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8.a Approved Financial Statements 2019 SCHLENNER WENNER & CO. Certified Public Accountants & Business Consultants CITY OF SCANDIA, MINNESOTA AUDITED FINANCIAL STATEMENTS DECEMBER 31, 2019 CITY OF SCANDIA, MINNESOTA TABLE OF CONTENTS INTRODUCTORY SECTION: CITY COUNCIL AND OFFICIALS ................................................................................................................................ 1 FINANCIAL SECTION: INDEPENDENT AUDITORS' REPORT ......................................................................................................................... 2 REQUIRED SUPPLEMENTARY INFORMATION: Management’s Discussion and Analysis ........................................................................................................................ 4 BASIC FINANCIAL STATEMENTS: Government-wide Financial Statements Statement of Net Position ..................................................................................................................................... 13 Statement of Activities ......................................................................................................................................... 14 Fund Financial Statements Balance Sheet – Governmental Funds .................................................................................................................. 15 Reconciliation of the Balance Sheet – Governmental Funds to the Statement of Net Position .................................................................................................................... 16 Statement of Revenues, Expenditures, and Changes in Fund Balances – Governmental Funds ....................................................................................... 17 Reconciliation of Changes in Fund Balance of Governmental Funds to the Statement of Activities .............................................................................................................. 18 Statement of Net Position – Proprietary Funds .................................................................................................... 19 Statement of Revenues, Expenses, and Changes in Net Position – Proprietary Funds ................................................................................................ 20 Statement of Cash Flows – Proprietary Funds ...................................................................................................... 21 Notes to the Basic Financial Statements ...................................................................................................................... 22 REQUIRED SUPPLEMENTARY INFORMATION: Budgetary Comparison Schedule – General Fund ....................................................................................................... 46 Schedule of City’s Proportionate Share of Net Pension Liability ................................................................................ 48 Schedule of City Pension Contributions ...................................................................................................................... 49 Schedule of Changes in Net Pension Liability (Asset) ................................................................................................ 50 Notes to the Required Supplementary Information...................................................................................................... 51 SUPPLEMENTARY INFORMATION: Supplemental Combining Balance Sheet – Major Governmental Fund – Debt Service Fund ..................................... 54 Supplemental Combining Schedule of Revenues, Expenditures, and Changes in Fund Balance – Major Governmental Fund – Debt Service Fund ..................................................... 55 Combining Balance Sheet – All Nonmajor Governmental Funds ............................................................................... 56 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances – All Nonmajor Governmental Funds........................................................................ 57 Schedules of Indebtedness ........................................................................................................................................... 58 OTHER REQUIRED REPORTS: Independent Auditors’ 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 .......................................................................................................................... 59 Schedule of Findings and Responses ........................................................................................................................... 61 Corrective Action Plans ............................................................................................................................................... 63 Independent Auditors’ Report on Minnesota Legal Compliance ................................................................................. 65 INTRODUCTORY SECTION 1 CITY OF SCANDIA, MINNESOTA CITY COUNCIL AND OFFICIALS FOR THE YEAR ENDED DECEMBER 31, 2019 CITY COUNCIL Term Expires Christine Maefsky Mayor January 1, 2021 Jerry Cusick Council Member January 1, 2023 Steve Kronmiller Council Member January 1, 2021 Chris Ness Council Member January 1, 2021 Patty Ray Council Member January 1, 2023 CITY OFFICIALS Ken Cammilleri City Administrator Colleen Firkus Treasurer FINANCIAL SECTION An Independently Owned Member, RSM US Alliance RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. St. Cloud 320.251.0286 Little Falls 320.632.6311 Albany 320.845.2940 Maple Lake 320.963.5414 Monticello 763.295.5070 www.swcocpas.com INDEPENDENT AUDITORS' REPORT April 29, 2020 Honorable Mayor and City Council City of Scandia, Minnesota Report on the Financial Statements 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 (the City) as of and for the year ended December 31, 2019, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility 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 from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the City’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. 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, 2019, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. 3 Emphasis of Matter Change in Accounting Principle As discussed in Note 1.G. to the financial statements, City of Scandia, Minnesota has adopted Governmental Standards Board Statement No. 84, Fiduciary Activities. Our opinions are not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis, Budgetary Comparison Schedule, Schedule of City’s Proportionate Share of Net Pension Liability, Schedule of City Pension Contributions, and Schedule of Changes in Net Pension Liability (Asset) be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The introductory section, supplementary combining debt service fund schedules, combining and individual nonmajor fund financial statements, and schedules of indebtedness, as listed in the table of contents, are presented for the purposes of additional analysis and are not a required part of the basic financial statements. The introductory section, supplementary combining debt service fund schedules, combining and individual nonmajor fund financial statements, and schedules of indebtedness, have not been subject to the auditing procedures applied in the audit of the basic financial statements, and accordingly, we do not express an opinion or provide any assurance on them. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated April 29, 2020 on our consideration of the City of Scandia’s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is solely 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 effectiveness of internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City of Scandia’s internal control over financial reporting and compliance. Report on Other Legal and Regulatory Requirements In accordance with Minnesota Statutes, we have also issued our report dated April 29, 2020, on our consideration of the City of Scandia’s compliance with provisions of the Minnesota Legal Compliance Audit Guide for Cities, promulgated by the State Auditor pursuant to Minnesota Statute Section 6.65. The purpose of the report is to determine if the City has complied with Minnesota laws and regulations. That report is an integral part of an audit performed in the State of Minnesota. SCHLENNER WENNER & CO. St. Cloud, Minnesota REQUIRED SUPPLEMENTARY INFORMATION CITY OF SCANDIA, MINNESOTA MANAGEMENT’S DISCUSSION AND ANALYSIS DECEMBER 31, 2019 4 Our discussion and analysis of the City of Scandia’s financial performance provides an overview of the City’s financial activities for the year ended December 31, 2019. Please read it in conjunction with the independent auditor’s report on page two and the City’s financial statements, which begin on page thirteen. FINANCIAL HIGHLIGHTS  The City’s net position increased $357,884 compared to the prior year as a result of this year’s operations.  The City’s General Fund generated more revenue than budgeted of $101,587. Expenditures were less than budgeted by $19,192, including transfers to other funds which did not exceed budgeted amounts.  The unassigned fund balance in the General Fund of $1,259,442 is 58.9 percent of the 2019 General Fund budgeted expenditures, including budgeted transfers to other funds.  In the City’s Sewer utility funds, revenues increased $1,388 (or 1.28 percent), while operating expenses increased $16,379 (or 14.14 percent). The City’s utility funds ended 2019 with a net loss of $24,966, with the cash position decreasing $2,726, due to minimal capital improvements during 2019.  The City’s General Fund generated more revenue than budgeted of $101,587, excluding transfers in from other funds. Expenditures were less than budgeted by $22,192, excluding transfers to other funds. See additional detail pertaining to differences between budgeted and actual amounts at the General Fund’s Budgetary Comparison Schedule on page forty- six. USING THIS ANNUAL REPORT This annual report consists of series of financial statements. The Statement of Net Position and the Statement of Activities (on pages thirteen and fourteen) provide information about the activities of the City as a whole and present a longer-term view of the City’s finances. Fund financial statements start on page fifteen. For governmental activities, these statements tell how these services were financed in the short term as well as what remains for future spending. Fund financial statements also report the City’s operations in more detail than the government-wide statements by providing information about the City’s most significant funds. The remaining statements provide financial information about activities for which the City acts solely as an agent for the benefit of those outside of the government. Reporting the City as a Whole Our analysis of the City as a whole begins on page six. One of the most important questions asked about the City’s finances is, “Is the City as a whole better off or worse off as a result of the year’s activities?” The Statement of Net Position and the Statement of Activities report information about the City as a whole and about its activities in a way that helps answer this question. These statements include all assets, liabilities and deferred outflows/inflows of resources using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year’s revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the City’s net position and changes net position. You can think of the City’s net position (the difference between assets and liabilities, adjusted for deferred outflows/inflows) as one way to measure the City’s financial health, or financial position. Over time, increases or decreases in the City’s net position are one indicator of whether its financial health is improving or deteriorating. You will need to consider other nonfinancial factors, however, such as changes in the City’s property tax base and the condition of the City’s roads, to assess the overall health of the City. CITY OF SCANDIA, MINNESOTA MANAGEMENT’S DISCUSSION AND ANALYSIS DECEMBER 31, 2019 5 USING THIS ANNUAL REPORT (Continued) Reporting the City as a Whole (Continued) In the Statement of Net Position and the Statement of Activities, we divide the City into two kinds of activities:  Governmental Activities – Most of the City’s basic services are reported here, including law enforcement, fire, public works, parks, planning, and general administration. Property taxes, special assessments, licenses, permits and fees, and state aids finance most of these activities.  Business-type Activities – The City charges a fee to customers to help it cover all or most of the cost of certain services it provides. The City’s 201 Sewer and Uptown sewer systems are reported here. Reporting the City’s Most Significant Funds Our analysis of the City’s major funds begins on page eight. The fund financial statements begin on page fifteen and provide detailed information about the most significant funds-not the City as a whole. Some funds are required to be established by State law and by bond covenants. However, the City Council may establish other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grants, and other money. The City’s two kinds of funds (governmental and proprietary) use different accounting approaches.  Governmental Funds – Most of the City’s basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the City’s general government operations and the basic services it provides. Governmental fund information helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the City’s programs. We describe the relationship (or differences) between governmental activities (reported in the Statement of Net Position and the Statement of Activities) and governmental funds in reconciliations following the fund financial statements.  Proprietary Funds – When the City charges customers for the services it provides these services are generally reported in proprietary funds. Proprietary funds are reported in the same way that all activities are reported in the Statement of Net Position and the Statement of Activities. In fact, the City’s proprietary funds are the same as the business-type activities we report in the government-wide statements but provide more detail and additional information, such as cash flows, for proprietary funds. CITY OF SCANDIA, MINNESOTA MANAGEMENT’S DISCUSSION AND ANALYSIS DECEMBER 31, 2019 6 THE CITY AS A WHOLE The City’s combined net position increased $357,884 from a year ago. Our analysis below focuses on the net position (Table 1) and changes in net position (Table 2) of the City’s governmental and business-type activities. Table 1 Net Position Governmental Business-Type Total Activities Activities Government 2019 2018 2019 2018 2019 2018 Assets Current and Other Assets 4,747,461$ $4,568,829 111,395$ $117,716 4,858,856$ 4,686,545$ Noncurrent Assets 14,123,434 14,543,652 895,786 915,419 15,019,220 15,459,071 Total Assets 18,870,895 19,112,481 1,007,181 1,033,135 19,878,076 20,145,616 Deferred Outflows of Resources 69,168 64,496 2,244 5,219 71,412 69,715 Liabilities Curent and Other Liabilities 208,467 478,346 5,643 2,248 214,110 480,594 Noncurrent Liabilities 4,429,186 4,733,441 19,674 24,255 4,448,860 4,757,696 Total Liabilities 4,637,653 5,211,787 25,317 26,503 4,662,970 5,238,290 Deferred Inflows of Resources 115,704 161,334 4,189 6,966 119,893 168,300 Net Position Net Investment in Capital Assets 9,898,338 10,001,968 895,786 915,419 10,794,124 10,917,387 Restricted 29,505 10,762 - - 29,505 10,762 Unrestricted 4,258,863 3,791,126 84,133 89,466 4,342,996 3,880,592 Total Net Position 14,186,706$ 13,803,856$ 979,919$ 1,004,885$ 15,166,625$ 14,808,741$ The net position of the City’s governmental activities increased by $382,850 (or 2.77 percent). Unrestricted net position (the part of net position that can be used to finance day-to-day operations without constraints established by debt covenants, enabling legislation, or other legal requirements) increased by $467,737 (or 12.34 percent) compared to the prior year. The net position of the City’s business-type activities decreased by $24,966 (or 2.48 percent), while the unrestricted net position decreased from $89,466 to $84,133 due to the depreciation of capital assets included in Net Investment in Capital Assets. Operations were comparable to the prior year. CITY OF SCANDIA, MINNESOTA MANAGEMENT’S DISCUSSION AND ANALYSIS DECEMBER 31, 2019 7 THE CITY AS A WHOLE (Continued) Table 2 Changes in Net Position Governmental Business-Type Total Activities Activities Government 2019 2018 2019 2018 2019 2018 Program Revenues Charges for Services 233,576$ $383,403 101,773$ 106,865$ 335,349$ 490,268$ Grants and Contributions 140,117 108,632 4,824 611 144,941 109,243 Taxes 2,268,165 2,275,014 - - 2,268,165 2,275,014 Franchise Fees 24,934 17,454 - - 24,934 17,454 Intergovernmental 45,549 74,909 46 186 45,595 75,095 Investment Income 65,463 41,396 3,226 819 68,689 42,215 Other 145,682 16,606 - - 145,682 16,606 Total Revenues 2,923,486 2,917,414 109,869 108,481 3,033,355 3,025,895 Program Expenses General Government 528,579 543,395 - - 528,579 543,395 Public Safety 409,616 476,398 - - 409,616 476,398 Public Works 1,347,433 965,452 - - 1,347,433 965,452 Parks and Recreation 124,141 130,215 - - 124,141 130,215 Economic Development 10,950 15,908 - - 10,950 15,908 Debt Service 122,557 150,744 - - 122,557 150,744 201 Sewer - - 118,015 98,411 118,015 98,411 Uptown Sewer - - 14,180 17,405 14,180 17,405 Total Expenses 2,543,276 2,282,112 132,195 115,816 2,675,471 2,397,928 Transfers 2,640 - (2,640) - - - Change in Net Position 382,850 635,302 (24,966) (7,335) 357,884 627,967 Net Position - Beginning of Year 13,803,856 13,168,554 1,004,885 1,012,220 14,808,741 14,180,774 Net Position - End of Year 14,186,706$ 13,803,856$ 979,919$ 1,004,885$ 15,166,625$ 14,808,741$ The City’s total revenues increased by $7,460 (or 0.25 percent). Operations were comparable to the prior year, but various changes of significance include:  A decrease in building permits revenue from 2018 of $150,637 is reflected in the Charges for Services decrease of $154,919 from 2018.  Other revenues increased from 2018 by $129,076 primarily due to the sale of City-owned land during the current year.  Public works expenses increased by $381,981 from 2018 primarily due to greater capital purchases in the current year and expenditures associated with the preparation of the 2020 Street Improvement Project. The total cost of all programs and services increased by $277,543 (or 11.57 percent), primarily due to costs related to the purchase of Parks and Recreation and Public Works equipment, costs associated with the Gateway Trail Project, and the initial debt service payment on 2018 Street Reconstruction Bonds. CITY OF SCANDIA, MINNESOTA MANAGEMENT’S DISCUSSION AND ANALYSIS DECEMBER 31, 2019 8 THE CITY AS A WHOLE (Continued) Our analysis below separately considers the operations of governmental and business-type activities: Governmental Activities Revenue for the City’s governmental activities increased $6,072 (or 0.21 percent), while total expenses increased by $261,164 (or 11.44 percent). Revenues and expenses were generally consistent year to year, with the exception of the matters previously noted. Table 3 presents the cost of each of the City’s programs (general government, public safety, public works, parks and recreation, economic development, and debt service) as well as each program’s net cost (total cost less revenues generated by the activities). The net cost shows the financial burden that was placed on the City’s taxpayers by each of these functions. Activities, net of capital outlay which is excluded from Table 3, were generally comparable to the prior year as operations remained fairly consistent with the prior year, with the exception of the fluctuation in expenses for economic development previously mentioned. Table 3 Governmental Activities Total Cost Net Cost 2019 2018 2019 2018 General Government 528,579$ $543,395 355,687$ $231,344 Public Safety 409,616 476,398 333,869 400,400 Public Works 1,347,433 965,452 1,302,864 932,917 Parks and Recreation 124,141 130,215 43,656 58,764 Economic Development 10,950 15,908 10,950 15,908 Debt Service 122,557 150,744 122,557 150,744 Totals 2,543,276$ 2,282,112$ 2,169,583$ 1,790,077$ of Services of Services Business-type Activities Revenues of the City’s business-type activities (see Table 2) increased by $1,388 (or 1.28 percent). Expenses increased by $16,379 (or 14.14 percent). Operations were comparable to those of the prior year. THE CITY’S FUNDS Governmental Funds As the City completed the year, its governmental funds (as presented in the balance sheet on page fifteen) reported a combined fund balance of $4,461,721. This is an increase of $380,358 (or 9.32 percent) from the prior year. This increase in fund balance is the net result of a multitude of transactions, but a few of the largest contributing factors unique to the current year’s operations are as follows:  Revenue from building permits issued by the City exceeded budgeted amounts by $16,474 (12.07 percent) and were $150,637 (52.47 percent) less than 2018. The decrease is related to the fewer building permits issued in 2019 compared to the activity observed in fiscal year 2018 and 2017.  During 2019, the City received $74,873 in intergovernmental revenues for capital projects, which is $41,819 (55.85 percent) greater than 2018. CITY OF SCANDIA, MINNESOTA MANAGEMENT’S DISCUSSION AND ANALYSIS DECEMBER 31, 2019 9 THE CITY’S FUNDS (Continued)  Expenditures for parks and recreation exceeded budgeted amounts by $11,377 (8.63 percent) and had an overall increase of $12,607 (10.46 percent) in expenditures from 2018.  In 2019, property tax revenues and capital expenditures from the Local Road Improvement Fund decreased from 2018 amounts by $372,724 (51.41 percent) and $4,584,455 (98.12 percent), respectively. The decreases were consistent with the City’s 2016-2020 Capital Improvement Plan which calls for a major road improvement project every two years. Other operations were comparable to the prior year. The following is a summary of the City’s major governmental funds: Increase 2019 2018 (Decrease) General 1,267,024$ 1,643,215$ (376,191)$ Fund Balance December 31, Major Funds The fund balance of the General Fund decreased by $376,191 as a result of current year operations. In comparison to the prior year, revenues decreased 6.76 and expenditures increased 10.31 percent, respectively. General Fund Revenue Taxes Franchise Fees Licenses, Permits, and Fees Intergovernmental Charges for Services Fines Investment Income Miscellaneous The City receives the majority of its funding in the General Fund in the form of taxes (81 percent), licenses, permits, and fees (16 percent), intergovernmental (4 percent), and charges for services (4 percent). Overall, the City’s General Fund revenues were comparable to the prior year, with the exception of matters previously discussed. CITY OF SCANDIA, MINNESOTA MANAGEMENT’S DISCUSSION AND ANALYSIS DECEMBER 31, 2019 10 THE CITY’S FUNDS (Continued) General Fund Expenditures General Government Public Safety Public Works Parks and Recreation Capital Outlay A significant portion of the City’s General Fund expenditures are used for public works (31 percent). Remaining expenditures are used primarily on public safety (24 percent) and general government operations (37 percent). Overall, the City’s General Fund expenditures were comparable to the prior year. General Fund Budgetary Highlights The City’s General Fund generated more revenue than budgeted of $101,587. Expenditures, including transfers out to other funds, were less than those budgeted by $19,192. See additional detail pertaining to differences between budgeted and actual amounts within the General Fund previously discussed and at the Budgetary Comparison Schedule on page forty-six. Increase 2019 2018 (Decrease) Fund Balance December 31, Major Funds Capital Improvement Fund 1,113,754$ 627,796$ 485,958$ At December 31, 2019 the Capital Improvement Fund has a cash balance of $1,046,994. The fund balance of the Capital Improvement Fund increased by $485,958. Significant activity in this fund during 2019 included the installation of new skatepark ramps and ballfield bleachers, a handicap door at the Community Center, and the conversion of lighting at the Public Works Building to LEDs. Also, during 2019, there were several transfers into the Capital Improvement Fund totaling $550,602. with the purpose of financing future capital purchases for the City. See Note 2.D. for details of interfund transactions for the City. Local Road Improvement Fund 1,652,100$ 1,363,159$ 288,941$ At December 31, 2019 the Local Road Improvement Fund has a cash balance of $1,667,902. The fund balance increased by $288,941 primarily due to fewer capital expenditures for street reconstruction projects in 2019 compared to 2018. CITY OF SCANDIA, MINNESOTA MANAGEMENT’S DISCUSSION AND ANALYSIS DECEMBER 31, 2019 11 THE CITY’S FUNDS (Continued) Increase 2019 2018 (Decrease) Fund Balance December 31, Major Funds Debt Service 32,170$ 38,961$ (6,791)$ At December 31, 2019 the Debt Service Fund has a cash balance of $36,119. The fund balance decreased by $6,791 primarily due the difference between the increase in tax revenue related to the 2018 Street Reconstruction Bonds and the corresponding payment of principle related to the issuance of the 2018 Street Reconstruction Bonds in the prior year. Proprietary Funds As the City completed the year, its business-type activities (as presented in the statement of net position on page nineteen) reported a combined net position of $979,919. This is a decrease of $24,966 from the prior year. Other operations were comparable to the prior year. The following is a summary of the City’s major proprietary funds: Increase 2019 2018 (Decrease) Net Position December 31, Major Funds 201 Sewer Fund 810,976$ 839,668$ (28,692)$ The 201 Sewer Fund provides sanitary sewer services to customers in the Anderson-Erickson and Bliss subdivisions. At December 31, 2019 the fund had a cash balance of $91,101 with an decrease in cash of $12,711 for the year. The decrease in cash is attributable to increased operating expenses. The fund’s net position decreased $28,692 during the current year as a result of operating expenses exceeding revenues from charges for services and other activities. Uptown Sewer Fund 168,943$ 165,217$ 3,726$ The Uptown Sewer Fund provides sanitary sewer services to commercial customers near the Olinda Trail / Oakhill intersection. At December 31, 2019 the fund had a cash balance of $19,332 with an increase in cash of $9,985 for the year. The increase in cash is attributable to decreased operating expenses. The fund’s net position increased $3,726 during the year as a result of operating revenues exceeding expenses from charges for services and other activities. Operations in this fund were comparable to the prior year. CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets At the end of 2019, the City had $14,905,313 invested in a broad range of capital assets, including land, buildings, equipment and vehicles, infrastructure, improvements, and sewer systems. This amount represents a net decrease of $411,991 (or 2.69 percent) from last year. CITY OF SCANDIA, MINNESOTA MANAGEMENT’S DISCUSSION AND ANALYSIS DECEMBER 31, 2019 12 CAPITAL ASSET AND DEBT ADMINISTRATION (Continued) Table 4 Net Capital Assets at Year-End Governmental Activities Activities Totals 2019 2018 2019 2018 2019 2018 Land $487,735 487,735$ -$ -$ 487,735$ 487,735$ Construction in Progress 55,798 - 24,874 - 80,672 - Buildings 1,229,278 1,247,075 - - 1,229,278 1,247,075 Equipment and Vehicles 1,248,488 1,336,419 95,159 104,789 1,343,647 1,441,208 Infrastructure 10,885,529 11,278,831 - - 10,885,529 11,278,831 Other Improvements 102,699 51,825 - - 102,699 51,825 201 Sewer System - - 600,000 630,000 600,000 630,000 Uptown Sewer - - 175,753 180,630 175,753 180,630 Totals 14,009,527$ 14,401,885$ 895,786$ 915,419$ 14,905,313$ 15,317,304$ Business-Type Significant capital asset acquisitions during 2019 were:  Installation of Community Center Handicap Doors - $15,807  Installation of new Skatepark Ramps - $21,789  Purchase of new Fire Department Jaws of Life Equipment - $32,455  Purchase of new Public Works Vehicle - $43,506  Engineering design for 2020 road improvement project - $55,798  Engineering design for Bliss Lift Station control panel project - $24,874 More detailed information about the City’s capital assets is presented in Note 2.B. to the financial statements. Debt In 2019 the City paid off $285,000 of the $4,344,000 in debt that was outstanding at December 31, 2018. The City did not issue any new during 2019, bringing the total year-end balance of debt outstanding at December 31, 2019 to $4,059,000. See additional information at Note 2.C. to the financial statements. ECONOMIC FACTORS AND NEXT YEAR’S BUDGETS AND RATES The City’s elected and appointed officials considered many factors when settling the year 2020 budget, such as tax rates and fees that will be charged for the business-type activities. The property tax levy for 2020 increased by 7.6% over the 2019 and 2018 levies which were flat. The Levy amount allocated to the General Fund increased by $142,108 (10.6%) compared to 2019. Levies for Capital Funds and Debt Service Funds remained almost level or decreased (0.7% to -0.5%). The budget for the General Fund revenues increased by $160,108 (9.8%) and expenditures increased by $99,514 after accounting for the fund balance transfer of $438,962 to the Capital Improvement Fund from the General Fund. Half of the General Fund expenditure increases is in Personnel costs and Contractual Service. The 2020 budget does not reflect a transfer of excess General Fund balance to the Capital Improvement Fund as has been the practice for the past five years. Sewer rates were increased by 5% for the 201 and Uptown community septic systems. CONTACTING THE CITY’S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the City’s finances and to show the City’s accountability for the money it receives. If you have questions about this report or need additional financial information, contact the City of Scandia, 14727 209th Street N, Scandia, MN 55073. BASIC FINANCIAL STATEMENTS Governmental Business-Type Activities Activities Total ASSETS Cash and Cash Equivalents 4,553,469$ 110,433$ 4,663,902$ Property Taxes Receivable 65,030 - 65,030 Assessments Receivable 32,937 9,244 42,181 Accounts Receivable 58,443 18,106 76,549 Interest Receivable 3,612 - 3,612 Prepaids 6,412 - 6,412 Inventory 1,170 - 1,170 Internal Balances 26,388 (26,388) - Noncurrent Assets: Net Pension Asset 113,907 - 113,907 Capital Assets Not Being Depreciated 543,533 24,874 568,407 Capital Assets Being Depreciated (Net)13,465,994 870,912 14,336,906 TOTAL ASSETS 18,870,895 1,007,181 19,878,076 DEFERRED OUTFLOWS OF RESOURCES Pensions 69,168 2,244 71,412 LIABILITIES Accounts Payable 133,129 4,167 137,296 Developer Deposits 43,219 - 43,219 Accrued Payroll, Taxes, and Benefits 27,972 443 28,415 Accrued Interest 3,497 - 3,497 Unearned Revenue 650 1,033 1,683 Noncurrent Liabilities: Compensated Absences 28,060 - 28,060 Debt Due Within One Year 350,000 - 350,000 Debt Due After One Year 3,761,189 - 3,761,189 Net Pension Liability 289,937 19,674 309,611 TOTAL LIABILITIES 4,637,653 25,317 4,662,970 DEFERRED INFLOWS OF RESOURCES Pensions 115,704 4,189 119,893 NET POSITION Net Investment in Capital Assets 9,898,338 895,786 10,794,124 Restricted 29,505 - 29,505 Unrestricted 4,258,863 84,133 4,342,996 TOTAL NET POSITION 14,186,706$ 979,919$ 15,166,625$ CITY OF SCANDIA, MINNESOTA STATEMENT OF NET POSITION DECEMBER 31, 2019 See accompanying notes. 13 Operating Capital Charges for Grants and Grants and Governmental Business-Type Functions/Programs Expenses Services Contributions Contributions Activities Activities Total Governmental Activities: General Government 528,579$ 172,892$ -$ -$ (355,687)$ -$ (355,687)$ Public Safety 409,616 39,009 36,738 - (333,869) - (333,869) Public Works 1,347,433 7,458 37,000 111 (1,302,864) - (1,302,864) Parks and Recreation 124,141 14,217 66,268 - (43,656) - (43,656) Economic Development 10,950 - - - (10,950) - (10,950) Debt Service 122,557 - - - (122,557) - (122,557) Total Governmental Activities 2,543,276 233,576 140,006 111 (2,169,583) - (2,169,583) Business-Type Activities: 201 Sewer 118,015 81,238 - 4,824 - (31,953) (31,953) Uptown Sewer 14,180 20,535 - - - 6,355 6,355 Total Business-Type Activities 132,195 101,773 - 4,824 - (25,598) (25,598) TOTALS 2,675,471$ 335,349$ 140,006$ 4,935$ (2,169,583) (25,598) (2,195,181) General Revenues: Taxes 2,268,165 - 2,268,165 Franchise Fees 24,934 - 24,934 Intergovernmental 45,549 46 45,595 Investment Income 65,463 3,226 68,689 Miscellaneous 5,269 - 5,269 Net Gain on Disposal of Assets 140,413 - 140,413 Total General Revenues 2,549,793 3,272 2,553,065 Transfers 2,640 (2,640) - CHANGE IN NET POSITION 382,850 (24,966) 357,884 NET POSITION - BEGINNING OF YEAR 13,803,856 1,004,885 14,808,741 NET POSITION - END OF YEAR 14,186,706$ 979,919$ 15,166,625$ Primary Government Program Revenues CITY OF SCANDIA, MINNESOTA STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2019 Net (Expense) Revenue and Changes in Net Position See accompanying notes. 14 CITY OF SCANDIA, MINNESOTA BALANCE SHEET GOVERNMENTAL FUNDS Capital Local Road Debt Total Total General Improvement Improvement Service Nonmajor Governmental Fund Fund Fund Fund Funds Funds ASSETS Cash and Cash Equivalents 1,391,037$ 1,046,994$ 1,667,902$ 36,119$ 411,417$ 4,553,469$ Property Taxes Receivable 60,191 - 2,003 2,651 185 65,030 Assessments Receivable - 935 32,002 - - 32,937 Accounts Receivable 32,722 23,638 - - 2,083 58,443 Interest Receivable 3,612 - - - - 3,612 Prepaids 6,412 - - 3,915 - 10,327 Inventory 1,170 - - - - 1,170 Due from Other Fund 10,515 - - - - 10,515 Advance to Other Fund - 43,388 - - - 43,388 TOTAL ASSETS 1,505,659$ 1,114,955$ 1,701,907$ 42,685$ 413,685$ 4,778,891$ LIABILITIES Accounts Payable 115,046$ 266$ 17,805$ -$ 12$ 133,129$ Developer Deposits 43,219 - - - 43,219 Accrued Payroll, Taxes, and Benefits 27,972 - - - - 27,972 Unearned Revenue 650 - - - - 650 Due to Other Funds - - - 10,515 - 10,515 Advance from Other Fund - - - - 17,000 17,000 Total Liabilities 186,887 266 17,805 10,515 17,012 232,485 DEFERRED INFLOWS OF RESOURCES Unavailable Revenue: Property Taxes 51,748 - - - - 51,748 Special Assessments - 935 32,002 - - 32,937 Total Deferred Inflows of Resources 51,748 935 32,002 - - 84,685 FUND BALANCES Nonspendable 7,582 43,388 - 3,915 - 54,885 Restricted - - - 36,742 175 36,917 Committed - 1,070,366 759,128 - 157,842 1,987,336 Assigned - - 892,972 - 238,656 1,131,628 Unassigned 1,259,442 - - (8,487) - 1,250,955 Total Fund Balances 1,267,024 1,113,754 1,652,100 32,170 396,673 4,461,721 TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES 1,505,659$ 1,114,955$ 1,701,907$ 42,685$ 413,685$ 4,778,891$ DECEMBER 31, 2019 See accompanying notes. 15 CITY OF SCANDIA, MINNESOTA RECONCILIATION OF THE BALANCE SHEET – GOVERNMENTAL FUNDS TO THE STATEMENT OF NET POSITION Total Fund Balance for Governmental Funds 4,461,721$ Amounts reported for governmental activities in the Statement of Net Position are different because: Capital assets (net of accumulated depreciation of $7,293,197) used in governmental activities are not financial resources and, therefore, are not reported in the funds. 14,009,527 Other long-term assets are not available to pay for current-period expenditures and, therefore, are reported as unavailable in the funds. Property Taxes Receivable 51,748$ Special Assessments Receivable 32,937 84,685 Some expenses reported in the Statement of Activities do not require the use of current financial resources and, therefore, are not reported as expenditures in the governmental funds: Accrued/Prepaid Interest (7,412) Compensated Absences (28,060) (35,472) Long-term liabilities are not due and payable in the current period and, therefore, they are not reported in the governmental funds: Unamortized Bond Premium and Discounts (52,189) Debt Due Within One Year (350,000) Debt Due After One Year (3,709,000) (4,111,189) The net pension asset/liability and related deferred outflows/inflows of resources represent the allocation of the pension obligations of the statewide plans to the City. Such balances are not reported in the funds: Net Pension Asset 113,907 Net Pension Liability (289,937) Deferred Outflows - Pensions 69,168 Deferred Inflows - Pensions (115,704) (222,566) TOTAL NET POSITION OF GOVERNMENTAL ACTIVITIES 14,186,706$ DECEMBER 31, 2019 See accompanying notes. 16 CITY OF SCANDIA, MINNESOTA STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS Capital Local Road Debt Total Total General Improvement Improvement Service Nonmajor Governmental Fund Fund Fund Fund Funds Funds REVENUES Taxes 1,409,921$ - 352,326 466,152$ 32,543$ 2,260,942$ Special Assessments - 146 693 - - 839 Franchise Fees 6,613 - - - 18,321 24,934 Licenses, Permits, and Fees 150,876 - - - - 150,876 Intergovernmental 67,105 74,873 - - 17,192 159,170 Charges for Services 66,979 - - - 3,000 69,979 Fines 7,831 - - - - 7,831 Investment Income 21,631 12,751 23,740 - 7,341 65,463 Miscellaneous 12,223 21,500 - - 3,245 36,968 TOTAL REVENUES 1,743,179 109,270 376,759 466,152 81,642 2,777,002 EXPENDITURES Current: General Government 514,691 - - - 18,668 533,359 Public Safety 408,622 - - - - 408,622 Public Works 624,818 4,733 - - - 629,551 Parks and Recreation 120,523 - - - 2,472 122,995 Economic Development - - - - 10,950 10,950 Debt Service: Principal - - - 285,000 - 285,000 Interest and Other Charges - - - 187,943 - 187,943 Capital Outlay 5,754 169,181 87,818 - 98,611 361,364 TOTAL EXPENDITURES 1,674,408 173,914 87,818 472,943 130,701 2,539,784 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 68,771 (64,644) 288,941 (6,791) (49,059) 237,218 OTHER FINANCING SOURCES (USES) Proceeds on Sale of Assets - - - - 140,500 140,500 Operating Transfers In - 550,602 - - - 550,602 Operating Transfers Out (444,962) - - - (103,000) (547,962) TOTAL OTHER FINANCING SOURCES (USES)(444,962) 550,602 - - 37,500 143,140 NET CHANGE IN FUND BALANCES (376,191) 485,958 288,941 (6,791) (11,559) 380,358 FUND BALANCES - BEGINNING 1,643,215 627,796 1,363,159 38,961 408,232 4,081,363 FUND BALANCES - ENDING 1,267,024$ 1,113,754$ 1,652,100$ 32,170$ 396,673$ 4,461,721$ FOR THE YEAR ENDED DECEMBER 31, 2019 See accompanying notes. 17 Net Change in Fund Balances - Total Governmental Funds 380,358$ Amounts reported for governmental activities in the Statement of Activities are different due to the following: Governmental funds report capital outlays as expenditures while governmental activities report depreciation expense to allocate those expenditures over the life of the assets. Gains (losses) related to the disposal of such assets are reported in the Statement of Activities, while governmental funds only report cash proceeds: Capital Outlay Capitalized 224,716$ Loss on Sale of Assets (87) Depreciation Expense (616,987) (392,358) Revenues in the Statement of Activities that do not provide current financial resources are not reported as revenues in the funds: Change in Long-Term Receivables 6,495 Proceeds from the issuance of long-term debt is an other financing source in the governmental funds, while repayment of debt principal is an expenditure in the governmental funds. However, neither transaction has any effect on net position: Bond and Equipment Certificate Principal Payments 285,000 Net change in accrued interest on bonds and equipment certificates are not reported as expenses in the funds. 61,658 The effects of bond premiums and discounts are reported in the governmental fund financial statements upon issuance of the debt. These amounts are deferred and amortized in the Statement of Activities: 3,728 Some expenses reported in the Statement of Activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds: Change in Compensated Absences 13,506 Net pension asset/liability balances do not represent the impending use of current resources. Therefore, the change in the asset/liability and the related deferrals is not reported in the governmental funds. 24,463 CHANGE IN NET POSITION OF GOVERNMENTAL ACTIVITIES 382,850$ CITY OF SCANDIA, MINNESOTA RECONCILIATION OF CHANGES IN FUND BALANCE OF GOVERNMENTAL FUNDS FOR THE YEAR ENDED DECEMBER 31, 2019 TO THE STATEMENT OF ACTIVITIES See accompanying notes. 18 201 Sewer Uptown Sewer Fund Fund Totals ASSETS Current Assets Cash and Cash Equivalents 91,101$ 19,332$ 110,433$ Accounts Receivable 12,268 5,838 18,106 Assessments Receivable 9,244 - 9,244 Total Current Assets 112,613 25,170 137,783 Noncurrent Assets Capital Assets Not Being Depreciated 24,874 - 24,874 Capital Assets Being Depreciated (Net)695,158 175,754 870,912 Total Noncurrent Assets 720,032 175,754 895,786 TOTAL ASSETS 832,645 200,924 1,033,569 DEFERRED OUTFLOWS OF RESOURCES Pensions 1,755 489 2,244 LIABILITIES Current Liabilities Accounts Payable 3,739 428 4,167 Accrued Salaries 326 117 443 Unearned Revenue 1,033 - 1,033 Total Current Liabilities 5,098 545 5,643 Noncurrent Liabilities Net Pension Liability 15,109 4,565 19,674 Advance from Other Fund - 26,388 26,388 Total Noncurrent Liabilities 15,109 30,953 46,062 TOTAL LIABILITIES 20,207 31,498 51,705 DEFERRED INFLOWS OF RESOURCES Pensions 3,217 972 4,189 NET POSITION Net Investment in Capital Assets 720,032 175,754 895,786 Unrestricted 90,944 (6,811) 84,133 TOTAL NET POSITION 810,976$ 168,943$ 979,919$ CITY OF SCANDIA, MINNESOTA PROPRIETARY FUNDS DECEMBER 31, 2019 STATEMENT OF NET POSITION See accompanying notes. 19 201 Sewer Uptown Sewer Fund Fund Totals OPERATING REVENUES Charges for Services 81,238$ 20,535$ 101,773$ OPERATING EXPENSES Wages and Benefits 19,476 4,385 23,861 Materials and Supplies 996 205 1,201 Professional Services 20,978 579 21,557 Repairs and Maintenance 17,863 1,258 19,121 Other Services and Charges 19,072 2,876 21,948 Depreciation 39,630 4,877 44,507 TOTAL OPERATING EXPENSES 118,015 14,180 132,195 NET OPERATING INCOME (LOSS)(36,777) 6,355 (30,422) NONOPERATING INCOME Special Assessments 4,824 - 4,824 Intergovernmental 35 11 46 Investment Income 3,226 - 3,226 TOTAL NONOPERATING INCOME 8,085 11 8,096 CHANGE IN NET POSITION PRIOR TO TRANSFERS (28,692) 6,366 (22,326) TRANSFERS Operating Transfers Out - (2,640) (2,640) CHANGE IN NET POSITION (28,692) 3,726 (24,966) NET POSITION - BEGINNING OF YEAR 839,668 165,217 1,004,885 NET POSITION - END OF YEAR 810,976$ 168,943$ 979,919$ CITY OF SCANDIA, MINNESOTA PROPRIETARY FUNDS FOR THE YEAR ENDED DECEMBER 31, 2019 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION See accompanying notes. 20 201 Sewer Uptown Sewer Fund Fund Totals CASH FLOWS FROM OPERATING ACTIVITIES Cash Received from Customers 82,104$ 20,458$ 102,562$ Cash Paid to Suppliers (57,374) (4,490) (61,864) Cash Paid to Employees (22,250) (5,994) (28,244) NET CASH PROVIDED BY OPERATING ACTIVITIES 2,480 9,974 12,454 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Intergovernmental Cash Receipts 35 11 46 Special Assessments 4,824 - 4,824 Net Advances from Other Funds - 2,640 2,640 Net Operating Subsidies and Transfers to Other Funds - (2,640) (2,640) NET CASH PROVIDED BY NONCAPITAL FINANCING ACTIVITIES 4,859 11 4,870 CASH FLOW FROM CAPITAL AND RELATED FINANCING ACTIVITIES Purchases of Capital Assets (23,276) - (23,276) CASH FLOW FROM INVESTING ACTIVITIES Investment Income 3,226 - 3,226 Net Increase (Decrease) in Cash and Cash Equivalents (12,711) 9,985 (2,726) Cash and Cash Equivalents - Beginning of Year 103,812 9,347 113,159 Cash and Cash Equivalents - End of Year 91,101$ 19,332$ 110,433$ RECONCILIATION OF NET OPERATING INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES Net Operating Income (Loss) (36,777)$ 6,355$ (30,422)$ Adjustments to Reconcile Net Operating Income (Loss) to Net Cash Provided by Operating Activities Depreciation Expense 39,630 4,877 44,507 Change in Assets, Liabilities, and Deferred Outflows/Inflows Accounts Receivable (118) (77) (195) Assessments Receivable 1,150 - 1,150 Accounts Payable 1,535 428 1,963 Accrued Wages (25) 25 - Unearned Revenue (166) - (166) Deferred Outflows of Resources - Pension 2,140 835 2,975 Net Pension Liability (2,926) (1,655) (4,581) Deferred Inflows of Resources - Pension (1,963) (814) (2,777) NET CASH PROVIDED BY OPERATING ACTIVITIES 2,480$ 9,974$ 12,454$ CITY OF SCANDIA, MINNESOTA PROPRIETARY FUNDS FOR THE YEAR ENDED DECEMBER 31, 2019 STATEMENT OF CASH FLOWS See accompanying notes. 21 CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 22 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the City of Scandia (the City) have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to governmental units. GAAP includes all relevant Governmental Accounting Standards Board (GASB) pronouncements. The City has a mayor-council form of government that is governed by an elected mayor and four-member council. The City provides the following services: sanitation, recreation, public improvements, public safety, planning and zoning, and general administrative services. 1.A. FINANCIAL REPORTING ENTITY The City’s financial reporting entity is comprised of the primary governmental unit of the City of Scandia, Minnesota. In determining the financial reporting entity, the City complies with the provisions of GASB No. 14, The Financial Reporting Entity, and includes all component units of which the City appointed a voting majority of the units’ board; the City is either able to impose its will on the unit or a financial benefit or burden relationship exists. Blended Component Units Blended component units are separate legal entities that meet the component unit criteria describe above and whose governing body is the same or substantially the same as the City Council or the component unit provides services entirely to the City. These component units’ funds are blended into those of the City’s by appropriate activity type to compose the primary government presentation. The City’s blended component units consist of: Economic Development Authority – The City created an Economic Development Authority (EDA) by resolution of its City Council. The EDA is governed by a five-member board appointed by the City Council. Although it is legally separate from the City, the EDA is reported as if it were part of the primary government because its purpose is to approve the City's redevelopment plans. The EDA cannot issue bonded debt without the City's approval. Discretely Presented Component Units Discretely presented component units are separate legal entities that meet the component unit criteria described above but do not meet the criteria for blending. Currently, the City has no discretely presented component units. 1.B. BASIS OF PRESENTATION Government-wide Financial Statements The Statement of Net Position and Statement of Activities display information about the reporting government as a whole. They include all funds of the reporting entity. The government-wide statements distinguish between governmental and business-type activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange revenues. Business-type activities are financed in whole or in part by fees charged to external parties for goods and services. Fund Financial Statements Fund financial statements of the reporting entity are organized into funds, each of which is considered to be a separate accounting entity. Each fund is accounted for by providing a separate set of self-balancing accounts that constitute its assets, deferred outflows, liabilities, deferred inflows, fund equity, revenues, and expenditures/expenses. Funds are organized into two major categories: governmental and proprietary. An emphasis is placed on major funds within the governmental and proprietary categories. CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 23 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) A fund is considered major if it is the primary operating fund of the City or meets the following criteria:  Total assets and deferred outflows, liabilities and deferred inflows, revenues or expenditures/expenses of that individual governmental or enterprise fund are at least 10 percent of the corresponding total for all funds of that category or type; and  Total assets and deferred outflows, liabilities and deferred inflows, revenues or expenditures/expenses of that individual governmental or enterprise fund are at least 5 percent of the corresponding total for all governmental and enterprise funds combined. The City reports the following major governmental funds: The General Fund is the primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The Capital Improvement Fund accounts for financial resources to be used for the acquisition or construction of capital projects (other than those financed by proprietary funds). The Local Road Improvement Fund is a capital project fund used to account for financial resources to be used for the construction or improvement of roads within the City. The Debt Service Fund accounts for the accumulation of financial resources for the payment of interest and principal on general long-term debt of the City other than debt service payments made by enterprise funds. Ad valorem taxes and special assessments are used for the payment of principal and interest on the City’s judgment. The City reports the following major proprietary funds: The 201 Sewer and Uptown Sewer Funds account for business-like activities related to the operation of sewer systems provided to the general public. These activities are financed primarily by user charges, and the measurement of financial activity focuses on the net income measurement similar to the private sector. Additionally, the government reports the following nonmajor fund types: The Special Revenue Fund accounts for funds received by the City with a specific purpose. The Capital Projects Funds account for financial resources to be used for the acquisition or construction of capital projects (other than projects financed by proprietary funds). 1.C. MEASUREMENT FOCUS AND BASIS OF ACCOUNTING Measurement focus is a term used to describe “which” transactions are recorded within the various financial statements. Basis of accounting refers to “when” transactions are recorded regardless of the measurement focus applied. Measurement Focus On the government-wide Statement of Net Position and the Statement of Activities, both governmental and business-like activities are presented using the “economic resources” measurement focus as defined in the second bullet point on the next page. CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 24 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) In the fund financial statements, the “current financial resources” measurement focus or the “economic resources” measurement focus is used as appropriate:  All governmental funds utilize a current financial resources measurement focus. Only current financial assets and liabilities are generally included on their balance sheets. Their operating statements present sources and uses of available spendable financial resources during a given period. These funds use fund balance as their measure of available spendable financial resources at the end of the period.  The government-wide financial statements and proprietary funds utilize an economic resources measurement focus. The accounting objectives of this measurement focus are the determination of operating income, changes in net position, financial position, and cash flows. All assets, deferred outflows, liabilities, and deferred inflows (whether current or noncurrent) associated with their activities are reported. Proprietary fund equity is classified as net position. Basis of Accounting In the government-wide Statement of Net Position and Statement of Activities, both governmental and business-like activities are presented using the “accrual” basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability is incurred or economic asset used. Revenues, expenses, gains, losses, assets, and liabilities resulting from exchange and exchange-like transactions are recognized when the exchange takes place. In the fund financial statements, governmental funds are presented on the “modified accrual” basis of accounting. Under this modified accrual basis of accounting, revenues are recognized when “measurable and available.” Measurable means knowing or being able to reasonable estimate the amount. Available means collectible within the current period or within sixty days after year end. Expenditures (including capital outlay) are recorded when the related fund liability is incurred, except for general obligation bond principal and interest which are reported when due. All proprietary funds utilize the accrual basis of accounting. 1.D. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, deferred outflows, liabilities, and deferred inflows, and disclosure of contingencies related to these balances at the date of the financial statements. Estimates also affect reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 1.E. ASSETS, LIABILITIES, DEFERRED OUTFLOWS/INFLOWS OF RESOURCES, AND EQUITY Cash and Cash Equivalents For purposes of the Statement of Net Position and proprietary fund Statement of Cash Flows, “cash and cash equivalents” includes all demand, savings, certificates of deposit, and money market accounts for the City. Certificates of deposit are stated at cost, which approximates fair value. See Note 2.A. for additional information related to Cash and Cash Equivalents. CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 25 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Interfund Transactions and Balances During the course of operations, transactions occur between individual funds that may result in amounts owed between funds. Those related to good and services type transactions are classified as “due to and from other fund.” Short-term interfund loans are reported as “due to and from other fund.” Long-term interfund loans are reported as “advances from and to other funds.” Interfund receivables and payables between funds within governmental activities and interfund receivables and payables between funds within business-type activities are eliminated in the Statement of Net Position. See Note 2.D. for details of interfund transactions, including receivables and payables at year-end. Prepaids Prepaids represent costs paid during the current year to be recognized in future periods. Inventories Inventory is valued at the lower of average cost or market based on physical counts. Inventory in the General Fund consists of expendable supplies held for consumption and is equally offset by a nonspendable fund balance classification. The cost of inventory is recorded as an expense when purchased and adjusted at year-end. Receivables In the government-wide statements, receivables consist of all revenues earned at year-end and not yet received. Allowances for uncollectible accounts receivable are based upon historical trends and the periodic aging of accounts receivable and are not deemed necessary at year end. Major receivable balances for the governmental activities include charges for services, fines, fees, taxes, and special assessments. Business-type activities report utility charges and assessments as their major receivables. In the fund financial statements, material receivables in governmental funds include revenue accruals such as taxes, franchise fees, fines and charges for service since they are usually both measurable and available. Revenues collectible but not available are deferred in the fund financial statements in accordance with modified accrual, but not deferred in the government-wide financial statements in accordance with the accrual basis. Interest and investment earnings are recorded when earned only if paid within 60 days since they would be considered both measurable and available. Proprietary fund material receivables consist of all revenues earned at year-end and not yet received. Utility accounts receivable and assessments compose the majority of proprietary fund receivables. Allowance for uncollectible accounts receivable are based upon historical trends and the periodic aging of accounts receivable. No allowances are deemed necessary at year end. Capital Assets The accounting treatment over property, plant and equipment (capital assets) depends on whether the assets are used in governmental or proprietary fund operations and whether they are reported in the government-wide or fund financial statements. Capital assets are defined by the City as assets with an initial, individual cost of more than $5,000 and must have an estimated useful life in excess of one year. The range of estimated useful lives by type of asset is as follows: Buildings and Structures 40 years Machinery and Equipment 5-25 years Vehicles 25 years Infrastructure 50 years CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 26 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Government-wide Statements In the government-wide financial statements, capital outlay expenditures are accounted for as capital assets. All capital assets are valued at historical cost or estimated historical cost if actual is unavailable, except for donated capital assets which are recorded at their estimated acquisition value at the date of donation. Depreciation of all exhaustible capital assets is recorded as an allocated expense in the Statement of Activities, with accumulated depreciation reflected in the Statement of Net Position. Depreciation is provided over the assets’ estimated useful lives using the straight-line method of depreciation. Fund Financial Statements In the fund financial statements, capital assets used in governmental fund operations are accounted for as capital outlay expenditures of the governmental fund upon acquisition. Capital assets used in proprietary fund operations are accounted for the same as in the government-wide statements. Noncurrent Liabilities The accounting treatment of long-term debt depends on whether the assets are used in governmental fund operations or proprietary fund operations and whether they are reported in the government-wide or fund financial statements. All long-term debt to be repaid from governmental and business-type resources are reported as liabilities in the government-wide statements. The long-term debt consists of general obligation bonds and certificates payable. Long-term debt for governmental funds is not reported as liabilities in the fund financial statements. The debt proceeds are reported as other financing sources and payment of principal and interest are reported as expenditures. The accounting for proprietary funds is the same in the fund statements as it is in the government-wide statements. Net Pension Asset/Liability The net pension asset represents the City’s allocation of its pro-rata share of the Statewide Volunteer Firefighter Fund net pension asset. The net pension liability represents the City’s allocation of its pro-rata share of the Statewide General Employees Retirement Fund net pension liability. PERA For purposes of measuring the net pension liability, deferred outflows/inflows of resources, and pension expense, information about the fiduciary net position of the Public Employees Retirement Association (PERA) and additions to/deductions from PERA’s fiduciary net position have been determined on the same basis as they are reported by PERA, except that PERA’s fiscal year end is June 30. For this purpose, plan contributions are recognized as of employer payroll paid dates and benefit payments, and refunds are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Deferred Outflows/Inflows of Resources In addition to assets, the Statements of Net Position report a separate section for deferred outflows of resources. This element represents a consumption of net position that applies to future periods, and therefore, will not be recognized as an outflow of resources (expense) until that time. The City reports deferred outflows of resources in the government-wide and proprietary fund Statements of Net Position in relation to the activity of the pension funds in which City employees participate. CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 27 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) In addition to liabilities, the Statements of Net Position and Balance Sheet report a separate section for deferred inflows of resources. This element represents an acquisition of net position or fund balance that applies to future periods, and therefore, will not be recognized as an inflow of resources (revenue) until that time. The City reports property taxes and special assessments as deferred inflows of resources in the governmental fund financial statements, in accordance with the modified accrual basis of accounting. In addition, the City reports deferred inflows of resources in the government-wide and proprietary fund Statements of Net Position in relation to the activity of pension funds in which City employees participate. Accordingly, such amounts are deferred and recognized as inflows of resources in the period that they become available. See Note 3 for additional information pertaining to the deferred outflows and deferred inflows recorded to account for pension activities. Compensated Absences It is the City’s policy to permit employees to accumulate a limited amount of earned but unused leave. All leave pay is accrued when incurred in the government-wide and proprietary fund financial statements. A liability for these amounts is reported in governmental funds only if they have matured, for example, as the result of an employee’s resignation or retirement. In the event a liability is recorded in the governmental funds, General Fund resources would be used to liquidate the compensated absences. Equity Classifications Government-wide Statements Equity is classified as net position and displayed in three components: Net Investment in Capital Assets – Consists of capital assets including restricted capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. Restricted – Consists of net position with constraints placed on the use either by 1) external groups such as creditors, grantors, contributors, or laws or regulations of other governments; or 2) law through constitutional provisions or enabling legislation. Unrestricted – Remaining balance of net position that does not meet the definition of “restricted” or “net investment in capital assets.” It is the City’s policy to consider restricted net position to its depletion before unrestricted net position is applied. Fund Statements Governmental Fund Financial Statements – In the fund financial statements, governmental funds report fund balances as either nonspendable, restricted, committed, assigned, or unassigned. When the City incurs an expenditure for which it may use either restricted or unrestricted fund balances, it uses restricted fund balances first unless unrestricted fund balances will have to be returned because they were not used. When the City incurs an expenditure for purposes for which amounts in any unrestricted fund balance classification could be used, it uses fund balances in the following order: Committed, assigned, unassigned. Nonspendable – Includes amounts that cannot be spent because they are either not in spendable form, or legally or contractually required to be maintained intact. The nonspendable fund balances at December 31, 2019 consist of inventory, prepaid expenditures, and advances to other funds. CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 28 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Restricted – Includes the portion of fund balance which is not available for appropriation or which has been legally segregated for a specific purpose. Committed – Amounts that can only be used for specific purposes pursuant to constraints imposed by formal action (resolution) of the City Council, which is the highest level of decision making authority. Committed amounts cannot be used for any other purpose unless the City Council modifies or rescinds the commitment by resolution. Assigned – Amounts that are constrained by the City’s intent to be used for specific purposes, but are neither restricted nor committed. The City Administrator or his/her designee shall have the authority to assign fund balance. Unassigned – This classification represents fund balance that has not been assigned to other funds and that has not been restricted, committed, or assigned to specific purposes within the general fund. The City has formally adopted a policy under which it strives to maintain a minimum unassigned general fund balance equal to approximately 35%-50% of annual General Fund operating expenditures. See Note 2.E. for additional disclosures. Proprietary Fund Financial Statements – Proprietary fund equity is classified the same as in the government-wide statements, as described above. 1.F. REVENUES, EXPENDITURES, AND EXPENSES Property Tax Under state law, municipalities are limited in their ability to levy a property tax. The City levies its property tax for the subsequent year during the month of December. The County of Washington is the collecting agency for the levy and remits the collections to the City. In the fund financial statements, property taxes are recorded as revenue in the period levied to the extent they are collected within 60 days of year-end. December 31 is the last day the City can certify a tax levy to the County for collection the following year. The County creates the tax list for all taxable property in the City and applies the applicable tax rate to the tax capacity of individual properties to arrive at the actual tax for each property. The County also collects all special assessments, except for certain prepayments paid directly to the City. The County collects all taxes and assessments, except as noted above. The County mails copies of all real estate and personal property tax statements. Each year, property owners are required to pay one half of their real estate taxes by May 15 and the balance by October 15. Penalties and interest are assessed to property owners who do not pay their property taxes and special assessments by the due dates. Delinquent taxes receivable include the past six years’ uncollected taxes. Delinquent taxes have been offset by deferred inflows of resources for taxes not received within 60 days after year end in the fund financial statements. Operating Revenues and Expenses Operating revenues and expenses for proprietary funds are those that result from providing services and producing and delivering goods and/or services. It also includes all revenue and expenses not related to capital and noncapital financing or investing activities. CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 29 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Expenditures/Expenses In the government-wide financial statements, expenses are classified by function for both governmental and business-type activities. In the fund financial statements, expenditures are classified as follows: Governmental Funds – By Character Current (further classified by Function) Debt Service Capital Outlay Proprietary Fund – By Operating and Nonoperating In the fund financial statements, governmental funds report expenditures of financial resources. Proprietary funds report expenses relating to use of economic resources. Interfund Transfers Permanent reallocations of resources between funds of the reporting entity are classified as interfund transfers. For the purpose of the Statement of Activities, all interfund transfers between individual governmental funds, as well as all interfund transfers between individual proprietary funds, have been eliminated. See additional information at Note 2.D. 1.G. RECENTLY ISSUED ACCOUNTING STANDARD Effective for the year ended December 31, 2019, the City adopted GASB Statement No. 84, Fiduciary Activities. This statement establishes standards for identifying activities that are fiduciary in nature and that should be reported as a separate fiduciary fund in the basic financial statements. The new standard did not have a material impact on the City’s results of operations or financial condition. NOTE 2 DETAIL NOTES ON TRANSACTION CLASSES/ACCOUNTS The following notes present detail information to support the amounts reported in the basic financial statements for its various assets, liabilities, deferred outflows/inflows of resources, equity, revenues, and expenditures/expenses. 2.A. CASH, CASH EQUIVALENTS, AND INVESTMENTS Deposits In accordance with applicable Minnesota Statutes, the City maintains deposits at depository banks authorized by the City Council. Minnesota Statutes require that all City deposits be protected by insurance, surety bond, or collateral. The market value of collateral pledged must equal 110 percent of the deposits not covered by insurance or bonds. The City complies with such laws. Authorized collateral in lieu of a corporate surety bond includes:  United States Government Treasury bills, Treasury notes, Treasury bonds;  Issues of United States government agencies and instrumentalities as quoted by a recognized industry quotation service available to the government entity; CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 30 NOTE 2 DETAIL NOTES ON TRANSACTION CLASSES/ACCOUNTS (Continued)  A general obligation of a state or local government, with taxing powers, rated “A” or better;  A revenue obligation of a state or local government, with taxing powers, rated “AA” or better;  Unrated general obligation securities of a local government, with taxing powers, pledged as collateral against funds deposited by that same local government entity;  Irrevocable standby letter of credit issued by a Federal Home Loan Bank accompanied by written evidence that the Federal Home Loan Bank’s public debt is rated “AA” or better by Moody’s or Standard and Poor’s; or  Time deposits insured by any federal agency. Minnesota Statutes require that all collateral shall be placed in safekeeping in a restricted account at a Federal Reserve Bank, or in an account at a trust department of a commercial bank or other financial institution that is not owned or controlled by the financial institution furnishing the collateral. The selection should be approved by the City. At December 31, 2019, the City’s deposits were not exposed to custodial credit risk. The City’s deposits were sufficiently covered by federal depository insurance or by collateral held by the City’s agent in the City’s name. CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 31 NOTE 2 DETAIL NOTES ON TRANSACTION CLASSES/ACCOUNTS (Continued) 2.B. CAPITAL ASSETS Capital asset activity for the year ended December 31, 2019 is as follows: Balance at Balance at 01/01/19 Additions Disposals 12/31/19 Governmental Activities: Capital Assets not Being Depreciated Land 487,735$ -$ -$ 487,735$ Construction In Progress - 55,798 - 55,798 Total Capital Assets not Being Depreciated 487,735 55,798 - 543,533 Capital Assets Being Depreciated Buildings 2,305,416 34,227 - 2,339,643 Equipment 1,093,626 32,455 (5,254) 1,120,827 Vehicles 1,504,527 43,506 - 1,548,033 Infrastructure 15,523,525 - - 15,523,525 Other Improvements 168,433 58,730 - 227,163 Total Capital Assets Being Depreciated 20,595,527 168,918 (5,254) 20,759,191 Less: Accumulated Depreciation Buildings (1,058,341) (52,024) - (1,110,365) Equipment (593,011) (83,689) 5,167 (671,533) Vehicles (668,723) (80,116) - (748,839) Infrastructure (4,244,694) (393,302) - (4,637,996) Other Improvements (116,608) (7,856) - (124,464) Total Accumulated Depreciation (6,681,377) (616,987) 5,167 (7,293,197) Total Capital Assets Being Depreciated, Net 13,914,150 (448,069) (87) 13,465,994 Capital Assets, Net 14,401,885$ (392,271)$ (87)$ 14,009,527$ Depreciation is charged to governmental activities as follows: General Government 16,127$ Public Safety 78,551 Public Works 506,506 Parks and Recreation 15,803 Total Depreciation Expense 616,987$ CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 32 NOTE 2 DETAIL NOTES ON TRANSACTION CLASSES/ACCOUNTS (Continued) Balance at Balance at 01/01/19 Additions Disposals 12/31/19 Business-Type Activities: Capital Assets not Being Depreciated Construction In Progress -$ 24,874$ -$ 24,874$ Capital Assets Being Depreciated Sewer Plant 1,500,000 - - 1,500,000 Equipment 134,195 - - 134,195 Uptown Sewer 243,827 - - 243,827 Total Capital Assets Being Depreciated 1,878,022 - - 1,878,022 Less: Accumulated Depreciation Sewer Plant (870,000) (30,000) - (900,000) Equipment (29,406) (9,630) - (39,036) Uptown Sewer (63,197) (4,877) - (68,074) Total Accumulated Depreciation (962,603) (44,507) - (1,007,110) Total Capital Assets Being Depreciated, Net 915,419 (44,507) - 870,912 Business-Type Activites 915,419$ (19,633)$ -$ 895,786$ 2.C. NONCURRENT LIABILITIES The City’s long-term debt is segregated between the amounts to be repaid from governmental activities and amounts to be repaid from business-type activities (none). All bonds and certificates set forth below are direct obligations of the City and pledge the full faith and credit of the City. CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 33 NOTE 2 DETAIL NOTES ON TRANSACTION CLASSES/ACCOUNTS (Continued) Debt Detail As of December 31, 2019, the long-term debt of the financial reporting entity consists of the following: Governmental Activities Issue Annual Interest Maturity Original Remaining Type of Debt Date Payment Rate(s)Date Amount Amount 2013 Equipment Certificate 7/13 $50,000 - $65,000 0.80-3.10% 7/23 570,000$ 240,000$ 2015 Equipment Certificate 7/15 $43,000 1.40-2.30% 7/20 215,000 43,000 2017 Equipment Certificate 8/17 $32,000 2.35-2.75% 8/22 160,000 96,000 Total Governmental Activities Equipment Certificates Payable 379,000 Equipment Certificates Due Within One Year 135,000 Equipment Certificates Due After One Year 244,000$ Equipment Certificates Issue Annual Interest Maturity Original Remaining Type of Debt Date Payment Rate(s)Date Amount Amount G.O. Bonds, Series 2018A 5/18 $155,000 - $315,000 3.00-3.13% 12/33 3,835,000$ 3,680,000$ Bonds Due Within One Year 215,000 Bonds Due After One Year 3,465,000$ General Obligation Bonds Changes in Noncurrent Liabilities The following is a summary of changes in noncurrent liabilities, excluding net pension liability, for the year ended December 31, 2019: Amounts Due Balance Balance Within Type of Debt 1/1/19 Additions Deductions 12/31/19 One Year Governmental Activities: Bonds 3,835,000$ -$ (155,000)$ 3,680,000$ 215,000$ Unamortized Bond Premium 55,917 - (3,728) 52,189 - Equipment Certificates 509,000 - (130,000) 379,000 135,000 Compensated Absences 41,566 27,637 (41,143) 28,060 - Total 4,441,483$ 27,637$ (329,871)$ 4,139,249$ 350,000$ Interest and other fiscal charges total $122,557 in the Statement of Activities (included in Debt Service line). Interest and other fiscal charges total $187,943 for the Statement of Revenues, Expenditures and Changes in Fund Balances – Governmental Funds (included in the line Interest and Other Charges). CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 34 NOTE 2 DETAIL NOTES ON TRANSACTION CLASSES/ACCOUNTS (Continued) Governmental activity debt is typically funded through the Debt Service Fund. Compensated absences is funded through the funds to which the respective employees’ wages are allocated. Annual Debt Service Requirements At December 31, 2019, the estimated annual debt service requirements to maturity, including principal and interest, are as follows: Years Ending December 31, Principal Interest Total 2020 350,000$ 120,274$ 470,274$ 2021 312,000 110,953 422,953 2022 322,000 101,795 423,795 2023 295,000 92,155 387,155 2024 245,000 84,175 329,175 2025-2029 1,325,000 307,025 1,632,025 2030-2033 1,210,000 94,669 1,304,669 Totals 4,059,000$ 911,046$ 4,970,046$ Governmental Activities 2.D. INTERFUND TRANSACTIONS AND BALANCES Operating transfers consist of the following for the year ended December 31, 2019: Transfers Capital Major Funds Out Improvement Total General 444,962$ 444,962$ 444,962$ Sewer Uptown 2,640 2,640 2,640 447,602 447,602 447,602 Nonmajor Funds Park Capital Improvement 103,000 103,000 103,000 Total 550,602$ 550,602$ 550,602$ Major Fund Transfers In Transfers are used to (a) move revenues from the fund that statute or budget requires to collect them to the fund that statute or budget require to expend them and to (b) use unrestricted revenues collected in the General Fund to finance various programs accounted for in other funds in accordance with budgetary authorizations. CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 35 NOTE 2 DETAIL NOTES ON TRANSACTION CLASSES/ACCOUNTS (Continued) The interfund balances are as follows: Due To Fund Due From Fund Amount Reason Uptown Sewer Capital Improvement 26,388$ Sewer improvements Park Capital Improvement Capital Improvement 17,000 Finance parking lot Governmental Funds Advances To/From 43,388 Due To Fund Due From Fund General Fund Debt Service 10,515 Eliminate sub-fund negative cash Total Interfund Balances 53,903$ Governmental Fund Elimination (27,515) Government-wide Internal Balances 26,388$ Long-Term Advances Short-Term Balances The Uptown Sewer Fund monies owed to the Capital Improvement Fund will be repaid as future sewer charges are collected and the cash flows become available. The Park Capital Improvement Fund monies owed to the Capital Improvement Fund will be repaid as park dedication fees and donations are received. The Debt Service Fund monies owed to the General fund will be repaid as cash flows become available. 2.E. FUND EQUITY At December 31, 2019, governmental fund equity consists of the following: General Fund Nonspendable - Prepaids and Inventory 7,582$ Unassigned 1,259,442 Total General Fund Balance 1,267,024$ Capital Improvements Fund Nonspendable - Advance to Other Fund 43,388$ Committed for Capital Improvements 1,070,366 Total Capital Improvement Fund 1,113,754$ Local Road Improvement Fund Committed for Local Road Improvements 759,128$ Assigned for Local Road Improvement 892,972 Total Local Road Improvement Fund 1,652,100$ CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 36 NOTE 2 DETAIL NOTES ON TRANSACTION CLASSES/ACCOUNTS (Continued) Debt Service Fund Nonspendable - Prepaids 3,915$ Restricted for Debt Service 36,742 Unassigned (8,487) Total Debt Service Fund Balance 32,170$ Nonmajor Governmental Funds Restricted for Trail Development 175$ Committed for Economic Development 23,205 Committed for Park Improvements 134,637 Assigned for Equipment Replacement 233,786 Assigned for Cable TV 4,870 Total Nonmajor Governmental Funds Balance 396,673$ NOTE 3 PENSIONS 3.A. DEFINED BENEFIT PENSION PLANS - STATEWIDE Plan Description The City participates in the following cost-sharing multiple-employer defined benefit pension plans administered by the Public Employees Retirement Association of Minnesota (PERA). PERA’s defined benefit pension plans are established and administered in accordance with Minnesota Statutes Chapters 353 and 356. PERA’s defined benefit pension plans are tax qualified plans under Section 401 (a) of the Internal Revenue Code. General Employees Retirement Plan All full-time and certain part-time employees of the City are covered by the General Employees Plan. General Employees Plan members belong to the Coordinated Plan. Coordinated Plan members are covered by Social Security. Benefits Provided PERA provides retirement, disability, and death benefits. Benefit provisions are established by State Statute and can only be modified by the State Legislature. 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. General Employees Plan Benefits General Employees Plan 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. Two methods are used to compute benefits for PERA's Coordinated Plan members. Members hired prior to July 1, 1989, receive the higher of Method 1 or Method 2 formulas. Only Method 2 is used for members hired after June 30, 1989. Under Method 1, the accrual rate for Coordinated members is 1.2 percent of average salary for each of the first 10 years of service and 1.7 percent of average salary for each additional year. Under Method 2, the accrual rate for Coordinated members is 1.7 percent of average salary for all years of service. For members hired prior to July 1, 1989, a full annuity is available when age plus years of service equal 90 and normal retirement age is 65. For members hired on or after July 1, 1989, normal retirement age is the age for unreduced Social Security benefits capped at 66. CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 37 NOTE 3 PENSIONS (Continued) Annuities, disability benefits, and survivor benefits are increased effective every January 1. Beginning January 1, 2019, the postretirement increase will be equal to 50 percent of the cost-of-living adjustment (COLA) announced by the SSA, with a minimum increase of at least 1 percent and a maximum of 1.5 percent. Recipients that have been receiving the annuity or benefit for at least a full year as of the June 30 before the effective date of the increase will receive the full increase. For recipients receiving the annuity or benefit for at least one month but less than a full year as of the June 30 before the effective date of the increase will receive a reduced prorated increase. For members retiring on January 1, 2024, or later, the increase will be delayed until normal retirement age (age 65 if hired prior to July 1, 1989, or age 66 for individuals hired on or after July 1, 1989). Members retiring under Rule of 90 are exempt from the delay to normal retirement. Contributions Minnesota Statutes Chapter 353 sets the rates for employer and employee contributions. Contribution rates can only be modified by the State Legislature. General Employees Fund Contributions Coordinated Plan members were required to contribute 6.50 percent of their annual covered salary in fiscal year 2019 and the City was required to contribute 7.50 percent for Coordinated Plan members. The City’s contributions to the General Employees Fund for the year ended December 31, 2019 were $29,072. The City’s contributions were equal to the required contributions as set by State Statute. Pension Costs General Employees Fund Pension Costs At December 31, 2019, the City reported a liability of $309,611 for its proportionate share of the General Employees Fund’s net pension liability. The City of Scandia’s net pension liability reflected a reduction due to the State of Minnesota’s contribution of $16 million to the fund in 2019. The State of Minnesota is considered a non-employer contributing entity and the State’s contribution meets the definition of a special funding situation. The State of Minnesota’s proportionate share of the net pension liability associated with the City totaled $9,666. The net pension liability was measured as of June 30, 2019, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. The City’s proportionate share of the net pension liability was based on the City’s contributions received by PERA during the measurement period for employer payroll paid dates from July 1, 2018, through June 30, 2019, relative to the total employer contributions received from all of PERA’s participating employers. At June 30, 2019, the City’s proportionate share was 0.0056 percent which was a decrease of 0.0001 percent from its proportion measured as of June 30, 2018. City’s proportionate share of the net pension liability: $309,611 State of Minnesota’s proportionate share of the net pension liability associated with the City 9,666 Total $319,278 For the year ended December 31, 2019, the City recognized pension expense of $25,964 for its proportionate share of the General Employees Plan’s pension expense. In addition, the City recognized an additional $724 as pension expense (and grant revenue) for its proportionate share of the State of Minnesota’s contribution of $16 million to the General Employees Fund. CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 38 NOTE 3 PENSIONS (Continued) At December 31, 2019, the City reported its proportionate share of the General Employees Plan’s deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows of Deferred Inflows of Resources Resources Differences between expected and actual economic experience 8,374$ -$ Changes in actuarial assumptions - 23,827 Net collective difference between projected and actual investment earnings - 29,811 Changes in proportion 12,768 12,280 Contributions paid to PERA subsequent to the measurement date 13,813 - Total Deferred Outflows/Inflows 34,955$ 65,918$ The $13,813 reported as deferred outflows of resources related to pensions resulting from City contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended December 31, 2020. Other amounts reported as deferred outflows and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year ended December 31: Pension Expense 2020 (18,283)$ 2021 (19,291)$ 2022 (7,701)$ 2023 499$ Total Pension Expense The total pension expense for all plans recognized by the City for the year ended December 31, 2019, was $25,964. Actuarial Assumptions The total pension liability in the June 30, 2019, actuarial valuation was determined using an individual entry-age normal actuarial cost method and the following actuarial assumptions: Assumptions Rates Inflation 2.50 percent per year Active Member Payroll Growth 3.25 percent per year Investment Rate of Return 7.50 percent CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 39 NOTE 3 PENSIONS (Continued) Salary increases were based on a service-related table. Mortality rates for active members, retirees, survivors, and disabilitants for all plans were based on RP 2014 tables for males or females, as appropriate, with slight adjustments to fit PERA’s experience. Cost of living benefit increases after retirement for retirees are assumed to be 1.25 percent per year for the General Employees Plan. Actuarial assumptions used in the June 30, 2019 valuation were based on the results of actuarial experience studies. The most recent four-year experience study in the General Employees Plan was completed in 2019. Economic assumptions were updated in 2018 based on a review of inflation and investment return assumptions. The following changes in actuarial assumptions and plan provisions occurred in 2019: General Employees Fund Changes in Actuarial Assumptions:  The morality projection scale was changed from MP-2017 to MP-2018. Changes in Plan Provisions:  The employer supplemental contribution was changed prospectively, decreasing from $31.0 million to $21.0 million per year. The State’s special funding contribution was changed prospectively, requiring $16.0 million due per year through 2031. The State Board of Investment, which manages the investments of PERA, prepares an analysis of the reasonableness on a regular basis of the long-term expected rate of return using a building-block method in which best-estimate ranges of expected future rates of return are developed for each major asset class. These ranges are combined to produce an expected long-term rate of return by weighting the expected future rates of return by the target asset allocation percentages. The target allocation and best estimates of geometric real rates of return for each major asset class are summarized in the following table: Long-Term Expected Real Rate of Return Asset Class Target Allocation Domestic Equity 35.5% 5.10% Private Markets 25.0% 5.90% Fixed Income 20.0% 0.75% International Equity 17.5% 5.90% Cash Equivalents 2.0% 0.00% Total 100% Discount Rate The discount rate used to measure the total pension liability in 2019 was 7.50 percent. The projection of cash flows used to determine the discount rate assumed that contributions from plan members and employers will be made at rates set in Minnesota Statutes.. Based on these assumptions, the fiduciary net position of the General Employees Fund was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 40 NOTE 3 PENSIONS (Continued) Pension Liability Sensitivity The following presents the City’s proportionate share of the net pension liability for all plans it participates in, calculated using the discount rate disclosed in the preceding paragraph, as well as what the City’s proportionate share of the net pension liability would be if it were calculated using a discount rate one percentage point lower or one percentage point higher than the current discount rate: 1% Decrease in 1% Increase in Discount Rate (6.5%) Discount Rate (7.5%) Discount Rate (8.5%) Net Pension Liability 508,985$ 309,611$ 144,989$ Pension Plan Fiduciary Net Position Detailed information about each pension plan’s fiduciary net position is available in a separately-issued PERA financial report that includes financial statements and required supplementary information. That report may be obtained on the Internet at www.mnpera.org. 3.B. DEFINED CONTRIBUTION PENSION PLAN - STATEWIDE The council members of the City of Scandia are covered by the Defined Contribution Plan, a multiple-employer deferred compensation plan administered by PERA. The Defined Contribution Plan 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 five percent of salary which is matched by the elected official's employer. For ambulance service personnel, employer contributions are determined by the employer, and for salaried employees contributions must be a fixed percentage of salary. Employer contributions for volunteer personnel may be a unit value for each call or period of alert duty. Employees who are paid for their services may elect to make member contributions in an amount not to exceed the employer share. 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 two percent of employer contributions and twenty-five hundredths of one percent (0.25 percent) of the assets in each member's account annually. Total contributions made by the City during fiscal year 2019 amount to $795. 3.C. STATEWIDE VOLUNTEER FIREFIGHTER RETIREMENT PLAN Plan Description The Scandia Fire/Rescue participates in the Statewide Volunteer Firefighter Retirement Plan (Volunteer Firefighter Plan accounted for in the Volunteer Firefighter Fund), an agent multiple-employer lump-sum defined benefit pension plan administered by the Public Employees Retirement Association of Minnesota (PERA). The Volunteer Firefighter Plan covers volunteer firefighters of municipal fire departments or independent nonprofit firefighting corporations that have elected to join the plan. As of December 31, 2019, the plan covered 21 active firefighters and 4 vested terminated fire fighters whose pension benefits are deferred. The plan is established and administered in accordance with Minnesota Statutes, Chapter 353 G. CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 41 NOTE 3 PENSIONS (Continued) Benefits Provided The Volunteer Firefighter Plan provides retirement, death, and supplemental benefits to covered firefighters and survivors. Benefits are paid based on the number of years of service multiplied by a benefit level approved by the City. Members are eligible for a lump-sum retirement benefit at 50 years of age with five years of service. Plan provisions include a pro-rated vesting schedule that increases from 5 years at 40 percent through 20 years at 100 percent. Contributions The Volunteer Firefighter Plan is funded by fire state aid, investment earnings and, if necessary, employer contributions as specified in Minnesota Statutes, and voluntary City contributions. The State of Minnesota contributed $33,324 in fire state aid to the plan for the year ended December 31, 2018. Required employer contributions are calculated annually based on statutory provisions. The City of Scandia’s statutorily-required contributions to the Volunteer Firefighter Plan for the year ended December 31, 2019 were $0. Pension Costs At December 31, 2019, the City of Scandia reported a net pension asset of $113,907 for the Volunteer Firefighter Fund. The net pension asset was measured as of December 31, 2018. The total pension liability used to calculate the net pension asset in accordance with GASB 68 was determined by PERA applying an actuarial formula to specific census data certified by the fire department. The following table presents the changes in net pension asset during the year. Total Pension Plan Fiduciary Net Pension Liability Net Position Liability (Asset) Beginning Balance 12/31/17 545,327$ 687,094$ (141,767)$ Service Cost 25,342 - 25,342 Interest on Pension Liability 31,414 - 31,414 Actuarial Experience (Gains)/Losses (17,415) - (17,415) Projected Investment Earnings - 41,227 (41,227) Contributions (State) - 36,324 (36,324) Asset (Gain)/Loss - (65,191) 65,191 Benefit Payouts (94,240) (94,240) - PERA Administrative Fee - (879) 879 Net Changes (54,899) (82,759) 27,860 Balance End of Year 12/31/18 490,428$ 604,335$ (113,907)$ For the year ended December 31, 2019, the City recognized pension expense of negative $33,201. CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 42 NOTE 3 PENSIONS (Continued) At December 31, 2019, the City of Scandia reported deferred inflows of resources and deferred outflows of resources if contributions were made after the measurement date and for State contributions received by PERA after the measurement date, which can be found on the website for Minnesota Department of Revenue’s Fire State Aid, related to pensions from the following sources: Deferred Outflows of Deferred Inflows of Resources Resources Differences between expected and actual economic experience -$ 53,975$ Net collective difference between projected and actual investment earnings 36,456 - Total Deferred Outflows/Inflows 36,456$ 53,975$ Amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows: Year ended December 31: Pension Expense 2020 (5,929)$ 2021 (11,799)$ 2022 (9,347)$ 2023 9,556$ Actuarial Assumptions The total pension liability at December 31, 2018, was determined using the entry age normal actuarial cost method and the following actuarial assumptions:  Retirement eligibility at the later of age 50 or 20 years of service  Investment rate of return of 6.0 percent  Inflation rate of 3.0 percent There were no changes in actuarial assumptions in 2018. Discount Rate The discount rate used to measure the total pension liability was six percent. The projection of cash flows used to determine the discount rate assumed that contributions to the Volunteer Firefighter Fund will be made as specified in statute. Based on that assumption and considering the funding ratio of the plan, the fiduciary net position was projected to be available to make all projected future benefit payments of current active and inactive members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 43 NOTE 3 PENSIONS (Continued) Pension Liability Sensitivity The following presents the City’s net pension asset for the Volunteer Firefighter Fund, calculated using the discount rate disclosed in the preceding paragraph, as well as what the City’s net pension asset would be if it were calculated using a discount rate one percent lower or one percent higher than the current discount rate: 1% Decrease in 1% Increase in Discount Rate (5.0%)Discount Rate (6.0%)Discount Rate (7.0%) Net Pension Asset 101,757$ 113,907$ 125,585$ Plan Investments Investment Policy The Minnesota State Board of Investment (SBI) is established by Article XI of the Minnesota Constitution to invest all state funds. Its membership as specified in the Constitution is comprised of the governor (who is designated as chair of the board), state auditor, secretary of state and state attorney general. All investments undertaken by the SBI are governed by the prudent person rule and other standards codified in Minnesota Statutes, Chapter 11A and Chapter 353G. Within the requirements defined by state law, the SBI, with assistance of the SBI staff and the Investment Advisory Council, establishes investment policy for all funds under its control. These investments policies are tailored to the particular needs of each fund and specify investment objectives, risk tolerance, asset allocation, investment management structure and specific performance standards. Studies guide the on-going management of the funds and are updated periodically. Asset Allocation To match the long-term nature of the pension obligations, the SBI maintains a strategic asset allocation for the Volunteer Firefighter Plan that includes allocations to domestic equity, international equity, bonds and cash equivalents. The long-term target asset allocation and long-term expected real rate of return is the following: Long-Term Expected Asset Class Target Allocation Real Rate of Return Domestic Stocks 35% 5.10% International Stocks 15% 5.30% Bonds 45% 0.75% Unallocated Cash 5% 0.00% The six percent long-term expected rate of return on pension plan investments was determined using a building-block method. Best estimates for expected future real rates of return (expected returns, net of inflation) were developed for each asset class using both long-term historical returns and long-term capital market expectations from a number of investment management and consulting organizations. The asset class estimates and the target allocations were then combined to produce a geometric, long- term expected real rate of return for the portfolio. Inflation expectations were applied to derive the nominal rate of return for the portfolio. CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 44 NOTE 3 PENSIONS (Continued) Description of significant investment policy changes during the year The SBI made no significant changes to their investment policy during Fiscal Year 2018 for Volunteer Firefighter Fund. Pension Plan Fiduciary Net Position Detailed information about the Volunteer Firefighter Fund’s fiduciary net position as of December 31, 2018, is available in a separately-issued PERA financial report that includes financial statements and required supplementary information. That report may be obtained on the Internet at www.mnpera.org. NOTE 4 OTHER NOTES 4.A. 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. To manage these risks, the City purchases commercial insurance. The City retains risk for the deductible portions of the insurance. The amounts of these deductibles are considered immaterial to the financial statements. There were no significant reductions in insurance from the previous year settlements in excess of insurance for any of the past two years. Liabilities are reported when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities, if any, include an amount for claims that have been incurred but not reported. The City’s management is not aware of any incurred but unreported claims. 4.B. COMMITMENTS Law Enforcement Services The City receives law enforcement services under an agreement with Washington County. Such agreement automatically renews on an annual basis and calls for the City to compensate the County based on the actual costs incurred while providing services under the agreement. Based on the 2020 contract budget, expenditures anticipated under this agreement for 2020 are estimated at $138,754. Construction Contracts The City entered into various contracts during the year for construction services. At December 31, 2019, remaining commitments under these contracts total $103,000. Purchase Commitments During the year ended December 31, 2019, the City contracted for the purchase of a loader vehicle. The remaining balance on this contract for which the City is committed as of December 31, 2019 totals $93,498. CITY OF SCANDIA, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2019 45 NOTE 4 OTHER NOTES (Continued) 4.C. SUBSEQUENT EVENTS Construction Projects Subsequent to year-end and prior to issuance of these financial statements, the City awarded the 2020 Street Improvement Project at an approximate cost of $505,848. Public Health Emergency On January 30, 2020, the World Health Organization declared the coronavirus outbreak a "Public Health Emergency of International Concern" and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the City operates. While it is unknown how long these conditions will last and what the complete financial effect will be to the City, to date, the City has not experienced any significant negative effects on its operations. REQUIRED SUPPLEMENTARY INFORMATION Budget Actual Variance with Amounts- Amounts Budget Original and Budgetary Over Final Basis (Under) REVENUES Taxes Property Taxes 1,351,092$ 1,381,844$ 30,752$ Franchise Taxes 3,000 6,613 3,613 Gravel Tax 10,000 28,077 18,077 Total Taxes 1,364,092 1,416,534 52,442 Licenses and Permits 132,600 150,876 18,276 Intergovernmental Revenue State Grants Market Value Credit 10,000 12,535 2,535 PERA Aid - 723 723 Police and Fire Aid 41,300 45,291 3,991 Other State Grants and Aids 7,900 8,556 656 Total Intergovernmental Revenue 59,200 67,105 7,905 Charges for Services General Government 8,000 18,252 10,252 Police and Fire Contracts 35,000 35,769 769 Streets and Highways 2,100 3,391 1,291 Parks and Recreation 7,500 3,128 (4,372) Other Service Charges 10,600 6,439 (4,161) Total Charges for Services 63,200 66,979 3,779 Fines and Forfeitures 10,000 7,831 (2,169) Miscellaneous Revenue Investment Earnings 5,000 21,631 16,631 Contributions and Donations 2,500 3,714 1,214 Other Miscellaneous 5,000 8,509 3,509 Total Miscellaneous Revenue 12,500 33,854 21,354 TOTAL REVENUES 1,641,592 1,743,179 101,587 EXPENDITURES General Government Mayor and Council 30,400 28,944 (1,456) Administration and Finance 194,600 177,261 (17,339) Other General Government 277,700 308,486 30,786 Capital Outlay 2,600 3,055 455 Total General Government 505,300 517,746 12,446 CITY OF SCANDIA, MINNESOTA BUDGETARY COMPARISON SCHEDULE – GENERAL FUND FOR THE YEAR ENDED DECEMBER 31, 2019 46 Budget Actual Variance with Amounts- Amounts Budget Original and Budgetary Over Final Basis (Under) Public Safety Police Current 136,000 135,945 (55) Fire Current 261,000 272,677 11,677 Capital Outlay 1,400 1,606 206 Total Public Safety 398,400 410,228 11,828 Public Works Street Maintenance and Storm Sewers 590,700 566,711 (23,989) Snow and Ice Removal 41,000 34,342 (6,658) Street Engineering 16,000 12,073 (3,927) Street Lighting 11,300 11,692 392 Capital Outlay - Other 2,000 1,093 (907) Total Public Works 661,000 625,911 (35,089) Culture and Recreation Parks and Recreation Current 131,900 120,523 (11,377) TOTAL EXPENDITURES 1,696,600 1,674,408 (22,192) EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (55,008) 68,771 123,779 OTHER FINANCING USES Transfers To Other Funds (441,962) (444,962) (3,000) NET CHANGE IN FUND BALANCE (496,970)$ (376,191) 120,779$ FUND BALANCE - BEGINNING 1,643,215 FUND BALANCE - ENDING 1,267,024$ BUDGETARY COMPARISON SCHEDULE – GENERAL FUND FOR THE YEAR ENDED DECEMBER 31, 2019 CITY OF SCANDIA, MINNESOTA 47 City's Proportionate Share of the Net City's Pension Liability Proportionate Plan City's State's and the State's Share of the Net Fiduciary Net Proportionate Proportionate Proportionate Pension Liability Position as a For the City's Share of the Share of the Net Share of the Net (Asset) as a Percentage Measurement Proportion of the Net Pension Pension Liability Pension Liability City's Percentage of of the Total Year Ended Net Pension Liability Associated with Associated with Covered its Covered Pension June 30 Liability (Asset)(Asset) (a)the City (b)the City (a+b)Payroll (c)Payroll ((a+b)/c)Liability Public Employees Retirement Association 2019 0.0056%309,611$ 9,666$ 319,278$ 370,760$ 86.1% 80.2% 2018 0.0057%316,213$ 10,395$ 326,608$ 380,371$ 85.9% 79.5% 2017 0.0053%338,349$ 4,251$ 342,600$ 338,175$ 101.3% 75.9% 2016 0.0057%462,812$ 6,071$ 468,883$ 357,680$ 131.1% 68.9% 2015 0.0059%305,769$ -$ 305,769$ 342,106$ 89.4% 78.2% Note: The schedule is provided prospectively beginning with the City's fiscal year ended December 31, 2015 and is intended to show a ten year trend. Additional years will be reported as they become available. LAST TEN YEARS (Presented Prospectively) SHARE OF NET PENSION LIABILITY SCHEDULE OF CITY'S PROPORTIONATE CITY OF SCANDIA 48 Contributions in Relation to the Contributions as For the Calendar Statutorily Statutorily Contribution City's a Percentage of Year Ended Required Required Deficiency Covered Covered December 31 Contribution Contribution (Excess)Payroll Payroll Public Employees Retirement Association 2019 29,072$ 29,072$ -$ 387,627$ 7.5% 2018 27,150$ 27,150$ -$ 362,002$ 7.5% 2017 27,172$ 27,172$ -$ 362,292$ 7.5% 2016 24,941$ 24,941$ -$ 334,592$ 7.5% 2015 25,468$ 25,468$ -$ 348,155$ 7.3% Statewide Volunteer Firefighter Pension Plan 2019 -$ -$ -$ N/A N/A 2018 -$ -$ -$ N/A N/A 2017 -$ -$ -$ N/A N/A 2016 -$ -$ -$ N/A N/A 2015 -$ -$ -$ N/A N/A Note: The schedule is provided prospectively beginning with the City's fiscal year ended December 31, 2015 and is intended to show a ten year trend. Additional years will be reported as they become available. LAST TEN YEARS (Presented Prospectively) SCHEDULE OF CITY PENSION CONTRIBUTIONS CITY OF SCANDIA 49 2018 2017 2016 2015 2014 Changes in Total Pension Liability (TPL) Balance at January 1st 545,327$ 617,019$ 654,741$ 636,294$ 629,967$ Service Cost 25,342 28,912 24,777 23,343 22,874 Interest on the TPL 31,414 34,163 38,089 38,665 38,350 Actuarial Experience (Gains)/Losses (17,415) (54,911) (11,188) (13,108) (27,553) Changes in Benefit Level - 73,244 - - - Benefit Payments (94,240) (153,100) (89,400) (30,453) (27,344) Balance at December 31st 490,428$ 545,327$ 617,019$ 654,741$ 636,294$ Plan Fiduciary Net Position (PFNP) Balance at January 1st 687,094$ 723,513$ 735,277$ 730,400$ 658,422$ Fire State Aid 26,919 26,278 26,738 27,129 24,368 Fire Supplemental Aid 6,405 6,359 6,486 6,638 5,896 Supplemental Benefit Reimbursement 3,000 2,000 - 1,000 2,955 Municipal Contributions - - - - 18,259 Adjustment to Initial Asset Transfer - - - - 5,368 Net Investment Income (Loss)(23,964) 83,014 45,186 1,367 43,226 Total Additions 12,360 117,651 78,410 36,134 100,072 Benefit Payments (94,240) (153,100) (89,400) (30,453) (27,344) Administrative Expenses (879) (970) (774) (804) (750) Total Reductions (95,119) (154,070) (90,174) (31,257) (28,094) Balance at December 31st 604,335$ 687,094$ 723,513$ 735,277$ 730,400$ Net Pension Liability (Asset) - December 31st (113,907)$ (141,767)$ (106,494)$ (80,536)$ (94,106)$ Plan Fiduciary Net Position as a Percentage of Total Pension Liability 123% 126% 117% 112% 115% Note: The schedule is provided prospectively beginning with the City's fiscal year ended December 31, 2015 (December 31, 2014 measurement date) and is intended to show a ten year trend. Additional years will be reported as they become available. LAST TEN YEARS (Presented Prospectively) SCHEDULE OF CHANGES IN NET PENSION LIABILITY (ASSET) CITY OF SCANDIA, MINNESOTA STATEWIDE VOLUNTEER FIREFIGHTER FUND 50 CITY OF SCANDIA, MINNESOTA NOTES TO THE REQUIRED SUPPLEMENTARY INFORMATION DECEMBER 31, 2019 51 NOTE 1 PUBLIC EMPLOYEES RETIREMENT PLAN – GENERAL EMPLOYEES FUND 2019 Changes Changes in Actuarial Assumptions  The morality projection scale was changed from MP-2017 to MP-2018. Changes in Plan Provisions  The employer supplemental contribution was changed prospectively, decreasing from $31.0 million to $21.0 million per year. The State’s special funding contribution was changed prospectively, requiring $16.0 million due per year through 2031. 2018 Changes Changes in Actuarial Assumptions  The morality projection scale was changed from MP-2015 to MP-2017.  The assumed benefit increase was changed from 1.00 percent per year through 2044 and 2.50 percent per year thereafter to 1.25 percent per year. Changes in Plan Provisions  The augmentation adjustment in early retirement factors is eliminated over a five-year period starting July 1, 2019, resulting in actuarial equivalence after June 30, 2024.  Interest credited on member contributions decreased from 4.00 percent to 3.00 percent, beginning July 1, 2018.  Deferred augmentation was changed to 0.00 percent, effective January 1, 2019. Augmentation that has already accrued for deferred members will still apply.  Contribution stabilizer provisions were repealed.  Postretirement benefit increases were changed from 1.00 percent per year with a provision to increase to 2.50 percent upon attainment of 90.00 percent funding ratio to 50.00 percent of the Social Security Cost of Living Adjustment, not less than 1.00 percent and not more than 1.50 percent, beginning January 1, 2019.  For retirements on or after January 1, 2024, the first benefit increase is delayed until the retiree reaches normal retirement age; does not apply to Rule of 90 retirees, disability benefit recipients, or survivors.  Actuarial equivalent factors were updated to reflect revised mortality and interest assumptions. 2017 Changes Changes in Actuarial Assumptions  The Combined Service Annuity (CSA) loads were changed from 0.80 percent for active members and 60 percent for vested and non-vested deferred members. The revised CSA loads are now 0.00 percent for active member liability, 15.00 percent for vested deferred member liability and 3.00 percent for non-vested deferred member liability.  The assumed post-retirement benefit increase rate was changed from 1.00 percent per year for all years to 1.00 percent per year through 2044 and 2.50 percent per year thereafter. Changes in Plan Provisions  The State’s special funding contribution increased from $6 million to $16 million. CITY OF SCANDIA, MINNESOTA NOTES TO THE REQUIRED SUPPLEMENTARY INFORMATION DECEMBER 31, 2019 52 NOTE 1 PUBLIC EMPLOYEES RETIREMENT PLAN – GENERAL EMPLOYEES FUND (Continued) 2016 Changes Changes in Actuarial Assumptions  The assumed post-retirement benefit increase rate was changed from 1.00 percent per year through 2035 and 2.50 percent per year thereafter to 1.00 percent per year for all years.  The assumed investment return was changed from 7.90 percent to 7.50 percent. The single discount rate was changed from 7.90 percent to 7.50 percent.  Other assumptions were changed pursuant to the experience study dated June 30, 2015. The assumed future salary increases, payroll growth, the inflation were decreased by 0.25 percent to 3.25 percent for payroll growth and 2.50 percent for inflation. Changes in Plan Provisions  There have been no changes since the prior valuation. 2015 Changes Changes in Actuarial Assumptions  The assumed post-retirement benefit increase rate was changed from 1.00 percent per year through 2030 and 2.50 percent per year thereafter to 1.00 percent per year through 2035 and 2.50 percent per year thereafter. Changes in Plan Provisions  On January 1, 2015, the Minneapolis Employees Retirement Fund was merged into the General Employees Fund, which increased the total pension liability by $1.1 billion and increased the fiduciary plan net position by $892 million. Upon consolidation, state and employer contributions were revised; the State’s contribution of $6 million, which meets the special funding situation definition, is due September 2015. NOTE 2 STATEWIDE VOLUNTEER FIREFIGHTER RETIREMENT PLAN 2018 Changes Changes in Actuarial Assumptions  There were no significant changes made to actuarial assumptions during 2018. 2017 Changes Changes in Actuarial Assumptions  There were no significant changes made to actuarial assumptions during 2017. CITY OF SCANDIA, MINNESOTA NOTES TO THE REQUIRED SUPPLEMENTARY INFORMATION DECEMBER 31, 2019 53 NOTE 2 STATEWIDE VOLUNTEER FIREFIGHTER RETIREMENT PLAN (Continued) 2016 Changes Changes in Actuarial Assumptions  There were no significant changes made to actuarial assumptions during 2016. 2015 Changes Changes in Actuarial Assumptions  There were no significant changes made to actuarial assumptions during 2015. SUPPLEMENTARY INFORMATION CITY OF SCANDIA, MINNESOTA SUPPLEMENTAL COMBINING BALANCE SHEET MAJOR GOVERNMENTAL FUND – DEBT SERVICE FUND 2013 2015 2017 2018A Total Equipment Equipment Equipment G.O. Street Debt Certificates Certificates Certificates Bonds Service ASSETS Cash and Cash Equivalents 19,767$ 16,352$ -$ -$ 36,119$ Property Taxes Receivable 364 259 198 1,830 2,651 Prepaids 3,420 495 - - 3,915 TOTAL ASSETS 23,551$ 17,106$ 198$ 1,830$ 42,685$ LIABILITIES Due to Other Funds -$ -$ 1,272$ 9,243$ 10,515$ FUND BALANCE Nonspendable 3,420 495 - - 3,915 Restricted 20,131 16,611 - - 36,742 Unassigned - - (1,074) (7,413) (8,487) Total Fund Balance 23,551 17,106 (1,074) (7,413) 32,170 TOTAL LIABILITIES AND FUND BALANCES 23,551$ 17,106$ 198$ 1,830$ 42,685$ DECEMBER 31, 2019 54 2013 2015 2017 2018A Total Equipment Equipment Equipment G.O. Street Debt Certificates Certificates Certificates Bonds Service REVENUES Taxes 63,985$ 45,556$ 34,791$ 321,820$ 466,152$ EXPENDITURES Debt Service: Principal 55,000 43,000 32,000 155,000 285,000 Interest and Other Charges 8,491 1,891 3,328 174,233 187,943 TOTAL EXPENDITURES 63,491 44,891 35,328 329,233 472,943 NET CHANGE IN FUND BALANCE 494 665 (537) (7,413) (6,791) FUND BALANCE - BEGINNING 23,057 16,441 (537) - 38,961 FUND BALANCE - ENDING 23,551$ 17,106$ (1,074)$ (7,413)$ 32,170$ FOR THE YEAR ENDED DECEMBER 31, 2019 MAJOR GOVERNMENTAL FUND – DEBT SERVICE FUND SUPPLEMENTAL COMBINING SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE CITY OF SCANDIA, MINNESOTA 55 Economic Park Development Capital Equipment Gateway Total Authority Cable TV Improvement Replacement Trail Expansion Nonmajor Fund Fund Fund Fund Fund Funds ASSETS Cash and Cash Equivalents 23,179$ 3,299$ 151,637$ 233,127$ 175$ 411,417$ Property Taxes Receivable 26 - - 159 - 185 Accounts Receivable - 1,583 - 500 - 2,083 TOTAL ASSETS 23,205$ 4,882$ 151,637$ 233,786$ 175$ 413,685$ LIABILITIES Accounts Payable -$ 12$ -$ -$ -$ 12$ Advance from Other Fund - - 17,000 - - 17,000 Total Liabilities - 12 17,000 - - 17,012 FUND BALANCES Restricted - - - - 175 175 Committed 23,205 - 134,637 - - 157,842 Assigned - 4,870 - 233,786 - 238,656 Total Fund Balances 23,205 4,870 134,637 233,786 175 396,673 TOTAL LIABILITIES AND FUND BALANCES 23,205$ 4,882$ 151,637$ 233,786$ 175$ 413,685$ DECEMBER 31, 2019 ALL NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET CITY OF SCANDIA, MINNESOTA 56 Economic Park Development Capital Equipment Gateway Total Authority Cable TV Improvement Replacement Trail Expansion Nonmajor Fund Fund Fund Fund Fund Funds REVENUES Taxes 4,649$ -$ -$ 27,894$ -$ 32,543$ Franchise Fees - 18,321 - - - 18,321 Intergovernmental 7,892 - 9,300 - - 17,192 Charges for Services - - 3,000 - - 3,000 Investment Income 300 65 2,600 4,376 - 7,341 Miscellaneous - - 3,245 - - 3,245 TOTAL REVENUES 12,841 18,386 18,145 32,270 - 81,642 EXPENDITURES Current: Other General Government - 18,668 - - - 18,668 Parks and Recreation - - 2,472 - - 2,472 Economic Development 10,950 - - - - 10,950 Capital Outlay - - 22,650 75,961 - 98,611 TOTAL EXPENDITURES 10,950 18,668 25,122 75,961 - 130,701 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES 1,891 (282) (6,977) (43,691) - (49,059) OTHER FINANCING SOURCES (USES) Proceeds on Sale of Assets - - 140,000 500 - 140,500 Operating Transfers Out - - (103,000) - - (103,000) TOTAL OTHER FINANCING SOURCES (USES)- - 37,000 500 - 37,500 NET CHANGE IN FUND BALANCES 1,891 (282) 30,023 (43,191) - (11,559) FUND BALANCES - BEGINNING 21,314 5,152 104,614 276,977 175 408,232 FUND BALANCES - ENDING 23,205$ 4,870$ 134,637$ 233,786$ 175$ 396,673$ FOR THE YEAR ENDED DECEMBER 31, 2019 ALL NONMAJOR GOVERNMENTAL FUNDS CITY OF SCANDIA, MINNESOTA COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES 57 Initial Outstanding Outstanding Principal Issue Interest Maturity Authorized Balance Balance Due in Dates Rates Dates Issue 01/01/19 Issued Paid 12/31/19 2020 GOVERNMENTAL DEBTS 2013 Certificates of Indebtedness 7/1/2013 0.80-3.10% 7/1/2023 570,000$ 295,000$ -$ 55,000$ 240,000$ 60,000$ 2015 Certificates of Indebtedness 7/1/2015 1.40-2.30% 7/1/2020 215,000 86,000 - 43,000 43,000 43,000 2017 Certificates of Indebtedness 8/1/2017 2.35-2.75% 8/1/2022 160,000 128,000 - 32,000 96,000 32,000 G.O. Street Reconstruction Bonds, Series 2018A 5/15/2018 3.00-3.13% 12/15/2033 3,835,000 3,835,000 - 155,000 3,680,000 215,000 TOTAL INDEBTEDNESS 4,780,000$ 4,344,000$ -$ 285,000$ 4,059,000$ 350,000$ CITY OF SCANDIA, MINNESOTA SCHEDULE OF INDEBTEDNESS FOR THE YEAR ENDED DECEMBER 31, 2019 (UNAUDITED) 58 OTHER REQUIRED REPORTS An Independently Owned Member, RSM US Alliance RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. St. Cloud 320.251.0286 Little Falls 320.632.6311 Albany 320.845.2940 Maple Lake 320.963.5414 Monticello 763.295.5070 www.swcocpas.com INDEPENDENT AUDITORS' 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 April 29, 2020 Honorable Mayor and City Council City of Scandia, Minnesota We have audited, in accordance with the 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, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Scandia, Minnesota (the City) as of and for the year ended December 31, 2019, and the related notes to the financial statements, which collectively comprise the City of Scandia’s basic financial statements, and have issued our report thereon dated April 29, 2020. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the City of Scandia's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances 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. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. However, as described in the accompanying Schedule of Findings and Responses, we identified a certain deficiencies in internal control that we consider to be material weaknesses and significant deficiencies. 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 entity’s financial statements will not be prevented, or detected and corrected on a timely basis. We consider the following deficiency described in the accompanying Schedule of Findings and Responses to be a material weakness: 2013-001 and 2019-001. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less sever that a material weakness, yet important enough to merit attention by those charged with governance. We consider the following deficiency described in the accompanying Schedule of Findings and Responses to be a significant deficiency: 2019-002. 60 Compliance and Other Matters As part of obtaining reasonable assurance about whether the City's financial statements are free from 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. City’s Response to Findings The City of Scandia’s response to the findings identified in our audit is described in the accompanying Schedule of Findings and Responses and Corrective Action Plans. The City’s response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. SCHLENNER WENNER & CO. St. Cloud, Minnesota CITY OF SCANDIA, MINNESOTA SCHEDULE OF FINDINGS AND RESPONSES FOR THE YEAR ENDED DECEMBER 31, 2019 61 FINANCIAL STATEMENT FINDINGS Finding 2013-001 Limited Segregation of Duties Condition: The City has limited segregation of accounting duties. Criteria: The basic premise of proper segregation of duties is that no one employee should have access to both physical assets and the related accounting records or to all phases of the transaction. Cause: There are a limited number of employees. Effect: The City’s lack of adequate segregation of accounting duties could adversely affect the City’s ability to initiate, record, process, and report financial data consistent with the assertions of management in the financial statements. Recommendation: Although the number of employees may not be large enough to eliminate this deficiency, we recommend that the City evaluate current procedures and segregate where possible and implement compensating controls. It is important that the Council is aware of this condition and monitor all financial information. Views of Responsible Officials And Planned Corrective Actions: Management agrees with the recommendation. See corresponding Corrective Action Plan. Finding 2019-001 Material Audit Adjustments Condition: Audit adjustments were required to correct material misstatements identified in the trial balance presented for the audit. Criteria: The City is required to report accurate financial information. Cause: The City failed to record all year-end adjustments required under the accrual basis of accounting and various other adjustments were required to correct misstatements. Effect: The misstatements in the trial balance presented for the audit resulted in the need to record audit adjustments to achieve fair financial statement presentation under accounting principles generally accepted in the United States of America. Recommendation: We recommend management perform a thorough review of the trial balance prior to the audit and ensure all accounts have been properly adjusted at year-end. Views of Responsible Officials And Planned Corrective Actions: Management agrees with the recommendation. See corresponding Corrective Action Plan. CITY OF SCANDIA, MINNESOTA SCHEDULE OF FINDINGS AND RESPONSES FOR THE YEAR ENDED DECEMBER 31, 2019 62 FINANCIAL STATEMENT FINDINGS (Continued) Finding 2019-002 Financial Statement Preparation Condition: Schlenner Wenner & Co. drafts the financial statements for the City. These financial statements, including disclosures, were reviewed by management and management has taken responsibility for them. However, we believe that management would require additional training in accounting principles generally accepted in the United States of America to adequately apply such standards internally. Criteria: The City is required to report accurate financial information. Cause: The City’s staff does not possess the expertise to prepare financial statements internally. This is not unusual for a City of your size. Effect: The inability to internally prepare the City’s financial statements can result in undetected errors in financial reporting. Recommendation: While the City may not have adequate controls in place to eliminate this finding, the City should document its annual review of the financial statements. Views of Responsible Officials And Planned Corrective Actions: Management agrees with the recommendation. See corresponding Corrective Action Plan. CITY OF SCANDIA, MINNESOTA CORRECTIVE ACTION PLANS FOR THE YEAR ENDED DECEMBER 31, 2019 63 FINANCIAL STATEMENT FINDINGS Finding 2013-001 Limited Segregation of Duties 1. Explanation of Disagreement with Audit Finding There is no disagreement with the audit finding. 2. Actions Planned in Response to Finding The City currently has the following procedures in place: o The City’s Department Heads review all invoices received. The City Council also reviews the monthly invoices and approves the expenditures. o The City utilizes claim listings which are approved by the City Administrator. The City will review current procedures and implement additional controls where possible. 3. Office Responsible Ken Cammilleri, City Administrator, is the official responsible for ensuring corrective action. 4. Planned Completion Date The Corrective Action Plan will be reviewed on an ongoing basis with no anticipated completion date. 5. Plan to Monitor Completion The City Council will be monitoring the Corrective Action Plan. Finding 2019-001 Material Audit Adjustments 1. Explanation of Disagreement with Audit Finding There is no disagreement with the audit finding. 2. Actions Planned in Response to Finding The City will continue to have Schlenner Wenner & Co. prepare certain audit adjustments and the City will review the adjustments and schedules provided to the auditor. The City will be more diligent in the review of schedules, including those prepared by third parties, to ensure they are correct and agree with the unaudited trial balance. 3. Office Responsible Ken Cammilleri, City Administrator, is the official responsible for ensuring corrective action. 4. Planned Completion Date The Corrective Action Plan will be reviewed on an ongoing basis with no anticipated completion date. 5. Plan to Monitor Completion The City Council will be monitoring the Corrective Action Plan. CITY OF SCANDIA, MINNESOTA CORRECTIVE ACTION PLANS FOR THE YEAR ENDED DECEMBER 31, 2019 64 FINANCIAL STATEMENT FINDINGS (Continued) Finding 2019-002 Limited Segregation of Duties 1. Explanation of Disagreement with Audit Finding There is no disagreement with the audit finding. 2. Actions Planned in Response to Finding The City will continue to have Schlenner Wenner & Co. prepare the financial statements and will continue to document the annual review of the financial statements and related footnote disclosures. 3. Office Responsible Ken Cammilleri, City Administrator, is the official responsible for ensuring corrective action. 4. Planned Completion Date The Corrective Action Plan will be reviewed on an ongoing basis with no anticipated completion date. 5. Plan to Monitor Completion The City Council will be monitoring the Corrective Action Plan. An Independently Owned Member, RSM US Alliance RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. St. Cloud 320.251.0286 Little Falls 320.632.6311 Albany 320.845.2940 Maple Lake 320.963.5414 Monticello 763.295.5070 www.swcocpas.com INDEPENDENT AUDITORS' REPORT ON MINNESOTA LEGAL COMPLIANCE April 29, 2020 Honorable Mayor and City Council City of Scandia, Minnesota We have audited, 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, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Scandia, Minnesota (the City) as of and for the year ended December 31, 2019, and the related notes to the financial statements, and have issued our report thereon dated April 29, 2020. The Minnesota Legal Compliance Audit Guide for Cities, promulgated by the State Auditor pursuant to Minnesota Statute Section 6.65, contains seven categories of compliance to be tested: contracting and bidding, deposits and investments, conflicts of interest, public indebtedness, claims and disbursements, miscellaneous provisions, and tax increment financing. Our audit considered all of the listed categories, except tax increment financing, since the City has none. In connection with our audit, nothing came to our attention that caused us to believe that the City failed to comply with the provisions of the Minnesota Legal Compliance Audit Guide for Cities. However, our audit was not directed primarily toward obtaining knowledge of such noncompliance. Accordingly, had we performed additional procedures, other matters may have come to our attention regarding the City’s noncompliance with the above referenced provisions. This report is intended for the information and use of those charged with governance and management of the City of Scandia and the State Auditor and is not intended to be, and should not be, used by anyone other than these specified parties. SCHLENNER WENNER & CO. St. Cloud, Minnesota