNESOTA '
,
STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE '
GOVERNMENTAL FUNDS
YEAR ENDED DECEMBER 31, 2011
'
200�
Improvement Equipment Nonmajor Total �
General Bond Replacement Governmental Governmental
Fund DebtService Fund Funds Funds
REVENUES
Taxes $ 1,559,659 $ 179,529 $ - $ 210,884 $ 1,950,072 '
Special Assessments - 47,418 - - 47,418
intergovernmental Revenue 62,992 - - - 62,992
Licenses and Permits 63,092 - - - 63,092
Charges for Services 250,195 - - - 250,195 '
Fines and Forteits 19,110 - - - 19,110
User Fees - - - 3,000 3,000
Miscellaneous Revenue 22,184 1,231 1,453 2,664 27,532
Total Revenues 1,977,232 228,178 1,453 216,548 2,423,411 '
EXPENDITURES
Current:
General Government 672,362 - - 2,500 674,862 '
Public Safety 377,178 - - - 377,178
Public Works 548,326 - - - 548,326
Parks and Recreation Center 115,495 - - 5,479 120,974
Debt Service: '
Principal Payments - 135,000 - 95,000 230,000
Interest Payments - 35,980 - 26,242 62,222
Capital Outlay:
General Government 1,563 - - - 1,563 '
Pubiic Safety 930 - 148,827 - 149,757
Public Works - - - 546 546
Total Expenditures 1,715,854 170,980 148,827 129,767 2,165,428
EXCESS OF REVENUES OVER '
(UNDER)EXPENDITURES 261,378 57,198 (147,374) 86,781 257,983
OTHER FINANCING SOURCES(USES)
Proceeds from Sale of Equipment - - 1,941 - 1,941 '
Issuance of Equipment Certificates - - 150,000 - 150,000
Transfer in 3,645 - 110,000 - 113,645
Transfer Out (110,000) - - - (110,000)
Total Other Financing Sources(Uses) (106,355) - 261,941 - 155,586 '
NET CHANGE IN FUND BALANCES 155,023 57,198 114,567 86,781 413,569
Fund Balances-Beginning of Year 1,098,653 169,587 120,627 375,046 1,763,913 '
FUND BALANCES -END OF YEAR $ 1,253,676 $ 226,785 $ 235,194 $ 461,827 _$ 2,177,482
'
'
'
'
See accompanying Notes to Basic Financial Stafements.
(18) '
' CITY OF SCANDIA, MINNESOTA
RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES,
' EXPENDITURES, AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES
GOVERNMENTAL ACTIVITIES
YEAR ENDED DECEMBER 31, 2011
'
' NET CHANGE IN FUND BALANCES-TOTAL GOVERNMENTAL FUNDS $ 413,569
Amounts reported for governmental activities in the statement of activities are
' different because:
Capital outlays are reported as expenditures in governmental funds. However, in
the statement of activities, the cost of capital assets is allocated over their
' estimated useful lives as depreciation expense. This is the amount by which
depreciation exceeded capital outlays in the current period.
, Capital Outlays Reported in Governmental Fund Statements $ 154,307
Depreciation Expense (377,068) (222,761)
Receivables not currently available are reported as deferred revenue in the fund
' financial statements, but are recognized as revenue when earned in the
government-wide statements. (50,647)
The governmental funds report bond proceeds as financing sources, while
' repayment of bond principal is reported as an expenditure. In the statement of net
assets, however, issuing debt increases long-term liabilities and does not affect
the statement of activities and repayment of principal reduces the liability. Also,
, governmental funds report the effect of issuance costs, premiums and discounts
when debt is first issued, whereas these amounts are deferred and amortized in
the statement of activities. Interest is recognized as an expenditure in the
governmental funds when it is due. In the statement of activities, however,
' interest expense is recognized as it accrues, regardless of when it is due.The net
effect of these differences in the treatment of general obligation debt and related
items is as follows:
' Issuance of Equipment Certificates (150,000)
Equipment Certificate Issuance Costs 2,500
Repayment of Bond Principal 230,000
' Change in Accrued Interest Expense 548
Amortization of Equipment Certificate Issuance Costs (699)
Amortization of Bond Issuance Costs (1,746)
' Amortization of Bond Discount (4,245) 76,358
In the statement of activities, compensated absences are measured by the
amounts earned during the year. In the governmental funds, however,
' expenditures for these items are measured by the amount of financial resources
used (generally, the amounts actually paid). During the year, the balance of
compensated absences payable decreased. (2,051)
' CHANGE IN NET ASSETS OF GOVERNMENTAL ACTIVITIES $ 214,468
'
'
See accompanying Notes to Basic Financial Stafements.
' (19)
CITY OF SCANDIA MINNESOTA '
�
STATEMENT OF NET ASSETS
PROPRIETARY FUND '
DECEMBER 31, 2011
,
Sewer '
Enterprise
ASSETS Fund
Current Assets:
Cash and Investments $ 204,889 ,
Special Assessments Receivable 6,921
Other Accounts Receivable 7,288
Total Current Assets 219,098 '
Noncurrent Assets:
Capital Assets: '
Collection Systems 1,500,000
Less: Accumulated Depreciation (660,000)
Total Capital Assets 840,000 ,
Total Assets 1,059,098
LIABILITIES ,
Current Liabilities:
Accounts Payable 28,796 �
NET ASSETS
Invested in Capital Assets 840,000 '
Unrestricted 190,302
Total Net Assets $ 1,030,302
'
'
'
'
'
'
'
See accompanying Notes to Basic Financial Statements.
(20) '
' CITY OF SCANDIA, MINNESOTA
STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS
' PROPRIETARY FUND
YEAR ENDED DECEMBER 31, 2011
,
' Sewer
Enterprise
Fund
OPERATING REVENUES
' Charges for Service $ 66,203
OPERATING EXPENSES
' Depreciation 30,000
Utilities 1,726
Maintenance and Other 59,303
tTotal Operating Expenses 91,029
OPERATING LOSS (24,826)
, NONOPERATING REVENUE
Interest Revenue 1,205
' LOSS BEFORE TRANSFERS (23,621)
TRANSFERS
' Transfer Out (3,645)
CHANGE IN NET ASSETS (27,266)
, Net Assets - Beginning of Year 1,057,568
NET ASSETS - END OF YEAR $ 1,030,302
'
'
'
'
'
'
'
See accompanying Notes to Basic Financial Statements.
' (21)
CITY OF SCANDIA MINNESOTA '
,
STATEMENT OF CASH FLOWS ,
PROPRIETARY FUND
YEAR ENDED DECEMBER 31, 2011
'
Sewer ,
Enterprise
Fund
CASH FLOWS FROM OPERATING ACTIVITIES
Cash Received from Customers $ 66,157 ,
Cash Paid to Suppliers for Goods and Services (41,349)
Net Cash Provided by Operating Activities 24,808
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES '
Transfer Out (3,645)
CASH FLOWS FROM INVESTING ACTIVITIES '
Interest on Investments 1,205
NET INCREASE IN CASH AND CASH EQUIVALENTS 22,368 '
Cash and Deposits- Beginning of Year 182,521
CASH AND DEPOSITS - END OF YEAR $ 204,889 '
RECONCILIATION OF OPERATING LOSS TO '
NET CASH PROVIDED BY OPERATING ACTIVITIES
Operating Loss $ (24,826)
Adjustments to Reconcile Operating Loss to '
Net Cash Provided by Operating Activities:
Depreciation Expense 30,000
Changes in Asset and Liability Accounts: '
Decrease in Special Assessments Receivable 1,309
Decrease in OtherAccounts Receivable (1,355)
Increase in Accounts Payable 19,680 '
Net Cash Provided by Operating Activities $ 24,808
'
'
,
'
'
See accompanying Notes to Basic Financial Statements
�22� '
' CITY OF SCANDIA, MINNESOTA
STATEMENT OF NET ASSETS
' FIDUCIARY FUND
DECEMBER 31, 2011
,
' Agency Fund
ASSETS
Current Assets:
Cash and Investments $ 117,788
'
LIABILITIES
' Current Liabilities:
Contractor Deposits $ 117,788
,
'
'
'
'
'
'
,
'
'
,
'
See accompanying Notes to Basic Financial Statements.
' (23)
CITY OF SCANDIA, MINNESOTA '
NOTES TO BASIC FINANCIAL STATEMENTS
DECEMBER 31, 2011 ,
'
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The City of Scandia (City) is a public corporation formed under Minnesota Statute 412. As ,
such, the City is under statutory city regulations and applicable statutory guidelines.
The basic financial statements of the City have been prepared in conformity with U.S. '
generally accepted accounting principles as applied to governmental units by the
Governmental Accounting Standards Board (GASB). The following is a summary of the
significant accounting policies: '
A. FINANCIAL REPORTING ENTITY
As required by U.S. generally accepted accounting principles, the financial statements '
of the reporting entity include all funds, departments, agencies, boards, commissions,
and other organizations over which City officials exercise oversight responsibility. '
Component units are legally separate entities for which the City (primary government) is
financially accountable, or for which the exclusion of the component unit would render
the financial statements of the Primary Government misleading. The criteria used to '
determine if the Primary Government is financially accountable for a component unit
include whether or not the Primary Government appoints the voting majority of the
potential component uniYs governing body, is able to impose its will on the potential '
component unit, is in a relationship of financial benefit or burden with the potential
component unit, or is fiscally depended upon by the potential component unit.
Based on these criteria, there are no organizations considered to be component units of '
the City.
'
'
'
,
'
'
'
�24� '
' CITY OF SCANDIA, MINNESOTA
NOTES TO BASIC FINANCIAL STATEMENTS
, DECEMBER 31, 2011
'
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
' B. BASIC FINANCIAL STATEMENTS
1. Government-Wide Statements
, The government-wide financial statements (i.e., the statement of net assets and the
statement of activities) display information about the primary government. These
' statements include the financial activities of the overall City government, except for
fiduciary activities. Governmental activities, which normally are supported by taxes
and intergovernmental revenues, are reported separately from business-type
' activities, which rely to a significant extent on fees and charges to external parties for
support. As a generai rule, the effect of interfund activity has been eliminated from
the government-wide financial statements. Exceptions to this general rule are
' charges between the City's enterprise fund and various other functions of
government. Eliminations of these charges would distort the direct costs and
program revenues reported for the various functions concerned.
' In the government-wide statement of net assets, both the governmental and
business-type activities columns: (a) are presented on a consolidated basis by
column; and (b) are reported on a full accrual, economic resource basis, which
' recognizes all long-term assets and receivables as well as long-term debt and
obligations. The City's net assets are reported in three parts: (1) invested in capital
assets, net of related debt; (2) restricted net assets; and (3) unrestricted net assets.
, The statement of activities demonstrates the degree to which the direct expenses of
each function of the City's governmental activities and different business-type
, activities are offset by program revenues. Direct expenses are those that are clearly
identifiable with a specific function or activity. Program revenues include: (1) fees,
fines, and charges paid by the recipients of goods, services, or privileges provided
' by a given function or activity; and (2) grants and contributions that are restricted to
meeting the operational or capital requirements of a particular function or activity.
Revenues that are not classified as program revenues, including all taxes, are
presented as general revenues.
' 2. Fund Financial Statements
' The fund financial statements provide information about the City's funds, including its
fiduciary fund. Separate statements for each fund category (governmental,
proprietary, and fiduciary) are presented. The emphasis of governmental and
' proprietary fund financial statements is on major individual governmental and
enterprise funds, with each displayed as separate columns in the fund financial
statements. All remaining governmentai funds are aggregated and reported as
' nonmajor funds.
'
' (25)
CITY OF SCANDIA, MINNESOTA '
NOTES TO BASIC FINANCIAL STATEMENTS
DECEMBER 31, 2011 '
N '
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTI G POLICIES (CONTINUED)
B. BASIC FINANCIAL STATEMENTS (CONTINUED) ,
2. Fund Financial Statements (Continued)
Proprietary fund operating revenues, such as charges for services, result from '
exchange transactions associated with the principal activity of the fund. Exchange
transactions are those in which each party receives and gives up essentially equal '
values. Nonoperating revenues, such as subsidies and investment earnings, result
from nonexchange transactions or incidental activities.
The City reports the following major governmental funds: '
General Fund '
The General Fund is the City's primary operating fund. It accounts for all financial
resources of the general government, except those required to be accounted for in
another fund. '
2007 Debt Service Fund
The 2007 Debt Service Fund accounts for debt service payments used to finance the '
City's various improvement projects.
Equipment Replacement Fund
The Equipment Replacement Capital Project Fund accounts for resources to be '
used to purchase motor vehicles and heavy machinery.
The City reports the following major proprietary fund: '
Sewer Fund
The Sewer Fund accounts for customer sewer service charges that are used to '
finance sewer operating expenses.
Additionally, the City reports the following fiduciary fund: ,
Aqency Fund
To account for assets held as an agent for individuals, private organizations, other ,
governmental units, and/or other funds. The City's agency fund accounts for pass-
through contractor's deposits relating to prospective developments.
'
,
'
�26� '
' CITY OF SCANDIA, MINNESOTA
NOTES TO BASIC FINANCIAL STATEMENTS
' DECEMBER 31, 2011
' NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
� )
, C. MEASUREMENT FOCUS AND BASIS OF ACCOUNTING
The government-wide and proprietary fund financial statements are reported using the
' economic resources measurement focus and the accrual basis of accounting. The
Agency fund, which is included as a Fiduciary Fund, does not have a measurement
focus. Revenues are recorded when earned, and expenses are recorded when a
' liability is incurred, regardless of the timing of related cash flows. Property taxes are
recognized as revenues in the year for which they are levied. Grants and similar items
are recognized as revenue as soon as all eligibility requirements imposed by the
' provider have been met.
Private-sector standards of accounting and financial reporting issued on or before
' November 30, 1989, generally are followed in both the government-wide and
proprietary fund financial statements to the extent that those standards do not conflict
with or contradict guidance of the Governmental Accounting Standards Board.
Governments also have the option of following subsequent private-sector guidance for
� their business-type activities and enterprise fund, subject to this same limitation. The
City has elected not to follow subsequent private-sector guidance.
' Governmental fund financial statements are reported using the current financial
resources measurement focus and the modified accrual basis of accounting. Revenues
are recognized as soon as they are both measurable and available. The City considers
' all revenues to be available if they are collected within 60 days after the end of the
current period. Property and other taxes, licenses, and interest are all considered to be
susceptible to accrual. Expenditures are recorded when the related fund liability is
' incurred, except for principal and interest on general long-term debt, compensated
absences, and claims and judgments, which are recognized as expenditures to the
extent that they have matured. Proceeds of general long-term debt and acquisitions
' under capital leases are reported as other financing sources.
When both restricted and unrestricted resources are available for use, it is the City's
policy to use restricted resources first, then unrestricted resources as they are needed.
' Amounts reported as program revenues include: (1) Charges to customers or applicants
for goods, services, or privileges provided, (2) operating grants and contributions, and
' (3) capital grants and contributions, including special assessments.
'
'
'
' (27)
CITY OF SCANDIA, MINNESOTA '
NOTES TO BASIC FINANCIAL STATEMENTS
DECEMBER 31, 2011 '
'
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. MEASUREMENT FOCUS AND BASIS OF ACCOUNTING (CONTINUED) '
Proprietary funds distinguish operating revenues and expenses from nonoperating
items. Operating revenues and expenses generally result from providing services and �
producing and delivering goods in connection with a proprietary fund's principal ongoing
operations. The principal operating revenue of the City's enterprise fund is charges to
customers for sales and services. Operating expenses for enterprise funds include the ,
cost of sales and services, administrative expenses, and depreciation on capital assets.
All revenues and expenses not meeting this definition are reported as nonoperating
revenues and expenses. ,
D. BUDGETS
Budgets are adopted on a basis consistent with U.S. generally accepted accounting '
principles. Annual appropriated budgets are adopted for the General Fund. Budgeted
expenditure appropriations lapse at year-end. �
E. CASH AND INVESTMENTS
Cash and investment balances from all funds are pooled and invested to the extent ,
available in investments authorized by Minnesota Statutes. Earnings from investments
are allocated to individual funds on the basis of the fund's equity in the cash and
investment pool. '
The City provides temporary advances to funds that have insufficient cash balances by
means of an advance from another fund shown as interfund receivables in the '
advancing fund in the governmental fund financial statements, and an interfund payable
in the fund with the deficit, untii adequate resources are received. These interfund
payables are eliminated for statement of net assets presentation.
Investments are stated at fair value as of the balance sheet date. Interest earnings are '
accrued at the balance sheet date.
For purposes of the statement of cash flows the Proprietary Fund considers ali highly ,
liquid investments with a maturity of three months or less when purchased to be cash
equivalents. All of the cash and investments allocated to the proprietary fund types have '
original maturities of 90 days or less. Therefore, the entire balance in such fund types is
considered cash equivalents.
'
'
'
(28> '
' CITY OF SCANDIA, MINNESOTA
NOTES TO BASIC FINANCIAL STATEMENTS
' DECEMBER 31, 2011
' NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
� )
' F. PROPERTY TAX CREDITS
Property taxes on homestead property (as defined by state statutes) are partially
' reduced by property tax credits. These credits are paid to the City by the State in lieu of
taxes levied against homestead property. The State remits these credits through
installments each year. These credits are recognized as revenue by the City at the time
' of collection.
G. PROPERTY TAX REVENUE RECOGNITION
' The City Council annually adopts a tax levy and certifies it to the County in December
(levy/assessment date) of each year for collection in the following year. The County is
' responsible for billing and collecting all property taxes for itself, the City, the local
School District and other taxing authorities. Such taxes become a lien on January 1 and
are recorded as receivables by the City at that date. Real property taxes are payabie
(by property owners) on May 15 and October 15 of each calendar year. Personal
' property taxes are payable by taxpayers on February 28 and June 30 of each year.
These taxes are collected by the County and remitted to the City on or before July 15
and December 15 of the same year. Delinquent collections for November and
' December are received the following January. The City has no ability to enforce
payment of property taxes by property owners. The County possesses this authority.
' Within the governmental fund financial statements, the City recognizes property tax
revenue when it becomes both measurable and available to finance expenditures of the
current period. In practice, current and delinquent taxes and State credits received by
' the City in July, December and the following January are recognized as revenue for the
current year. Taxes and credits not received at the year-end are classified as delinquent
and due from County taxes receivable. The portion of delinquent taxes not collected by
, the City in January is fully offset by deferred revenue because it is not available to
finance current expenditures. Deferred revenue in governmental activities is susceptible
to full accrual on the government-wide statements.
' The City's property tax revenue includes payments from the Metropolitan Revenue
Distribution (Fiscal Disparities Formula) per Minnesota Statute 473F. This statute
provides a means of spreading a portion of the taxable valuation of
' commercial/industrial real property to various taxing authorities within the defined
metropolitan area. The valuation "shared" is a portion of commercial/industrial property
valuation growth since 1971. Property taxes paid to the City through this formula for
, 2011 totaled $116,349. Receipt of property taxes from this "fiscal disparities pool" does
not increase or decrease total tax revenue.
1
'
' (29)
CITY OF SCANDIA MINNESOTA '
,
NOTES TO BASIC FINANCIAL STATEMENTS
DECEMBER 31, 2011 '
'
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
H. SPECIAL ASSESSMENT REVENUE RECOGNITION '
Special assessments are levied against benefited properties for the cost or a portion of
the cost of special assessment improvement projects in accordance with state statutes. '
These assessments are collectible by the City over a term of years usually consistent
with the term of the related bond issue. Collection of annual installments (including
interest) is handled by the County Auditor in the same manner as property taxes. '
Property owners are allowed to (and often do) prepay future installments without
interest or prepayment penalties.
Within the fund financial statements, the revenue from special assessments is '
recognized by the City when it becomes measurable and available to finance
expenditures of the current fiscal period. In practice, current and delinquent special
assessments received by the City are recognized as revenue for the current year. '
Special assessments are collected by the County and remitted by December 31
(remitted to the City the following January) and are also recognized as revenue for the
current year. All remaining delinquent and deferred special assessments receivable in ,
governmental funding are completely offset by deferred revenues. Deferred revenue in
governmental activities is susceptible to full accrual on the government-wide
statements. ,
Once a special assessment roll is adopted, the amount attributed to each parcel is a
lien upon that property until full payment is made or the amount is determined to be '
excessive by the City Council or court action. If special assessments are allowed to go
delinquent, the property is subject to tax forfeit sale and the first proceeds of that sale
(after costs, penalties and expenses of sale) are remitted to the City in payment of
delinquent special assessments. Generally, the City will collect the full amount of its '
special assessments not adjusted by the City Council or court action. Pursuant to state
statutes, a property shall be subject to a tax forfeit sale after three years unless it is
homesteaded, agricultural or seasonal recreational land in which event the property is '
subject to such sale after five years.
I. CAPITAL ASSETS '
Capital assets, which include property, plant, equipment, and infrastructure assets (e.g.
roads, sidewalks, street lights, and similar items) are reported in the applicable
governmental or business-type activities columns in the government-wide financial ,
statements. Capital assets exceeding the City's capitalization threshold of $5,000 are
recorded at historical cost or estimated historical cost if purchased or constructed. The
cost of normal maintenance and repairs that do not add to the value of the asset or ,
materially extend asset lives are not capitalized. Major outlays for capital assets and
improvements are capitalized as projects are constructed. Infrastructure has been
capitalized as of 1980 and thereafter. '
'
(30) ,
' CITY OF SCANDIA, MINNESOTA
NOTES TO BASIC FINANCIAL STATEMENTS
' DECEMBER 31, 2011
'
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
' I. CAPITAL ASSETS (CONTINUED)
Depreciation on exhaustible assets is recorded as an allocated expense in the
' statement of activities with accumulated depreciation reflected in the statement of net
assets. Capital assets are depreciated using the straight-line method over their
estimated useful lives. Since surplus assets are sold for an immaterial amount when
' declared as no longer needed for City purposes, no salvage value is taken into
consideration for depreciation purposes. Useful lives vary from 3 to 30 years for
buildings, equipment, vehicles, furniture and fixtures, and other improvements, and 25
' to 50 years for Infrastructure. Capital assets not being depreciated include land and
construction in progress.
' J. COMPENSATED ABSENCES
It is the City's policy to permit employees to accumulate earned but unused leave
, benefits. All leave pay is accrued on a per pay period basis and recorded in the
government-wide financial statements. The current portion is calculated based on
historical trends.
' K. LONG-TERM OBLIGATIONS
In the entity-wide financial statements, long-term debt and other long-term obligations
' are reported as liabilities in the applicable governmental activities. Bond premiums and
discounts are deferred and amortized over the life of the bonds using the straight-line
method. Bond issue costs, if material, are reported as deferred charges and amortized
' over the term of the related debt using the straight-line method.
In the governmental fund financial statements, bond premiums and discounts, as well
' as bond issue costs are recognized during the current period. The face amount of the
debt issue is reported as another financing source. Premiums received on debt
issuances are reported as other financing sources while discounts are reported as other
financing uses. Issue costs are reported as debt service expenditures.
'
'
'
'
'
' (31)
CITY OF SCANDIA, MINNESOTA �
NOTES TO BASIC FINANCIAL STATEMENTS
DECEMBER 31, 2011 '
'
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
L. FUND BALANCE ,
At December 31, 2011, the City adopted GASB Statement No. 54, Fund Balance
Reporting and Governmental Fund Type Definitions. '
In the fund financial statements, governmental funds report fund balances in
classifications that disclose constraints for which amounts in those funds can be spent. '
These classifications are as follows:
Nonspendable — portions of fund balance related to prepaids, inventories, long-term
receivables, and corpus on any permanent fund. '
Restricted — funds are constrained from outside parties (statute, grantors, bond
agreements, etc). '
Committed — fund constraints are established and modified by a resolution approved
by the City Council. '
Assigned — consists of internally imposed constraints approved by the City Council.
Unassigned — is the residual classification for the General Fund and also reflects '
negative residual amounts in other funds.
When an expenditure is incurred for purposes for which both restricted and unrestricted '
fund balance is available, it is the City's policy to use restricted first, then unrestricted
fund balance.
When an expenditure is incurred for purposes for which committed, assigned, and '
unassigned amounts are available, it is the City's policy to use committed first, then
assigned, and finally unassigned amounts.
The City formally adopted a fund balance policy for the General Fund. The policy ,
establishes a year-end target fund balance range of 35°/o - 50% of the annual operating
budget. ,
,
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�32� '
' CITY OF SCANDIA, MINNESOTA
NOTES TO BASIC FINANCIAL STATEMENTS
' DECEMBER 31, 2011
' N TE 1 M T P LI IE CONTINUED
O SU MARY OF SIGNIFICANT ACCOUN ING O C S ( )
' M. INTERFUND TRANSACTIONS
Interfund services provided and used are accounted for as revenues, expenditures or
' expenses. Transactions that constitute reimbursements to a fund for
expenditures/expenses initially made from it that are properly applicable to another
fund, are recorded as expenditures/expenses in the reimbursing fund and as reductions
' of expenditures or expenses in the fund that is reimbursed. All other interfund
transactions are reported as transfers.
' All interfund transactions are eliminated except for activity between governmental
activities and business-type activities for presentation in the entity-wide statements of
net assets and statements of activities.
' NOTE 2 DEPOSITS AND INVESTMENTS
' A. DEPOSITS
The City maintains a cash and investment pool that is available for use by all funds.
' Each fund type's portion of this pool is displayed on the statement of net assets and the
balance sheet as "Cash and Investments." In accordance with Minnesota Statutes the
City maintains deposits at financial institutions which are authorized by the City Council.
' Custodial Credit Risk— Custodial credit risk for deposits is the risk that in the event of a
bank failure, the City's deposits may not be returned to it. The City does not have a
deposit policy for custodial credit risk and follows Minnesota Statutes for deposits.
' Minnesota Statutes require that all deposits be protected by insurance, surety bond, or
collateral. The market value of collateral pledged must equal 110% of the deposits not
covered by insurance or corporate surety bonds. Authorized collateral include: U.S.
' government treasury bills, notes, or bonds; issues of a U.S. government agency;
general obligations of a state or local government rated "A" or better; revenue
obligations of a state or local government rated "AA" or better; irrevocable standby
' letters of credit issued by a Federal Home Loan Bank; and time deposits insured by a
federal agency. Minnesota Statutes require securities pledged as collateral be held in
safekeeping in a restricted account at the Federal Reserve Bank or in an account at a
' trust department of a commercial bank or other financial institution not owned or
controlled by the depository.
The carrying value and bank balance of the City's deposits in banks at December 31,
' 2011 is $2,689,452 and $2,777,227, respectively, and were entirely covered by federal
depository insurance or by surety bonds and collateral in accordance with Minnesota
Statutes.
'
'
' (33)
CITY OF SCANDIA, MINNESOTA '
NOTES TO BASIC FINANCIAL STATEMENTS
DECEMBER 31, 2011 '
,
NOTE 3 CAPITAL ASSETS
Capital asset activity for the year ended December 31, 2011 was as follows: '
Beginning Ending
Balance Additions Disposals Balance '
Governmental Activities:
Capital Assets Not Being Depreciated:
Land $ 487,735 $ - $ - $ 487,735
Construction in Progress 39,295 111,852 (39,295) 111,852 '
Total Capital Assets Not Being Depreciated 527,030 111,852 (39,295) 599,587
Capital Assets Being Depreciated:
Buildings 2,193,375 39,295 - 2,232,670 '
Equipment 351,613 13,809 - 365,422
Vehicles 983,128 23,167 - 1,006,295
Infrastructure 9,353,763 5,479 - 9,359,242
Other Improvements 162,647 - - 162,647 '
Total Capital Assets,Being Depreciated 13,044,526 81,750 - 13,126,276
Accumulated Depreciation for:
Buildings (664,323) (48,261) - (712,584) '
Equipment (194,519) (31,046) - (225,565)
Vehicles (523,948) (52,730) - (576,678)
Infrastructure (2,497,083) (237,794) - (2,734,877)
Other Improvements (67,776) (7,237) - (75,013) '
Total Accumulated Depreciation (3,947,649) (377,068) - (4,324,717)
Total Capital Assets, Being Depreciated, Net 9,096,877 (295,318) - 8,801,559
Governmental Activities Capital Assets, Net $ 9,623,907 $ (183,466) $ (39,295) $ 9,401,146
Business-Type Activities: '
Sewer:
Capital Assets Being Depreciated: '
Plant $ 1,500,000 $ - $ - $ 1,500,000
Less:Accumulated Depreciation (630,000) (30,000) - (660,000)
Net Capital Assets-Sewer Utility $ 870,000 $ (30,000) $ - $ 840,000 ,
Depreciation was charged to City functions as follows:
General Government $ 15,759 '
Public Safety 48,495
Public Works 300,573 '
Parks and Recreation 12,241
Total Depreciation-Governmental Activities $ 377,068
'
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'
(34) '
' CITY OF SCANDIA, MINNESOTA
NOTES TO BASIC FINANCIAL STATEMENTS
' DECEMBER 31, 2011
' NOTE 4 CITY INDEBTEDNESS
' City indebtedness at December 31, 2011 is composed of the following:
Final
' Issue Maturity Interest Original Balance
Date Date Rate Issue 12/31/11
Governmental Activities:
General Obligation Debt:
, 2005 Building Crossover Bonds 5/1/2005 12/1/2015 3.35-4.2% $ 685,000 $ 415,000
2007 Improvement Bonds 5/1/2007 12/1/2017 3.65-4.1% 1,430,000 775,000
2010 Equipment Certificate 7/15/2010 2/1/2016 2.22-3.55% 200,000 200,000
2011 Equipment Certificate 6/30/2011 12/1/2016 2.75%-3.95% 150,000 150,000
, Total Long-Term Debt 2,465,000 1,540,000
Unamortized Bond Discount (43,090) (23,308)
Compensated Absences N/A 19,090
Total 2,421,910 1,535,782
' The following is a schedule of changes in City indebtedness for the year ended
December 31, 2011:
' Amounts
Balance Balance Due Within
1/1/11 Issued Retired 12/31/11 One Year
' Long-Term Debt
Governmental Activities:
General Obligation Notes $1,620,000 $ 150,000 $ (230,000) $ 1,540,000 $ 305,000
' Unamortized Bond Discount (27,553) - 4,245 (23,308) -
Compensated Absences 17,039 30,812 (28,761) 19,090 14,035
Total Long-Term Debt $1,609,486 $ 180,812 $ (254,516) $ 1,535,782 $ 319,035
' All long-term bonded indebtedness outstanding at December 31, 2011 is backed by the full
faith and credit of the City, including special assessment bond issues. For the governmental
' activities, compensated absences are generally liquidated by the General Fund.
During 2005, the City issued $685,000 of General Obligation Building Crossover Refunding
Bonds, Series 2005A for the purpose of refunding the $1,200,000 General Obligation
' Building Bonds of 2000. The crossover refunding occurred on December 1, 2008.
,
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1
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' (35)
CITY OF SCANDIA, MINNESOTA '
NOTES TO BASIC FINANCIAL STATEMENTS
DECEMBER 31, 2011 ,
'
NOTE 4 CITY INDEBTEDNESS (CONTINUED)
Minimum annual principal and interest payments required to retire long-term debt, not '
including compensated absences payable are as follows:
Year Endinq December 31, Principal Interest Total '
2012 305,000 � 57,950 362,950
2013 305,000 47,134 352,134
2014 305,000 35,943 340,943 '
2015 305,000 24,198 329,198
2016 195,000 12,083 207,083
2017 125,OOC 5,125 130,125 '
Total 1,540,000 182,433 1,722,433
Description and Restrictions of Lonq-Term Debt '
General Obligation Bonds — The bonds were issued for improvements or projects which
benefited the City as a whole and are, therefore, repaid from ad valorem levies.
The liability for compensated absences represents vested benefits earned by governmental '
fund employees through the end of the year which will be paid or used in future periods.
NOTE 5 DEFINED BENEFIT PENSION PLANS —STATEWIDE I
A. PLAN DESCRIPTION '
All full-time and certain part-time employees of the City are covered by defined benefit
pension plans administered by the Public Employees Retirement Association of '
Minnesota (PERA). PERA administers the General Employees Retirement Fund
(GERF), which is a cost-sharing, multiple-employer retirement plan. This plan is
established and administered in accordance with Minnesota Statutes, Chapter 353 and
356. '
GERF members belong to either the Coordinated Plan or the Basic Plan. Coordinated
Plan members are covered by Social Security and Basic Plan members are not. All new '
members must participate in the Coordinated Plan.
PERA provides retirement benefits as well as disability benefits to members, and
benefits to survivors upon death of eligible members. Benefits are established by state '
statute, and vest after three years of credited service. The defined retirement benefits
are based on a member's highest average salary for any five successive years of
allowable service, age, and years of credit at termination of service. '
1
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(36) ,
' CITY OF SCANDIA, MINNESOTA
NOTES TO BASIC FINANCIAL STATEMENTS
' DECEMBER 31, 2011
' — T EWIDE CONTINUED
NOTE 5 DEFINED BENEFIT PENSION PLANS S AT ( )
' B. PLAN DESCRIPTION (CONTINUED)
Two methods are used to compute benefits for PERA's Coordinated and Basic Plan
' members. The retiring member receives the higher of a step-rate benefit accrual
formula (Method 1) or a level accrual formula (Method 2). Under Method 1, the annuity
accrual rate for a Basic Plan member is 2.2% of average salary for each of the first 10
' years of service and 2.7°/o for each remaining year. The annuity accrual rate for a
Coordinated Plan member is 1.2% of average salary for each of the first 10 years and
1.7% for each remaining year. Under Method 2, the annuity accrual rate is 2.7% of
� average salary for Basic Plan members and 1.7% for Coordinated Plan members for
each year of service.
, For GERF members hired prior to July 1, 1989 whose annuity is calculated using
Method 1, a full annuity is availabfe when age plus years of service equal 90. Normal
retirement age is 65 for Basic and Coordinated members hired prior to July 1, 1989.
Normal retirement age is the age for unreduced Social Security benefits capped at 66
, for Coordinated members hired on or after July 1, 1989. A reduced retirement annuity is
also available to eligible members seeking early retirement.
' There are different types of annuities available to members upon retirement. A single-
life annuity is a lifetime annuity that ceases upon the death of the retiree, no survivor
annuity is payable. There are also various types of joint and survivor annuity options
' available which will be payable over joint lives. Members may also leave their
contributions in the fund upon termination of public service in order to qualify for a
deferred annuity at retirement age. Refunds of contributions are availab�e at any time to
' members who leave public service, but before retirement benefits begin.
The benefit provisions stated in the previous paragraphs of this section are current
' provisions and apply to active plan participants. Vested, terminated employees who are
entitled to benefits but are not receiving them yet are bound by the provisions in effect
at the time they last terminated their public service.
' PERA issues a publicly available financial report that includes financial statements and
required supplementary information for GERF. That report may be obtained on the
internet at www.mnpera.org, by writing to PERA at 60 Empire Drive #200, St. Paul,
' Minnesota, 55103-2088 or by calling (651) 296-7460 or 1-800-652-9026.
'
'
'
t (37)
CITY OF SCANDIA, MINNESOTA '
NOTES TO BASIC FINANCIAL STATEMENTS
DECEMBER 31, 2011 '
'
NOTE 5 DEFINED BENEFIT PENSION PLANS — STATEWIDE (CONTINUED)
C. FUNDING POLICY '
Minnesota Statutes, Chapter 353 sets the rates for employer and employee
contributions. These statutes are established and amended by the state legisiature. The '
City makes annual contributions to the pension plans equal to the amount required by
state statutes. GERF Basic Plan members and Coordinated Plan members were
required to contribute 9.1% and 6.25% respectively, of their annual covered salary in '
2011. The City is required to contribute the following percentages of annual covered
payroll: 11.78°/o for Basic Plan members and 7.25% for Coordinated Plan members.
The City's contributions to the General Employees Retirement Fund for the years ended ,
December 31, 2011, 2010, and 2009 were $21,169, $20,298, and $19,880,
respectively. The City's contributions were equal to the contractually required
contributions for each year as set by state statute. '
NOTE 6 DEFINED CONTRIBUTION PENSION PLAN '
The council members of the City are covered by the Public Employees Defined Contribution
Plan (PEDCP), a multiple-employer deferred compensation pian administered by the Public
Employees Retirement Association of Minnesota (PERA). The PEDCP is a tax qualified ,
plan under Section 401(a) of the Internal Revenue Code and all contributions by or on
behalf of employees are tax deferred until time of withdrawal.
Plan benefits depend solely on amounts contributed to the plan plus investment earnings, '
less administrative expenses. Minnesota Statutes, Chapter 353D.03, specifies plan
provisions, including the employee and employer contribution rates for those qualified '
personnel who elect to participate. An eligible elected official who decides to participate
contributes 5% of salary which is matched by the elected official's employer. Employer and
Employee contributions are combined and used to purchase shares in one or more of the '
seven accounts of the Minnesota Supplemental Investment Fund. For administering the
plan, PERA receives 2% of employer contributions and twenty-five hundredths of one
percent of the assets in each member's account annually.
Total employer and employee contributions made by the City during fiscal year 2011 were '
$3,006.
'
'
'
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(38) '
' CITY OF SCANDIA, MINNESOTA
NOTES TO BASIC FINANCIAL STATEMENTS
' DECEMBER 31, 2011
'
NOTE 7 STATEWIDE VOLUNTEER FIREFIGHTER RETIREMENT PLAN
� A. PLAN DESCRIPTION
Beginning January 1, 2011, the City joined the Voluntary Statewide Volunteer
' Firefighter Retirement Plan (the Plan) administered by the Public Employees
Retirement Association (PERA). The plan is an agent lump-sum defined benefit plan.
Plan assets are managed by the Minnesota State Board of Investment. The Plan is
' voluntary and open to fire departments as a replacement of their existing volunteer
firefighter retirement plan. It is also open to municipalities currently without a volunteer
firefighter retirement plan. The Plan is codified as Minnesota Statutes Chapter 353G.
' The lump sum benefits payable from the Plan are funded by existing fire state aid
allocated to a municipality, additional municipal contributions, as applicable, and
, earnings on the investment of these funds. Each participating entity wili have a separate
Entity Account in which the assets necessary to fund the benefits will be maintained.
, PERA perForms annual calculations for each Entity Account to assess the level of
funding needed to maintain assets sufficient to pay the benefits being earned by the
participating entity's volunteer firefighters. The calculations will resemble the procedure
already defined in law for use by ali existing volunteer fire relief associations. Required
' contributions for the coming year will be based on service credit data provided to PERA
in March of each year by each participating entity's fire chief. There are no provisions
that allow voluntary contributions into the Plan at this time, either from members or from
tmunicipalities.
B. RETIREMENT BENEFITS
' The Plan provides for the payment of lump sum retirement benefits that are based on a
specific dollar value paid for each year of credited service accumulated by a volunteer
, firefighter who terminates service and meets the minimum requirements for receipt of
the benefits. The dollar value payable per year of service is determined by the
sponsoring municipality or entity at the time an election to participate in the Plan is
made, selected from 20 possible benefit levels. An entity may elect to increase the
' benefit level after joining the Plan. The benefit level approved by the City is $2,500 per
year of service.
' To be eligible for a benefit, a firefighter must:
• be at least 50 years old;
• be vested, which means having acquired a minimum of 5 years of "good-time"
' service credit in the Plan; and,
• have severed his or her employment relationship with the fire department for a
minimum of 30 days.
,
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' (39)
CITY OF SCANDIA, MINNESOTA '
NOTES TO BASIC FINANCIAL STATEMENTS
DECEMBER 31, 2011 '
,
NOTE 7 STATEWIDE VOLUNTEER FIREFIGHTER RETIREMENT PLAN (CONTINUED)
B. RETIREMENT BENEFITS (CONTINUED) �
A full retirement benefit is payable to a firefighter with 20 years of service. Firefighters
retiring with fewer than 20 but at least 5 years of service are eligible for a percentage of t
a full benefit. Former members of the fire department who were vested at the time they
left the department are also entitled to benefits when they attain age 50.
Total employer contributions made during fiscal year 2011 were as follows: '
City Contributions $ 58,260 '
State Aid 21,763
Total $ 80,023
Prior to 2011, the firefighter pension benefits were held and managed by the Scandia '
Fire Relief Association. Upon joining the Plan, the pension trust fund of the Scandia Fire
Relief Association ceased to exist as a pension fund and the legal title to the assets '
were contributed the Plan in the amount of$577,244.
NOTE 8 COMMITMENTS AND CONTINGENCIES '
Law Enforcement Services — The City has entered into an agreement with Washington '
County to receive law enforcement services for 2011 and 2012. The agreement calls for the
City to pay Washington County based on the actual costs associated with providing
services under the agreement. Related expenditures for fiscal year 2011 were $112,267.
Law enforcement services for 2012 are estimated to cost approximately $117,000. '
Fire Department Services Aqreement— Effective January 1, 2012, the City has extended its
agreement with May Township to provide fire services to the Township. The contract is for '
three years extending through December 31, 2014. If the contract is not renewed or
extended by December 31, 2014, the contract will continue on a prorated month-to-month
basis. Related revenues for the fiscal years 2011 and 2010 were $32,574 and $30,876, '
respectively. The Township will pay the City $33,551 for 2012.
'
'
'
'
(40) '
' CITY OF SCANDIA, MINNESOTA
NOTES TO BASIC FINANCIAL STATEMENTS
' DECEMBER 31, 2011
'
NOTE 9 INTERFUND TRANSFERS
' Individual fund transfers for fiscal year 2011 are as follows:
Transfer Transfer
' In Out
Governmental Activity:
General Fund $ 3,645 $ 110,000
' Non-Major Funds: -
Equipment Replacement 110,000
Business-Type Activity:
' Sewer - 3,645
$ 113,645 $ 113,645
' During 2011, the City made routine interfund transfers to allocate financial resources as
approved in the budget.
' NOTE 10 RISK MANAGEMENT
, The City is exposed to various risks of loss related to torts; theft of, damage to and
destruction of assets; errors and omissions; injuries to employees; and natural disasters.
The City has entered into a joint powers agreement with the League of Minnesota Cities
' Insurance Trust (LMCIT) to protect the City in the event of a loss. The LMCIT is a public
entity risk pool currently operating as a common risk management and insurance program
for Minnesota cities. The agreement for formation of the LMCIT provides that the pool will
' be self-sustaining through member premiums and will reinsure through commercial
companies for claims in excess of reserved amounts for each insured event. The pool can
make additional assessments to make the pool self—sustaining. The City has determined
' that it is not possible to estimate the amount of such additional assessments, if any;
however, they are not expected to be material to these financial statements. There have
been no significant reductions in insurance coverage during 2011 and settlements have not
' exceeded insurance coverage for any of the past three fiscal years.
The City has entered into a joint powers agreement with the Southwest/West Central
Services Cooperative (SC) to provide group employee benefits for their employees and to
' obtain other financial and risk management services. The SC is a public entity which
operates the health insurance pool through which the City purchases employee health
insurance. The joint powers agreement provides that the SC will establish, procure, and
' administer group employee benefits, including selecting providers, in exchange for a
service fee determined by the City's contract. The agreement is renewed annually and the
City may withdraw from the agreement at any time during the year upon ninety days written
' notice to the Board and all providers of the program.
'
' (41)
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' REQUIRED SUPPLEMENTARY INFORMATION
BUDGETARY COMPARISON INFORMATION
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CITY OF SCANDIA, MINNESOTA ,
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE
BUDGET AND ACTUAL ,
GENERALFUND
YEAR ENDED DECEMBER 31, 2011
'
Budgeted Amounts '
Actual Variance with
Original Final Amounts Final Budget
REVENUES '
PropertyTaxes $ 1,563,940 $ 1,563,940 $ 1,559,659 $ (4,281)
Intergovernmental: '
State Aid Credits 11,612 11,612 42,523 30,911
Recycling Grant 7,235 7,235 7,235
Other Grants 12,800 12,800 13,234 434
Total Intergovernmental Revenues 31,647 31,647 62,992 31,345 '
Licenses and Permits 47,885 47,885 63,092 15,207
Fines and Forfeits 15,000 15,000 19,110 4,110 '
Charges for Services:
Zoning and Hearing Fees 260,987 260,987 210,355 (50,632)
Fire Protection 32,574 32,574 32,574 - '
Cable Franchise 6,000 6,000 7,266 1,266
Total Charges for Services 299,561 299,561 250,195 (49,366)
Miscellaneous: '
Interest 11,537 11,537 9,684 (1,853)
Donations and Other 4,175 8,458 12,500 4,042
Total Miscellaneous 15,712 19,995 22,184 2,189 '
Total Revenues 1,973,745 1,978,028 1,977,232 (796)
EXPENDITURES ,
General Government:
Administration and Finance 345,900 345,900 317,388 (28,512)
City Council 20,289 20,289 20,000 (289)
Elections 470 470 470 - ,
Planning and Building 331,400 331,400 334,504 3,104
CapitalOutlay 2,500 2,500 1,563 (937)
Total General Government 700,559 700,559 673,925 (26,634) ,
Public Safety:
Police 121,574 123,307 114,119 (9,188)
Fire 285,500 285,500 263,059 (22,441) '
CapitalOutlay 2,000 4,583 930 (3,653)
Total Public Safety 409,074 413,390 378,108 (35,282)
'
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�42� '
' CITY OF SCANDIA, MINNESOTA
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE
' BUDGET AND ACTUAL (CONTINUED)
GENERALFUND
YEAR ENDED DECEMBER 31, 2011
,
' Budgeted Amounts
Actual Variance with
Original Final Amounts Final Budget
' EXPENDITURES (CONTINUED)
Pubiic Works:
Public Works $ 621,911 $ 613,546 $ 526,908 $ (86,638)
, Uptown Sewer 23,042 23,042 21,418 (1,624)
Total Public Works 644,953 636,588 548,326 (88,262)
' Parks and Recreation:
Parks 49,903 52,127 54,401 2,274
Community Center 62,142 53,777 61,094 7,317
Total Parks and Recreation 112,045 105,904 115,495 9,591
' Total Expenditures 1,866,631 1,856,441 1,715,854 (140,587)
' Revenues in Excess of Expenditures 107,114 121,587 261,378 139,791
OTHER FINANCING SOURCES (USES)
Transfers In 3,787 3,787 3,645 (142)
' Transfers Out (110,000) (110,000) (110,000) -
Total Other Financing Sources(Uses) (106,213) (106,213) (106,355) (142)
' NET CHANGE IN FUND BALANCE $ 901 $ 15,374 155,023 $ 139,649
Fund Balance-Beginning of Year 1,098,653
, FUND BALANCE-END OF YEAR $ 1,253,676
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' (43)
CITY OF SCANDIA, MINNESOTA '
NOTES TO REQUIRED SUPPLEMENTARY INFORMATION
YEAR ENDED DECEMBER 31, 2011 '
,
STEWARDSHIP COMPLIANCE AND ACCOUNTABILITY - BUDGETS
The General Fund budget is legally adopted on a basis consistent with U.S. generally accepted '
accounting principles. Actual expenditures exceeded budgets during 2011 as follows:
Final '
Budget Actual Excess
General Fund
Parks and Recreation: '
Parks $ 52,127 $ 54,401 $ (2,274)
Community Center 53,777 61,094 (7,317)
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' COMBINING FUND FINANCIAL STATEMENTS
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' CITY OF SCANDIA, MINNESOTA
COMBINING BALANCE SHEET
, NONMAJOR GOVERNMENTAL FUNDS
DECEMBER 31, 2011
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' Debt Service Capital Projects
2000 Park Total
Fire Hall Equipment Capital Capital Nonmajor
Bond Fund Certificates Improvement Improvement Funds
' ASSETS
Cash and Investments $ 178,468 $ 43,018 $ 227,405 $ 12,936 $ 461,827
Taxes Receivable 23 - 7 - 30
' Total Assets $ 178,491 $ 43,018 $ 227,412 $ 12,936 $ 461,857
LIABILITIES AND FUND BALANCES
' LIABILITIES
Deferred Revenue $ 23 $ $ 7 $ $ 30
' FUND BALANCES
Restricted for Debt Service 178,468 43,018 221,486
Assigned for:
Infrastructure Improvement Projects - - 227,405 - 227,405
' Acquisition and Development of Parks - - - 12,936 12,936
Total Fund Balance 178,468 43,018 227,405 12,936 461,827
Total Liabilities and
Fund Balances $ 178,491 $ 43,018 $ 227,412 $ 12,936 $ 461,857
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CITY OF SCANDIA MINNESOTA '
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COMBINING STATEMENT OF REVENUES, EXPENDITURES AND
CHANGES IN FUND BALANCE '
NONMAJOR GOVERNMENTAL FUNDS
YEAR ENDED DECEMBER 31, 2011
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Debt Service Capital Projects '
2000 Park Total
Fire Hall Equipment Capital Capital Nonmajor
Bond Fund Certificates Improvement Improvement Funds '
REVENUES
Taxes $ 120,900 $ 51,484 $ 38,500 $ - $ 210,884
Miscellaneous Revenues 1,089 134 1,353 88 2,664
Total Revenues 121,989 51,618 39,853 3,088 216,548 '
EXPENDITURES
Current:
General Government - 2,500 - - 2,500 ,
Parks and Recreation Center - - - 5,479 5,479
Debt Service:
Principal Payments 95,000 - - - 95,000 ,
Interest Payments 20,142 6,100 - - 26,242
CapitalOutlay - - 546 - 546
Total Expenditures 115,142 8,600 546 5,479 129,767
EXCESS(DEFICIENCY)OF REVENUES ,
OVER EXPENDITURES 6,847 43,018 39,307 (2,391) 86,781
Fund Balance-Beginning of Year 171,621 - 188,098 15,327 375,046 ,
FUND BALANCE-END OF YEAR $ 178,468 $ 43,018 $ 227,405 $ 12,936 $ 461,827
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' CITY OF SCANDIA, MINNESOTA
STATEMENT OF CHANGES IN ASSETS AND LIABILITIES - FIDUCIARY FUND
' YEAR ENDED DECEMBER 31, 2011
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Balance Balance
' January 1, December31,
2011 Additions Deductions 2011
ASSETS
CURRENT ASSETS
' Cash and Investments $ 54,245 $ 229,493 $ 165,950 $ 117,788
, LIABILITIES
CURRENT LIABILITIES
Contractor Deposits $ 54,245 $ 229,493 $ 165,950 $ 117,788
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' III.
' OTHER REQUIRED REPORTS
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� . CliftonLarsonAllen LLP
' � www.cliftonlarsonallen.com
CliftonLarsonAllen
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, REPORT ON MINNESOTA LEGAL COMPLIANCE
' Honorable Mayor
Members of the City Council and Citizens
City of Scandia, Minnesota
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We have audited the financial statements of the governmental activities, the business-type activities,
, each major fund, and the aggregate remaining fund information of the City of Scandia, Minnesota (the
City) which collectively comprise the City's basic financial statements as of and for the year ended
December 31, 2011, and have issued our report thereon dated Aprii 6, 2012.
' We conducted our audit in accordance with U.S. generaliy accepted auditing standards and the
provisions of the Minnesota Legal Compliance Audit Guide for Political Subdivisions, promulgated by
the State Auditor pursuant to Minn. Stat. §6.65. Accordingly, the audit included such tests of the
' accounting records and such other auditing procedures as we considered necessary in the
circumstances.
' The Minnesota Legal Compliance Audit Guide for Political Subdivisions covers seven main categories
of compliance to be tested: contracting and bidding, deposits and investments, conflicts of interest,
public indebtedness, claims and disbursements, miscellaneous City provisions, and tax increment
, financing districts. Our study included all of the listed categories except for tax increment financing
districts because the City has no tax increment financing districts.
' The results of our tests indicate that, with respect to the items tested, the City of Scandia, Minnesota
complied with the material terms and conditions of applicable legal provisions.
t This report is intended solely for the information and use of management, the City Council, the Office of
the Minnesota State Auditor, and other state agencies, and is not intended to be and should not be
used by anyone other than these specified parties.
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' CliftonLarsonAllen LLP
Minneapolis, Minnesota
' April 6, 2012
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� . ClfftonLarsonAllen LLP
� �v�v�v.ciiftonlarsonallen.com '
CliftonLarsonAtlen
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REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING '
AND ON COMPLIANCE AND OTHER MATTERS BASED ON
AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ,
ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
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Honorable Mayor and
Members of the City Council '
City of Scandia, Minnesota
We have audited the financial statements of the governmental activities, the business-type activities, '
each major fund, and the aggregate remaining fund information of the City of Scandia, Minnesota (the
City) as of and for the year ended December 31, 2011, which collectively comprise the City's basic
financial statements and have issued our report thereon dated April 6, 2012. We conducted our audit in �
accordance with auditing standards generally accepted in the United States of America and the
standards applicable to financial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States. '
Internal Control Over Financial Reporting
In planning and performing our audit, we considered the City's internal control over financial reporting '
as a basis for designing our auditing procedures for the purpose of expressing our opinions on the
financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's
internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness
of the City's internal control over financial reporting. '
Our consideration of the internal control over financial reporting was for the limited purpose described
in the preceding paragraph and was not designed to identify all deficiencies in internal control over '
financial reporting that might be significant deficiencies or material weaknesses and therefore, there
can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been
identified. However, as described below, we identified certain deficiencies in internai control over '
financial reporting that we consider to be material weaknesses.
A deficiency in internal control exists when the design or operation of a control does not allow ,
management or employees, in the normal course of performing their assigned functions, to prevent, or
detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a
combination of deficiencies, in internal control, such that there is a reasonable possibility that a material
misstatement of the City's financial statements will not be prevented, or detected and corrected on a '
timely basis. We consider the deficiencies described below to be material weaknesses.
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(49) '
' Honorable Mayor and
Members of the City Council
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' Limited Seqreqation of Duties
Condition: Due to the City's limited number of office personnel, segregation of the accounting
' functions that is necessary to ensure adequate internal accounting control may not be possible. This is
not unusual in an operation the size of the City; however, the City Council should constantly be aware
of this condition and realize that the concentration of duties and responsibilities in a limited number of
� individuals is not desirable from an accounting point of view.
Criteria: Generally, a system of internal control contemplates separation of duties such that no
individual has responsibility to execute a transaction, have physical access to the related assets, and
' have responsibility or authority to record the transaction.
Effect: The City is unable to maintain segregation of incompatible duties.
' Cause: Limited number of personnel involved in the finance office.
Recommendation: This area should be reviewed periodically and consideration given to improving the
, segregation of duties. In making this review, it is most important to consider the benefit derived as
weighed against the cost of the improvements. Management feels it is currently not economically
feasible for the City to hire additional staff in order to adequately segregate all incompatible duties.
' Therefore, the City Council needs to be sufficiently involved in the oversight process and controls and
responsibilities should be reviewed periodically.
' Manaqement Response:
Management has decided, due to the small size of the City's staff, that the additional costs of
implementing the necessary controls outweigh the benefits that would be derived.
, Material Audit Adiustments - Internal Control over the Financial Reportinq Process
Condition: The audit firm proposed, and the City posted to its general ledger accounts, 20 journal
' entries to correct misstatements. These entries relate to internal controls over the year-end close-out
process. The absence of a complete control procedure or process in this area is considered a material
weakness because the potential exists that a material misstatement of the financial statements could
, occur and not be prevented or detected by the City's internal control processes.
Criteria: The City should have controls in place to prevent and detect a material misstatement in the
financial statements in a timely manner. Management is responsible for the accuracy and
' completeness of all financial records and related information. Their responsibilities include adjusting the
financial statements to correct material misstatements.
' Effect: Significant audit adjustments were required to bring the financial statements into accordance
with U.S. generally accepted accounting principles (GAAP).
Cause: The City has not established controls to ensure that all accounts are adjusted to their
' appropriate year-end balances in accordance with GAAP.
Recommendation: We recommend the City continue to evaluate its internal control processes to
' determine if additional internal control procedures should be implemented to ensure that accounts are
adjusted to their appropriate year-end balances in accordance with GAAP.
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Honorable Ma or and '
Y
Members of the City Council
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Manaqement Response: '
The amount of journal entries related to the year-end close-out process is reasonable for a city of our
size. The City relies on the audit firm to assist in adjusting accounts to their appropriate year-end '
balances in accordance with GAAP as well as prepare the annual financial statements. Management
has decided this is necessary due to the small size of the city staff, its level of expertise and assigned
duties. The additional cost of bringing in more staff outweighs the benefits that would be derived. ,
Oversiqht of the Financial Reportinq Process
Condition: The City does not have an internal control policy in place over annual financial reporting '
under GAAP, therefore, the potential exists that a material misstatement of the annual financial
statements could occur and not be prevented or detected by the City's internal controls.
Criteria: The City must be able to prevent or detect a material misstatement in the annual financial '
statements, including footnote disclosures.
Effect: Departures from accounting principles generally accepted in the United States of America '
would not necessarily be detected by management.
Cause: The City relies on the audit firm to prepare the annual financial statements and related footnote
disclosures. However, they have reviewed and approved the annual financial statements and related '
footnote disclosures.
Recommendation: The City should continue to evaluate their internal staff, expertise, and assigned '
duties to determine if an internal control policy over the annual financial reporting is beneficial.
Manaqement Response: �
The City's internal staff does not have the resources to provide internal control over the annual financial
reporting under GAAP. However, annual financial statements are closely reviewed and discussed with
the audit firm. The City relies on the audit firm to prepare annual financial statements. The additional
cost of providing internal annual financial reporting outweighs the benefits that would be derived. '
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City's financial statements are free of '
material misstatement, we performed tests of its compliance with certain provisions of laws,
regulations, contracts, and grant agreements, noncompliance with which could have a direct and
material effect on the determination of financial statement amounts. However, providing an opinion on '
compliance with those provisions was not an objective of our audit and, accordingly, we do not express
such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that
are required to be reported under Government Auditing Standards. '
We noted certain matters that we reported to the management of the City of Scandia in a separate
letter dated April 6, 2012. '
The City's written responses to the findings identified in our audit have not been subjected to the audit
procedures applied in the audit of the financial statements and, accordingly, we express no opinion on
them. '
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(51) '
' Honorable Mayor and
Members of the City Council
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' This report is intended solely for the information and use of the City Council, management, the Office of
the Minnesota State Auditor, and state and federal awarding agencies and is not intended to be and
' should not be used by anyone other than these specified parties.
, a���.LL�
CliftonLarsonAllen LLP
' Minneapolis, Minnesota
April 6, 2012
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' (52)