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Addition_Abdo Eick & Meyers Proposal of Audit Services5201 Eden Avenue Suite 250 Edina, MN 55436 P: (952) 835.9090 • F: (952) 835.3261 100 Warren Street Suite 600 Mankato, MN 56001 P: (507) 625.2727 • F: (507) 389.9139 www.aemcpas.com Proposal for Audit Services City of Scandia November 2, 2020 Andrew K. Berg, CPA (952) 715.3003 andrew.berg@aemcpas.com November 2, 2020 City of Scandia Attn:Ken Cammilleri,City Administrator 14727 209 th Street N Scandia, Minnesota 55073 Dear Ken: Thank you for the opportunity to submit this proposal to the City of Scandia (the City)for audit services.We appreciate the opportunity to work with you.Based on our experience with clients like you,we are confident that Abdo,Eick &Meyers, LLP (the Firm)would be a great fit. We work hard for those who matter most -clients,employees,family,and community -and celebrate their successes as our own.Our success has been driven by our philosophy of going beyond the numbers for our clients.This belief is represented through our commitment to people and knowledge, process and you.We will utilize staff that is experienced and dedicated in the area of government.Our Process is centered on meeting your needs, exceeding your expectations, and incorporating technology to deliver unparalleled solutions.This includes delivering prompt and effective service of the highest quality to you.The quality of our service allows us an opportunity to be an integral part of your finance team.We believe this investment should make a difference for you, our valued client.We focus on the challenges and needs that are relevant to your City,which allows us to be thoughtful in our approach in providing you with the best solutions, and leaves you assured in the value of our deliverable. The attached proposal will demonstrate to you that we will be a great service provider and partner for your City.We look forward to meeting with you to discuss our proposal, and appreciate this opportunity to present our firm for your consideration.We will follow up with you within two weeks to answer any questions or concerns you may have and to provide any further information you may need. Sincerely, ABDO, EICK &MEYERS,LLP Certified Public Accountants &Consultants Andrew K.Berg,CPA Governmental Services Partner 2 Table of Contents Executive Summary 4 Government Experience 5 Audit Approach 6 Technology 10 Timeline 11 Your Team 12 Team Bios 13 Value 16 What Our Clients Say 17 Services Overview 18 Why AEM 19 Appendix A: Proposer Guarantees and Warranties Appendix B: Peer Review Letter Appendix C: Sample Management Letter 3 Executive Summary We are pleased to present our proposal for audit services to the City of Scandia. We have prepared our proposal based on our understanding of your City’s needs from the request for proposal we received and the very informational conversations we have had with Ken and Colleen, during which we were provided with an opportunity to get to know you better. We understand that the key requirements you have of your selected advisors include: •Access to partners and staff for assistance in answering questions throughout the year •Deliver both concise and informative information to the Council •Demonstrate familiarity, knowledge and experience in the industry •Provide proficiency with Banyon Fund Accounting •Provide a timely and efficient audit We understand that the requested work to be completed includes the following services: •Annual Financial Statement Audit •Single Audit (If applicable) •Management Letter •Presentation to the Council Based on our work with more than 100 local governments similar to yours, we confidently believe we can meet your requirements and exceed your expectations for the reasons listed below and referenced in our proposal. •We provide timely services and currently adhere to an 18 day turnaround time from fieldwork for the delivery of draft financial statements to the client. •We have worked with numerous other entities with Banyon Fund Accounting. •Our Council presentation uses ratios and comparisons of trends that give snapshots of metrics for your City through graphs and charts. •We have a dedicated team of 40 partners, managers and staff that serve governments exclusively. •Our government experience extends beyond just audit and compliance. We also provide the following services to government organizations. o Human Resource solutions o Long-term financial planning o One-on-one personalized and group-focused training opportunities o Process improvement-lean process and process evaluation o Arbitrage services •Integral to our mission is a philosophy that we help organizations reach their maximum potential through open communications and teamwork. We enjoy answering questions any time of the year, and at no cost! We commit to providing an excellent level of client service and helping you move beyond the numbers through communication, support and customized guidance. As you review the details of this proposal, please do not hesitate to contact us with questions or for clarification. We look forward to partnering with the City of Scandia! 4 Government Experience You can have confidence in our 56 years of quality auditing services and partnership in the government space.Since 1963,we’ve served cities just like yours. With an unwavering commitment to streamlining processes, training staff,and finding technology-based solutions,we proudly offer excellence in city auditing. Out of our 160-strong, talented staff,over 40 team members are 100%focused on government clients, including services for over 100 cities and various municipalities.By serving cities across Minnesota,we have become experts in the nuances of how to best support your city. Our expertise affords you an audit experience that’s painless.We do this by communicating up front,coming better prepared,and being available throughout the year to support you. OUR PROCESS Our methods are centered around incorporating technology to deliver unparalleled solutions for government organizations.In addition to our audit experience, our firm expertly performs outsourcing for governments giving us a wealth of experience in a finance director role.We don’t believe in a one-size-fits- all mentality so together,we’ll focus on the needs that are relevant to your city and provide the right services to meet them with a tailored audit approach.We’re focused on efficiency and deliver the audit draft within 3 weeks of completing fieldwork is completed bringing you accuracy and value. OUR FOCUS Through continuous training and growth opportunities, we’ve established an environment with a focus on serving city governments.We spend more than 100 hours training and onboarding to ensure success for our clients. We truly hope that you allow us to be your partner. Together,we’ll go beyond the numbers to best support your city. OUR QUALIFICATIONS GFOA and MnGFOA Association members AICPA Government Audit Quality Control Member We speak and train on government accounting and auditing topics Audit services for over 100 cities We’ve assisted many cities in preparing for the GFOA’s Certificate of Achievement for Excellenceawards in financial reporting Our clients represent top tier governments with 19 municipal clients receiving the GFOA’s Certificate of Achievement for Excellence in Financial Reporting Audit services for EDA’s and HRA’s 5 Audit Approach AUDIT SERVICES THAT MOVE THE CITY OF SCANDIA BEYOND THE NUMBERS We deliver auditing services that are more than just a compliance service.We exceed what’s considered “standard audit support,” placing a strong emphasis on a relationship-driven approach that facilitates a partnership with your City.We work together to ensure we have a clear understanding of your City’s needs, challenges and financial information.Together with your City’s team,we’ll help to leverage this information to increase efficiency and effectiveness. PARTNERSHIP Integral to our mission is a philosophy that we help organizations reach their maximum potential through open communication and teamwork.We enjoy answering questions any time of the year, and at no cost!We also believe in: •Consistent, clear, proactive communication that offers suggestions and makes your work easier •Returning phone calls and questions promptly •Gathering information through dialog, not checklists •Conducting listening calls with you outside of the engagement to understand your City,build a long-term relationship with you and learn how we can improve. PEOPLE Our value comes from our experience and the education we can provide.Our professionals go beyond the required standards to make sure we have a clear understanding of your City.We work with your management team to leverage this information to increase efficiency and profitability.You can learn more about your audit team in the team section. PROCESS While we will audit the financial statements of your City for the year ended December 31,2020,2021 and 2022,in accordance with the applicable regulatory standards,our process is designed to go far beyond that. Our process enables us to gain a thorough understanding of the processes, procedures, and general operations of your City. 1. Client Understanding 2. Planning & Interim Fieldwork 3. Year-end Audit Fieldwork 4. Reporting 6 Audit Approach continued Your leadership team plays an important role in your financial reporting.We always begin our process with a face-to-face conversation to gain a thorough understanding of your City,internal controls, processes and procedures.Our experience with cities like yours allows us to develop a customized audit and communications plan.We will prepare an audit timeline detailing significant steps in the audit process from beginning to end. . 1. Client Understanding 2. Audit Strategy Design Your City is unique and therefore your audit plan will be tailored to your operations and will include the relevant and appropriate standards.Your audit strategy is based on our understanding of your City.It will also encompass: •Leadership concerns and expectations •Risk Assessment •Testing •Understanding of internal controls 3. Audit Plan Execution Our execution of your audit strategy begins with fieldwork and ends with a presentation of your draft financial statements.Your team,including partners and managers,will be present during fieldwork and we’ll be in continuous communication with your staff. Fieldwork is where we document internal controls, conduct walkthroughs,and obtain audit evidence to support financial statement amounts and disclosures.Our paperless audit approach allows us to do much of the fieldwork from our office.We will discuss your preference for the amount of onsite work and agree on a mutually beneficial schedule. During fieldwork,we will discuss any potential audit adjustments with your staff to ensure we agree on the need for the audit adjustment and amount.We will also address any potential internal control deficiencies to verify our understanding and discuss potential solutions.We want to be problem solvers, not problem reporters. After reviewing the financial statements, notes and supplementary schedules,if any,we prepare a draft of the financial statements for your review and approval.We will also send a list of audit adjustments noting the reasons for each adjustment. 7 Audit Approach continued After the previous segments mentioned are complete,we will be ready to finalize the audit.We will report the results of your audit to the finance committee.We will also deliver a management letter that identifies critical financial trends and recommendations for improvement, provides required communications, and discusses changes in the environment in which your City operates. During this stage we will also complete the following procedures: •Complete subsequent events review procedures and review legal and representation letters •Complete final overall analytical review procedures •Communicate significant deficiencies and material weaknesses •Conduct an exit conference •Issue an audit opinion Analytical Procedures Analytical procedures are defined in Statement on Auditing Standards No.56,“Analytical Procedures” as evaluations of financial information made by a study of plausible relationships around both financial and non- financial data.They are required in the planning and final review stage, but our Firm encourages staff to use in substantive testing where possible.Our Firm management directs the use of analytical procedures as follows: Planning The objective for analytical procedures at this stage is to direct attention to likely misstatements.We use trend analysis to meet our objective in planning.Examples of trend analysis would be a comparison to the budget for funds that adopt a budget and/or comparison to prior year.We also may consider a comparison among three to five years.Additional testing may result if the expectations established at the start of the trend analysis are not met. Substantive Testing The objective of analytical procedures at this stage is to support or refute financial statement account balances.We have found that analytical procedures are more efficient and can be more effective than tests of details.Depending on the make-up of the account,we will use trend analysis,ratio analysis and/or modeling. Final Review The objective is to review the reasonableness of financial statement account balances.We use trend analysis to meet our objectives.This trend analysis is completed on final audited amounts. 4. Audit Completion 5. Additional Approach Details 8 Audit Approach continued Approach to be Taken to Gain and Document an Understanding of the City’s Internal Control Structure Our goal in preliminary fieldwork is to gain a thorough understanding of your internal controls,processes,and procedures.The completion of these elements allows us to minimize the fieldwork required to complete the audit. Approach to be Taken in Determining Laws and Regulations Subject to Audit Test Work We are required to obtain an understanding of the possible financial statement effect of laws and regulations that have a direct and material effect on the determination of financial statement amounts.The determination of laws and regulations are addressed in the planning stage through reading available grant documentation, client inquiries, and a preliminary review of finance system accounts and search of the City Council minutes. We also have a working knowledge of the types of laws and regulations Minnesota governments operate under.Further discussion is provided in the section Firm Qualifications and Experience.In addition,we obtain further information about federal laws and regulations through the Catalog of Federal Domestic Assistance (CFDA)and the U.S.Office of Management and Budget (OMB)Compliance Supplement. Approach to be Taken in Drawing Audit Samples for Purposes of Tests of Compliance Since each program or grant agreement is different,we use a variety of statistical designs in our compliance testing.The size of the sample considers many program factors;size,maturity,complexity,level of oversight and prior audit findings.Ultimately,our professional judgment determines that a representative number of transactions have been selected.You can be confident in our judgment because only senior level (partner, president, manager, and supervisor) staff makes decisions on planned compliance testing. Identification of Anticipated Potential Audit Problems At this time,we do not anticipate any potential audit problems.If problems did arise,we carefully work with the City to resolve the matter. 5. Additional Approach Details (Continued) 9 Technology AEM Technology We believe technology should enhance our service offerings,making our work less intrusive, our time with you more productive and keep everyone’s data more secure.Our use of technology in financial statement preparation enables us to streamline our work.It also helps us to automate certain functions of our audit,so we are free to spend more time analyzing our results and working directly with you. Some of the technology we use to enhance our client experience are: •Utilize Engagement Organizer for customized to-do lists via a secure online web based portal. •MindBridge is a data analytics software used to quickly identify unusual transactions and potential errors. •Utilize Zoom technology to enhance remote work relationships with clients and team members. AEM takes the security of our data and our client’s data very seriously.Many systems are in place to ensure the safety of your City’s data with us.We operate in a completely remote hosted environment.This not only allows to work from any computer, anywhere, any time,but also provides large scale, cutting edge technology and security for your data.Your data is housed in a secure data warehouse,not on laptops or local servers. It also means: •All firm staff use dual authentication for every login to our remote environment •Our data is saved on redundant servers so if one server fails the other will immediately take over •Our data is backed up continually •All email and embedded links are scanned for viruses prior to landing in our inbox 10 Your Team In assembling our team to serve the City of Scandia, we have assigned experienced individuals who know and understand your unique financial accounting and audit needs. Our proposed delivery team has substantial experience working with cities similar to yours, including audit and accounting experience. Our team members and their respective experience are briefly profiled below. Full biographies for the staff members are located on the following pages. MEMBER TITLE YEARS OF EXPERIENCE Andy Berg, CPA Partner 26 Brad Falteysek, CPA Partner 23 Bonnie Schwieger, CPA Manager 9 Justin Nilson, CPA Manager 9 11 Team Bios Team Member Background & Expertise Andy Berg, CPA Government Partner andrew.berg@aemCPAs.com Direct Line (952) 715.3003 Andy Berg joined the Firm in 1994 after graduating Cum Laude from Gustavus Adolphus College and is registered and licensed to practice as a CPA in Minnesota. His experience includes auditing municipalities, school districts, and nonprofits under government auditing standards and single audits under Uniform Guidance. Andy stays current on issues affecting his clients by staying involved in several industry organizations. He participates on the special review committee for the Government Finance Officers Association. This committee reviews reports for acceptance into the Certificate of Achievement for Excellence in Financial Reporting program. Education •Bachelor of Science in Accounting, Gustavus Adolphus College •Continuing professional education as required by AICPA Professional Memberships •American Institute of Certified Public Accountants (AICPA) •Minnesota Society of Certified Public Accountants •Minnesota Government Finance Officers Association •Minnesota Association of School Business Officials •Government Finance Officers Association Qualifications •26 years of experience auditing local governments in Minnesota •Over 95 percent of billable time relates to governmental clients •Participates on the special review committee for the Government Finance Officers Association (GFOA). This committee reviews reports for acceptance into the Certificate of Achievement of Excellence in Financial Reporting program •Experienced in Municipal Government Long Term Financial Plans •Previous MN GFOA presenter on GASB Update and CAFR review •Previous MNCPA City Report Review Committee 12 Team Bios Team Member Background & Expertise Brad Falteysek, CPA Government Partner brad.falteysek@aemCPAs.com Direct Line (952) 715.3004 Mr. Falteysek joined the firm in 1998. He graduated Cum Laude from Winona State University, and worked for two years with the Minnesota Office of the Legislative Auditor’s Office. He is registered and licensed to practice as a CPA in Minnesota. His work includes audit and accounting for many of the Firm’s governmental clients including audits regulated under Uniform Guidance. Education •Graduated Cum Laude from Winona State University Bachelor of Science in Accounting Minor in Economics •Continuing professional education as required by AICPA Professional Memberships •American Institute of Certified Public Accountants (AICPA) •Minnesota Society of Certified Public Accountants (MNCPA) •Minnesota Association of School Business Officials (MASBO) •Minnesota Government Finance Officers Association (MNGFOA) Qualifications •23 years of experience auditing local governments in Minnesota •Over 90 percent of billable time relates to governmental clients •Experienced in municipal government Utility Rate Studies •Presented at the Minnesota Association of School Business Officials Annual Conference, the Minnesota Government Finance Officers Association Annual Conference, and the Minnesota Clerks and Finance Officers Association Annual Conference •Experienced in municipal government Long-term Financial Plans •MSRB Municipal Advisor Qualified Representative (Series 50) 13 Team Bios Team Member Background & Expertise Bonnie Schwieger, CPA Manager bonnie.schwieger@aemCPAs.com Direct Line (952) 715.3065 Ms. Schwieger joined the Firm in 2012 after graduating from Minnesota State University, Mankato. Her work includes assisting in the audits of several municipal, school district and Single Audits. Education •Bachelor of Science in Accounting, Minnesota State University, Mankato •Associate of Arts in Accounting, South Central College, Mankato •Continuing professional education as required by AICPA and Government Accountability Office Professional Memberships •Minnesota Government Finance Officers Association •Minnesota Society of Certified Public Accountants (MNCPA) Qualifications •9 years of experience auditing local government in Minnesota •Over 90 percent of billable time relates to governmental clients •Certified in Microsoft Excel 14 Team Bios Team Member Background & Expertise Justin Nilson, CPA Manager justin.nilson@aemCPAs.com Direct Line (952) 715.3011 Mr. Nilson joined the Firm in 2012 after graduating with an accounting degree from St. John’s University. His work experience includes assisting in the audits of several municipal, school district and Single Audits. Education •Bachelor of Arts in Accounting, Saint John’s University •Continuing professional education as required by AICPA and Government Accountability Office Professional Memberships •American Institute of Certified Public Accountants (AICPA) •Minnesota Society of Certified Public Accountants (MNCPA) •Minnesota Government Finance Officers Association Qualifications •9 years of experience auditing local government in Minnesota •Over 90 percent of billable time relates to governmental clients •Experienced in municipal government long-term financial plans •Experienced in models for various municipal government specific areas such as utility rate, tax levy, and debt analysis 15 Value We at AEM help our clients improve their city and achieve their financial goals. We heard you say that the following factors were important in our relationship. •Assistance through-out the year –we are here to answer simple questions to larger projects. We want to help the City meet is goals. As we have described in the pages preceding this section, we will deliver services that will deliver on these factors that are important to you. Our fees range from $95 to $365 per hour based upon the experience and level of the individuals to be assigned to perform the audit. Fees are also based on the assumption that your City’s staff will be assisting us whenever possible with audit schedules. We will provide a detailed audit plan and prepare a list of requested schedules upon proposal acceptance. We do not believe in charging for a phone call, emails, etc. at any time during the year. We encourage clients to call us for questions, advice, or just update us on what is happening in their organization throughout the year.We want to be a resource for you throughout the year without consideration of whether or not the meter is running. When our communications identify additional service needs, we will provide you with an expected fee range. We have not anticipated any additional hours for new audit or accounting standards. Accounting or audit standard changes may result in increased hours. SUMMARY SCHEDULE OF PROFESSIONAL FEES Year End December 31 2020 2021 2022 Audit $ 23,000 $ 23,500 $ 24,000 OSA Reporting Form $ 775 $ 800 $ 825 Total $ 23,775 $ 24,300 $ 24,825 16 “” What Our Clients Say Client References We have long-term relationships with many cities in Minnesota.Our clients listed below would be a good representation of audit clients.All have partner, president, manager or supervisor staffing for the fieldwork process. I have worked with Abdo, Eick and Meyers since 1997. They are extremely helpful and easy to work with. They strive to do the best for their clients in every way. I would highly recommend them! ~ City of St. Francis –Darcy Mulvihill, Finance Director City of Chisago City City of Lindstrom City of St. Francis Cassie Gemuenden | 651-257-4162 Audit year 2019 | 170 Hours Engagement partner -Brad Falteysek Kay Mattson | 651-257-0807 Audit year 2019 | 200 Hours Engagement partner -Andrew Berg Darcy Mulvihill | 763-753-2630 Audit year 2019 | 180 Hours Engagement partner –Andrew Berg 17 Services Overview Strategic Planning We provide strategic planning in numerous areas to maximize and protect business value.Areas include cash flow modeling and analysis,growth and profitability strategies,key employee incentives, management consulting as well as succession and exit planning strategies. Our accounting staff has the experience and diverse skills to help identify areas of interest and strategies to achieve desired goals.We strive to build a reliable and confidential relationship, and desire to become a trusted advisor that is accessible throughout the year with any planning needs that may arise. Accounting & Attest Our accounting staff performs audits,reviews and compilations and also assists our clients with all of their accounting and bookkeeping needs including adjusting entries,software issues,etc.Our goal is to maintain a close and constructive relationship with you at all times AEM Workforce Solutions AEM Workforce Solutions, LLC, helps businesses and nonprofit agencies better support their most valuable resource -their people.AEM Workforce Solutions is a full service human resources and payroll provider to assist mid-size business with all of their HR and payroll needs. Growth can’t happen without the right team in place. But making decisions about people can be stressful and time consuming,not to mention emotional. Having clear and consistent HR practices,that best suit the individuality of each business,is key.And because the right policies are just as important,we lend our HR expertise to help you strategically plan for your future. As your partner,we can even help you evaluate and manage the myriad of risks associated with employer liability or handle the minutiae of your regulatory process -we’re here to make your job easier so you can focus on growing your business. Management Our management consulting goes above and beyond to help management improve performance. This happens through a collaborated effort that involves problem identification and development of improvement plans.We recognize that our most important product is prompt and effective service and strive to address all of management’s needs. 18 Why AEM WE LISTEN You will know you’re in the right hands well before delivery, but be assured that we will get you a great value for the investment of your time. WE ENGAGE Active engagement with DFK International and domestic industry associations allows us to provide maximum value to your City. WE DELIVER Combining our internal expertise and technological resources with what we’ve learned about you allows us to deliver a solution that exceeds your expectations. Abdo,Eick &Meyers, LLP, established in 1963,has a professional staff of more than 150 in its Edina and Mankato offices.The two offices serve clients of all sizes and industries.Our services include audits, reviews and compilations, monthly accounting,tax planning and preparation, and management advisory services.In addition, Abdo,Eick &Meyers, LLP is recognized as one of the Top 150 firms in the United States and the 11th largest firm in Minnesota. We're here because our clients need solutions to their challenges--not a commodity product.Through our dedication to teamwork, development and relationships, we will help our clients thrive.The investments into our People +Process make a difference for you, our valued client.We focus on the challenges and needs that are relevant to your business or government agency.This allows us to be thoughtful in our approach in providing you with the best solutions, and leave you assured in the value of our deliverable. The Firm is a member of the American Institute of Certified Public Accountants Division of Firms and has received an unmodified opinion on its Peer Review.Our Peer Review, was completed in 2017 and resulted in a pass rating. A copy of this letter can be found in Appendix B. The Firm has not had any federal or state desk reviewsorfieldreviewsofitsauditsinthelastthree years.Wehave had no disciplinary action taken or pending againsttheFirmduring the past three years with stateregulatory bodies or professional organizations. We maintain library facilities which include current professional literature and specific information for the industries we serve.The Firm library is also reviewed as part of the external quality review program.The Firm has in-house training programs specific to our government clients.We also perform auditing and accounting updates for our clients that are organized by our staff.These practices ensure the quality of our staff over the term of engagement. 19 Appendix A Proposer Guarantees and Warranties 1.Proposer warrants that it is willing and able to comply with State of Minnesota Laws with respect to foreign (non-State of Minnesota) corporations. 2.Proposer warrants that it is willing and able to obtain an “errors and omissions” insurance policy providing a prudent amount of coverage for the willful or negligent acts, or omissions of any officers, employees or agents thereof. 3.Proposer warrants that it will not delegate or subcontract its responsibilities under an agreement without the prior written permission of the City of Scandia. 4.The proposer certifies that it can and will provide and make available at a minimum, all services set forth in Section II, Nature of Services Required. 5.Proposer warrants that all information provided in this proposal is true and accurate. Signature of Official Name (typed)Andrew K. Berg, CPA Title Partner Firm Abdo, Eick & Meyers, LLP Date November 2, 2020 Appendix B REPORT ON THE FIRM’S SYSTEM OF QUALITY CONTROL January 30, 2018 To the Partners of Abdo, Eick and Meyers, LLP and the Peer Review Committee of the Minnesota Society of Certified Public Accountants We have reviewed the system of quality control for the accounting and auditing practice of Abdo, Eick & Meyers, LLP (the firm) in effect for the year ended May 31, 2017. Our peer review was conducted in accordance with the Standards for Performing and Reporting on Peer Reviews established by the Peer Review Board of the American Institute of Certified Public Accountants (Standards). A summary of the nature, objectives, scope, limitations of, and the procedures performed in a System Review as described in the Standards may be found at www.aicpa.org/prsummary. The summary also includes an explanation of how engagements identified as not performed or reported in conformity with applicable professional standards, if any, are evaluated by a peer reviewer to determine a peer review rating. Firm’s Responsibility The firm is responsible for designing a system of quality control and complying with it to provide the firm with reasonable assurance of performing and reporting in conformity with applicable professional standards in all material respects. The firm is also responsible for evaluating actions to promptly remediate engagements deemed as not performed or reported in conformity with professional standards, when appropriate, and for remediating weaknesses in its system of quality control, if any. Peer Reviewer’s Responsibility Our responsibility is to express an opinion on the design of the system of quality control and the firm’s compliance therewith based on our review. Required Selections and Considerations Engagements selected for review included engagements performed under Government Auditing Standards, including a compliance audit under the Single Audit Act; audits of employee benefit plans, an audit performed under FDICIA and an examination of a SOC 2 service organization. As a part of our peer review, we considered reviews by regulatory entities as communicated by the firm, if applicable, in determining the nature and extent of our procedures. Opinion In our opinion, the system of quality control for the accounting and auditing practice of Abdo, Eick & Meyers, LLP in effect for the year ended May 31, 2017, has been suitably designed and complied with to provide the firm with reasonable assurance of performing and reporting in conformity with applicable professional standards in all material respects. Firms can receive a rating of pass ,pass with deficiency(ies) or fail. Abdo, Eick & Meyers, LLP has received a peer review rating of pass. Brady Martz and Associates, P.C. Appendix C Appendix D City of Sample City, Minnesota For the Year Ended December 31, 20xx Management Communication Sample Date Management, Honorable Mayor and City Council City of Sample, Minnesota We have audited the financial statements the governmental activities, the business-type activities, the discretely presented component units, each major fund and the aggregate remaining fund information of the City of Sample, Minnesota (the City) for the year ended December 31, 20xx. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards, Government Auditing Standards, as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated October 3, 20xx. Professional standards also require that we communicate the following information related to our audit. Our Responsibility under Auditing Standards Generally Accepted in the United States of America Government Auditing Standards As stated in our engagement letter, our responsibility, as described by professional standards, is to express opinions about whether the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with accounting principles generally accepted in the United States of America. Our audit of the financial statements does not relieve you or management of your responsibilities. Our responsibility is to plan and perform the audit to obtain reasonable, but not absolute, assurance that the financial statements are free of material misstatement. As part of our audit, we considered the internal control over financial reporting (internal control) of the City. Such considerations were solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. We are responsible for communicating significant matters related to the audit that are, in our professional judgment, relevant to your responsibilities in overseeing the financial reporting process. However, we are not required to design procedures specifically to identify such matters. Significant Audit Findings In planning and performing our audit of the financial statements, we considered the City'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. 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. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 2 Sample Compliance and Other Matters As part of obtaining reasonable assurance about whether the City’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters 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. While our audit provides a reasonable basis for our opinion, it does not provide a legal determination on the City’s compliance with those requirements. The results of our tests disclosed one instance of noncompliance or other matters that is required to be reported in accordance with Government Auditing Standards or Minnesota statutes. 2018-001 Internal Control Procedures Condition: During our audit we noted internal control procedures that were not in compliance with Minnesota Statutes. The Liquor Stores were making inventory transfers from one store to another. Criteria: Providing alcohol beverages to other retail locations is considered a sale for resale in violation of Minnesota Statute Chapter 340A.415 and 340A.505. Providing the product to other retail locations would also be considered an unlicensed wholesale transaction under the provision of Minnesota Statute 340A.301. Cause: City staff are not abiding by Minnesota Statutes as noted above. Effect: The City liquor operations are in violation of the statutes noted above. Recommendation: We recommend the City follow Minnesota Statutes by not making any transfers from one liquor store to the other. Management Response: Management plans to follow the recommendations described above. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City are described in Note 1 to the financial statements. The City changed accounting policies during 20xx related to accounting and financial reporting for other postemployment benefits (GASB 75). We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. 3 Sample Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s knowledge and experience about past and current events and assumption about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the financial statements include depreciation on capital assets, allocation of wage expenses, liability for the City’s pension, and the liability for the City’s other postemployment benefits (OPEB). •Management’s estimate of depreciation is based on estimated useful lives of the assets. Depreciation is calculated using the straight-line method. •Allocations of gross wages and payroll benefits are approved by the City Council within the City’s budget and are derived from each employee’s estimated time to be spent serving in the respective function of the City. These allocations are also used in allocating accrued compensated absences payable. •Management’s estimate of its pension liability is based on several factors including, but not limited to, anticipated investment return rate, retirement age for active employees, life expectancy, salary increases and form of annuity payment upon retirement. •Management’s estimate of its OPEB liability is based on several factors including, but not limited to, anticipated retirement age for active employees, life expectance, turnover, and healthcare cost trend rates. We evaluated the key factors and assumptions used to develop these estimates in determining that they are reasonable in relation to the financial statements as a whole. The disclosures in the financial statements are neutral, consistent, and clear. Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. In addition, none of the misstatements detected as a result of audit procedures and corrected by management were material, either individually or in the aggregate, to the financial statements taken as a whole. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor’s report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated May 30, 20xx. Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting principle to the City’s financial statements or a determination of the type of auditor’s opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. 4 Sample Other Matters We applied certain limited procedures to the required supplementary information (RSI) (Management’s Discussion and Analysis, the Schedules of Employer’s Share of the Net Pension Liability, the Schedules of Employer’s Contributions and the Schedule of Changes in the City's OPEB Liability and Related Ratios), which is information that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding 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 did not audit the RSI and do not express an opinion or provide any assurance on the RSI. We were engaged to report on the supplementary information (combining and individual fund financial statements and schedules), which accompany the financial statements but are not RSI. With respect to this supplementary information, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. We were not engaged to report on the introductory or statistical sections, which accompany the financial statements but are not RSI. We did not audit or perform other procedures on this other information and we do not express an opinion or provide any assurance on them. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the City’s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. 5 Sample Future Accounting Standard Changes The following Governmental Accounting Standards Board (GASB) Statements have been issued and may have an impact on future City financial statements: (1) GASB Statement No. 83 - Certain Asset Retirement Obligations Summary This Statement addresses accounting and financial reporting for certain asset retirement obligations (AROs). An ARO is a legally enforceable liability associated with the retirement of a tangible capital asset. A government that has legal obligations to perform future asset retirement activities related to its tangible capital assets should recognize a liability based on the guidance in this Statement. This Statement establishes criteria for determining the timing and pattern of recognition of a liability and a corresponding deferred outflow of resources for AROs. This Statement requires that recognition occur when the liability is both incurred and reasonably estimable. The determination of when the liability is incurred should be based on the occurrence of external laws, regulations, contracts, or court judgments, together with the occurrence of an internal event that obligates a government to perform asset retirement activities. Laws and regulations may require governments to take specific actions to retire certain tangible capital assets at the end of the useful lives of those capital assets, such as decommissioning nuclear reactors and dismantling and removing sewage treatment plants. Other obligations to retire tangible capital assets may arise from contracts or court judgments. Internal obligating events include the occurrence of contamination, placing into operation a tangible capital asset that is required to be retired, abandoning a tangible capital asset before it is placed into operation, or acquiring a tangible capital asset that has an existing ARO. This Statement requires the measurement of an ARO to be based on the best estimate of the current value of outlays expected to be incurred. The best estimate should include probability weighting of all potential outcomes, when such information is available or can be obtained at reasonable cost. If probability weighting is not feasible at reasonable cost, the most likely amount should be used. This Statement requires that a deferred outflow of resources associated with an ARO be measured at the amount of the corresponding liability upon initial measurement. This Statement requires the current value of a government's AROs to be adjusted for the effects of general inflation or deflation at least annually. In addition, it requires a government to evaluate all relevant factors at least annually to determine whether the effects of one or more of the factors are expected to significantly change the estimated asset retirement outlays. A government should remeasure an ARO only when the result of the evaluation indicates there is a significant change in the estimated outlays. The deferred outflows of resources should be reduced and recognized as outflows of resources (for example, as an expense) in a systematic and rational manner over the estimated useful life of the tangible capital asset. A government may have a minority share (less than 50 percent) of ownership interest in a jointly owned tangible capital asset in which a nongovernmental entity is the majority owner and reports its ARO in accordance with the guidance of another recognized accounting standards setter. Additionally, a government may have a minority share of ownership interest in a jointly owned tangible capital asset in which no joint owner has a majority ownership, and a nongovernmental joint owner that has operational responsibility for the jointly owned tangible capital asset reports the associated ARO in accordance with the guidance of another recognized accounting standards setter. In both situations, the government's minority share of an ARO should be reported using the measurement produced by the nongovernmental majority owner or the nongovernmental minority owner that has operational responsibility, without adjustment to conform to the liability measurement and recognition requirements of this Statement. In some cases, governments are legally required to provide funding or other financial assurance for their performance of asset retirement activities. This Statement requires disclosure of how those funding and assurance requirements are being met by a government, as well as the amount of any assets restricted for payment of the government's AROs, if not separately displayed in the financial statements. This Statement also requires disclosure of information about the nature of a government's AROs, the methods and assumptions used for the estimates of the liabilities, and the estimated remaining useful life of the associated tangible capital assets. If an ARO (or portions thereof) has been incurred by a government but is not yet recognized because it is not reasonably estimable, the government is required to disclose that fact and the reasons therefor. This Statement requires similar disclosures for a government's minority shares of AROs. 6 Sample Future Accounting Standard Changes (Continued) Effective Date The requirements of this Statement are effective for reporting periods beginning after June 15, 2018. Earlier application is encouraged. How the Changes in This Statement Will Improve Financial Reporting This Statement will enhance comparability of financial statements among governments by establishing uniform criteria for governments to recognize and measure certain AROs, including obligations that may not have been previously reported. This Statement also will enhance the decision-usefulness of the information provided to financial statement users by requiring disclosures related to those AROs. GASB Statement No. 84 - Fiduciary Activities Summary The objective of this Statement is to improve guidance regarding the identification of fiduciary activities for accounting and financial reporting purposes and how those activities should be reported. This Statement establishes criteria for identifying fiduciary activities of all state and local governments. The focus of the criteria generally is on (1) whether a government is controlling the assets of the fiduciary activity and (2) the beneficiaries with whom a fiduciary relationship exists. Separate criteria are included to identify fiduciary component units and postemployment benefit arrangements that are fiduciary activities. An activity meeting the criteria should be reported in a fiduciary fund in the basic financial statements. Governments with activities meeting the criteria should present a statement of fiduciary net position and a statement of changes in fiduciary net position. An exception to that requirement is provided for a business-type activity that normally expects to hold custodial assets for three months or less. This Statement describes four fiduciary funds that should be reported, if applicable: (1) pension (and other employee benefit) trust funds, (2) investment trust funds, (3) private-purpose trust funds, and (4) custodial funds. Custodial funds generally should report fiduciary activities that are not held in a trust or equivalent arrangement that meets specific criteria. A fiduciary component unit, when reported in the fiduciary fund financial statements of a primary government, should combine its information with its component units that are fiduciary component units and aggregate that combined information with the primary government’s fiduciary funds. This Statement also provides for recognition of a liability to the beneficiaries in a fiduciary fund when an event has occurred that compels the government to disburse fiduciary resources. Events that compel a government to disburse fiduciary resources occur when a demand for the resources has been made or when no further action, approval, or condition is required to be taken or met by the beneficiary to release the assets. Effective Date The requirements of this Statement are effective for reporting periods beginning after December 15, 2018. Earlier application is encouraged. How the Changes in This Statement Will Improve Financial Reporting The requirements of this Statement will enhance consistency and comparability by (1) establishing specific criteria for identifying activities that should be reported as fiduciary activities and (2) clarifying whether and how business-type activities should report their fiduciary activities. Greater consistency and comparability enhances the value provided by the information reported in financial statements for assessing government accountability and stewardship. 7 Sample Future Accounting Standard Changes (Continued) GASB Statement No. 87 - Leases Summary The objective of this Statement is to better meet the information needs of financial statement users by improving accounting and financial reporting for leases by governments. This Statement increases the usefulness of governments’ financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments’ leasing activities. Effective Date and Transition The requirements of this Statement are effective for reporting periods beginning after December 15, 2019. Earlier application is encouraged. Leases should be recognized and measured using the facts and circumstances that exist at the beginning of the period of implementation (or, if applied to earlier periods, the beginning of the earliest period restated). However, lessors should not restate the assets underlying their existing sales-type or direct financing leases. Any residual assets for those leases become the carrying values of the underlying assets. How the Changes in This Statement Will Improve Accounting and Financial Reporting This Statement will increase the usefulness of governments’ financial statements by requiring reporting of certain lease liabilities that currently are not reported. It will enhance comparability of financial statements among governments by requiring lessees and lessors to report leases under a single model. This Statement also will enhance the decision- usefulness of the information provided to financial statement users by requiring notes to financial statements related to the timing, significance, and purpose of a government’s leasing arrangements. GASB Statement No. 88 - Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements Summary The primary objective of this Statement is to improve the information that is disclosed in notes to government financial statements related to debt, including direct borrowings and direct placements. It also clarifies which liabilities governments should include when disclosing information related to debt. This Statement defines debt for purposes of disclosure in notes to financial statements as a liability that arises from a contractual obligation to pay cash (or other assets that may be used in lieu of cash) in one or more payments to settle an amount that is fixed at the date the contractual obligation is established. This Statement requires that additional essential information related to debt be disclosed in notes to financial statements, including unused lines of credit; assets pledged as collateral for the debt; and terms specified in debt agreements related to significant events of default with finance-related consequences, significant termination events with finance-related consequences, and significant subjective acceleration clauses. For notes to financial statements related to debt, this Statement also requires that existing and additional information be provided for direct borrowings and direct placements of debt separately from other debt. Effective Date and Transition The requirements of this Statement are effective for reporting periods beginning after June 15, 2018. Earlier application is encouraged. 8 Sample Future Accounting Standard Changes (Continued) How the Changes in This Statement Will Improve Accounting and Financial Reporting The requirements of this Statement will improve financial reporting by providing users of financial statements with essential information that currently is not consistently provided. In addition, information about resources to liquidate debt and the risks associated with changes in terms associated with debt will be disclosed. As a result, users will have better information to understand the effects of debt on a government’s future resource flows. GASB Statement No. 89 - Accounting for Interest Cost Incurred before the End of a Construction Period Summary The objectives of this Statement are (1) to enhance the relevance and comparability of information about capital assets and the cost of borrowing for a reporting period and (2) to simplify accounting for interest cost incurred before the end of a construction period. This Statement establishes accounting requirements for interest cost incurred before the end of a construction period. Such interest cost includes all interest that previously was accounted for in accordance with the requirements of paragraphs 5–22 of Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre- November 30, 1989 FASB and AICPA Pronouncements, which are superseded by this Statement. This Statement requires that interest cost incurred before the end of a construction period be recognized as an expense in the period in which the cost is incurred for financial statements prepared using the economic resources measurement focus. As a result, interest cost incurred before the end of a construction period will not be included in the historical cost of a capital asset reported in a business-type activity or enterprise fund. This Statement also reiterates that in financial statements prepared using the current financial resources measurement focus, interest cost incurred before the end of a construction period should be recognized as an expenditure on a basis consistent with governmental fund accounting principles. Effective Date and Transition The requirements of this Statement are effective for reporting periods beginning after December 15, 2019. Earlier application is encouraged. The requirements of this Statement should be applied prospectively. How the Changes in This Statement Will Improve Accounting and Financial Reporting The requirements of this Statement will improve financial reporting by providing users of financial statements with more relevant information about capital assets and the cost of borrowing for a reporting period. The resulting information also will enhance the comparability of information about capital assets and the cost of borrowing for a reporting period for both governmental activities and business-type activities. GASB Statement No. 90 - Majority Equity Interests Summary The primary objectives of this Statement are to improve the consistency and comparability of reporting a government’s majority equity interest in a legally separate organization and to improve the relevance of financial statement information for certain component units. It defines a majority equity interest and specifies that a majority equity interest in a legally separate organization should be reported as an investment if a government’s holding of the equity interest meets the definition of an investment. A majority equity interest that meets the definition of an investment should be measured using the equity method, unless it is held by a special-purpose government engaged only in fiduciary activities, a fiduciary fund, or an endowment (including permanent and term endowments) or permanent fund. Those governments and funds should measure the majority equity interest at fair value. For all other holdings of a majority equity interest in a legally separate organization, a government should report the legally separate organization as a component unit, and the government or fund that holds the equity interest should report an asset related to the majority equity interest using the equity method. This Statement establishes that ownership of a majority equity interest in a legally separate organization results in the government being financially accountable for the legally separate organization and, therefore, the government should report that organization as a component unit. 9 Sample Future Accounting Standard Changes (Continued) This Statement also requires that a component unit in which a government has a 100 percent equity interest account for its assets, deferred outflows of resources, liabilities, and deferred inflows of resources at acquisition value at the date the government acquired a 100 percent equity interest in the component unit. Transactions presented in flows statements of the component unit in that circumstance should include only transactions that occurred subsequent to the acquisition. Effective Date and Transition The requirements of this Statement are effective for reporting periods beginning after December 15, 2018. Earlier application is encouraged. The requirements should be applied retroactively, except for the provisions related to (1) reporting a majority equity interest in a component unit and (2) reporting a component unit if the government acquires a 100 percent equity interest. Those provisions should be applied on a prospective basis. How the Changes in This Statement Will Improve Accounting and Financial Reporting The requirements of this Statement will improve financial reporting by providing users of financial statements with essential information related to presentation of majority equity interests in legally separate organizations that previously was reported inconsistently. In addition, requiring reporting of information about component units if the government acquires a 100 percent equity interest provides information about the cost of services to be provided by the component unit in relation to the consideration provided to acquire the component unit. (1)Note. From GASB Pronouncements Summaries. Copyright 2018 by the Financial Accounting Foundation, 401 Merritt 7, Norwalk, CT 06856, USA, and is reproduced with permission. * * * * * Restriction on Use This communication is intended solely for the information and use of the City Council, management and the Minnesota Office of the State Auditor and is not intended and should not be used by anyone other than those specified parties. Our audit would not necessarily disclose all weaknesses in the system because it was based on selected tests of the accounting records and related data. The comments and recommendations in the report are purely constructive in nature, and should be read in this context. If you have any questions or wish to discuss any of the items contained in this letter, please feel free to contact us at your convenience. We wish to thank you for the continued opportunity to be of service and for the courtesy and cooperation extended to us by your staff. ABDO, EICK & MEYERS, LLP Minneapolis, Minnesota May 30, 20xx 10 Sample City of Sample 20xx Financial Statement Audit Sample Introduction Audit Opinion and Responsibility General Fund Results Other Governmental Funds Enterprise Funds Ratios 2 Sample Audit Results Auditor’s Opinion Minnesota Legal Compliance 3 Sample Audit Results 2018 Audit Findings •Legal Compliance Finding Liquor Store Transfers 4 Sample General Fund - Fund Balances 50.0%49.4%49.1%51.3%49.4% $12,932,561 $13,406,613 $13,768,216 $14,160,066 $14,456,520 $15,581,996 35%35%35%35%35% $- $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 $12,000,000 $14,000,000 $16,000,000 $18,000,000 2014 2015 2016 2017 2018 2019 Unassigned Fund Balance Budget Fund Balance Policy 5 Sample General Fund Budget to Actual Actual Variance with Original Final Amounts Final Budget Revenues 14,255,020$ 14,400,314$ 15,454,557$ 1,054,243$ Expenditures 14,456,520 14,943,984 14,706,435 237,549 Excess of Revenues Over Expenditures (201,500) (543,670) 748,122 1,291,792 Other Financing Sources (Uses) Sale of capital assets 1,500 1,500 2,040 540 Transfers in 200,000 338,000 338,000 - Transfers out - - (740,000) (740,000) Net Change in Fund Balances - (204,170) 348,162 552,332 Fund Balances, January 1 7,452,744 7,452,744 7,452,744 - Fund Balances, December 31 7,452,744$ 7,248,574$ 7,800,906$ 552,332$ Budgeted Amounts 6 Sample General Fund Revenues by Type $- $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 $12,000,000 $14,000,000 Taxes Licenses and Permits Intergovernmental Charges for services Other 2016 2017 2018 7 Sample General Fund Expenditures by Type $- $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 $8,000,000 General government Public safety Culture and recreation Public works Other 2016 2017 2018 8 Sample Capital Projects Fund Balances $(6,000,000) $(4,000,000) $(2,000,000) $- $2,000,000 $4,000,000 $6,000,000 $8,000,000 Nonspendable Restricted Assigned Unassigned 2016 2017 2018 9 Sample Special Revenue Fund Balances $(1,000,000) $(500,000) $- $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 Nonspendable Restricted Committed Unassigned 2016 2017 2018 10 Sample Debt Service Funds Total Total Bonds Year of Cash Assets Outstanding Maturity General Obligation Bonds 2006C/2017B Recreation Refunding 408,866$ 412,285$ 1,245,000$ 02/01/2022 2009A G.O. Street Reconstruction/CIP 469,381 524,214 2,275,000 02/01/2025 2010A G.O. Build America Bonds 829,642 881,953 2,505,000 02/01/2026 2010D Improvement and Refunding 558,582 1,243,134 695,000 03/01/2019 2011A G.O. Street Reconstruction/CIP 615,928 734,074 2,990,000 02/01/2027 2012A G.O. Bonds 100,502 361,411 2,440,000 02/01/2028 2013A G.O. Bonds 554,932 781,658 3,565,000 02/01/2029 2013B G.O Refunding 413,227 525,717 248,000 02/01/2021 2014A G.O. Bonds 667,833 773,884 2,345,000 02/01/2030 2014B Advance Refunding 925,313 925,313 4,890,000 02/01/2027 2015A G.O. Obligation 636,157 900,503 3,450,000 02/01/2031 2015B Crossover Refunding 617,699 725,401 1,800,000 02/01/2022 2016A G.O. Street Improvement 389,273 422,562 3,045,000 02/01/2032 2017A G.O. Street Improvement 647,838 1,741,101 3,095,000 02/01/2033 2018A G.O. Street Improvement 435,797 435,797 3,200,000 02/01/2034 2018B G.O. Refunding (2007B/2008A)250,863 378,019 1,220,000 02/01/2024 Capital lease 29,338 29,338 1,385,000 02/01/2029 Debt Service Revolving Fund 802,536 2,407,528 - Total Debt Service funds 9,353,707$ 14,203,892$ 40,393,000$ Total Remaining Interest Payments 7,423,721$ Debt Description 11 Sample Debt Service Funds $- $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Principal Interest 12 Sample Water and Sewer Fund - Cash Flows from Operations and Cash Balances $- $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 2015 2015 2016 2016 2017 2017 2018 2018 Operating costs Debt payments Operating receipts $8,328,601 $7,240,177 $7,936,293 $6,685,909 $- $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 $8,000,000 $9,000,000 2015 2016 2017 2018 Unrestricted Cash Minimum target balance (six months of operating costs plus debt service) 13 Sample Storm Water Fund - Cash Flows from Operations and Cash Balances $- $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $1,600,000 $1,800,000 $2,000,000 2015 2015 2016 2016 2017 2017 2018 2018 Operating receipts Debt payments (including related transfers)Operating costs $5,815,470 $5,750,497 $5,016,037 $5,405,770 $- $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 2015 2016 2017 2018 Unrestricted Cash Minimum target balance (six months of operating costs plus debt service) 14 Sample Municipal Liquor Store Fund - Change in Net Position and Cash Balances Total Total Total Sales 3,719,308$ 100.0 %4,794,923$ 100.0 %5,239,748$ 100.0 % Cost of Sales 2,873,784 77.3 3,710,540 77.4 4,105,625 78.4 Gross Profit 845,524 22.7 1,084,383 22.6 1,134,123 21.6 Other Revenue 84,426 2.3 92,865 1.9 101,532 1.9 Operating Expenses (994,530) (26.7) (1,171,384) (24.4) (1,080,836) (20.6) Operating Income (Loss)(64,580) (1.7) 5,864 0.1 154,819 2.9 Nonoperating Revenues 368 - - - - - Nonoperating Expenses (41,963) (1.5) (79,333) (2.1) (12,658) (0.3) Change in Net Position (106,175)$ (3.2) %(73,469)$ (2.0) %142,161$ 2.6 % Cash Balance (55,892)$ (408,095)$ (293,021)$ 2016 2017 2018 Percent Percent Percent 15 Sample Municipal Liquor Store Fund - Comparative Analysis of Operations and Cash Balances Sales 100.0 %100.0 %100.0 % Cost of Sales 74.3 75.6 75.9 Gross Profit 25.7 24.4 24.1 Operating Expenses 17.6 26.1 24.0 Operating Income 8.1 (1.7) 0.1 Nonoperating Revenue (Expense)- (1) (1.6) Income Before Transfers 8.1 %(2.8) %(1.5) % Source: Analysis of Municipal Liquor Store Operations, for the year ended December 31, 2017. Published by the Minnesota Office of the State Auditor of Sales of Sales of Sales 2015 2016 2017 Percent Percent Percent Off Sale Only Stores $(73,707)$(55,892) $(408,095) $(293,021) $(450,000) $(400,000) $(350,000) $(300,000) $(250,000) $(200,000) $(150,000) $(100,000) $(50,000) $- 2015 2016 2017 2018 Cash Balances 16 Sample Street Light Fund - Cash Flows from Operations and Cash Balances $- $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000 $500,000 2015 2015 2016 2016 2017 2017 2018 2018 Operating costs Operating receipts $295,016 $332,206 $328,891 $319,692 $- $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 2015 2016 2017 2018 Unrestricted Cash Minimum target balance (six months of operating costs) 17 Sample Sports Center Fund - Cash Flows from Operations and Cash Balances $- $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 $900,000 $1,000,000 2015 2015 2016 2016 2017 2017 2018 2018 Operating costs Debt payments (including related transfers)Operating receipts $128,597 $1,454 $4,050 $966 $(10,000) $10,000 $30,000 $50,000 $70,000 $90,000 $110,000 $130,000 $150,000 2015 2016 2017 2018 Unrestricted Cash Minimum target balance (six months of operating costs and debt service) 18 Sample Cash and Investments Balances by Fund Type $48,179,243 $44,146,081 $43,520,280 $- $10,000,000 $20,000,000 $30,000,000 $40,000,000 $50,000,000 $60,000,000 2016 2017 2018 General Fund Capital Projects Funds Special Revenue Funds Debt Service Funds Enterprise Funds Internal Service Fund 19 Sample Key Ratios 2015 2016 2017 2018 43.5%44.0%43.9%N/A 55.2%55.5%55.0%N/A 51.7%49.9%47.8%47.1% 0.0% Class 2 Cities Cities in County City of Sample 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% Tax Rates 2015 2016 2017 2018 $502 $519 $542 N/A $527 $536 $559 N/A $560 $559 $565 $567 $- Class 2 Cities Cities in County City of Sample $100 $200 $300 $400 $500 $600 Taxes Per Capita 20 Sample Key Ratios 2015 2016 2017 2018 $1,148 $1,233 $1,208 N/A $2,192 $2,194 $1,978 N/A $2,505 $2,065 $1,952 $1,725 $- Class 2 Cities Cities in County City of Sample $500 $1,000 $1,500 $2,000 $2,500 $3,000 Debt Per Capita 21 Sample Key Ratios 2015 2016 2017 2018 $631 $638 $666 N/A $506 $510 $544 N/A $431 $458 $466 $483 $- Class 2 Cities Cities in County City of Sample $100 $200 $300 $400 $500 $600 $700 Current Expenditures Per Capita 2015 2016 2017 2018 $288 $287 $269 N/A $319 $461 $313 N/A $244 $412 $319 $282 $- Class 2 Cities Cities in County City of Sample $50 $100 $150 $200 $250 $300 $350 $400 $450 $500 Capital Expenditures Per Capita 22 Sample Key Ratios General Government Public Safety Public Works Culture and Recreation Community Development Capital Outlay Transfers Out $106 $280 $103 $97 $40 $269 $123 $131 $232 $81 $79 $17 $313 $211 2017 Class 2 Cities 2017 Cities in County City of Sample $91 $217 $82 $60 $33 $282 $117 $- $50 $100 $150 $200 $250 $300 $350 Expenditures by Program Per Capita Taxes Special Assessments Licenses and Permits Inter- governmental Charges for Services Fines and Forfeitures Interest on Investments Miscellaneous Transfers In $542 $55 $45 $150 $111 $8 $12 $26 $144 $559 $53 $41 $113 $92 $5 $7 $43 $224 2017 Class 2 Cities 2017 Cities in County City of Sample $567 $41 $38 $66 $36 $4 $12 $34 $134 $- $100 $200 $300 $400 $500 $600 Per Capita Revenues by Source 23 Sample Questions? 24 Sample