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9.b) Presentation of 2010 Audit and Financial Statements Meeting Date: 5/17/2011 Agenda Item: �� ,� City Council Agenda Report City of Scandia 14727 209`" St.North Scandia, MN 55073 (651) 433-2274 Action Requested: Accept the Auditors Report and Financial Statements for the year ended December 31, 2010 and direct publication of the summary financial statement as required by state law. Deadline/ Timeline: N/A Background: Representatives of LarsonAllen will be at the May 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 LarsonAllen for Year Ended Materials provided: December 31, 2010 • Letter to Management from LarsonAllen far Year Ended December 31, 2010 • Financial Statements for Year Ended December 31, 2010 NOTE: Copies of reports were distributed to Ciry Council members on May 10. Please bring those documents to the meeting. Contact(s): Craig Popenhagen, CPA LarsonAllen(612 397-3087) Prepared by: Anne Hurlburt, Administrator (audit 2010) Page l of 1 OS/10/11 �� xr dll�alltluosiel L LOZ� ' �� rr� xf 0� r j y � �> '� �� "O '� �� •• .• � � �- N 3 1.+ � R„'.;� � � � h � � O . V �� . . . k - .., .. ... .. i � 1 � t��{� . � << fA � � i � �� a �;, � U r',%`� <_.J ��- . . t�'�� `, �� >. �' i. '.,f .��;•� �ya� . •'..r. �,1 . . . 4�+ �•. � . . i �� 4� ��`jy5 �,� y¢ : $ t:'. �� , >,�_ ��x �, '' �^��r. . O � '� � � � .V L � U � N Q � .L' (� N � � � � � � � � � � � M � � � �- o � c� � U � � � i � O � p � _ � ._ U � � � � � � �� . . . . . . . :, _ :: :�� , ;;, � �� v � ( �'�' R '�f" 1 #y � . . � , � , , ' ' , ' ' , , ' ' � , , , i � � � � � � � � � � � � � � � � � � � � � � � • Required Communications • Audit Results • Financial Highlights • New Pronou ncements .�� _._T ��..��._.w�_r._M.. �...�..�._..� �e..... � �_ . ..�.eW, ..�____.. _ .._. e� . _. _ �� ,. ....._ ��s�._ . �, �� ,,��:� � , � � � ,, n ,n � � � � � � � � � � � � � � � � � � w '� . � � � � I, • • . , ' ' n 1 te �''� • Audit provides reasonable , but ot abso u ' assurance ' • Significant accounting estimates — Useful lives of capital assets • Passed adjustment • Received full cooperation from management r ......-._-..:.,....1.,...... ___:._._.,�. ..__..... _. ..__.._ . ..:..,..�..__. .,.... _... . .. . _. ..,. ..,.�.:_ .,.._ _,.._ .... ,.._... . J;`„ 7 ,� v rTv , _. 1 � , ; � . ^ � ��/�I�'''�� ,. � ,n i � � r � � � � � � � � � � � � � � � 1 � � • • Financial statements — Unqualified (i . e . "clean") opinion on financial statements . I nternal controls — Segregation of duties — Oversight of the financial reporting process — Audit adjustments • Minnesota legal compliance — Out of state travel policy _.. _��._,_n,.... .�__ �,_ ._�.,...� . ... ..�......_au�___.�_._�._,._._�..__..da.�.�._.�___.,_._�. .�..�,.__�_ ...._.� ...��.___ ,,.� . 1 „ �,,. > _��`� , : � '� �'�^,f ,, ._ n ,n ' ' , , , ' , ' i 1 1 1 i 1 1 1 i 1 1 � � � � � � � � � � � � � � � � � � � � � � � I � General Fund Revenues $2,000,000 � I iS1,soo,000 � i $1,600,000 �':... . �, �� _� :;� ��:� I S1,400,00o t , -- ---- � j � i $1,200,000 - - �, I � $1,000,000 i i $800,000 �-- � $600,000 -- I I $400,000 $200,000 $- I 2008 2009 2010 I ■Miscellaneous $48,280 $42,035 $43,336 ■Fines $15,953 $12,392 $19,694 Chargesfor Service $151,870 $85,582 $77,741 ; ■Intergovernmental $63,259 $58,075 $56,826 � Licenses and Permits $66,132 $57,543 $73,939 ■PropertyTaxes $1,301,526 $1,408,652 $1,546,679 �...._.� ..,_, _,:. � .. , , �... . __:...,_,��..�....,,_ �,.. _._..� , __: _ . . , _ . .,,. �' '� , _ ,s0 , . � � ^�';' . ,, � ,n � r � � � � � � � � ! � � � � � � � � � � � � � � � General Fund Expenditures $1,600,000 $1,400,000 $1,200,000 _. 4 �.. -;,�,.�, $1,000,000 - - $800,000 - — - -- � . _. , .-. $600,000 � $400,000 - i 2 ' 00 000 I $ , I $_ � 2008 2009 2010 � DebtService $20,590 $- $- ■ Capital Outlay $- $- $9,176 Recreation and Parks � $86,333 $104,202 $78,382 Public Works $360,461 $370,212 $490,079 ■ Public Safety $385,665 $395,511 $425,414 ■ General Government $552,601 $476,012 $446,354 i � .��4�.m .._.ti��. ,,n. �._.....�..��_..��....,.__.....�,.,.a.___�._.k.._..�..�....,.r_„F ..,..rt., �a.,,�.,�_n.,.__.� �.�_,.�_.�._�_s _ti.�� v_._.__w .�_ . ��-� � . � � � ��. . .. ._ 1�� , , , ' , � ' , , , , ' ' ' � � i 1 1 � r � � � � � � � � � �w � � � � � � � . . � � • ' � � General Fund Revenues & Expenditures ; $z,000,000 ; ! � $1,800,000 � $1,600,000 $1,400,000 _. _._._.__._..� _ ; $1,200,000 � � � � (_ $1,000,000 � , $800,000 � � $600,000 - �� a $400,000 �- � $200,000 � � � $- � 2008 2009 2010 i ■ Revenues $1,647,020 $1,664,279 $1,818,215 ( � ■ Expenditures $1,405,650 $1,345,937 $1,449,405 � i .,�.w.��.�._�� . . ...-��. ._�..., ..e ,,._ � _...�.._., ..�__.�,. ..,.,, _.- _ . _ _,. n M _ ._ ., � ., �,._ ...___. � „,. � r , � � � /��'�� ,. � ,n ' ' � ' , ' i 1 1 i 1 � 1 1 1 1 1 i 1 � � � � � � � � � � � � � � � � � � � I I , , , , ' Unreserved Fund Balance - General Fund � iS1,Zoo,000 �o.o�i � $Z,000,000 6o.o�i $800,000 50.0% 40.0% � Unreserved Fund Balance $600,000 � �- 30.0% % of Annual Expenditures � $400,000 20.0% $200,000 10.0% $0 0.0% 2008 2009 2010 � � I � �r.._�_�_...._ _ ._ ..�.-_. ._.. ..,.,_...._.�_.._ �.�.. ._ ....._._ ._.__ _ _ . , _ _�.. ,. __ �LL��_. ,; � _ . . . . , + . ' ^ ��^%`i ,.��YI!' , , � , , ' ' � � ' , � � , , , i i 1 � � � � � � � � � � � � � � � � � � � � � � � � � � � Sewer Enterprise Fund Operating Income and � 3 Operating Expense � � SZoo,000 � � Sao,000 S6o,000 - — I � ; � $40,000 - � $zo,000 ; – – - � � � :��.:�.� �- --- _ 2008 2009 2010 ■ Operating Income $60,338 $72,220 $61,236 i ■ Operating Expense $90,983 $60,030 $67,359 � L.._�,_____ _�__"___—_�__—'__—,— _ '____"_._____'"_.—__'__. � .^_____—_�__ �n._..r..,-.sa....xn......:m»�...naru..w�,. .�..».m.:a.n:v......r,. �,e:..ar nw......�..c...,..u�.-.v..a-:e...... u,.xs,:r..... w�.,�.�.:� . .._�,u.+...:vv......�.n.wx.a+nax... ,p .. ... .....:,:.. . ..:-.:.v. .. . .. -� � � i ( �� /� /�/ �`A ,� _ ^ /,f � ■� � r � � � � �s r � � � � � w � �■r � . . � � • ' � Sewer Enterprise Fund - Asset Breakdown , $187,568 � � �� $870,000 ■ Invested in Capital Assets, Net of Related Debt (Nonspendable) ; � ■ Unrestricted (Spendable) ; � .d.,�.n..,,��._.�.�:._,�.�.r....__,:��...�.��..._..�.�.�..w�__._��.._.__�.. .3. . h,..... � w..�. _ .. .� . r— .,,..,..,._�._.4_� _.._._�._.�.�_y�� -1,1 ,`,, 3 � � : � ^�`. ,, _ n ,n ' ' ' � 1 � � 1 1 t � 1 1 1 1 1 1 1 1 � r � � ■� � � � � r � � � � � it � � � ' � • • - - • GAS B 54 - Fund Balance Reporting and Governmental Fund Type Definitions — Effective for fiscal year ending December 31 , 2011 — Distinguishes between fund balance amounts that are considered non-spendable, such as fund balance associated with inventories, and other amounts that are classified based on the relative ability to be spent. .� ..n .�._. ..,..mm. ��_��..._ . v=__.�__�..�.�_�. ...x�u_�..�� y _�w_._..v� _F. _ . .��__x v � _.._.._�..k_�� ,, ,� . � , � : , � ��^�: ,, � ,n � � ■� � � � � � r � � � � � � � � � � ' � • • ' ' • ' � • Beginning with the most non-spendable classification , fund balances will be reported in the following classifications: – Restricted — amounts constrained by external parties, constitutional provision, or enabling legislation. – Committed — includes amounts that can be used only for the specific purposes determined by a formal action of the government's highest level of decision-making authority – Assigned — amounts a government intends to use for a particular purpose. In governmental funds other than the general fund, assigned fund balance represents the remaining amount that is not restricted or committed. – Unassigned — amounts that are not constrained at all will be reported in the general fund or to report deficit balances in other governmental funds. .�,_n ��.� .m.., ..._.�_._ �_,��. . ,..._ .�.._ . _�.y�......_�_�. .... .�. �. ...... ...0 . � . .u.__ � ..�m ,._�.�. �.,. , ' ;'� . � � ^ ^��i�� ,, � ,n � � � � r � � � � � � � � � � � � � � !� ' • . • ' ' • • . Thank you ! Craig Popenhagen, Principal Brady Hoffman, Manager Ph. 612/397-3087 Ph. 612/376-4665 cpopenhagen@larsonallen.com bhoffman@larsonallen.com �.�h.��_ _ ,.�.�. .r �. .._a.., ��_ .__., _.�a ��.n.R p�._..... w.� _ ..�.� _. . ��. ... ...._ ..4r_ ..... �� , m ;.�� ,��j��%`;�' , . p i . I r ,, `r.�/,! � I.�ars n.Aller� ��U�D CPAs, Consultants & Advisors , www.larsanallert.com . ; CITY OF SCANDIA Management City of Scandia Scandia, Minnesota In planning and perfonning our audit of the financial statements of City of Scandia, Minnesota (the City) for the year ended December 31, 2010, in accordance with auditing standards generally accepted in the United States of America, we considered the City's internal control over financial reporting (internal control) as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the cffectiveness of the City's internal control. However, during our audit we became aware of certain matters that are opportunities far strengthening internal controls and operating efficiency. The memorandum that accompanies this letter summarizes our comments and suggestions regarding those matters. (We previously reported on thc Organization's internal control in our report dated May 5, 201 1.) This letter does not affect our report dated May 5, 201 l, on the financial statements of City of Scandia. Fund Balance Reportin�Chan�es In March 2009, Governmental Accounting Standards Board issued GASB Statement No. 54, Fund Balance Reporting and Governn�ental Fund Tvpe De�inilions. The requirements of this Statement are effective for the City's fisca] year ending December 31, 20l]. Governments that wish to implcment earlier than that date are encouraged to do so. Statement 54 distinguishes between fund balancc amou»ts that are considered non-spendable, such as fund balance associated with inventories, and other amounts that are classified based on the relative ability to be spent. Beginning with the most non-spendable classification, fund balances will bc reported in thc following classifications: • Restricted—amounts constrained by external parties, constitutional provision, or enabling legislation. • Comn�ilted—includes amounts that can be used only far the specific purposes determined by a formal action of the government's highest level of decision-making authoriry. • Assigned—amounts a government intends to usc for a particular purpose. In govenlmental funds other than the general fund, assigncd fund balance represcnts the remaining amount that is not restricted or committcd. • Unassigned—amounts tbat are not constrained at all will bc reported in the general fund or to report deficit balances in other govcrnmental funds. The new standard also clarifies the dcfinitions of individual governmental fund types. The statement interprets certain terms within the definition of special revcnue fund types, while further clarifying the debt service and capital projects fund rypc definitions. The statemcnt also specifies how economic stabilization ar "rainy-day" amounts should be reported. _ � An independent member of Nexia lnternational INTER\AT10�AL Managcment City of Scandia Page 2 We look forward to ar�swering the City Council's and your staf�s questions and concerns rclated to the new standards, accounting guidance, or issues that arise throughout the year that impact the Ciry. We will review the status of these comments during our next audit engagement. We have already discussed many of these comments and suggestions with various organization personnel, and we will be pleased to discuss them in further detail at your convenicnce, to perform any additional study of these matters, or to assist you in implementing tbe recommcndations. ,C��;�Q� ��P LarsonAllen LLP Minncapolis,,Minncsota May 5, 2011 Lars�nAllen R E�EIV�D CPAs, Consultants & Advisors ' www.iarsonallen.com ;'` / ; , ; �,�;; � CITY OF SCANDIA Ciry Council City of Scandia � Scandia, Minnesota We have audited the financial statemcnts of the governmental activities, the busincss-type activities, each major fund, and the aggregate rcmaining fund information of the City of Scandia, Minnesota (the Ciry) for the year ended December 31, 2010, and have issued our report thereon dated May 5, 2011. Professional standards require that we provide you with the following information relatcd to our audit. Our responsibility under U.S. Cenerally Accepted Auditing Standards and Government Auditing Standards As stated in our engagement letter dated January l4, 201 ], our responsibility, as described by professional standards, is to express opinions about whether tbe financial statements prepared by management with your ovcrsight 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 rcasonable 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 materia] misstatcment. 2. We are responsible for communicating significant matters rclated to the audit that are, in our professional judgment, relevant to your responsibilities in ovcrseeing the financial reporting process. Howcver, we are not required to design procedures specifically to identify such matters. 3. We are also responsible for communicating matters regarding the provisions of tbe Minnesota Legal Compliance Audit Guide for Political Subdivisions,promulgated by thc Statc Auditor pursuant Minncsota Statutc 6.65. Other information in documents containing audited financial statements Our audit opinion, the audited financial statements, and tbe notes to financial statements should only be used in their entirety. Inclusion of the auditcd financial statements in a client prepared documcnt, such as an annual report, should be done only with our prior approval and review of the document. Our responsibility for other information in documents containing the City's financial statements and report does not extend beyond the financial information identified in the report. We do not have an obligation to perform any procedures to corroborate othcr information containcd in such documcnts. Planned scope and timing of the audit We performed the audit according to the planned scope and tiining previously cominunicated to you in our meeting about planning matters on February 3, 20ll. k An independent member of Nexia lnternational l!�7�ER\A3'IGNAL , City Council City of Scandia Page 2 Significant audit findings Qualitative aspects of accounting practices Management is responsible for the sclection 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. The significant accounting policies used by City of Scandia are described in Note 1 to the financial statements. No new accounting policies were adopted and the application of existing policies was not changed during 2010. We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. All significant transactions havc bcen recognized in tbe financial statements in the proper peri od. Accounting estimates arc an integral part of the financial statcments prepared by management and are based on managcment's knowledge and expericnce about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive bccause of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most � sensitive estimate affecting the financial statements was: Estimated useful lives of depreciablc capital assets - Management's estimate of useful lives for dcpreciable assets is based on guidance recommended by authoritative accounting literature and past experiences. The useful life of a depreciable asset determines the amount of depreciation that will be recorded in any given reporting period as well as thc amount of accumulated depreciation that is reported at the end of a reporting period. We evaluated the key factors and assumptions uscd to devclop the above estimates in determining that it is reasonable in relation to the financial statements taken as a whole. Dif'ficulties encountered irr 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 misstatements identificd during the audit, other than those that are trivial, and communicate them to the appropriatc levcl of management. We proposed audit adjustments to convert the City's records from cash to acerual basis as a result of audit procedures in the arcas of cash, reccivables, accounts payable, accrucd liabilities, fund balance, net assets, revenucs and expenditures. These audit adjustments were recorded by management. In addition, we determincd that accounts payablc and expenditures of the General Fund werc understated by $2,800 rclated to an invoice for insurance covering a policy ycar of Deccmbcr 1, 2010 through November 30, 20l l. The invoice totaling approximately �34,000 was paid in January 20]1; the error amount of$2,800 relates to the month of December 2010. Management has determined that the effects are immaterial to the financial statemcnts taken as a whole. City Council Ciry of Scandia Page 3 Disagreements with management For purposes of this letter, professional standards define a disagrcement with management as a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could bc significant to the financial statements or the auditars' report. We are pleased to rcport 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 May 5, 20l 1. tl�anagement consultations with other independent accountants In some cases, managcment 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 City's financial statcmcnts or a detcrmination of the type of auditors' opinion that may be expressed on those statements, our profcssional standards requirc 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 findirrgs or issues We generally discuss a variery 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 rclationship and our responses were not a condition to our retention. * * * * * * This report is intended solely for the use of the City Council and management of the Ciry of Scandia and is not intended to be and should not be used by anyone other than these specified parties. ,��,�-�..,��?�.�. �-LP LarsonAllen LLP Minneapolis,Minnesota May 5, 2011 ' ,, _—__—_--- ' �: R��I�l�D , i E � ; I CITY OF SCANDIA � -- ____— ' CITY OF SCANDIA, MINNESOTA FINANCIAL SYATEMENTS AND ' SUPPLEMENTARY INFORMATION YEAR ENDED DECEMBER 31, 2010 � ' , City of Scandia 14727 209t'' Street North , Scandia, Minnesota 55073 ' , ' � ' ' ' ' ' ' CITY OF SCANDIA, MINNESOTA TABLE OF CONTENTS ' YEAR ENDED DECEMBER 31, 2010 � I. INTRODUCTORY SECTION Elected and Appointed Officials ' II. FINANCIAL SECTION � Independent Auditors' Report 1 REQUIRED SUPPLEMENTARY INFORMATION tManagement's Discussion and Analysis 3 Basic Financial Statements ' Statement of Net Assets 14 Statement of Activities 15 � Balance Sheet— Governmental Funds 17 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets — Governmental Activities 18 ' Statement of Revenues, Expenditures, and Changes in Fund Balance — Governmental Funds 19 � Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balance to the Statement of Activities — Governmental Activities 20 � Statement of Net Assets — Proprietary Funds 21 Statement of Revenues, Expenses, and Changes in Net Assets — Proprietary Funds 22 , Statement of Cash Flows — Proprietary Funds 23 Statement of Net Assets — Fiduciary Fund 24 ' Notes to Basic Financial Statements 25 Required Supplementary Information — Budgetary Comparison Information 1 Schedule of Revenues, Expenditures and Changes in Fund Baiance — Budget and Actual — General Fund 43 ' Notes to Required Supplementary Information 45 Combining Fund Financial Statements Combining Balance Sheet— Nonmajor Governmental Funds 46 ' Combining Statement of Revenues, Expenditures and Changes in Fund Balance— Nonmajor Governmental Funds 47 ' Statement of Changes in Assets and Liabilities— Fiduciary Funds 48 ' ' , ' � ' , ' ' � t � � � ' ' 1 t , t ' � CITY OF SCANDIA, MINNESOTA TABLE OF CONTENTS (CONTINUED) , YEAR ENDED DECEMBER 31, 2010 , III. OTHER REQUIRED REPORTS Report on Minnesota Legal Compliance 49 , Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with 1 Government Auditing Standards 50 t 1 1 1 1 1 1 1 1 1 1 1 1 1 � ' � ' � � � � ' , , � i 1 1 1 1 1 1 , � � ' , ' I. INTRODUCTORY � SECTION ' � � � � , � ' ' � ' , � CITY OF SCANDIA, MINNESOTA ELECTED AND APPOINTED OFFICIALS � DECEMBER 31, 2010 � ' Elected Position ' Dennis Seefeldt Mayor ' Dolores Peterson Council Member Pete Crum Council Member � Connie Amos Council Member John Lindell (Resigned 9/13/10) Council Member � Chris Ness Council Member (Replaced John Lindell 10/22/10) � Appointed Anne Hurlburt Administrator � Colleen Firkus Treasurer � Brenda Eklund Deputy Clerk Steve Thorp Building Official/Maintenance Supervisor ' , ' � ' � � � ' ' _ � , t ' � � � � ' , ' ' ' ' ' , � 1 1 1 1 i t ��. , FINANCIAL SECTION ' � ' ' � ' , ' � � ' ' � m Lars�nAllen � LLY C1'As, Consultants & Advisors www.larsonallert.com � � INDEPENDENT AUDITORS' REPORT � 1 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, 2010, which collectively comprise the City's basic financial statements as listed in the table 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 governmental activities, the business-type activities, each major ' fund, and the aggregate remaining fund information of the City of Scandia, Minnesota as of December 31, 2010, 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. In accordance with Government Auditing Standards, we have also issued a report dated May 5, 2011 � 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. � , ��'r'` � An independent(m)mber of Nexia lnternational ' ��;rek�,�ri��:�t. Honorable Mayor ' Members of the City Council and Citizens ' The management's discussion and analysis and budgetary comparison information as listed in the � table of contents is not a required part of the basic financial statements but supplementary information required by U.S. generally accepted accounting principles. We have applied certain limited procedures, ' which consisted principally of inquires of management regarding the methods of ineasurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. � Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements. The accompanying supplementary � information, including the introductory section and combining fund financial statements listed in the table of contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information, except for the introductory section on which we express no opinion, has been subjected to the auditing procedures applied in our audit of the basic financial ' statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. ' ��P LarsonAllen LLP ' Minneapolis, Minnesota May 5, 2011 � ' ' , ' � ' , ' (2) , � � ' ' , tREQUIRED SUPPLEMENTARY INFORMATION � ' � � ' � ' , ' , , ' ' CITY OF SCANDIA, MINNESOTA ' MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2010 � 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 fiscal year ended December 31, 2010. Financial Highlights , o The City's net assets of its governmental activities increased by $289,803 during the year to ' $10,035,054 at year-end. o The General Fund balance increased by $293,262 during the year to $1,098,653 at year-end. o The net assets of the City's business-type activities (201 Sewer Enterprise Fund) decreased by � $2,935 during the year to $1,057,568. 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 t 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 statemenf 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 (governmenta/ 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. � ' ' (3) , , CITY OF SCANDIA, MfNNESOTA MANAGEMENT'S DISCUSSION AND ANALYSIS � YEAR ENDED DECEMBER 31, 2010 ' 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 governmenta/ 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 government's 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 and 2007 Improvement Bond Fund. Data from the ' other governmental funds are combined into a single, aggregated presentatian. 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 17-20 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 fype of information as the government-wide financial statements, ' only in more detail. The proprietary fund financial statements provide separate information for the 201 sewer operations. The 201 Sewer Enterprise Fund is considered to be a major fund of the City. ' ' ' � (4) CITY OF SCANDIA, MINNESOTA ' MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2010 , Fund Financial Statements (Continued) � Proprietary Funds (Continued) � The basic proprietary fund financial statements can be found on pages 21-23 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 25-42 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 46-47 of this report. Government-Wide Financial Analysis ' Beginning with the year ended December 31, 2004, financial statements were presented in accordance with the requirements of Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements and ManagemenYs 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. , ' , ' � (5) ' � CITY OF SCANDIA, MINNESOTA MANAGEMENT'S DISCUSSION AND ANALYSIS ' YEAR ENDED DECEMBER 31, 2010 ' S EXHIBIT 1: CITY OF SCANDIA S NET ASSETS , Governmental Activities Business-Type Activities Totals 2010 2009 2010 2009 2010 2009 Current and OtherAssets $ 2,190,041 $ 1,814,885 $ 196,684 $ 166,575 $ 2,386,725 $ 1,981,460 Capital Assets,Net 9,623,907 9,743,820 870,000 900,000 10,493,907 10,643,820 , Total Assets 11,813,948 11,558,705 1,066,684 1,066,575 12,880,632 12,625,280 Current Liabilities 169,408 182,648 9,116 6,072 178,524 188,720 Long-Term Liabilities 1,609,486 1,630,806 - - 1,609,486 1,630,806 1 Total Liabilities 1,778,894 1,813,454 9,116 6,072 1,788,010 1,819,526 Net Assets: Invested in Capital Assets Net of Related Debt 8,031,460 8,113,014 870,000 900,000 8,901,460 9,013,014 � Restricted for Debt Retirement 509,529 453,952 = - 509,529 453,952 Restricted for Road Maintenance 121,144 119,106 121,144 119,106 U nrestricted 1,372,921 1,059,179 187,568 160,503 1,560,489 1,219,682 Total NetAssets $ 10,035,054 $ 9,745,251 $ 1,057,568 $ 1,060,503 $ 11,092,622 $ 10,805,754 ' As noted earlier net assets ma serve over time as a useful indicator of a overnment's financial � Y 9 � position. In the case of the City, assets exceeded liabilities by $11,092,622 at the close of the most recent fiscal year. The largest portion of the City's net assets (80%) 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 ($1,560,489) � may be used to meet the City's ongoing obligations to citizens and creditors. � ' ' , ' ' (6) CITY OF SCANDIA, MINNESOTA � MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2010 , EXHIBIT 2: CHANGES IN NET ASSETS , Governmental Activities Business-Type Activities Totals , 2010 2009 2010 2009 2010 2009 REVENUES Proqram Revenues Charges for Services $ 210,529 $ 192,947 $ 61,236 $ 68,457 $ 271,765 $ 261,404 ' Operating Grants and Contributions 40,717 40,587 - - 40,717 40,587 Capital Grants and Contributions 36,945 67,299 5,475 3,763 42,420 71,062 General Revenues PropertyTaxes 1,844,625 1,791,648 - - 1,844,625 1,791,648 , Grants and Contributions Not Restricted for a Particular Purpose 9,691 16,609 - - 9,691 16,609 Other 22,022 21,729 1,358 1,458 23,380 23,187 Total Revenues 2,164,529 2,130,819 68,069 73,678 2,232,598 2,204,497 ' EXPENSES General Government 451,020 493,675 - - 451,020 493,675 Public Safety 473,909 429,286 - - 473,909 429,286 ' Public Works 784,751 667,882 - - 784,751 667,882 Parks and Recreation 96,149 140,424 - - 96,149 140,424 Interest and Fiscal Charges 72,542 82,561 - - 72,542 82,561 Sewer - - 67,359 60,030 67,359 60,030 Total Expenses 1,878,371 1,813,828 67,359 60,030 1,945,730 1,873,858 � TRANSFERS 3,645 3,600 (3,645) (3,600) - - CHANGE IN NET ASSETS 289,803 320,591 (2,935) 10,048 286,868 330,639 � Net Assets-Beginning of Year 9,745,251 9,424,660 1,060,503 1,050,455 10,805,754 10,475,115 NET ASSETS-END OF YEAR $ 10,035,054 $ 9,745,251 $ 1,057,568 $ 1,060,503 $ 11,092,622 $ 10,805,754 Governmental Activities. Governmental activities increased the City's net assets by $289,803. r Business-Type Activities. Business-type expenses (the 201 Sewer Enterprise Fund) decreased the � City's net assets by $2,935. ' ' , ' ' ' (�) � aCITY OF SCANDIA, MINNESOTA MANAGEMENT'S DISCUSSION AND ANALYSIS ' YEAR ENDED DECEMBER 31, 2010 ' The following is a graphical representation of the various sources of the City's governmental revenues (excluding transfers) of$2,164,529: ' Governmental Activities Revenues by Source 2010 � ❑ Fees,Charyes,and ■ Operating Grants and o OtherGeneral Other Contributions Revenue 10% 2o�a ' �% ❑ Capital Grantsand Contributions 2% I ��;`�. 1 � P� o Grantsand Contributions not ' Restricted for a ■ PropertyTaxes Particula��Purpose 85% ' � The following is a graphical representation of the various sources of the City's governmental expenses of$1,878,371 and program revenues of$288,191: � Expenses and Program Revenues- Governmental Activities � $900,000 -, o Expenses i $800,000 ■Program Revenues � $700,000 � � I $600,000 ' $500,000 I 1 $400,000 $300,000 ' $200,000 $100,000 i �_ L , General Government Public Safety Public Works Parks and Interest and Fiscal Recreation Charges � ' , `$) CITY OF SCANDIA, MINNESOTA ' MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2010 ' The following is a graphical representation of the various sources of the Cit 's business-t e revenues , Y YP of$68,069: , Revenue by Source - Business-Type Activities Oth er , Grants&Contributions� i.0% 8.0% \_ _ t '�� ` � __ _ _ _ --- , I --- - I � 5 ' .. ��.. �4��ph' ��^ , .�,�- ; �4u�� 4. • .�.�.r`�. ..� Ch arg es fo r Services 90.0% ' The following is a graphical representation of the various sources of the City's business-type expenses of$67,359 and program revenues of$66,711: � Expenses and Program Revenues-Business-Type Activities , $68,000 � ❑Expenses , ■Program Revenues i ' $67,000 , I t � i � , $66,000 Sewer ' ' �9) ' � CITY OF SCANDIA, MINNESOTA MANAGEMENT'S DISCUSSION AND ANALYSIS � YEAR ENDED DECEMBER 31, 2010 � Financial Anal sis of the Government's Funds Y , As noted earlier, the City uses fund accounting to ensure and demonstrate compfiance 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 spendable resources. Such information is useful in assessing the City's financing requirements. In particular, unreserved fund balance 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, alf of the City's governmental funds together reported combined ending fund balances of $1,763,913, an increase of $433,602 in comparison with the prior year. Of the , $1,763,913 fund balance, approximately 73.8% ($1,301,561) constitutes unreserved fund ba/ance, which is available for spending at the City's discretion. The remainder of fund balance is reserved to indicate that it is not available for new spending because it has already been committed to pay debt ' service ($341,208) and for road maintenance on County Road 53 ($121,144). 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 $1,098,653, an increase of $293,262 over the prior fiscal year. Key factors in this change in fund balance are as follows: o Actual expenditures totaled $1,449,405 (excluding transfers) for 2010 compared to budgeted ' expenditures of$1,876,486. o Actual revenues totaled $1,818,215 for 2010 compared to budgeted revenues of $1,953,244, a net unfavorable variance of $135,029 (before transfers). All revenues came in over budget � (favorable variance) except for charges for zoning and hearing fees where the budgeted revenues exceeded actual revenues by $280,619. � As a measure of the General Fund's liquidity, it may be useful to compare the fund balance to total fund expenditures. Unreserved, undesignated fund balance ($953,427) represents 65.8% of total 2010 General Fund expenditures. ' Because property tax revenues are not received until the middle of the budget year, it is important that the City carry fund balances sufficient to cover anticipated expenses for the first half of the budget year. If not, the city would be forced to borrow (and pay interest on) the funds necessary to meet basic , expenses such as payroll. The 65.$% unreserved, undesignated balance in the General Fund is adequate for cash flow purposes. A good long-term goal would be to maintain fund balances of 45% or 50% of total expenditures. , ' , ' ' (10) CITY OF SCANDIA, MINNESOTA � MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2010 � General Fund Budgetary Highlights � Detail of the General Fund original budget, final budget and actual revenues and expenditures can be , found beginning on page 43 of this report. The net change in the General Fund Balance was $293,262. The City Council approved the following budget amendments during the year: � o Increase miscellaneous revenues (donations and other) by $4,881 due to additional donations to be used to replace the automobile extrication equipment. o Increase capital outlay expenditures increased by $4,881 to replace automobile extrication � equipment. Actual expenditures were less than budgets in several departments. Spending in the Public Works ' Department was $86,168 less than budgeted (largely due to under-spending the budget for contractual road maintenance) and spending in the General Government departments (Administration, and Finance, Elections, Planning and Building and City Council) was $327,073 less than budgeted, which ' largely explains the net spending of $427,081 less than the overall General Fund Budget. Of the $327,073 variance for General Government departments, Planning and Building expenditures makes up $297,035 of that variance which is offset by charges for zoning and hearing fees revenue also t coming in under budget by $280,619. These variances were mainly due to less activity than anticipated related to the Zavoral Mine Environmental Impact Statement. 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 $187,568. , � ' ' ' , ' ' (11) ' � CITY OF SCANDIA, MINNESOTA MANAGEMENT'S DISCUSSION AND ANALYSIS ' YEAR ENDED DECEMBER 31, 2010 � Capital Asset and Debt Administrat�on ' Capital Assets. The City's investment in capital assets for its governmental and business type activities as of December 31, 2010, amounts to $10,493,907 (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 an decrease in the City of Scandia's investment in capital assets (net of accumulated depreciation) of 1.4%. CITY OF SCANDIA'S CAPITAL ASSETS ' (Net of Depreciation) Governmental Business-Type ' Activities Activities Totals 2010 2009 2010 2009 2010 2009 Land $ 487,735 $ 487,735 $ - $ - $ 487,735 $ 487,735 Construction in Process 39,295 - - - 39,295 - � Buildings 2,193,375 2,193,375 - = 2,193,375 2,193,375 Equipment and Vehicles 1,334,741 1,192,856 1,334,741 1,192,856 Infrastructure 9,353,763 9,353,763 - - 9,353,763 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 (3,947,649) (3,646,556) (630,000) (600,000) (4,577,649) (4,246,556) Total $ 9,623,907 $ 9,743,820 $ 870,000 $ 900,000 $ 10,493,907 $ 10,643,820 ' Long-Term Debt. At the end of the current fiscal year, the City had total bonded debt outstanding of $1,620,000. 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 2010 2009 2010 2009 2010 2009 LONG-TERM OBLIGATIONS Long-Term Debt: , General Obligation Notes $ 1,620,000 $ 1,645,000 $ _ $ _ $ 1,620,000 $ 1,645,000 Unamortized Bond Discount (27,553) (31,798) (27,553) (31,798) Compensated Absences 17,039 17,604 17,039 17,604 Total 1,609,486 1,630,806 � � 1,609,486 1,630,806 , Additional information on long-term debt is presented in Note 4 of this report. ' � , , ' (12) CITY OF SCANDIA, MINNESOTA � MANAGEMENT'S DISCUSSION AND ANALYSIS YEAR ENDED DECEMBER 31, 2010 , Economic Factors and Next Year's Bud ets and Rates , 9 o The City Council has approved a balanced budget for the General Fund for 2011. Staff will ' continually monitor the budget and recommend any revisions that are deemed necessary to the City Council. The 2011 budget takes into account an anticipated under-collection of property tax revenue due to the expected loss of State paid Market Value Homestead Credit (MVHC). , o During the current economic downturn the City will continue to experience slow or no growth, and the revenues from permits will continue to be below historic levels. In 2011, the City will be limited in spending increases due to the continuation of levy limits on cities over 2,500 ' population. The impacts on Scandia will be determined by current discussions at the State Legislature. Staff will continue to monitor the changes in this area to prepare for 2012 budget discussions, which will begin in June of 2011. ' 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). ' � � � ' ' , � � ' (13) ' 1 1 1 1 1 ' BASIC FINANCIAL STATEMENTS ' � ' ' ' ' , � , ' ' ' , , CITY OF SCANDIA, MINNESOTA STATEMENT OF NET ASSETS ' DECEMBER 31, 2010 � Governmental Business-Type Activities Activities Totals , ASSETS Cash and Investments $ 1,820,475 $ 182,521 $ 2,002,996 Receivables: ' Taxes and Other 165,821 5,933 171,754 Special Assessments 176,207 8,230 184,437 Unamortized Issuance Costs 13,212 - 13,212 ' Frepaid Items 14,326 = 14,326 Capital Assets, Non Depreciable 527,030 527,030 Capital Assets, Net of Accumulated Depreciation 9,096,877 870,000 9,966,877 � Total Assets 11,813,948 1,066,684 12,880,632 LIABILITIES Accounts and Contracts Payable 134,148 9,116 143,264 ' Accrued Payroll, Taxes and Benefits 25,789 = 25,789 Interest Payable 7,361 7,361 Unearned Revenue 2,110 - 2,110 � Noncurrent Liabilities: Due Within One Year 241,683 241,683 Due in More Than One Year 1,367,803 - 1,367,803 � Total Liabilities 1,778,894 9,116 1,788,010 NET ASSETS , Invested in Capital Assets, Net of Related Debt 8,031,460 870,000 8,901,460 Restricted for Debt Retirement 509,529 509,529 Restricted for Road Maintenance 121,144 - 121,144 Unrestricted 1,372,921 187,568 1,560,489 ' Total NetAssets $ 10,035,054 $ 1,057,568 $ 11,092,622 , , � � ' , See acc.ornpanying Notes to Basic Financial Statements. ' (14) � CITY OF SCANDIA, MINNESOTA � STATEMENT OF ACTIVITIES YEAR ENDED DECEMBER 31, 2010 , , Program Revenues Operating Capital Grants ' Charges for Grants and and FUNCTIONS/PROGRAMS Expenses Service Contributions Contributions Government Activities: � General Government $ 451,020 $ 113,908 $ 13,669 $ - Public Safety 473,909 30,876 25,088 - Public Works 784,751 5,874 - 36,945 t Parks and Recreation 96,149 53,269 1,960 - Interest and Fiscal Charges 72,542 6,602 - - Total Governmental Activities 1,878,371 210,529 40,717 36,945 Business-Type Activities: � Sewer 67,359 61,236 - 5,475 Total Primary Government $ 1,945,730 $ 271,765 $ 40,717 $ 42,420 ' 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 Tra n sfers Total General Revenues ' CHANGE IN NET ASSETS Net Assets- Beginning of Year ' NET ASSETS -END OF YEAR � � , � � ' See accompanying Notes to Basic Financial Statements. (15) , ' � ' Net (Expense) Revenue and Changes in Net Assets , Governmental Business-Type Activities Activities Total , $ (323,443) $ - $ (323,443) (417,945) - (417,945) � (741,932) = (741,932) (40,920) (40,920) (65,940) - (65,940) (1,590,180) - (1,590,180) � - (648) (648) ' (1,590,180) (648) (1,590,828) , 1,844,625 - 1,844,625 9,691 - 9,691 � 16,300 1,358 17,658 5,722 5,722 3,645 (3,645) - ' 1,879,983 (2,287) 1,877,696 289,803 (2,935) 286,868 � 9,745,251 1,060,503 10,805,754 $ 10,035,054 $ 1,057,568 $ 11,092,622 � � ' ' � ' ' (16) CITY OF SCANDIA, MINNESOTA ' BALANCE SHEET GOVERNMENTALFUNDS � DECEMBER 31, 2010 , 2007 Improvement Nonmajor ' General Bond Governmental Fund Debt Service Funds Totals ASSETS , Cash and Investments $ 1,136,775 $ 168,900 $ 514,800 $ 1,820,475 Taxes Receivable 149,747 116 60 149,923 Special Assessments Receivable - 176,207 - 176,207 � Other Receivables 15,398 - 500 15,898 Prepaid Items 14,326 - - 14,326 Total Assets $ 1,316,246 $ 345,223 $ 515,360 $ 2,176,829 � LIABILITIES AND FUND BALANCES Liabilities: � Accounts and Contracts Payable $ 114,521 $ - $ 19,627 $ 134,148 Accrued Payroll, Taxes and Benefits 25,789 - - 25,789 Deferred Revenue 77,283 175,636 60 252,979 � Total Liabilities 217,593 175,636 19,687 412,916 Fund Balances: Reserved for Debt Service - 169,587 171,621 341,208 � Reserved for Road Maintenance 121,144 - - 121,144 Unreserved, Designated for Capital Improvements 24,082 - 324,052 348,134 � Unreserved, Undesignated 953,427 - - 953,427 Total Fund Balances 1,098,653 169,587 495,673 1,763,913 Total Liabilities and Fund Balances $ 1,316,246 $ 345,223 $ 515,360 $ 2,176,829 � ' � ' , ' ' See accompanying Notes to Basic Financial Statements. (�7) , ' CITY OF SCANDIA, MINNESOTA RECONCILIATION OF THE GOVERNMENTAL FUNDS BALA�lCE SHEET � TO THE STATEMENT OF NET ASSETS GOVERNMENTAL ACTIVITIES DECEMBER 31, 2010 ' ' TOTAL FUND BALANCES FOR GOVERNMENTAL FUNDS $ 1,763,913 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 $ 13,571,556 � Less Accumulated Depreciation (3,947,649) 9,623,907 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 75,349 Other Special Assessments 175,520 250,869 Bond and equipment certificate issuance costs are reported as 1 expenditures in the governmental funds and are shown as assets net of accumulated amortization on the statement of net assets. 13,212 � 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 (1,609,486) Accrued Interest on Long-Term Debt (7,361) (1,616,847) TOTAL NET ASSETS OF GOVERNMENTAL ACTIVITIES $ 10,035,054 � � � � ' ' See accompanying Notes to Basic Financial Statements. ' (18) CITY OF SCANDIA, MINNESOTA ' STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE GOVERNMENTALFUNDS � YEAR ENDED DECEMBER 31, 2010 , 2007 Improvement Nonmajor Total t General Bond Governmental Governmental Fund Debt Service Funds Funds REVENUES � Taxes $ 1,546,679 $ 184,845 $ 148,958 $ 1,880,482 Special Assessments - 31,131 13,798 44,929 Intergovernmental Revenue 56,826 - - 56,826 Licenses and Permits 73,939 - - 73,939 , Charges for Services 77,741 - - 77,741 Fines and Forfeits 19,694 - - 19,694 Miscellaneous Revenue 43,336 1,178 4,523 49,037 ' Total Revenues 1,818,215 217,154 167,279 2,202,648 EXPENDITURES Current: ' General Government 446,354 - 2,596 448,950 Public Safety 425,414 - - 425,414 Public Works 490,079 - - 490,079 � Parks and Recreation Center 78,382 - 5,037 83,419 Debt Service: Principal Payments - 135,000 90,000 225,000 Interest Payments - 41,043 23,293 64,336 � Capital Outlay: General Government 2,875 - - 2,875 Public Safety 6,301 - 192,744 199,045 Public Works - - 39,295 39,295 � Total Expenditures 1,449,405 176,043 352,965 1,978,413 EXCESS OF REVENUES OVER � (UNDER) EXPENDITURES 368,810 41,111 (185,686) 224,235 OTHER FINANCING SOURCES (USES) Proceeds from Sale of Equipment - - 5,722 5,722 ' Issuance of Equipment Certificate - - 200,000 200,000 Transfer in 4,452 53,378 80,000 137,830 Transfer Out (80,000) - (54,185) (134,185) � Total Other Financing Sources (Uses) (75,548) 53,378 231,537 209,367 NET CHANGE IN FUND BALANCES 293,262 94,489 45,851 433,602 Fund Balances- Beginning of Year 805,391 75,098 449,822 1,330,311 � FUND BALANCES -END OF YEAR $ 1,098,653 $ 169,587 $ 495,673 $ 1,763,913 � ' ' See accompanying Notes to Basic Financial Statements. (19) ' ' 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, 2010 ' � NET CHANGE IN FUND BALANCES-TOTAL GOVERNMENTAL FUNDS $ 433,602 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 r.apital outlays exceeded depreciation in the current period. Capital Outlays Reported in Governmental Fund Statements $ 251,743 , Depreciation Expense (371,656) (119,913) Receivables not currently available are reported as deferred revenue in the fund ' financial statements, but are recognized as revenue when earned in the govemment-wide statements. (43,841) i ne yvvernrnen�di iunus re�uii uunu �r�ceeus as nndn�niy suurces, wruie ' 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 bonds and related items is as follows: ' Issuance of Equipment Certificates (200,000) Equipment Certificate Issuance Costs 2,596 Repayment of Bond Principal 225,000 Change in Accrued Interest Expense (2,000) � Amortization of Equipment Certificate Issuance Costs (215) Amortization of Bond Issuance Costs (1,746) Amortization of Bond Discount (4,245) 19,390 � 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. 565 CHANGE IN NET ASSETS OF GOVERNMENTAL ACTIVITIES $ 289,803 , , � See accompanying Notes to Basic Financial Statements. ' (20) CITY OF SCANDIA, MINNESOTA ' STATEMENT OF NET ASSETS PROPRIETARY FUND � DECEMBER 31, 2010 , Sewer � Enterprise ASSETS Fund Current Assets: Cash and Investments $ 182,521 � Special Assessments Receivable 8,230 Other Accounts Receivable 5,933 Total Current Assets 196,684 , Noncurrent Assets: Capital Assets: ' Collection Systems 1,500,000 Less: Accumulated Depreciation (630,000) Total Capital Assets 870,000 , Total Assets 1,066,684 LIABILITIES ' Current Liabilities: Accounts Payable 9,116 � NET ASSETS Invested in Capital Assets, Net of Related Debt 870,000 � Unrestricted 187,568 Total Net Assets $ 1,057,568 � ' � � � ' ' See accompanying Nofes to Basic Financial Statements. (21) ' � CITY OF SCANDIA, MINNESOTA STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS ' PROPRIETARY FUND YEAR ENDED DECEMBER 31, 2010 � , Sewer Enterprise Fund OPERATING REVENUES � Charges for Service $ 61,236 OPERATING EXPENSES ' Depreciation 30,000 Utilities 1,446 Maintenance and Other 35,913 � Total Operating Expenses 67,359 OPERATING LOSS (6,123) � NONOPERATING REVENUE Interest Revenue 1,358 Special Assessments 5,475 ' Total Nonoperating Revenue 6,833 INCOME BEFORE TRANSFERS 710 ' TRANSFERS Transfer Out (3,645) � CHANGE IN NET ASSETS (2,935) Net Assets - Beginning of Year 1,060,503 ' NET ASSETS - END OF YEAR $ 1,057,568 ' � � � ' ' See accompanying Notes to Basic Financial Staternents. � (22) CITY OF SCANDIA, MINNESOTA � STATEMENT OF CASH FLOWS PROPRIETARY FUND � YEAR ENDED DECEMBER 31, 2010 � Sewer ' Enterprise Fund CASH FLOWS FROM OPERATING ACTIVITIES Cash Received from Customers $ 72,069 , Cash Paid to Suppliers for Goods and Services (34,315) Net Cash Provided by Operating Activities 37,754 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES , Transfer Out (3,645) CASH FLOWS FROM INVESTING ACTIVITIES � Interest on Investments 1,358 NET INCREASE IN CASH AND CASH EQUIVALENTS 35,467 , Cash and Deposits- Beginning of Year 147,054 CASH AND DEPOSITS -END OF YEAR $ 182,521 , RECONCILIATION OF OPERATING LOSS TO , NET CASH PROVIDED BY OPERATING ACTIVITIES Operating Loss $ (6,123) Adjustments to Reconcile Operating Loss to � Net Cash Provided by Operating Activities: Depreciation Expense 30,000 Special Assessments 5,475 , Changes in Asset and Liability Accounts: Decrease in Special Assessments Receivable (2,591) Decrease in Other Accounts Receivable 7,949 Increase in Accounts Payable 3,044 � Net Cash Provided by Operating Activities $ 37,754 � , i 1 1 See accompanying Notes to Basic Financial Statements. �23� � ' CITY OF SCANDIA, MINNESOTA STATEMENT OF NET ASSETS � FIDUCIARY FUND DECEMBER 31, 2010 � , Agency Fund ASSETS Current Assets: Cash and Investments $ 54,245 t LIABILlTIES ' Current Liabilities: Contractor Deposits $ 54,245 � , , ' ' ' � ' ' � ' ' See accompanying Notes to Basic Financial Statements. ' (24) CITY OF SCANDIA, MINNESOTA � NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2010 � 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 re ortin entit include all funds de artments a encies boards commissions � P J Y , P , 9 , , , 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 unit's 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. ' ' , � � ' ' �25� ' � CITY OF SCANDIA MINNESOTA , NOTES TO BASIC FINANCIAL STATEMENTS ' DECEMBER 31, 2010 � 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 general 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 governmental funds are aggregated and reported as nonmajor funds. , ' � (26) CITY OF SCANDIA, MINNESOTA � NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2010 ' NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING 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. � 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. � , ' ' (27) ' � CITY OF SCANDIA, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS � DECEMBER 31, 2010 ' 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. 1 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. � � � � (28) CITY OF SCANDIA, MINNESOTA � NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2010 � 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 de�ivering 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, until 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 all 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. � � ' (29) � , CITY OF SCANDIA, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS � DECEMBER 31, 2010 , 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 payable (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 1 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 valuatinn growth since 1971. Property taxes paid to the City through this Formula for � 2010 totaled $120,369. Receipt of property taxes from this "fiscal disparities pool" does not increase or decrease total tax revenue. � � � (30) CITY OF SCANDIA, MINNESOTA � NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2010 ' 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 susceptib►e 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. � ' (31) � � CITY OF SCANDIA, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS ' DECEMBER 31, 2010 ' 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 an other 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. , L. FUND BALANCE ' In the governmental fund financial statements, reservations of fund balance represent those portions of fund balance not appropriable for expenditure or legally restricted by outside parties for use for a specific purpose. Designated fund balances represent ' tentative plans for future use of financial resources that are subject to change. ' ' � (32) CITY OF SCANDIA, MINNESOTA � NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2010 , NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED , � ) 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. N. NEW ACCOUNTING PRONOUNCEMENTS , In March 2009, Governmental Accounting Standards Board issued GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. The new ' standard also clarifies the definitions of individual governmental fund types. The statement interprets certain terms within the definition of special revenue fund types, while further clarifying the debt service and capital projects fund type definitions. The ' statement also specifies how economic stabilization or "rainy-day" amounts should be reported. The requirements of this Statement are effective for the City's fiscal year ending December 31, 2011. The effect that GASB Statement No. 54 will have on the � fiscal year 2011 basic financial statements has not been determined. ' , , i 1 1 1 (33) � , CITY OF SCANDIA, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS ' DECEMBER 31, 2010 � 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, , 2010 is $2,057,241 and $2,071,131, respectively, and were entirely covered by federal depository insurance or by surety bonds and collateral in accordance with Minnesota Statutes. ' ' � � � � ' � (34) CITY OF SCANDIA, MINNESOTA ' NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2010 ' NOTE 3 CAPITAL ASSETS � Capital asset activity for the year ended December 31, 2010 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 - 39,295 � Total Capital Assets Not Being Depreciated 487,735 39,295 - 527,030 Capital Assets Being Depreciated: Buildings 2,193,375 - - 2,193,375 � Equipment 354,949 28,447 (31,783) 351,613 Vehicles 837,907 184,001 (38,780) 983,128 Infrastructure 9,353,763 - - 9,353,763 Other Improvements 162,647 - - 162,647 Total Capital Assets, Being Depreciated 12,902,641 212,448 (70,563) 13,044,526 ' Accumulated Depreciation for: Buildings (618,026) (46,296) - (664,322) Equipment (196,875) (29,427) 31,783 (194,519) � Vehicles (512,314) (50,414) 38,780 (523,948) Infrastructure (2,259,426) (237,657) - (2,497,083) Other Improvements (59,915) (7,862) - (67,777) Total Accumulated Depreciation (3,646,556) (371,656) 70,563 (3,947,649) � Total Capital Assets, Being Depreciated, Net 9,256,085 (159,208) - 9,096,877 Governmental Activities Capital Assets,Net $ 9,743,820 $ (119,913) $ - $ 9,623,907 Business-Type Activities: , Sewer: Capital Assets Being Depreciated: Plant $ 1,500,000 $ - $ - $ 1,500,000 , Less:Accumulated Depreciation (600,000) (30,000) - (630,000) Net Capital Assets-Sewer Utility 900,000 (30,000) � 870,000 Depreciation was charged to City functions as follows: ' General Government $ 15,759 � Public Safety 48,495 Public Works 294,672 Parks and Recreation 12,730 � Total Depreciation -Governmental Activities $ 371,656 ' � ' (35) ' ' CITY OF SCANDIA, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS , DECEMBER 31, 2010 ' NOTE 4 CITY INDEBTEDNESS ' City indebtedness at December 31, 2010 is composed of the following: Final � Issue Maturity Interest Original Balance Date Date Rate Issue 12/31/10 Governmental Activities: General Obligation Debt: ' 2005 Building Crossover Bonds 5/1/2005 12/1/2015 3.35-4.2% $ 685,000 $ 510,000 2007 Improvement Bonds 5/1/2007 12/1/2017 3.65-4.1% 1,430,000 910,000 2010 Equipment Certificate 7/15/2010 2/1/2016 2.22-3.55% 200,000 200,000 Total Long-Term Debt 2,315,000 1,620,000 � Unamortized Bond Discount (43,090) (27,553) Compensated Absences N/A 17,039 Total 2,271,910 1,609,486 � The following is a schedule of changes in City indebtedness for the year ended December 31, 2010: ' Amounts Balance Balance Due Within 1/1/10 Issued Retired 12/31/10 One Year � Long-Term Debt Governmental Activities: General Obligation Notes $1,645,000 $ 200,000 $ (225,000) $ 1,620,000 $ 230,000 Unamortized Bond Discount (31,798) - 4,245 (27,553) - � Compensated Absences 17,604 20,874 (21,439) 17,039 11,683 Total Long-Term Dabt $1,630,806 $ 220,874 $ (242,194) $ 1,609,486 $ 241,683 , All long-term bonded indebtedness outstanding at December 31, 2010 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. � � � ' ' (36) CITY OF SCANDIA, MINNESOTA ' NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2010 ' 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 � 2011 230,000 62,222 292,222 2012 275,000 52,925 327,925 2013 275,000 42,934 317,934 , 2014 275,000 32,643 307,643 2015 275,000 21,888 296,888 2016-2017 290,000 16,023 306,023 � Total 1,620,000 228,635 1,848,635 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 � 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. � � , (37> � � CITY OF SCANDIA, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS ' DECEMBER 31, 2010 � NOTE 5 DEFINED BENEFIT PENSION PLANS — STATEWIDE CONTINUED � ) � A. 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% 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°/o for each remaining year. Under Method 2, the annuity accrual rate is 2.7°/o 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 available 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 �eave 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 available 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. � � ' � (38) CITY OF SCANDIA, MINNESOTA � NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2010 � T PEN ION PLANS — STATEWIDE CONTINUED � NOTE 5 DEFINED BENEFI S ( ) B. FUNDING POLICY , Minnesota Statutes Chapter 353 sets the rates for employer and employee contributions. These statutes are established and amended by the state legislature. 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 6.0% respectively, of their annual covered salary in � 2010. The City is required to contribute the following percentages of annual covered payroll: 11.78% for Basic Plan members and 7.0°/o for Coordinated Plan members. The City's contributions to the General Employees Retirement Fund for the years ended � December 31, 2010, 2009, and 2008 were $20,298, $19,880, and $21,087, 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-empioyer deferred compensation plan 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 officiai'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 2010 were � $2,129. � � � ' (39) ' � CITY OF SCANDIA, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS � DECEMBER 31, 2010 ' NOTE 7 COMMITMENTS AND CONTINGENCIES ' Fire Services — The City has entered into an agreement with the Capitol City Regional Firefighter's Association whereby the Association will provide the City with fire services. The contract remains in force until either party withdraws. Related expenditures for fiscal � year 2010 were $309,954. Law Enforcement Services — The City has entered into an agreement with Washington � County to provide law enforcement services for 2011. 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 2010 were $115,460. Law enforcement 1 services for 2011 are estimated to cost approximately $120,000. Fire Department Services Aqreement — Effective January 1, 2009, the City has entered into an agreement with May Township to provide fire services to the Township. The contract is ' for three years extending through December 31, 2011. If the contract is not renewed or extended by December 31, 2011, the contract will continue on a prorated month-to-month basis. Related revenues for the fiscal years 2010 and 2009 were $30,876 and $29,266, ' respectively. The Township shall pay the City $32,574 for 2011. 1 NOTE 8 DESIGNATIONS AND RESERVATIONS OF FUND BAL�4NCE At December 31, 2010, the City had designated and reserved portions of its various fund ' balance through legal restriction and City Council authorization. Major fund balance appropriations at December 31, 2010 are shown on the various balance sheets as segregations of the fund balance. A summary of such designations and reservations are as , follows: Designations Reserved for For Capital � Debt Service Improvements Major Funds: General Fund $ - $ 24,082 � 2007 Improvement Debt Service 169,587 - Nonmajor Funds: 2000 Fire Hall Bond 171,621 - ' Capitallmprovement = 188,098 Park Capital Improvement 15,327 Equipment Replacement - 120,627 - 120,627 ' Total Governmental Fund Balances at December 31, 2010 $ 341,208 $ 348,134 , ' ' (40) CITY OF SCANDIA, MINNESOTA � NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2010 � NOTE 9 INTERFUND TRANSFERS ' Individual fund transfers for fiscal year 2010 are as follows: � Transfer Transfer In Out � Governmental Activity: General Fund $ 4,452 $ 80,000 2007 Improvement Bond 53,378 - , Non-Major Funds: 2004 Improvement Bond - 53,378 Equipment Replacement 80,000 - � Sanctuary 807 Business-Type Activity: Sewer - 3,645 $ 137,830 $ 137,830 , During 2010, the City made routine interfund transfers to allocate financial resources to the , funds that received benefit from services provided by another fund. 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 2010 and settlements have not exceeded insurance coverage for any of the past three fiscal years. � , � , (41) � 1 CITY OF SCANDIA, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS � DECEMBER 31, 2010 � NOTE 10 RISK MANAGEMENT (CONTINUED) � 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. � NOTE 11 SUBSEQUENT EVENT ' The City Council adopted a resolution in June 2010 to join the Voluntary Statewide Lump- Sum Volunteer Firefighter Retirement Plan (the Plan) administered by the Public Employees Retirement Association (PERA). The Plan is an agent lump-sum defined benefit ' plan. Each participating city has a separate Plan account and retains its own assets and liabilities. Plan investments are managed by the Minnesota State Board of Investment. The City's participation in the Plan is effective as of January 1, 2011 and set the benefit level at � $2,500 per year of service for participating volunteer firefighters. � ' � � � ' � , ' (42) � ' ' ' � ' REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON INFORMATION ' ' ' ' ' � ' � � ' ' � � CITY OF SCANDIA, MINNESOTA � SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL � GENERALFUND YEAR ENDED DECEMBER 31, 2010 , Budgeted Amounts ' Actual Variance with Original Final Amounts Final Budget REVENUES � Property Taxes $ 1,488,600 $ 1,488,600 $ 1,546,679 $ 58,079 Intergovernmental: State Aid Credits 28,194 28,194 40,578 12,384 , Recycling Grant 7,223 7,223 7,235 12 Other Grants 2,000 2,000 9,013 7,013 Total Intergovernmental Revenues 37,417 37,417 56,826 19,409 Licenses and Permits 46,705 46,705 73,939 27,234 � Fines and Forfeits 10,000 10,000 19,694 9,694 Charges for Services: � Zoning and Hearing Fees 320,882 320,882 40,263 (280,619) Fire Protection 30,876 30,876 30,876 - Cable Franchise 5,600 5,600 6,602 1,002 Total Charges for Services 357,358 357,358 77,741 (279,617) , Miscellaneous: Interest 2,997 2,997 11,319 8,322 Reimbursements - - 625 625 � Donations and Other 5,286 10,167 31,392 21,225 Total Miscellaneous 8,283 13,164 43,336 30,172 Total Revenues 1,948,363 1,953,244 1,818,215 (135,029) , EXPENDITURES General Government: Administration and Finance 346,680 346,680 321,372 (25,308) � City Council 19,539 19,539 16,124 (3,415) Elections 5,670 5,670 5,180 (490) Planning and Building 400,713 400,713 103,678 (297,035) CapitalOutlay 3,700 3,700 2,875 (825) ' Total General Government 776,302 776,302 449,229 (327,073) Public Safety: Police 120,717 120,717 115,460 (5,257) ' Fire 309,191 309,191 309,954 763 Capital Outlay - 4,881 6,301 1,420 Total Public Safety 429,908 434,789 431,715 (3,074) , ' � � (43) � � CITY OF SCANDIA, MINNESOTA SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE 1 BUDGET AND ACTUAL (CONTINUED) GENERALFUND YEAR ENDED DECEMBER 31, 2010 � � Budgeted Amounts Actual Variance with Original Final Amounts Final Budget , EXPENDITURES (CONTINUED) Public Works: Public Works $ 565,771 $ 565,771 $ 484,561 $ (81,210) Uptown Sewer 10,476 10,476 5,518 (4,958) � Total Public Works 576,247 576,247 490,079 (86,168) Parks and Recreation: Parks 46,701 46,701 44,226 (2,475) ' Community Center 42,447 42,447 34,156 (8,291) Total Parks and Recreation 89,148 89,148 78,382 (10,766) ' Total Expenditures 1,871,605 1,876,486 1,449,405 (427,081) Revenues in Excess of Expenditures 76,758 76,758 368,810 292,052 � OTHER FINANCING SOURCES (USES) Transfers In 3,645 3,645 4,452 807 Transfers Out (80,000) (80,000) (80,000) - Total Other Financing Sources (Uses) (76,355) (76,355) (75,548) 807 � NET CHANGE IN FUND BALANCE $ 403 $ 403 293,262 $ 292,859 � Fund Balance - Beginning of Year 805,391 FUND BALANCE -END OF YEAR $ 1,098,653 � , � � � � � � (44) CITY OF SCANDIA, MINNESOTA � NOTES TO REQUIRED SUPPLEMENTARY INFORMATION YEAR ENDED DECEMBER 31, 2010 � 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 2010 as follows: Final � Budget Actual Excess General Fund Public Safety: ' Fire $ 309,191 $ 309,954 $ (763) Capital Outlay 4,881 6,301 (1,420) � , � � � � ' , � � ' � (45) ' ' , � , � � COMBINING FUND FINANCIAL STATEMEfVTS ' � � , � � � ' � � ' , � CITY OF SCANDIA, MINNESOTA COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS DECEMBER 31, 2010 Debt Service Capital Projects 2000 2004 Park Total Fire Hall Improvement Capital Capital Equipment Nonmajor Bond Fund Bond Improvement Sanctuary Improvement Replacement Funds ASSETS Cash and Investments $ 171,621 $ - $ 207,725 $ - $ 15,327 $ 120,127 $ 514,800 Taxes Receivable 46 - 14 - - - 60 Other Receivable - - - - - 500 500 Total Assets $ 171,667 $ - $ 207,739 $ - $ 15,327 $ 120,627 $ 515,360 LIABILITIES AND FUND BALANCES LIABILITIES Accounts Payable $ - $ - $ 19,627 $ - $ - $ - $ 19,627 Deferred Revenue 46 - 14 - - - 60 Total Liabilities 46 - 19,641 - - - 19,687 FUND BALANCES ' Reserved for Debt Service 171,621 - - - - - 171,621 Unreserved, Designated for Capitallmprovements - - 188,098 - 15,327 120,627 324,052 Total Fund Balance 171,621 - 188,098 - 15,327 120,627 495,673 Total Liabilities and Fund Balances $ 171,667 $ - $ 207,739 $ - $ 15,327 $ 120,627 $ 515,360 (46) � � � � � i r �! � � � � � � � � � � � � �■ � ■i � � � r ■�a � � ■� � ■� � � � � � CITY OF SCANDIA, MINNESOTA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE NONMAJOR GOVERNMENTAL FUNDS YEAR ENDED DECEMBER 31, 2010 Debt Service Capital Projects 2000 2004 Park Total Fire Hall Improvement Capital Capital Equipment Nonmajor Bond Fund Bond Improvement Sanctuary Improvement Replacement Funds REVENUES Taxes $ 118,958 $ - $ 30,000 $ - $ - $ - $ 148,958 Special Assessments - - - 13,798 - - 13,798 Miscellaneous Revenues 1,381 - 1,660 - 485 997 4,523 Total Revenues 120,339 - 31,660 13,798 485 997 167,279 EXPENDITURES Current: General Government - - - - - 2,596 2,596 Perks and Recreation Center - - - - 5,037 - 5,037 Uebt Service: Principal Payments 90,000 - - - - - 90,000 Interest Payments 23,293 - - - - - 23,293 Capita�Outlay - - 39,295 - - 192,744 232,039 Total Expenditures 113,293 - 39,295 - 5,037 195.340 352,965 EXCESS(DEFICIENCY)OF REVENUES OVER EXPENDITURES 7,046 - (7,635) 13,798 (4,552) (194:343) (185,686) OTHER FINANCING SOURCES(USES) Proceeds from Sale of Capital Assets - - - - - 5,722 5,722 Issuance of Equipment Certificate - - - - - 200,000 200,000 Transfers In - - - - - 80,000 80,000 Transfers Out - (53,378) - (807) - - (54,185) Total Other Financing Sources(Uses) - (53,378) - (807) - 285,722 231,537 NET CHANGE IN FUND BALANCES 7,046 (53,378) (7,635) 12,991 (4,552) 91,379 45,851 Fund Balance-Beginning of Year 164,575 53,378 195,733 (12,991) 19,879 29,248 449,822 FUND BALANCE-END OF YEAR $ 171,621 $ - $ 188,098 $ - $ 15,327 $ 120,627 $ 495,673 (47) CITY OF SCANDIA, MINNESOTA � STATEMENT OF CHANGES IN ASSETS AND LIABILITIES — FIDUCIARY FUND YEAR ENDED DECEMBER 31, 2010 � Balance Balance , January 1, December 31, � 2010 Additions Deductions 2010 ASSETS CURRENT ASSETS Cash and Investments $ 118,821 $ 61,577 $ 126.153 $ 54,245 , LIABILITIES , CURRENT LIABILITIES Contractor Deposits $ 118,821 $ 61,577 $ 126,153 $ 54,245 � � i 1 ! 1 1 � ! 1 1 1 (48) � ' , � ' ' 1 III. � OTHER REQUIRED REPORTS , � � � � � � � , � , � , t � ' , � � � � , � , ' ' � ' ' � i ' m Lars�nAllen � LLY CPAs, Consulcants & Advisors www.larsonallen.com � REPORT ON MINNESOTA LEGAL COMPLIANCE � � Honorable Mayor Members of the City Council and Citizens City of Scandia, Minnesota ' We have audited the financial statements of the overnmental activities, the business-type activities, 9 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, 2010, and have issued our report thereon dated May 5, 2011. � We conducted our audit in accordance with U.S. generally 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 except for the following: Out of State Travel Policv � Minnesota Statutes require that the City amend its travel policy to specify when out of state travel is appropriate as well as applicable expense limits and approval procedures. The City does have a travel policy, however it does not contain specific guidelines for out of state travel. We recommed that the City � modify their travel policy to include guidelines for out of state travel. This report is intended solely for the information and use of management, the City Council , the Office � of the State Auditor, and other state agencies, and is not intended to be and should not be used by anyone other than these specified parties. � �r,v�,a.e�,y�4;�,� �-�P LarsonAllen LLP � Minneapolis, Minnesota May 5, 2011 � (49) � ��'� An independent member of Nexia lnternational INTERVA'I�IUVAL m � Lars�nAllen LLP �CPAs, Consulcants & Advisors www.larsonallen.com � 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 , Honorable Mayor and , Members of the City Council City of Scandia, Minnesota We have audited the financial statements of the governmentai 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, 2010, which collectively comprise the City's basic , financial statements and have issued our report thereon dated May 5, 2011. 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 internal 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. � � � (50) � >`�� _ � An independent member of Nexia lnternational IV�I'ERNA"fIU\AL � Honorable Mayor and Members of the City Council � ' 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 af � 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, 26 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. � � (51) Honorable Ma or and ' Y Members of the City Council , 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 May 5, 2011. 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. ' � �52� , , Honorable Mayor and Members of the City Council � ' This report is intended solely for the information and use of the City Council, management, the Office of the 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. �c�,a-e�,y�QQ� �.LP , LarsonAllen LLP Minneapolis, Minnesota � May 5, 2011 ' � � � � � � � � , � , , (53) ' � , � � � � � � t � � ' ' � ' � � '