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9.d) Part 3 - 2008 Audit and Financial Statements � � , � � � COMBINING FUND FINANCIAL STATEMENTS , � � � � , � � � � � , � � CITY OF SCANDIA, MINNESOTA COMBINING BALANCE SHEET � NONMAJOR GOVERNMENTAL FUNDS DECEMBER 31, 2008 � Special Revenue , Road and Community Water Bridge Fire Police Park Center Shed � ASSETS Cash and Investments $ - $ - $ - $ - $ _ $ _ Special Assessments Receivable - - - - _ _ � Other Receivable - - - - _ _ Total Assets $ - $ - $ - $ - $ _ $ _ , LIABILITIES AND FUND BALANCES LIABILITIES � Deferred Revenue $ - $ - $ - $ - $ - $ _ Due to Other Funds - - - - - - Total Liabilities - - - - - _ � FUND BALANCES Unreserved, Designated for Capitallmprovements - - - - - - � Unreserved, Undesignated - - - - - - Total Fund Balance - - - - - - Total Liabilities and Fund Balances $ - $ - $ - $ - $ - $ - � � � � , � i � (46) � � � � ' Capital Projects 2002 2007 Park Total Improvement Capital Capital Equipment Uptown Nonmajor � Debt Service Improvement Sanctuary Improvement Replacement Sewer Funds $ $ $ $ 34,079 $ 50,017 $ $ 84,096 � _ = 24,466 - _ = 24,466 1,500 1,500 $ - $ - $ 24,466 $ 35,579 $ 50,017 $ - $ 110,062 � � $ - $ - $ 24,466 $ - $ - $ - $ 24,466 - - 19,925 - - - 19,925 - - 44,391 - - - 44,391 � � _ _ - 35,579 50,017 = 85,596 (19,925) (19,925) - - (19,925) 35,579 50,017 - 65,671 � $ - $ - $ 24,466 $ 35,579 $ 50,017 $ - $ 110,062 � ' � � , � � � (47) � CITY OF SCANDIA, MINNESOTA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND � CHANGES IN FUND BALANCE NONMAJOR GOVERNMENTAL FUNDS YEAR ENDED DECEMBER 31, 2008 � Special Revenue � Road and Community Water � Bridge Fire Police Park Center Shed REVENUES Taxes $ - $ - $ _ $ _ $ _ $ _ Special Assessments - - - _ _ _ � User Fees - - - _ _ _ Miscellaneous Revenues - - - _ _ _ Total Revenues - - - _ _ _ � EXPENDITURES Current: Parks and Recreation Center - - - - _ _ � Debt Service: Principal Payments - - - - _ _ Interest Payments - - - - _ _ � CapitalOutlay - - - - - _ Total Expenditures - - - - _ _ EXCESS (DEFICIENCY)OF REVENUES � OVER EXPENDITURES - - - - _ _ OTHER FINANCING SOURCES(USES) Transfer in - - - - _ _ � Transferout (173,618) (18,809) (3,551) (57,799) (5,309) (15,890) Total Other Financing Sources(Uses) (173,618) (18,809) (3,551) (57,799) (5,309) (15,890) NET CHANGE IN FUND BALANCES (173,618) (18,809) (3,551) (57,799) (5,309) (15,890) � Fund Balance- Beginning of Year 173,618 18,809 3,551 57,799 5,309 15,890 � FUND BALANCE -END OF YEAR $ - $ - $ - $ - $ - $ - � � , � � (48) � � � � ' Capital Projects 2002 2007 Park Total Improvement Capital Capital Equipment Uptown Nonmajor , Debt Service Improvement Sanctuary Improvement Replacement Sewer Funds $ 1,802 $ - $ - $ - $ - $ - $ 1,802 � 1,831 = _ - - = 1,831 4,500 4,500 10,531 - 12,375 898 940 - 24,744 14,164 - 12,375 5,398 940 - 32,877 e � - - - 16,487 - - 16,487 205,000 - - - - - 205,000 4,561 - - - - - 4,561 � - = 32,300 - 25,430 = 57,730 209,561 32,300 16,487 25,430 283,778 � (195,397) - (19,925) (11,089) (24,490) - (250,901) � - - _ - 40,000 - 40,000 (151,334) (61,062) (24,082) (511,454) (151,334) (61,062) - - 40,000 (24,082) (471,454) � (346,731) (61,062) (19,925) (11,089) 15,510 (24,082) (722,355) 346,731 61,062 - 46,668 34,507 24,082 788,026 � $ - $ - $ (19,925) $ 35,579 $ 50,017 $ - $ 65,671 � � � ' � � (49) � CITY F SCANDIA MI N O , N ESOTA � STATEMENT OF CHANGES IN ASSETS AND LIABILITIES — FIDUCIARY FUNDS YEAR ENDED DECEMBER 31, 2008 � Balance Balance ' January 1, December 31, 2008 Additions Deductions 2008 ASSETS � Cash and Investments $ 55,777 $ 6,000 $ 13,000 $ 48,777 LIABILITIES � Contractor Deposits $ 55,777 $ 6,000 _$ 13,000 $ 48,777 � � � , � � � , , , � � � (50) � i 1 1 1 � � i 1 1 � � 1 1 1 1 � � � � I � I � � � I � I ' ni. � OTHER REQUIRED REPORTS , j � I � r � � � � i � � � � • Lars�nAllen � LLP CPAs, Consultants & Advisors www.larsonal len.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 governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Scandia, Minnesota, � which collectively comprise the City's basic financial statements as of and for the year ended December 31, 2008, and have issued our report thereon dated April 2, 2009. � We conducted our audit in accordance with U.S. generally accepted auditing standards and the provisions of the Minnesota Legal Compliance Audit Guide for Local Government, 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 Local Government 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. ' 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. � This report is intended solely for the information and use of management, the 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. CG�,� L� 1 LarsonAllen LLP � Minneapolis, Minnesota April 2, 2009 � � � �:�M•_y�; �� LarsonAllcn LLP is a member of Ncxia[ntemati�al,�worldwlde nctwork of indcpendent accounting and consulting firms. IN"Tf-:RNA"PIONAf. � � � � � � � � � � i i � 1 1 � � t i � o Lars�nAllen � LLF CPAs, Consulcants & Advisors www.tarsonalien.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 AUD/TING STANDARDS � � Honorable Mayor and Members of the City Council City of Scandia, Minnesota iWe have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Scandia, Minnesota as of and for the year ended December 31, 2008, which collectively comprise the City's basic financial � statements and have issued our report thereon dated April 2, 2009. The report on the governmental activities was qualified because we were unable to audit the governmental activities capital assets and the capital assets were not depreciated in accordance with U.S. generally accepted accounting � principles. Except as discussed in the preceding sentences, we conducted our audit in accordance with U.S. generally accepted auditing standards 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 Reportinq 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. A control deficiency 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 misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the City's ability to initiate, authorize, record, process, or report financial data reliably in accordance with U.S. generally accepted accounting principles such that � there is more than a remote likelihood that a misstatement of the City's financial statements that is more than inconsequential will not be prevented or detected by the City's internal control. � A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the City's internal control. � Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in the internal � control that might be significant deficiencies and, accordingly, would not necessarily disclose all significant deficiencies that are also considered to be material weaknesses. However, as discussed below, we identified the following deficiencies in internal control that we consider to be material � weaknesses. � (���,�:��� IarsonAllen LLP is a mcmher of Nexia lnternatii�a��worldwide network of independent accounting and consulting firms. IN"1"I;RN,hT10NA1. � � � � i r i � � ! � � 1 1 � � � t M � Honorabie Ma or and Y � Members of the City Council City of Scandia � Limited Se re ation 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 1 of this condition and realize that the concentration of duties and responsibilities in a limited number of individuals is not desirable from an accounting point of view. Criteria: Generally, a system of internal control contemplates separation of duties such that no � individual has responsibility to execute a transaction, have physical access to the related assets, and have responsibility or authority to record the transaction. � Effect: The City is unable to maintain segregation of incompatible duties. Cause: Limited number of personnel involved in the finance office. � Recommendation: This area should be reviewed periodically and consideration given to improving the segregation of duties. In making this review, it is most important to consider the benefit derived as weighed against the cost of the improvements. Management feels it is currently not economically ' feasible for the City to hire additional staff in order to adequately segregate all incompatible duties. Therefore, the City Council needs to be sufficiently involved in the oversight process and controls and responsibilities should be reviewed periodically. � 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 adjustments were required to bring the financial statements into accordance with � 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 U.S. generally accepted account principles (GAAP). � � � (53) � � � i 1 1 � � 1 � 1 i 1 i 1 ! r � � ' Honorable Ma or and Y Members of the City Council � City of Scandia � Capital Assets � Condition: The City has not maintained detailed capital asset records and has not computed depreciation on governmental activity assets as required by GAAP. As a result, the financial statements do not include auditable governmental activity capital assets and related depreciation. � Criteria: GASB Statement Number 34 requires capital asset and related depreciation to be recorded. Effect: The financial statements do not contain required governmental capital asset information. , Cause: Governmental activities capital asset information has not been compiled due to limited City personnel and resources. � Recommendation: We recommend the City establish policies and procedures to maintain detailed capital asset records as required by GAAP. � 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: No effect on the financial statements. � 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. � � ' � � � ' (54) � Honorable Ma or and Y � Members of the City Council City of Scandia , Com liance and Other Matters � As part of obtaining reasonable assurance about whether the City's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and � material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. � We noted certain matters that we reported to the management of the City of Scandia in a separate letter dated April 2, 2009. � 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. � L�P LarsonAllen LLP � Minneapolis, Minnesota April 2, 2009 � � � r � � � � � (55) � � � i � � i � i � � � � r � � � t r � r r �■ � e � � � ■■ � � � e � � � �■ � t ti:, �� hi; � � Cit of Scand�a M�nnesota � Y � December 31 , 2008 Auditor Communications ► •• , � �- Craig Popenhagen, Principal k ,5 , � ,; � Brady Hoffman, Senior -� . . � . ,,. ' � ' ' ' � � � ' ' � ' , ' � ' i 1 1 � � � � � � � � � � � � � � � � � � � A enda g • Required Communications • Audit Reports • Management Letter . .,, . . . . : , . ' , � , ' , ' � ' ' � 1 ' ' ' ' ' ' � � � � � � s � � � � � � � � � � � � ■� Re uired Communications ' q � • Audit provides reasonable, but not absolute assurance • Significant accounting estimates — Depreciation of capital assets (Sewer Fund) — Current portion of Compensated Absences � . : , � � � � � � � � � � � � � � � � � � � � Re uired Communications continued q � • Passed adjustment —2005 unamortized discounts and issue costs • Received full cooperation from management .,. . : , ' ' � 1 ' ' ' ' ' , � ' ' 1 ' � ' ' � � � � � � � � � � � � � � � � � � � � I , • � I � Aud�tors Re orts � p • Qualified opinion on financial statements (i.e. "clean with the exception of fixed as sets") • Report date timing improved from prior year - April 2009 this year - May 20081ast year .,. � : , ' , ' ' ' ' � ' ' ' ' � ' t � ' ' � ' � � � � � � � � � � � � � � � � � � � Mana ement Letter ' g • Disbursement Signatures • Fund B alance Reserves • GASB 45 — Postemployment B enefits Other Than Pensions — 2009 • GASB 51 — Accounting and Financial Reporting for �� Easements — 2010 • GASB 54 — Fund B alance Reporting Changes — 2011 .,. , : , � � � � � � � � � � � � � � � � � � � uestions and Feedback : We welcome any questions pertaining to the engagement. Thank ou! y Craig Popenhagen, Principal Brady Hoffman, Senior Ph. 612/397-3087 Ph. 612/376-4665 cpopenhagen @ larsonallen.com bhoffman @ larsonallen.com . ,,. , : � ' � ' ' ' , � ' � ' ' 1 ' ' ' ' ' ' '