9.a) Financial Statements and Supplementary Information-Year Ended December 31, 2012 CITY OF SCANDIA, MINNESOTA
FINANCIAL STATEMENTS AND
SUPPLEMENTARY INFORMATION
YEAR ENDED DECEMBER 31, 2012
City of Scandia
14727 209th Street North
Scandia, Minnesota 55073
.
CITY OF SCANDIA, MINNESOTA
TABLE OF CONTENTS
YEAR ENDED DECEMBER 31, 2012
I. INTRODUCTORY SECTION
Elected and Appointed Officials
II. FINANCIAL SECTION
Independent Auditors' Report 1
REQUIRED SUPPLEMENTARY INFORMATION
Management's Discussion and Analysis 4
Basic Financial Statements
Statement of Net Position 14
Statement of Activities 15
Balance Sheet—Governmental Funds 17
Reconciliation of the Governmental Funds Balance Sheet to the Statement of
Net Position —Governmental Activities 18
Statement of Revenues, Expenditures, and Changes in Fund Balance—
Governmental Funds 19
Reconciliation of the Governmental Funds Statement of Revenues,
Expenditures, and Changes in Fund Balance to the Statement of Activities—
Governmental Activities 20
Statement of Net Position — Proprietary Funds 21
Statement of Revenues, Expenses, and Changes in Net Position — Proprietary
Funds 22
Statement of Cash Flows— Proprietary Funds 23
Statement of Net Position — Fiduciary Fund 24
Notes to Basic Financial Statements 25
Required Supplementary Information — Budgetary Comparison Information
Schedule of Revenues, Expenditures and Changes in Fund Balance— Budget
and Actual — General Fund 44
Notes to Required Supplementary Information 46
Combining Fund Financial Statements
Combining Balance Sheet— Nonmajor Governmental Funds 47
Combining Statement of Revenues, Expenditures and Changes in Fund
Balance— Nonmajor Governmental Funds 48
Statement of Changes in Assets and Liabilities— Fiduciary Funds 49
CITY OF SCANDIA, MINNESOTA
TABLE OF CONTENTS (CONTINUED)
YEAR ENDED DECEMBER 31, 2012
Iil. OTHER REQUIRED REPORTS
Independent Auditors' Report on Minnesota Legal Compliance 50
Independent Auditors' Report on Internal Control Over Financial Reporting and on
Copliance and Other Matters Based on an Audit of Financial Statements Performed
in Accordance with Government Auditing Standards 51
I.
INTRODUCTORY
SECTION
CITY OF SCANDIA, MINNESOTA
ELECTED AND APPOINTED OFFICIALS
DECEMBER 31, 2012
Elected Position
Randall Simonson Mayor
Connie Amos Council Member
Chris Ness Council Member
Sally Swanson Council Member
Jim Schnieder Council Member
Appointed
Kristina Handt Clerk
Colleen Firkus Treasurer
n.
FINANCIAL
SECTION
�. (�iftonLarsa�Allen LLP
� www_diftonlarsonallen.00m
CliftonLarsonAllen
INDEPENDENT AUDITORS' REPORT
Honorable Mayor and
Members of the City Council and Citizens
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, 2012, 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 Responsibilify 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.
Auditors'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 assurances 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 auditors' 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 entity's
preparation and fair presentation of the financial statemens 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
evalutating 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.
� a���aew�M�,rte�or rkx�iMe�o��ai ���
INTERNATIONAL
Honorable Mayor and
Members of the City Council and Citizens
City of Scandia, Minnesota
Opinions
In our opinions, 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, as of December 31, 2012, and the
respective changes in financial position and, where applicable, cash flows thereof for the year then
ended in conformity with accounting principles generally accepted in the United States of America.
Other Matters
Required Supplemenfary Information
Accounting principles generally accepted in the United States of America require that the
management's discussion and analysis and budgetary comparison information, as listed in the table of
contents, be presented to supplement the basic financial statements. Such information, although not a
part of the basic financial statements, is required by the Governmental Accounting Standards Board,
who considers it to be an essential part of financial reporting for placing the basic financial statements
in an appropriate operational, economic, or historical context. We have applied certain limited
procedures to the required supplementary information in accordance with auditing standards generally
accepted in the United States of America, which consisted of inquiries of management about the
methods of preparing the information and comparing the information for consistency with
managemenYs responses to our inquiries, the basic financial statements, and other knowledge we
obtained during our audit of the basic financial statements. We do not express an opinion or provide
any assurance on the information because the limited procedures do not provide us with sufficient
evidence to express an opinion or provide any assurance.
Other 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 combining fund financial statements are
presented for purposes of additional analysis and are not a required part of the basic financial
statements.
The combining fund financial statements are the responsibility of management and were derived from
and relate directly to the underlying accounting and other records used to prepare the financial
statements. Such information has been subjected to the auditing procedures applied in the audit of the
basic financial statements and certain additional procedures, including comparing and reconciling such
information directly to the underlying accounting and other records used to prepare the financial
statements or to the financial statements themselves, and other additional procedures in accordance
with auditing standards generally accepted in the United States of America. In our opinion, the
information is fairly stated in all material respects in relation to the basic financial statements taken as a
whole.
(2)
Honorable Mayor and
Members of the City Council and Citizens
City of Scandia, Minnesota
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated May 6,
2013, on our consideration of the City's internal control over financial reporting and on our tests of its
compliance with certain provisions of laws, regulations, contracts, and grant agreements and other
matters. The purpose of that report is to describe the scope of our testing of internal control over
financial reporting and compliance and the result of that testing, and not to provide an opinion on
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's internal control
over financial reporting and compliance.
LL.�
CliftonLarsonAllen LLP
Minneapolis, Minnesota
May 6, 2013
(3)
REQUIRED SUPPLEMENTARY INFORMATION
CITY OF SCANDIA, MINNESOTA
MANAGEMENT'S DISCUSSION AND ANALYSIS
YEAR ENDED DECEMBER 31, 2012
As management of the City, we offer readers of the City's financial statements this narrative overview
and analysis of the financial activities of the City for the fiscal year ended December 31, 2012.
Financial Highlights
o The City's net position of its governmental activities increased by $65,348 during the year to
$10,314,870 at year-end.
o The total fund balance of the General Fund increased by $75,877 during the year to $1,329,553
at year-end.
o The net position of the City's business-type activities (201 Sewer and Uptown Sewer Enterprise
Funds) increased by $113,137 during the year to $1,143,439.
Overview of the Financial Statements
This discussion and analysis is intended to serve as an introduction to the City's basic financial
statements. The City's basic financial statements comprise three components: 1) government-wide
financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report
also contains other supplementary information in addition to the basic financial statements.
Government-Wide Financial Statements
The government-wide financial statements are designed to provide readers with a broad overview of
the City's finances, in a manner similar to a private-sector business.
The statement of net position presents information on all of the City's assets and liabilities, with the
difference between the two reported as net position. Over time, increases or decreases in net position
may serve as a useful indicator of whether the financial position of the City is improving or deteriorating.
The statement of activities presents information showing how the City's net position changed during the
most recent fiscal year. All changes in net position are reported as soon as the underlying event giving
rise to the change occurs, regardless of the fiming of related cash flows. Thus, revenues and expenses
are reported in this statement for some items that will only result in cash flows in future fiscal periods
(e.g., uncollected taxes and earned but unused vacation leave).
Both of the government-wide financial statements distinguish functions of the City that are principally
supported by taxes and intergovernmental revenues (governmental activities) from other functions that
are intended to recover all or a significant portion of their costs through user fees and charges
(business-type activities). The governmental activities of the City include general government, public
safety, public works, parks and recreation, and other. The only business-type activities of the City are
the sewer operations.
The government-wide financial statements can be found on pages 14-16 of this report.
(4)
CITY OF SCANDIA, MINNESOTA
MANAGEMENT'S DISCUSSION AND ANALYSIS
YEAR ENDED DECEMBER 31, 2012
Fund Financial Statements
A fund is a grouping of related accounts that is used to maintain control over resources that have been
segregated for specific activities or objectives. The City, like other state and local governments, uses
fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of
the funds of the City can be divided into two categories: governmental funds and proprietary funds.
Governmental Funds. Governmental funds are used to account for essentially the same functions
reported as governmental activities in the government-wide financial statements. However, unlike the
government-wide financial statements, governmental fund financial statements focus on near-term
inflows and outflows of spendab/e resources, as well as on balances of spendable resources available
at the end of the fiscal year. Such information may be useful in evaluating a government's near-term
financing requirements.
Because the focus of governmental funds is narrower than that of the government-wide financial
statements, it is useful to compare the information presented for governmental funds with similar
information presented for governmenfal activities in the government-wide financial statements. By doing
so, readers may better understand the long-term impact by the government's near-term financing
decisions. Both the governmental fund balance sheet and the governmental fund statement of
revenues, expenditures and changes in fund balances provide a reconciliation to facilitate this
comparison between governmental funds and governmental activities.
The City maintains several individual governmental funds. Information is presented separately in the
governmental fund balance sheet and in the governmental fund statement of revenues, expenditures
and changes in fund balances for the General Fund, 2007 Improvement Bond Debt Service Fund, and
the Equipment Replacement Capital Project Fund. Data from the other governmental funds are
combined into a single, aggregated presentation. Individual fund data for each of these nonmajor
governmental funds is provided in the form of combining statements elsewhere in these financial
statements.
The City adopts an annual appropriated budget for its General Fund. A budgetary comparison
statement has been provided for the General Fund to demonstrate compliance with this budget.
The basic governmental fund financial statements can be found on pages 17-20 of this report.
Proprietary Funds. The proprietary funds are used to report the same functions presented as
business-type acfivities in the government-wide financial statements. The City uses enterprise funds to
account for its business-type activities.
Proprietary funds provide the same type of information as the government-wide financial statements,
only in more detail. The proprietary fund financial statements provide separate information for the 201
Sewer Enterprise and Uptown Sewer Funds, which are considered to be major funds of the City.
(5)
CITY OF SCANDIA, MINNESOTA
MANAGEMENT'S DISCUSSION AND ANALYSIS
YEAR ENDED DECEMBER 31, 2012
Fund Financial Statements (Continued)
Propriefary Funds (Continued)
The basic proprietary fund financial statements can be found on pages 21-23 of this report.
Notes to Financial Statements
The notes provide additional information that is essential to a full understanding of the data provided in
the government-wide and fund financial statements. The notes to financial statements can be found on
pages 25-43 of this report.
Other Information
The combining statements referred to earlier in connection with nonmajor governmental funds are
presented immediately following the notes to financial statements. Combining and individual fund
statements and schedules can be found on pages 47-48 of this report.
Government-Wide Financial Analysis
The City's financial statements are presented in accordance with the requirements of Governmental
Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements and
Managemenf's Discussion and Analysis-for Sfate and Local Governments. Comparative information is
included in these tables to highlight changes in financial position, shown in Exhibits 1-2.
The government-wide statements report the City's net position and how they have changed. Net
position, the difference befinreen the City's assets and liabilities, are one way to measure the City's
financial position. Over time, increases or decreases in the City's net position can be used as an
indicator of the City's financial position.
The City's financial position is the product of many factors. For example, the determination of the City's
investment in capital assets, net of related debt involves many assumptions and estimates, such as
current and accumulated depreciation amounts. A conservative versus a liberal approach to
depreciation estimates, as well as capitalization policies, will produce a very significant difference in the
calculated amounts. For these reasons, it is important to view the net position balance as a starting
point to evaluate future years' results, rather than to focus on the current balance.
(6)
CITY OF SCANDIA, MINNESOTA
MANAGEMENT'S DISCUSSION AND ANALYSIS
YEAR ENDED DECEMBER 31, 2012
EXHIBIT 1: CITY OF SCANDIA'S NET POSITION
Governmental Activities Business-Type Activities Totals
2012 2011 2012 2011 2012 2011
Current and OtherAssets $ 2,604,321 $ 2,632,021 $ 145,792 $ 219,098 $ 2,750,113 $ 2,851,119
CapitalAssets,Net 9,105,424 9,401,146 1,019,890 840,000 10,125,314 10,241,146
Total Assets 11,709,745 12,033,167 1,165,682 1,059,098 12,875,427 13,092,265
Current Liabilities 163,922 247,863 22,243 28,796 186,165 276,659
Long-Term Liabilities 1,230,953 1,535,782 - - 1,230,953 1,535,782
Total Liabilities 1,394,875 1,783,645 22,243 28,796 1,417,118 1,812,441
Net Position:
Net Investment in Capital Assets 7,889,487 7,884,454 1,019,890 840,000 8,909,377 8,724,454
Restricted for Debt Retirement 592,307 596,540 - - 592,307 596,540
Restricted for Road Maintenance 123,651 122,573 - - 123,651 122,573
Unrestricted 1,709,425 1,645,955 123,549 190,302 1,832,974 1,836,257
Total Net Position $ 10,314,870 $ 10,249,522 $ 1,143,439 $ 1,030,302 $ 11,458,309 $ 11,279,824
As noted earlier, net position may serve over time as a useful indicator of a government's financial
position. In the case of the City, assets exceeded liabilities by $11,458,308 at the close of the most
recent fiscal year. The largest portion of the City's net position (78%) reflects its investment in capital
assets (e.g., land, buildings, machinery and equipment), less any related debt used to acquire those
assets that are still outstanding. The City uses these capital assets to provide services to citizens:
consequently, these assets are nof available for future spending. Although the City's investment in its
capital assets is reported net of related debt, it should be noted that the resources needed to repay this
debt must be provided from other sources, since the capital assets themselves cannot be used to
liquidate these liabilities. The City's debt is repaid primarily through special assessments, property tax
levies for debt of governmental activities and user charges provide the financing for the debt of the
business-type activities.
An additional portion of the City's net position (6%) represents resources that are subject to external
restrictions on how they may be used. The remaining balance of unrestricted net position ($1,838,029)
may be used to meet the City's ongoing obligations to citizens and creditors.
(�)
CITY OF SCANDIA, MINNESOTA
MANAGEMENT'S DISCUSSION AND ANALYSIS
YEAR ENDED DECEMBER 31, 2012
EXHIBIT 2: CHANGES IN NET POSITION
Governmental Activities Business-Type Activities Totals
2012 2011 2012 2011 2012 2011
REVENUES
Proaram Revenues
Charges for Services $ 342,434 $ 357,179 $ 80,275 $ 66,203 $ 422,709 $ 423,382
Operating Grants and Contributions 25,381 44,380 - - 25,381 44,380
Capital Grants and Contributions 7,129 25,799 5,151 - 12,280 25,799
General Revenues
PropertyTaxes 2,073,163 1,921,044 - - 2,073,163 1,921,044
Grants and Contributions Not
Restricted for a Particular Purpose 18,918 9,330 - - 18,918 9,330
Other 10,878 16,973 723 1,205 11,601 18,178
Total Revenues 2,477,903 2,374,705 86,149 67,408 2,564,052 2,442,113
EXPENSES
General Government 736,560 687,731 - - 736,560 687,731
Public Safety 383,522 425,673 - - 383,522 425,673
Public Works 960,724 848,899 - - 960,724 848,899
Parks and Recreation 95,567 133,215 - - 95,567 133,215
Interest and Fiscal Charges 65,573 68,364 - - 65,573 68,364
Sewer - - 143,621 91,029 143,621 91,029
Total Expenses 2,241,946 2,163,882 143,621 91,029 2,385,567 2,254,911
TRANSFERS (170,609) 3,645 170,609 (3,645) - -
CHANGE IN NET POSITION 65,348 214,468 113,137 (27,266) 178,485 187,202
Net Position-Beginning of Year 10,249,522 10,035,054 1,030,302 1,057,568 11,279,824 11,092,622
NET POSITION-END OF YEAR $ 10,314,870 $ 10,249,522 $ 1,143,439 $ 1,030,302 $ 11,458,309 $ 11,279,824
Governmental Activities. Governmental activities increased the City's net position by $65,348.
Business-Type Activities. Business-type expenses (201 Sewer and Uptown Sewer Enterprise Funds)
increased the City's net position by $113,137.
(8)
CITY OF SCANDIA, MINNESOTA
MANAGEMENT'S DISCUSSION AND ANALYSIS
YEAR ENDED DECEMBER 31, 2012
The following is a graphical representation of the various sources of the City's governmental revenues
(excluding transfers) of$2,477,903:
Governmental Activities Revenue by Source 2012
■Fees,Charges,and
Other ■OperatingGrantsand
■OtherGeneralRevenue 14��0 ontributions
0% 1%
❑Capital Grantsand
Contributions
0%
o Grants andContributions
Not Restricted for a
Particular Purpose
■PropertyTaxes �o�a
84%
The following is a graphical representation of the various sources of the City's governmental expenses
of$2,241,947 and program revenues of$374,944:
Expenses and Program Revenues- Governmental Activities
$1,200,000
■Expenses
$1,000,000
■Program Revenues
$800,000
$600,000
$400,000
$200,000
$-
General Government Public Safety Public Works Parks and Interest and Fiscal
Recreation Charges
�9)
CITY OF SCANDIA, MINNESOTA
MANAGEMENT'S DISCUSSION AND ANALYSIS
YEAR ENDED DECEMBER 31, 2012
The following is a graphical representation of the various sources of the City's business-type revenues
of$86,149:
Business-Type Activities Revenue by Source 2012
Other
Grants&Contributions ��8%
6.0%
ChargesforServices
93.2%
The following is a graphical representation of the various sources of the City's business-type expenses
of$143,621 and program revenues of$85,426:
Expenses and Program Revenues-Business-Type Activities
$140,000
$120,000 �Expenses
� .
� " ` ■Program Revenues .
$100,000 � �
$80,000
�'
$60,000 ��: .::. �';
�
�O�000 f>
d ��;.
X �~id 1,
�Z���QD
_ �
.
W-
201 Sewer Uptown Sewer
(10)
CITY OF SCANDIA, MINNESOTA
MANAGEMENT'S DISCUSSION AND ANALYSIS
YEAR ENDED DECEMBER 31, 2012
Financial Analysis of the Government's Funds
As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-
related legal requirements.
Governmenfal Funds. The focus of the City's governmental funds is to provide information on near-
term inflows, outflows and balances of spendable resources. Such information is useful in assessing
the City's financing requirements. In particular, unassigned fund balance may serve as a useful
measure of a government's net resources available for spending at the end of the fiscal year.
As of the end of the current fiscal year, all of the City's governmental funds together reported combined
ending fund balances of $2,247,425, an increase of $69,943 in comparison with the prior year. Of the
$2,247,425 fund balance, 72% ($1,626,825) constitutes unrestricted fund balance, which is available
for spending at the City's discretion. The unresfricted fund balance is broken into two categories,
assigned and unassigned. Unassigned fund balance represents 52% ($1,177,870) and assigned fund
balance represents 20% ($448,955). The remainder of the fund balance consists of nonspendable and
restricted fund balance. Nonspendable fund ba/ance constitutes 1% ($28,032) and restricted fund
ba/ance constitutes 26% ($592,568).
The General Fund is the chief operating fund of the City. At the end of the current year, fund balance of
the General Fund was $1,329,553, an increase of $75,877 over the prior fiscal year. Key factors in this
change in fund balance are as follows:
o Actual expenditures totaled $1,843,649 (excluding transfers) for 2012 compared to budgeted
expenditures of$1,769,009, a net variance of$74,640.
o Actual revenues totaled $1,994,957 for 2012 compared to budgeted revenues of $1,836,680, a
net favorable variance of $158,277 (before transfers). Revenue from Zoning and Hearing Fees
were $105,026 more than budgeted due to reimbursements for the Zavoral Mine EIS.
Intergovernmental Revenue was $25,902 more than budgeted due to unanticipated State
Market Value Credit payments and Fire State Aid. Donations and Other Revenue were $25,239
more than budgeted due to a large insurance dividend ($12,900), Insurance Premium Refunds
($2,313), Impound Fees ($910), and Donations.
Because property tax revenues are not received until the middle of the budget year, it is important that
the City carry fund balances sufficient to cover anticipated expenses for the first half of the budget year.
If not, the City would be forced to borrow (and pay interest on) the funds necessary to meet basic
expenses such as payroll. The $1,117,870 of unassigned fund balance in the General Fund is
adequate for cash flow purposes.
(11)
CITY OF SCANDIA, MINNESOTA
MANAGEMENT'S DISCUSSION AND ANALYSIS
YEAR ENDED DECEMBER 31, 2012
General Fund Budgetary Highlights
Detail of the General Fund original budget, final budget and actual revenues and expenditures can be
found beginning on page 44 of this report. The net change in the General Fund Balance was $75,877.
The City Council approved the following budget amendments during the year:
o Increased Other Professional Services by $7,300 to pay for a City Administrator search and
hiring contract with Springsted, Inc.
o Increased Donations by $1,000 in Administration & Finance and reduce Council Conference
and Seminars by $1,000 to make a donation to the Washington County Historical Society for its
Heritage Center.
o Increased Fire revenue Donations by $2,000 and increase Fire expense Small Tools and Minor
Equipment to accept a Lions Club donation for the purchase of a winch and trailer for the Fire
Department.
o Reduce Contractual Road Maintenance, Regular Wages and Health Insurance line items in the
Public Works budget to meet equipment needs, which resulted in a net decrease in the budget
of$176.
o Reduced several lines items in the Fire Department budget to cover the purchase of two tablet
computers for $6,657 needed for interdepartmental emergency communications and an
increase in Turnout Gear and Uniforms required for new firefighters.
Actual expenditures were less than budgets in several departments. Spending in the Public Safety
Department was $20,688 less than budgeted (largely due to under-spending in Fire). Spending in
Public Works was $68,804 less than budgeted (largely due to under-spending for personnel,
engineering and gravel/salt budgets. Spending in General Government Departments was $172,158
higher than budgeted (largely due to the Zavoral Mine EIS expenses). Spending in Parks and
Recreation was $8,026 less than budgeted due to changes made in facilities and grounds
maintenance.
Proprietary Funds. The City's proprietary funds provide the same type of information found in the
government-wide financial statements, but in more detail.
Unrestricted net position of the 201 Sewer operations at the end of the year amounted to $167,904.
Unrestricted net position of the Uptown Sewer operations at the end of the year amounted to ($44,355).
Capital Asset and Debt Administration
Capital Assets. The City's investment in capital assets for its governmental and business type
activities as of December 31, 2012, amounts to $10,125,314 (net of accumulated depreciation). This
investment in capital assets includes land, construction in process, buildings, equipment and vehicles,
other improvments, the sewer system, and infrastructure. This represents a decrease in the City of
Scandia's investment in capital assets (net of accumulated depreciation) of 1.1%.
(12)
CITY OF SCANDIA, MINNESOTA
MANAGEMENT'S DISCUSSION AND ANALYSIS
YEAR ENDED DECEMBER 31, 2012
CITY OF SCANDIA'S CAPITAL ASSETS
(Net of Depreciation)
Governmental Business-Type
Activities Activities Totals
2012 2011 2012 2011 2012 2011
Land $ 487,735 $ 487,735 $ - $ - $ 487,735 $ 487,735
Construction in Process - 111,852 - - - 111,852
Buildings 2,232,670 2,232,670 - - 2,232,670 2,232,670
Equipment and Vehicles 1,641,953 1,371,717 - - 1,641,953 1,371,717
Infrastructure 9,273,769 9,359,242 - - 9,273,769 9,359,242
Other Improvements 162,647 162,647 - - 162,647 162,647
SewerSystem - - 1,500,000 1,500,000 1,500,000 1,500,000
Uptown Sewer - - 243,827 - 243,827 -
Less:Accumulated Depreciation (4,693,350) (4,324,717) (723,937) (660,000) (5,417,287) (4,984,717)
Total $ 9,105,424 $ 9,401,146 $ 1,019,890 $ 840,000 $ 10,125,314 $ 10,241,146
Long-Term Debt. At the end of the current fiscal year, the City had total bonded debt outstanding of
$1,235,000. All debt is backed by the full faith and credit of the City.
CITY OF SCANDIA'S OUTSTANDING DEBT
(General Obligation)
Governmental Activities Business-Type Activities Totals
2012 2011 2012 2011 2012 2011
LONG-TERM OBLIGATIONS
Long-Term Debt:
General Obligation Notes $ 1,235,000 $ 1,540,000 $ - $ - $ 1,235,000 $ 1,540,000
Unamortized Bond Discount (19,063) (23,308) - - (19,063) (23,308)
Compensated Absences 15,016 19,090 - - 15,016 19,090
Total $ 1,230,953 $ 1,535,782 $ - $ - 1,230,953 $ 1,535,782
Additional information on long-term debt is presented in Note 4 of this report.
Economic Factors and Next Year's Budgets and Rates
o The City Council has approved a balanced budget for the General Fund for 2013. Staff will
continually monitor the budget and recommend any revisions that are deemed necessary to the
City Council.
o During the current economic downturn the City will continue to experience slow or no growth,
and the revenues from permits and interest income will continue to be below historic levels.
Staff will continue to monitor the changes in this area to prepare for 2014 budget discussions,
which will begin in June of 2013.
Requests for Information
This financial report is designed to provide a general overview of the City's finances for all those with an
interest in the City's finances. Questions concerning any of the information provided in this report or
requests for additional financial information should be addressed to the City of Scandia, 14727
209th St. N., Scandia, Minnesota 55073 (telephone 651-433-2274).
(13)
BASIC FINANCIAL STATEMENTS
CITY OF SCANDIA, MINNESOTA
STATEMENT OF NET POSITION
DECEMBER 31, 2012
Governmental Business-Type
Activities Activities Totals
ASSETS
Cash and Investments $ 2,274,415 $ 164,529 $ 2,438,944
Receivables:
Taxes and Other 122,912 11,939 134,851
Special Assessments 128,783 8,912 137,695
Internal Balances 39,588 (39,588) -
Unamortized Issuance Costs 10,591 - 10,591
Prepaid Items 22,392 - 22,392
Inventory 5,640 - 5,640
Capital Assets, Nondepreciable 487,735 - 487,735
Capital Assets, Net of Accumulated Depreciation 8,617,689 1,019,890 9,637,579
Total Assets 11,709,745 1,165,682 12,875,427
LIABILITIES
Accounts and Contracts Payable 128,301 22,243 150,544
Accrued Payroll, Taxes and Benefits 27,643 - 27,643
Interest Payable 5,408 - 5,408
Unearned Revenue 2,570 - 2,570
Noncurrent Liabilities:
Due Within One Year 317,355 - 317,355
Due in More Than One Year 913,598 - 913,598
Total Liabilities 1,394,875 22,243 1,417,118
NET POSITION
Net Investment in Capital Assets 7,889,487 1,019,890 8,909,377
Restricted for Debt Retirement 592,307 - 592,307
Restricted for Road Maintenance 123,651 - 123,651
Unrestricted 1,709,425 123,549 1,832,974
Total Net Position $ 10,314,870 $ 1,143,439 $ 11,458,309
See accompanying Notes to Basic Financial Statements.
(14)
CITY OF SCANDIA, MINNESOTA
STATEMENT OF ACTIVITIES
YEAR ENDED DECEMBER 31, 2012
Pro ram Revenues
perating apita rants
Charges for Grants and and
FUNCTIONSIPROGRAMS Expenses Service Contributions Contributions
Government Activities:
General Government $ 736,560 $ 260,647 $ - $ -
Public Safety 383,522 33,551 25,381 -
Public Works 960,724 1,244 - 7,129
Parks and Recreation 95,567 39,769 - -
Interest and Fiscal Charges 65,573 7,223 - -
Total Governmental Activities 2,241,946 342,434 25,381 7,129
Business-Type Activities:
Sewer 126,143 70,696 - 5,151
Uptown Sewer 17,478 9,579 - -
Total Business-Type Activities 143,621 80,275 - 5,151
Total Primary Government $ 2,385,567 $ 422,709 $ 25,381 $ 12,280
GENERALREVENUES
Taxes:
Property Taxes, Levied for General Purposes
Grants and Contributions not Restricted for a Particular Purpose
Investment Earnings
Total General Revenues
Transfers
CHANGE IN NET POSITION
Net Position - Beginning of Year
NET POSITION -END OF YEAR
See accompanying Notes to Basic Financial Statements.
(15)
Net(Expense) Revenue and
Changes in Net Position
Governmental Business-Type
Activities Activities Total
$ (475,913) $ - $ (475,913)
(324,590) - (324,590)
(952,351) - (952,351)
(55,798) - (55,798)
(58,350) - (58,350)
(1,867,002) - (1,867,002)
- (50,296) (50,296)
- (7,899) (7,899)
- (58,195) (58,195)
(1,867,002) (58,195) (1,925,197)
2,073,163 - 2,073,163
18,918 - 18,918
10,878 723 11,601
2,102,959 723 2,103,682
(170,609) 170,609 -
65,348 113,137 178,485
10,249,522 1,030,302 11,279,824
$ 10,314,870 $ 1,143,439 $ 11,458,309
(16)
CITY OF SCANDIA, MINNESOTA
BALANCE SHEET
GOVERNMENTALFUNDS
DECEMBER 31, 2012
200�
Improvement Equipment Nonmajor
General Bond Replacement Governmental
Fund Debt Service Fund Funds Totals
ASSETS
Cash and Investments $ 1,396,131 $ 240,996 $ 222,393 $ 414,895 $ 2,274,415
Taxes Receivable 92,792 15 - 8 92,815
Special Assessments Receivable - 128,783 - - 128,783
Other Receivables 30,097 - - - 30,097
Prepaid Items 22,392 - - - 22,392
Inventory 5,640 - - - 5,640
Advance to Other Funds - - - 39,588 39,588
Total Assets $ 1,547,052 $ 369,794 $ 222,393 $ 454,491 $ 2,593,730
LIABILITIES AND FUND BALANCES
Liabilities:
Accounts and Contracts Payable $ 128,301 $ - $ - $ - $ 128,301
Accrued Payroll,Taxes and Benefits 27,643 - - - 27,643
Deferred Revenue 61,555 128,798 - 8 190,361
Total Liabilities 217,499 128,798 - 8 346,305
Fund Balances:
Nonspendable:
Prepaid Items 22,392 - - - 22,392
Inventory 5,640 - - - 5,640
Advance to Other Funds - - - 39,588 39,588
Restricted for:
Debt Service - 240,996 - 227,921 468,917
Road Maintenance 123,651 - - - 123,651
Assigned for:
Infrastructure Improvement Projects - - - 177,568 177,568
Acquisition and Development of Parks - - - 9,406 9,406
Equipment Replacement - - 222,393 - 222,393
Unassigned 1,177,870 - - - 1,177,870
Total Fund Balances 1,329,553 240,996 222,393 454,483 2,247,425
Total Liabilities and Fund Balances $ 1,547,052 $ 369,794 $ 222,393 $ 454,491 $ 2,593,730
See accompanying Notes to Basic Financial Statements.
(17)
CITY OF SCANDIA, MINNESOTA
RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET
TO THE STATEMENT OF NET POSITION
GOVERNMENTAL ACTIVITIES
DECEMBER 31, 2012
TOTAL FUND BALANCES FOR GOVERNMENTAL FUNDS $ 2,247,425
Total net position reported for governmental activities in the statement
of net position is different because:
Capital assets used in governmental activities are not financial
resources and, therefore, are not reported in the funds.
Capital Assets $ 13,798,774
Less: Accumulated Depreciation (4,693,350) 9,105,424
Some receivables, including special assessments, are reported as
deferred revenue in the fund financial statements but are recognized
as revenue when earned in the government-wide statements.
These deferred revenues consist of:
Special Assessments on Tax Roll 59,006
Other Special Assessments 128,785 187,791
Bond and equipment certificate issuance costs are reported as
expenditures in the governmental funds and are shown as assets
net of accumulated amortization on the statement of net position. 10,591
Some liabilities are not due and payable in the current period and,
therefore, are not reported in the funds. These liabilities consist of:
Long-Term Obligations (1,230,953)
Accrued Interest on Long-Term Debt (5,408) (1,236,361)
TOTAL NET POSITION OF GOVERNMENTAL ACTIVITIES $ 10,314,870
See accompanying Notes to Basic Financial Statements.
(18)
CITY OF SCANDIA, MINNESOTA
STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE
GOVERNMENTAL FUNDS
YEAR ENDED DECEMBER 31, 2012
200�
Improvement Equipment Nonmajor Total
General Bond Replacement Governmental Governmental
Fund Debt Service Fund Funds Funds
REVENUES
Taxes $ 1,601,201 $ 146,902 $ - $ 312,375 $ 2,060,478
Special Assessments - 32,245 - - 32,245
Intergovernmental Revenue 51,199 - - - 51,199
Licenses and Permits 54,657 - - - 54,657
Charges for Services 234,170 - - - 234,170
Fines and Forfeits 17,818 - - - 17,818
Miscellaneous Revenue 35,912 914 1,113 1,828 39,767
Total Revenues 1,994,957 180,061 1,113 314,203 2,490,334
EXPENDITURES
Current:
General Government 708,965 - - - 708,965
Public Safety 338,231 - - - 338,231
Public Works 636,322 - - - 636,322
Parks and Recreation Center 82,326 - - - 82,326
Fixed and Other 1,000 - - - 1,000
Debt Service:
Principal Payments - 135,000 - 170,000 305,000
Interest Payments - 30,850 - 29,207 60,057
Capital Outlay:
General Government 1,946 - - - 1,946
Public Safety 8,980 - 93,914 - 102,894
Public Works 63,479 - - - 63,479
Parks and Recreation Center 2,400 - - 3,574 5,974
Total Expenditures 1,843,649 165,850 93,914 202,781 2,306,194
EXCESS(DEFICIENCY)OF REVENUES
OVER(UNDER)EXPENDITURES 151,308 14,211 (92,801) 111,422 184,140
OTHER FINANCING SOURCES(USES)
Transfer In 4,569 - 80,000 - 84,569
Transfer Out (80,000) - - (118,766) (198,766)
Total Other Financing Sources(Uses) (75,431) - 80,000 (118,766) (114,197)
NET CHANGE IN FUND BALANCES 75,877 14,211 (12,801) (7,344) 69,943
Fund Balances-Beginning of Year 1,253,676 226,785 235,194 461,827 2,177,482
FUND BALANCES -END OF YEAR $ 1,329,553 $ 240,996 $ 222,393 $ 454,483 $ 2,247,425
See accompanying Notes to Basic Financial Statements.
(19)
CITY OF SCANDIA, MINNESOTA
RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES,
EXPENDITURES, AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES
GOVERNMENTAL ACTIVITIES
YEAR ENDED DECEMBER 31, 2012
NET CHANGE IN FUND BALANCES -TOTAL GOVERNMENTAL FUNDS $ 69,943
Amounts reported for governmental activities in the statement of activities are
different because:
Capital outlays are reported as expenditures in governmental funds. However, in
the statement of activities,the cost of capital assets is allocated over their
estimated useful lives as depreciation expense.This is the amount by which
depreciation exceeded capital outlays in the current period.
Capital Outlays Reported in Governmental Fund Statements $ 158,384
Depreciation Expense (397,694) (239,310)
Receivables not currently available are reported as deferred revenue in the fund
financial statements, but are recognized as revenue when earned in the
government-wide statements. (12,431)
The governmental funds report bond proceeds as financing sources,while
repayment of bond principal is reported as an expenditure. In the statement of net
position, however, issuing debt increases long-term liabilities and does not affect
the statement of activities and repayment of principal reduces the liability. Also,
� governmental funds report the effect of issuance costs, premiums and discounts
when debt is first issued,whereas these amounts are deferred and amortized in
the statement of activities. Interest is recognized as an expenditure in the
governmental funds when it is due. In the statement of activities, however,
interest expense is recognized as it accrues, regardless of when it is due.The net
effect of these differences in the treatment of general obligation debt and related
items is as follows:
Repayment of Bond Principal 305,000
Change in Accrued Interest Expense 1,405
Amortization of Equipment Certificate Issuance Costs (930)
Amortization of Bond Issuance Costs (1,746)
Amortization of Bond Discount (4,245) 299,484
In the statement of activities,compensated absences are measured by the
amounts earned during the year. In the governmental funds, however,
expenditures for these items are measured by the amount of financial resources
used (generally,the amounts actually paid). During the year,the balance of
compensated absences payable decreased. 4,074
A total of$85,473 of infrastructure (net of$29,061 of accumulated depreciation)
was transferred from the governmental activities capital assets to the Uptown
Sewer Enterprise Fund, as this enterprise fund was established as of January 1,
2012. (56,412)
CHANGE IN NET POSITION OF GOVERNMENTAL ACTIVITIES $ 65,348
See accompanying Notes to Basic Financial Statements.
(20)
CITY OF SCANDIA, MINNESOTA
STATEMENT OF NET POSITION
PROPRIETARY FUNDS
DECEMBER 31, 2012
201 Sewer Uptown
Enterprise Sewer Total
ASSETS Fund Fund 2012
Current Assets:
Cash and Investments $ 164,529 $ - $ 164,529
Special Assessments Receivable 8,912 - 8,912
OtherAccounts Receivable 9,574 2,365 11,939
Due from Other Funds 636 - 636
Total Current Assets 183,651 2,365 186,016
Noncurrent Assets:
Capital Assets:
Collection Systems 1,500,000 243,827 1,743,827
Less: Accumulated Depreciation (690,000) (33,937) (723,937)
Total Capital Assets 810,000 209,890 1,019,890
Total Assets 993,651 212,255 1,205,906
LIABILITIES
Current Liabilities:
Accounts Payable 15,747 6,496 22,243
Due to Other Funds - 636 636
Total Current Liabilities 15,747 7,132 22,879
Advance from Other Funds - 39,588 39,588
Total Liabilities 15,747 46,720 62,467
NET POSITION
Invested in Capital Assets 810,000 209,890 1,019,890
Unrestricted 167,904 (44,355) 123,549
Total Net Position 977,904 165,535 1,143,439
Total Liabilities and Net Position $ 993,651 $ 212,255 $ 1,205,906
See accompanying Notes to Basic Financial Statements.
(21)
CITY OF SCANDIA, MINNESOTA
STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION
PROPRIETARY FUNDS
YEAR ENDED DECEMBER 31, 2012
201 Sewer Uptown
Enterprise Sewer Total
Fund Fund 2012
OPERATING REVENUES
Charges for Service $ 70,696 $ 9,579 $ 80,275
OPERATING EXPENSES
Depreciation 30,000 4,876 34,876
Utilities 1,637 377 2,014
Maintenance and Other 94,506 12,225 106,731
Total Operating Expenses 126,143 17,478 143,621
OPERATING LOSS (55,447) (7,899) (63,346)
NONOPERATING REVENUE
Interest Revenue 723 - 723
Special Assessments 5,151 - 5,151
Total Nonoperating Revenue 5,874 - 5,874
LOSS BEFORE TRANSFERS (49,573) (7,899) (57,472)
TRANSFERS
Transfer In - 175,178 175,178
Transfer Out (2,825) (1,744) (4,569)
Total Transfers (2,825) 173,434 170,609
CHANGE IN NET POSITION (52,398) 165,535 113,137
Net Position - Beginning ofYear 1,030,302 - 1,030,302
NET POSITION -END OF YEAR $ 977,904 $ 165,535 $ 1,143,439
See accompanying Notes to Basic Financial Statements.
�22)
CITY OF SCANDIA, MINNESOTA
STATEMENT OF CASH FLOWS
PROPRIETARY FUNDS
YEAR ENDED DECEMBER 31, 2012
201 Sewer Uptown Sewer
Enterprise Enterprise
Fund Fund Total
CASH FLOWS FROM OPERATING ACTIVITIES
Cash Received from Customers $ 71,570 $ 7,214 $ 78,784
Cash Paid to Suppiiers for Goods and Services (109,192) (6,106) (115,298)
Net Cash Provided (Used) by Operating Activities (37,622) 1,108 (36,514)
CASH FLOWS FROM NONCAPITAL FINANCING
ACTIVITIES
Transfer Out (2,825) (1,744) (4,569)
Due to/Due from to Cover Negative Cash (636) 636 -
Net Cash Used by Noncapital Activities (3,461) (1,108) (4,569)
CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES
Purchases of Capital Assets - (158,354) (158,354)
Transfer In from Capital Improvement Fund - 118,766 118,766
Advance from Capital Improvement Fund - 39,588 39,588
Net Cash Used for Capital and Related
Financing Activities - - -
CASH FLOWS FROM INVESTING ACTIVITIES
Interest on Investments 723 - 723
NET DECREASE IN CASH AND CASH EQUIVALENTS (40,360) - (40,360)
Cash and Cash Equivalents- Beginning of Year 204,889 - 204,889
CASH AND CASH EQUIVALENTS -END OF YEAR $ 164,529 $ - $ 164,529
RECONCILIATION OF OPERATING LOSS TO NET
CASH PROVIDED(USED) BY OPERATING ACTIVITIES
Operating Loss $ (55,447) $ (7,899) $ (63,346)
Adjustments to Reconcile Operating Loss to Net
Cash Provided (Used) by Operating Activities:
Depreciation Expense 30,000 4,876 34,876
Special Assessments 5,151 - 5,151
Changes in Asset and Liability Accounts:
Increase in Special Assessments Receivable (1,991) - (1,991)
Decrease in OtherAccounts Receivable (2,286) (2,365) (4,651)
Decrease in Prepayments - - -
Increase in Due from County - - -
Increase (Decrease)in Accounts Payable (13,049) 6,496 (6,553)
Net Cash Provided(Used) by Operating Activities $ (37,622) $ 1,108 $ (36,514)
NONCASH CAPITAL FINANCING ACTIVITIES
Capital Assets of$56,412 (net of accumulated depreciation)were transferred from Governmental-Activities Capital-
Assets to the 201 Uptown Sewer Fund
See accompanying Notes to Basic Financial Statements.
(23)
CITY OF SCANDIA, MINNESOTA
STATEMENT OF NET POSITION
FIDUCIARY FUND
DECEMBER 31, 2012
Agency Fund
ASSETS
Current Assets:
Cash and Investments $ 172,347
LIABILITIES
Current Liabilities:
Contractor Deposits $ 172,347
See accompanying Notes to Basic Financial Statements.
(24)
CITY OF SCANDIA, MINNESOTA
NOTES TO BASIC FINANCIAL STATEMENTS
DECEMBER 31, 2012
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The City of Scandia (City) is a public corporation formed under Minnesota Statute 412. As
such, the City is under statutory city regulations and applicable statutory guidelines.
The basic financial statements of the City have been prepared in conformity with U.S.
generally accepted accounting principles as applied to governmental units by the
Governmental Accounting Standards Board (GASB). The following is a summary of the
significant accounting policies:
A. FINANCIAL REPORTING ENTITY
As required by U.S. generally accepted accounting principles, the financial statements
of the reporting entity include all funds, departments, agencies, boards, commissions,
and other organizations over which City officials exercise oversight responsibility.
Component units are legally separate entities for which the City (primary government) is
financially accountable, or for which the exclusion of the component unit would render
the financial statements of the Primary Government misleading. The criteria used to
determine if the Primary Government is financially accountable for a component unit
include whether or not the Primary Government appoints the voting majority of the
potential component unit's governing body, is able to impose its will on the potential
component unit, is in a relationship of financial benefit or burden with the potential
component unit, or is fiscally depended upon by the potential component unit.
Based on these criteria, there are no organizations considered to be component units of
the City.
(25)
CITY OF SCANDIA, MINNESOTA
NOTES TO BASIC FINANCIAL STATEMENTS
DECEMBER 31, 2012
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. BASIC FINANCIAL STATEMENTS
1. Government-Wide Statements
The government-wide financial statements (i.e., the statement of net position and the
statement of activities) display information about the primary government. These
statements include the financial activities of the overall City government, except for
fiduciary activities. Governmental activities, which normally are supported by taxes
and intergovernmental revenues, are reported separately from business-type
activities, which rely to a significant extent on fees and charges to external parties for
support. As a general rule, the effect of interfund activity has been eliminated from
the government-wide financial statements. Exceptions to this general rule are
charges between the City's enterprise fund and various other functions of
government. Eliminations of these charges would distort the direct costs and
program revenues reported for the various functions concerned.
In the government-wide statement of net position, both the governmental and
business-type activities columns: (a) are presented on a consolidated basis by
column; and (b) are reported on a full accrual, economic resource basis, which
recognizes all long-term assets and receivables as well as long-term debt and
obligations. The City's net position is reported in three parts: (1) net investment in
capital assets; (2) restricted net position; and (3) unrestricted net position.
The statement of activities demonstrates the degree to which the direct expenses of
each function of the City's governmental activities and different business-type
activities are offset by program revenues. Direct expenses are those that are clearly
identifiable with a specific function or activity. Program revenues include: (1) fees,
fines, and charges paid by the recipients of goods, services, or privileges provided
by a given function or activity; and (2) grants and contributions that are restricted to
meeting the operational or capital requirements of a particular function or activity.
Revenues that are not classified as program revenues, including all taxes, are
presented as general revenues.
2. Fund Financial Statements
The fund financial statements provide information about the City's funds, including its
fiduciary fund. Separate statements for each fund category (governmental,
proprietary, and fiduciary) are presented. The emphasis of governmental and
proprietary fund financial statements is on major individual governmental and
enterprise funds, with each displayed as separate columns in the fund financial
statements. All remaining governmental funds are aggregated and reported as
nonmajor funds.
(26)
CITY OF SCANDIA, MINNESOTA
NOTES TO BASIC FINANCIAL STATEMENTS
DECEMBER 31, 2012
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. BASIC FINANCIAL STATEMENTS (CONTINUED)
2. Fund Financial Statements (Continued)
Proprietary fund operating revenues, such as charges for services, result from
exchange transactions associated with the principal activity of the fund. Exchange
transactions are those in which each party receives and gives up essentially equal
values. Nonoperating revenues, such as subsidies and investment earnings, result
from nonexchange transactions or incidental activities.
The City reports the following major governmental funds:
General Fund
The General Fund is the City's primary operating fund. It accounts for all financial
resources of the general government, except those required to be accounted for in
another fund.
2007 Debt Service Fund
The 2007 Debt Service Fund accounts for debt service payments used to finance the
City's various improvement projects.
Eauipment Replacement Fund
The Equipment Replacement Capital Project Fund accounts for resources to be
used to purchase motor vehicles and heavy machinery.
The City reports the following major proprietary funds:
Sewer Fund
The Sewer Fund accounts for customer sewer service charges that are used to
finance sewer operating expenses.
Uptown Sewer Fund
The Uptown Sewer Fund accounts for customer service charges that are used to
finance uptown sewer operating expenses.
Additionally, the City reports the following fiduciary fund:
Aqencv Fund
To account for assets held as an agent for individuals, private organizations, other
governmental units, and/or other funds. The City's agency fund accounts for pass-
through contractor's deposits relating to prospective developments.
(2�>
CITY OF SCANDIA, MINNESOTA
NOTES TO BASIC FINANCIAL STATEMENTS
DECEMBER 31, 2012
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
C. MEASUREMENT FOCUS AND BASIS OF ACCOUNTING
The government-wide and proprietary fund financial statements are reported using the
economic resources measurement focus and the accrual basis of accounting. The
Agency fund, which is included as a Fiduciary Fund, does not have a measurement
focus. Revenues are recorded when earned, and expenses are recorded when a
liability is incurred, regardless of the timing of related cash flows. Property taxes are
recognized as revenues in the year for which they are levied. Grants and similar items
are recognized as revenue as soon as all eligibility requirements imposed by the
provider have been met.
Governmental fund financial statements are reported using the current financial
resources measurement focus and the modified accrual basis of accounting. Revenues
are recognized as soon as they are both measurable and available. The City considers
all revenues to be available if they are collected within 60 days after the end of the
current period. Property and other taxes, licenses, and interest are all considered to be
susceptible to accrual. Expenditures are recorded when the related fund liability is
incurred, except for principal and interest on general long-term debt, compensated
absences, and claims and judgments, which are recognized as expenditures to the
extent that they have matured. Proceeds of general long-term debt and acquisitions
under capital leases are reported as other financing sources.
When both restricted and unrestricted resources are available for use, it is the City's
policy to use restricted resources first, then unrestricted resources as they are needed.
Amounts reported as program revenues include: (1) Charges to customers or applicants
for goods, services, or privileges provided, (2) operating grants and contributions, and
(3) capital grants and contributions, including special assessments.
Proprietary funds distinguish operating revenues and expenses from nonoperating
items. Operating revenues and expenses generally result from providing services and
producing and delivering goods in connection with a proprietary fund's principal ongoing
operations. The principal operating revenue of the City's enterprise fund is charges to
customers for sales and services. Operating expenses for enterprise funds include the
cost of sales and services, administrative expenses, and depreciation on capital assets.
All revenues and expenses not meeting this definition are reported as nonoperating
revenues and expenses.
(28)
CITY OF SCANDIA, MINNESOTA
NOTES TO BASIC FINANCIAL STATEMENTS
DECEMBER 31, 2012
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. BUDGETS
Budgets are adopted on a basis consistent with U.S. generally accepted accounting
principles. Annual appropriated budgets are adopted for the General Fund. Budgeted
expenditure appropriations lapse at year-end.
E. CASH AND INVESTMENTS
Cash and investment balances from all funds are pooled and invested to the extent
available in investments authorized by Minnesota Statutes. Earnings from investments
are allocated to individual funds on the basis of the fund's equity in the cash and
investment pool.
The City provides temporary advances to funds that have insufficient cash balances by
means of an advance from another fund shown as interfund receivables in the
advancing fund in the governmental fund financial statements, and an interfund payable
in the fund with the deficit, until adequate resources are received. These interfund
payables are eliminated for statement of net position presentation.
Investments are stated at fair value as of the balance sheet date. Interest earnings are
accrued at the balance sheet date.
For purposes of the statement of cash flows the Proprietary Fund considers all highly
liquid investments with a maturity of three months or less when purchased to be cash
equivalents. All of the cash and investments allocated to the proprietary fund types have
original maturities of 90 days or less. Therefore, the entire balance in such fund types is
considered cash equivalents.
F. PROPERTY TAX CREDITS
Property taxes on homestead property (as defined by state statutes) are partially
reduced by property tax credits. These credits are paid to the City by the State in lieu of
taxes levied against homestead property. The State remits these credits through
installments each year. These credits are recognized as revenue by the City at the time
of collection.
�29)
CITY OF SCANDIA, MINNESOTA
NOTES TO BASIC FINANCIAL STATEMENTS
DECEMBER 31, 2012
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
G. PROPERTY TAX REVENUE RECOGNITION
The City Council annually adopts a tax levy and certifies it to the County in December
(levy/assessment date) of each year for collection in the following year. The County is
responsible for billing and collecting all property taxes for itself, the City, the local
School District and other taxing authorities. Such taxes become a lien on January 1 and
are recorded as receivables by the City at that date. Real property taxes are payable
(by property owners) on May 15 and October 15 of each calendar year. Personal
property taxes are payable by taxpayers on February 28 and June 30 of each year.
These taxes are collected by the County and remitted to the City on or before July 15
and December 15 of the same year. Delinquent collections for November and
December are received the following January. The City has no ability to enforce
payment of property taxes by property owners. The County possesses this authority.
Within the governmental fund financial statements, the City recognizes property tax
revenue when it becomes both measurable and available to finance expenditures of the
current period. In practice, current and delinquent taxes and State credits received by
the City in July, December and the following January are recognized as revenue for the
current year. Taxes and credits not received at the year-end are classified as delinquent
and due from County taxes receivable. The portion of delinquent taxes not collected by
the City in January is fully offset by deferred revenue because it is not available to
finance current expenditures. Deferred revenue in governmental activities is susceptible
to full accrual on the government-wide statements.
The City's property tax revenue includes payments from the Metropolitan Revenue
Distribution (Fiscal Disparities Formula) per Minnesota Statute 473F. This statute
provides a means of spreading a portion of the taxable valuation of
commercial/industrial real property to various taxing authorities within the defined
metropolitan area. The valuation "shared" is a portion of commercial/industrial property
valuation growth since 1971. Property taxes paid to the City through this formula for
2012 totaled $125,828. Receipt of property taxes from this "fiscal disparities pool" does
not increase or decrease total tax revenue.
(30) •
CITY OF SCANDIA, MINNESOTA
NOTES TO BASIC FINANCIAL STATEMENTS
DECEMBER 31, 2012
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
H. SPECIAL ASSESSMENT REVENUE RECOGNITION
Special assessments are levied against benefited properties for the cost or a portion of
the cost of special assessment improvement projects in accordance with state statutes.
These assessments are collectible by the City over a term of years usually consistent
with the term of the related bond issue. Collection of annual installments (including
interest) is handled by the County Auditor in the same manner as property taxes.
Property owners are allowed to (and often do) prepay future installments without
interest or prepayment penalties.
Within the fund financial statements, the revenue from special assessments is
recognized by the City when it becomes measurable and available to finance
expenditures of the current fiscal period. In practice, current and delinquent special
assessments received by the City are recognized as revenue for the current year.
Special assessments are collected by the County and remitted by December 31
(remitted to the City the following January) and are also recognized as revenue for the
current year. All remaining delinquent and deferred special assessments receivable in
governmental funding are completely offset by deferred revenues. Deferred revenue in
governmental activities is susceptible to full accrual on the government-wide
statements.
Once a special assessment roll is adopted, the amount attributed to each parcel is a
lien upon that property until full payment is made or the amount is determined to be
excessive by the City Council or court action. If special assessments are allowed to go
delinquent, the property is subject to tax forfeit sale and the first proceeds of that sale
(after costs, penalties and expenses of sale) are remitted to the City in payment of
delinquent special assessments. Generally, the City will collect the full amount of its
special assessments not adjusted by the City Council or court action. Pursuant to state
statutes, a property shall be subject to a tax forfeit sale after three years unless it is
homesteaded, agricultural or seasonal recreational land in which event the property is
subject to such sale after five years.
I. CAPITAL ASSETS
Capital assets, which include property, plant, equipment, and infrastructure assets (e.g.
roads, sidewalks, street lights, and similar items) are reported in the applicable
governmental or business-type activities columns in the government-wide financial
statements. Capital assets exceeding the City's capitalization threshold of $5,000 are
recorded at historical cost or estimated historical cost if purchased or constructed. The
cost of normal maintenance and repairs that do not add to the value of the asset or
materially extend asset lives are not capitalized. Major outlays for capital assets and
improvements are capitalized as projects are constructed. Infrastructure has been
capitalized as of 1980 and thereafter.
(31)
CITY OF SCANDIA, MINNESOTA
NOTES TO BASIC FINANCIAL STATEMENTS
DECEMBER 31, 2012
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
I. CAPITAL ASSETS (CONTINUED)
Depreciation on exhaustible assets is recorded as an allocated expense in the
statement of activities with accumulated depreciation reflected in the statement of net
position. Capital assets are depreciated using the straight-line method over their
estimated useful lives. Since surplus assets are sold for an immaterial amount when
declared as no longer needed for City purposes, no salvage value is taken into
consideration for depreciation purposes. Useful lives vary from 3 to 30 years for
buildings, equipment, vehicles, furniture and fixtures, and other improvements, and 25
to 50 years for Infrastructure. Capital assets not being depreciated include land and
construction in progress.
J. COMPENSATED ABSENCES
It is the City's policy to permit employees to accumulate earned but unused leave
benefits. All leave pay is accrued on a per pay period basis and recorded in the
government-wide financial statements. The current portion is calculated based on
historical trends.
K. LONG-TERM OBLIGATIONS
In the entity-wide financial statements, long-term debt and other long-term obligations
are reported as liabilities in the applicable governmental activities. Bond premiums and
discounts are deferred and amortized over the life of the bonds using the straight-line
method. Bond issue costs, if material, are reported as deferred charges and amortized
over the term of the related debt using the straight-line method.
In the governmental fund financial statements, bond premiums and discounts, as well
as bond issue costs are recognized during the current period. The face amount of the
debt issue is reported as another financing source. Premiums received on debt
issuances are reported as other financing sources while discounts are reported as other
financing uses. Issue costs are reported as debt service expenditures.
(32)
CITY OF SCANDIA, MINNESOTA
NOTES TO BASIC FINANCIAL STATEMENTS
DECEMBER 31, 2012
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
L. NET POSITION
Net position represents the difference between assets and liabilities in the government-
wide financial statements and are classified into three components:
a) Net investment in capital assets — This component consists of capital assets net
of accumulated depreciation and reduced by the amount of outstanding balance
of bonds or other borrowings that are attributable to the acquisition, construction
or improvement of those assets.
b) Restricted net position — Net position with constraints placed on the use either by
1) external groups such as creditors, grantors, or laws or regulations of other
governments; or 2) law through constitutional provisions or enabling legislation
are reflected in this component.
c) Unrestricted net position — All other assets that do not meet the definition of
"restricted" or "net investment in capital assets."
M. FUND BALANCE
In the fund financial statements, governmental funds report fund balances in
classifications that disclose constraints for which amounts in those funds can be spent.
These classifications are as follows:
Nonspendable — portions of fund balance related to prepaids, inventories, long-term
receivables, and corpus on any permanent fund.
Restricted — funds are constrained from outside parties (statute, grantors, bond
agreements, etc).
Committed — fund constraints are established and modified by a resolution approved
by the City Council.
Assigned —consists of internally imposed constraints approved by the City Council.
Unassigned — is the residual classification for the General Fund and also reflects
negative residual amounts in other funds.
When an expenditure is incurred for purposes for which both restricted and unrestricted
fund balance is available, it is the City's policy to use restricted first, then unrestricted
fund balance.
When an expenditure is incurred for purposes for which committed, assigned, and
unassigned amounts are available, it is the City's policy to use committed first, then
assigned, and finally unassigned amounts.
The City formally adopted a fund balance policy for the General Fund. The policy
establishes a year-end target fund balance range of 35% - 50% of the annual operating
budget.
(33)
CITY OF SCANDIA, MINNESOTA
NOTES TO BASIC FINANCIAL STATEMENTS
DECEMBER 31, 2012
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
N. INTERFUND TRANSACTIONS
Interfund services provided and used are accounted for as revenues, expenditures or
expenses. Transactions that constitute reimbursements to a fund for
expenditures/expenses initially made from it that are properly applicable to another
fund, are recorded as expenditures/expenses in the reimbursing fund and as reductions
of expenditures or expenses in the fund that is reimbursed. All other interfund
transactions are reported as transfers.
All interfund transactions are eliminated except for activity between governmental
activities and business-type activities for presentation in the entity-wide statements of
net position and statements of activities.
NOTE 2 DEPOSITS AND INVESTMENTS
A. DEPOSITS
The City maintains a cash and investment pool that is available for use by all funds.
Each fund type's portion of this pool is displayed on the statement of net position and
the balance sheet as "Cash and Investments." In accordance with Minnesota Statutes
the City maintains deposits at financial institutions which are authorized by the City
Council.
Custodial Credit Risk— Custodial credit risk for deposits is the risk that in the event of a
bank failure, the City's deposits may not be returned to it. The City does not have a
deposit policy for custodial credit risk and follows Minnesota Statutes for deposits.
Minnesota Statutes require that all deposits be protected by insurance, surety bond, or
collateral. The market value of collateral pledged must equal 110% of the deposits not
covered by insurance or corporate surety bonds. Authorized collateral include: U.S.
government treasury bills, notes, or bonds; issues of a U.S. government agency;
general obligations of a state or local government rated "A" or better; revenue
obligations of a state or local government rated "AA" or better; irrevocable standby
letters of credit issued by a Federal Home Loan Bank; and time deposits insured by a
federal agency. Minnesota Statutes require securities pledged as collateral be held in
safekeeping in a restricted account at the Federal Reserve Bank or in an account at a
trust department of a commercial bank or other financial institution not owned or
controlled by the depository.
The carrying value and bank balance of the City's deposits in banks at December 31,
2012 is $2,611,291 and $2,625,179, respectively, and were entirely covered by federal
depository insurance or by surety bonds and collateral in accordance with Minnesota
Statutes.
(34)
CITY OF SCANDIA, MINNESOTA
NOTES TO BASIC FINANCIAL STATEMENTS
DECEMBER 31, 2012
NOTE 3 CAPITAL ASSETS
Capital asset activity for the year ended December 31, 2012 was as follows:
Beginning Ending
Balance Additions Disposals Transfers Balance
Governmental Activities:
Capital Assets Not Being Depreciated:
Land $ 487,735 $ - $ - $ - $ 487,735
Construction in Progress 111,852 - - (111,852) -
Total Capital Assets Not Being Depreciated 599,587 - - (111,852) 487,735
Capital Assets Being Depreciated:
Buildings 2,232,670 - - - 2,232,670
Equipment 365,422 146,958 - 111,852 624,232
Vehicies 1,006,295 11,426 - - 1,017,721
Infrastructure 9,359,242 - - (85,473) 9,273,769
Other Improvements 162,647 - - - 162,647
Total Capital Assets,Being Depreciated 13,126,276 158,384 - 26,379 13,311,039
Accumulated Depreciation for:
Buildings (712,584) (48,261) - - (760,845)
Equipment (225,565) (56,928) - - (282,493)
Vehicles (576,678) (49,527) - - (626,205)
Infrastructure (2,734,877) (236,084) - 29,061 (2,941,900)
Other Improvements (75,013) (6,894) - - (81,907)
Total Accumulated Depreciation (4,324,717) (397,694) - 29,061 (4,693,350)
Total Capitai Assets,Being Depreciated,Net 8,801,559 (239,310) - 55,440 8,617,689
Governmental Activities Capital Assets,Net $ 9,401,146 $ (239,310) $ - $ (56,412) $ 9,105,424
Beginning Ending
Balance Additions Disposais Transfers Balance
Business-Type Activities:
Capital Assets Being Depreciated:
Sewer Plant $ 1,500,000 $ - $ - $ - $ �,500,000
Uptown Sewer - 158,354 - 85,473 243,827
Total Capital Assets Being Depreciated 1,500,000 158,354 - 85,473 1,743,827
Less:Accumulated Depreciation (660,000) (34,876) - (29,061) (723,937)
Net Capital Assets-Sewer Utility $ 840,000 $ 123,478 $ - $ 56,412 $ 1,019,890
Depreciation was charged to City functions as follows:
General Government $ 15,760
Public Safety 45,291
Public Works 324,402
Parks and Recreation 12,241
Total Depreciation-Governmental Activities $ 397,694
(35)
CITY OF SCANDIA, MINNESOTA
NOTES TO BASIC FINANCIAL STATEMENTS
DECEMBER 31, 2012
NOTE 4 CITY INDEBTEDNESS
City indebtedness at December 31, 2012 is composed of the following:
Final
Issue Maturity Interest Original Balance
Date Date Rate Issue 12/31/12
Governmental Activities:
General Obligation Debt:
2005 Building Crossover Bonds 5/1/2005 12/1/2015 3.35-4.2% $ 685,000 $ 315,000
2007 Improvement Bonds 5/1/2007 12/1/2017 3.65-4.1% 1,430,000 640,000
2010 Equipment Certificate 7/15/2010 2/1/2016 2.22-3.55% 200,000 160,000
2011 Equipment Certificate 6/30/2011 12/1/2016 2.75%-3.95% 150,000 120,000
Total Long-Term Debt 2,465,000 1,235,000
Unamortized Bond Discount (43,090) (19,063)
Compensated Absences N/A 15,016
Total $ 2,421,910 $ 1,230,953
The following is a schedule of changes in City indebtedness for the year ended
December 31, 2012:
Amounts
Balance Balance Due Within
1/1/12 Issued Retired 12/31/12 One Year
Long-Term Debt:
Governmental Activities:
General Obligation Notes $ 1,540,000 $ - $ (305,000) $ 1,235,000 $ 305,000
Unamortized Bond Discount (23,308) - 4,245 (19,063) -
Compensated Absences 19,090 22,071 (26,145) 15,016 12,355
TotalLong-Term Debt $ 1,535,782 $ 22,071 $ (326,900) $ 1,230,953 $ 317,355
All long-term bonded indebtedness outstanding at December 31, 2012 is backed by the full
faith and credit of the City, including special assessment bond issues. For the governmental
activities, compensated absences are generally liquidated by the General Fund.
During 2005, the City issued $685,000 of General Obligation Building Crossover Refunding
Bonds, Series 2005A for the purpose of refunding the $1,200,000 General Obligation
Building Bonds of 2000. The crossover refunding occurred on December 1, 2008.
(36)
CITY OF SCANDIA, MINNESOTA
NOTES TO BASIC FINANCIAL STATEMENTS
DECEMBER 31, 2012
NOTE 4 CITY INDEBTEDNESS (CONTINUED)
Minimum annual principal and interest payments required to retire long-term debt, not
including compensated absences payable are as follows:
Year Endinq December 31, Principal Interest Total
2013 305,000 47,134 352,134
2014 305,000 35,943 340,943
2015 305,000 24,198 329,198
2016 195,000 12,083 207,083
2017 125,000 5,125 130,125
Total 1,235,000 124,483 �1,359,483
Description and Restrictions of Lonq-Term Debt
General Obligation Bonds — The bonds were issued for improvements or projects which
benefited the City as a whole and are, therefore, repaid from ad valorem levies.
The liability for compensated absences represents vested benefits earned by governmental
fund employees through the end of the year which will be paid or used in future periods.
NOTE 5 DEFINED BENEFIT PENSION PLANS—STATEWIDE
A. PLAN DESCRIPTION
All full-time and certain part-time employees of the City are covered by defined benefit
pension plans administered by the Public Employees Retirement Association of
Minnesota (PERA). PERA administers the General Employees Retirement Fund
(GERF), which is a cost-sharing, multiple-employer retirement plan. This plan is
established and administered in accordance with Minnesota Statutes, Chapter 353 and
356.
GERF members belong to either the Coordinated Plan or the Basic Plan. Coordinated
Plan members are covered by Social Security and Basic Plan members are not. All new
members must participate in the Coordinated Plan.
PERA provides retirement benefits as well as disability benefits to members, and
benefits to survivors upon death of eligible members. Benefits are established by state
statute, and vest after three years of credited service. The defined retirement benefits
are based on a member's highest average salary for any five successive years of
allowable service, age, and years of credit at termination of service.
(37)
CITY OF SCANDIA, MINNESOTA
NOTES TO BASIC FINANCIAL STATEMENTS
DECEMBER 31, 2012
NOTE 5 DEFINED BENEFIT PENSION PLANS — STATEWIDE (CONTINUED)
A. PLAN DESCRIPTION (CONTINUED)
Two methods are used to compute benefits for PERA's Coordinated and Basic Plan
members. The retiring member receives the higher of a step-rate benefit accrual
formula (Method 1) or a level accrual formula (Method 2). Under Method 1, the annuity
accrual rate for a Basic Plan member is 2.2% of average salary for each of the first 10
years of service and 2.7% for each remaining year. The annuity accrual rate for a
Coordinated Plan member is 1.2% of average salary for each of the first 10 years and
1.7% for each remaining year. Under Method 2, the annuity accrual rate is 2.7% of
average salary for Basic Plan members and 1.7% for Coordinated Plan members for
each year of service.
For GERF members hired prior to July 1, 1989 whose annuity is calculated using
Method 1, a full annuity is available when age plus years of service equal 90. Normal
retirement age is 65 for Basic and Coordinated members hired prior to July 1, 1989.
Normal retirement age is the age for unreduced Social Security benefits capped at 66
for Coordinated members hired on or after July 1, 1989. A reduced retirement annuity is
also available to eligible members seeking early retirement.
There are different types of annuities available to members upon retirement. A single-
life annuity is a lifetime annuity that ceases upon the death of the retiree, no survivor
annuity is payable. There are also various types of joint and survivor annuity options
available which will be payable over joint lives. Members may also leave their
contributions in the fund upon termination of public service in order to qualify for a
deferred annuity at retirement age. Refunds of contributions are available at any time to
members who leave public service, but before retirement benefits begin.
The benefit provisions stated in the previous paragraphs of this section are current
provisions and apply to active plan participants. Vested, terminated employees who are
entitled to benefits but are not receiving them yet are bound by the provisions in effect
at the time they last terminated their public service.
PERA issues a publicly available financial report that includes financial statements and
required supplementary information for GERF. That report may be obtained on the
internet at www.mnpera.org, by writing to PERA at 60 Empire Drive #200, St. Paul,
Minnesota, 55103-2088 or by calling (651) 296-7460 or 1-800-652-9026.
(38)
CITY OF SCANDIA, MINNESOTA
NOTES TO BASIC FINANCIAL STATEMENTS
DECEMBER 31, 2012
NOTE 5 DEFINED BENEFIT PENSION PLANS— STATEWIDE (CONTINUED)
B. FUNDING POLICY
Minnesota Statutes, Chapter 353 sets the rates for employer and employee
contributions. These statutes are established and amended by the state legislature. The
City makes annual contributions to the pension plans equal to the amount required by
state statutes. GERF Basic Plan members and Coordinated Plan members were
required to contribute 9.1% and 6.25% respectively, of their annual covered salary in
2012. The City is required to contribute the following percentages of annual covered
payroll: 11.78% for Basic Plan members and 7.25% for Coordinated Plan members.
The City's contributions to the General Employees Retirement Fund for the years ended
December 31, 2012, 2011, and 2010 were $20,284, $21,169, and $20,298,
respectively. The City's contributions were equal to the contractually required
contributions for each year as set by state statute.
NOTE 6 DEFINED CONTRIBUTION PENSION PLAN
The council members of the City are covered by the Public Employees Defined Contribution
Plan (PEDCP), a multiple-employer deferred compensation plan administered by the Public
Employees Retirement Association of Minnesota (PERA). The PEDCP is a tax qualified
plan under Section 401(a) of the Internal Revenue Code and all contributions by or on
behalf of employees are tax deferred until time of withdrawal.
Plan benefits depend solely on amounts contributed to the plan plus investment earnings,
less administrative expenses. Minnesota Statutes, Chapter 353D.03, specifies plan
provisions, including the employee and employer contribution rates for those qualified
personnel who elect to participate. An eligible elected official who decides to participate
contributes 5% of salary which is matched by the elected official's employer. Employer and
Employee contributions are combined and used to purchase shares in one or more of the
seven accounts of the Minnesota Supplemental Investment Fund. For administering the
plan, PERA receives 2% of employer contributions and twenty-five hundredths of one
percent of the assets in each member's account annually.
Total employer and employee contributions made by the City during fiscal year 2012 were
$824.
(39)
CITY OF SCANDIA, MINNESOTA
NOTES TO BASIC FINANCIAL STATEMENTS
DECEMBER 31, 2012
NOTE 7 STATEWIDE VOLUNTEER FIREFIGHTER RETIREMENT PLAN
A. PLAN DESCRIPTION
Beginning January 1, 2011, the City joined the Voluntary Statewide Volunteer
Firefighter Retirement Plan (the Plan) administered by the Public Employees
Retirement Association (PERA). The plan is an agent lump-sum defined benefit plan.
Plan assets are managed by the Minnesota State Board of Investment. The Plan is
voluntary and open to fire departments as a replacement of their existing volunteer
firefighter retirement plan. It is also open to municipalities currently without a volunteer
firefighter retirement plan. The Plan is codified as Minnesota Statutes Chapter 353G.
The lump sum benefits payable from the Plan are funded by existing fire state aid
allocated to a municipality, additional municipal contributions, as applicable, and
earnings on the investment of these funds. Each participating entity will have a separate
Entity Account in which the assets necessary to fund the benefits will be maintained.
PERA performs annual calculations for each Entity Account to assess the level of
funding needed to maintain assets sufficient to pay the benefits being earned by the
participating entity's volunteer firefighters. The calculations will resemble the procedure
already defined in law for use by all existing volunteer fire relief associations. Required
contributions for the coming year will be based on service credit data provided to PERA
in March of each year by each participating entity's fire chief. There are no provisions
that allow voluntary contributions into the Plan at this time, either from members or from
municipalities.
B. RETIREMENT BENEFITS
The Plan provides for the payment of lump sum retirement benefits that are based on a
specific dollar value paid for each year of credited service accumulated by a volunteer
firefighter who terminates service and meets the minimum requirements for receipt of
the benefits. The dollar value payable per year of service is determined by the
sponsoring municipality or entity at the time an election to participate in the Plan is
made, selected from 20 possible benefit levels. An entity may elect to increase the
benefit level after joining the Plan. The benefit level approved by the City is $2,500 per
year of service.
To be eligible for a benefit, a firefighter must:
• be at least 50 years old;
• be vested, which means having acquired a minimum of 5 years of "good-time"
service credit in the Plan; and,
• have severed his or her employment relationship with the fire department for a
minimum of 30 days.
�ao)
CITY OF SCANDIA, MINNESOTA
NOTES TO BASIC FINANCIAL STATEMENTS
DECEMBER 31, 2012
NOTE 7 STATEWIDE VOLUNTEER FIREFIGHTER RETIREMENT PLAN (CONTINUED)
B. RETIREMENT BENEFITS (CONTINUED)
A full retirement benefit is payable to a firefighter with 20 years of service. Firefighters
retiring with fewer than 20 but at least 5 years of service are eligible for a percentage of
a full benefit. Former members of the fire department who were vested at the time they
left the department are also entitled to benefits when they attain age 50.
Total employer contributions made during fiscal year 2012 were as follows:
City Contributions $ 21,986
State Aid 18,258
Total $ 40,244
Prior to 2011, the firefighter pension benefits were held and managed by the Scandia
Fire Relief Association. Upon joining the Plan, the pension trust fund of the Scandia Fire
Relief Association ceased to exist as a pension fund and the legal title to the assets
were contributed the Plan in the amount of$577,244.
NOTE 8 COMMITMENTS AND CONTINGENCIES
Law Enforcement Services — The City has entered into an agreement with Washington
County to receive law enforcement services for 2011 and 2012. The agreement calls for the
City to pay Washington County based on the actual costs associated with providing
services under the agreement. Related expenditures for fiscal year 2012 were $116,863.
Fire Department Services Agreement— Effective January 1, 2012, the City has extended its
agreement with May Township to provide fire services to the Township. The contract is for
three years extending through December 31, 2014. If the contract is not renewed or
extended by December 31, 2014, the contract will continue on a prorated month-to-month
basis. Related revenues for the fiscal years 2012 and 2011 were $33,551 and $32,574,
respectively. The Township will pay the City $34,558 for 2013.
(41)
CITY OF SCANDIA, MINNESOTA
NOTES TO BASIC FINANCIAL STATEMENTS
DECEMBER 31, 2012
NOTE 9 INTERFUND
Individual fund transfers for fiscal year 2012 are as follows:
Transfer Transfer
In Out
Governmental Activity:
General Capital Assets $ - $ 56,412
General Fund 4,569 80,000
Equipment Replacement 80,000 -
Non-Major Funds:
Capital Improvement - 118,766
Business-Type Activity:
Sewer - 2,825
Uptown Sewer 175,178 1,744
$ 259,747 $ 259,747
During 2012, the City made routine transfers from the General Fund to the Equipment
Replacement Fund and reimbursed the General Fund for work done on behalf of the 201
Sewer and Uptown Sewer Funds. $56,412 of uptown sewer infrastructure (net of
accumulated depreciation) was transferred from Governmental Activities Capital Assets to
the new Uptown Sewer enterprise fund effective January 1, 2012.
Additionally, the cost of the Uptown Sewer Improvement Project was funded by the Capital
Improvement Fund through an operating transfer of $118,766 and an interfund loan that
represented 25% of the total cost of the project. The cost of this loan is to be recovered
through an increased Uptown Sewer usage rate over the next 10 years, and will be repaid
to the Capital Improvement fund over this period through annual payments of$2,639.
Interfund Interfund
Receivable Payable
Governmental Activity:
Capitallmprovement $ 39,588 $ -
Business-Type Activity:
Uptown Sewer - 39,588
39,5 ,5
(42)
CITY OF SCANDIA, MINNESOTA
NOTES TO BASIC FINANCIAL STATEMENTS
DECEMBER 31, 2012
NOTE 10 RISK MANAGEMENT
The City is exposed to various risks of loss related to torts; theft of, damage to and
destruction of assets; errors and omissions; injuries to employees; and natural disasters.
The City has entered into a joint powers agreement with the League of Minnesota Cities
Insurance Trust (LMCIT) to protect the City in the event of a loss. The LMCIT is a public
entity risk pool currently operating as a common risk management and insurance program
for Minnesota cities. The agreement for formation of the LMCIT provides that the pool will
be self-sustaining through member premiums and will reinsure through commercial
companies for claims in excess of reserved amounts for each insured event. The pool can
make additional assessments to make the pool self—sustaining. The City has determined
that it is not possible to estimate the amount of such additional assessments, if any;
however, they are not expected to be material to these financial statements. There have
been no significant reductions in insurance coverage during 2012 and settlements have not
exceeded insurance coverage for any of the past three fiscal years.
The City has entered into a joint powers agreement with the Southwest/West Central
Services Cooperative (SC) to provide group employee benefits for their employees and to
obtain other financial and risk management services. The SC is a public entity which
operates the health insurance pool through which the City purchases employee health
insurance. The joint powers agreement provides that the SC will establish, procure, and
administer group employee benefits, including selecting providers, in exchange for a
service fee determined by the City's contract. The agreement is renewed annually and the
City may withdraw from the agreement at any time during the year upon 90 days written
notice to the board and all providers of the program.
(43)
REQUIRED SUPPLEMENTARY INFORMATION
BUDGETARY COMPARISON INFORMATION
CITY OF SCANDIA, MINNESOTA
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE
BUDGET AND ACTUAL
GENERALFUND
YEAR ENDED DECEMBER 31, 2012
Budgeted Amounts
Actual Variance with
Original Final Amounts Final Budget
REVENUES
Property Taxes $ 1,596,008 $ 1,596,008 $ 1,601,201 $ 5,193
Intergovernmental:
State Aid Credits 13,062 13,062 42,569 29,507
Recycling Grant 7,235 7,235 7,235 -
Other Grants 5,000 5,000 1,395 (3,605)
Total Intergovernmentai Revenues 25,297 25,297 51,199 25,902
Licenses and Permits 53,830 53,830 54,657 827
Fines and Forfeits 19,000 19,000 17,818 (1,182)
Charges for Services:
Zoning and Hearing Fees 88,370 88,370 193,396 105,026
Fire Protection 33,551 33,551 33,551 -
Cable Franchise 6,800 6,800 7,223 423
Total Charges for Services 128,721 128,721 234,170 105,449
Miscellaneous:
Interest 10,174 10,174 7,023 (3,151)
Donations and Other 3,650 3,650 28,889 25,239
Total Miscellaneous 13,824 13,824 35,912 22,088
Total Revenues 1,836,680 1,836,680 1,994,957 158,277
EXPENDITURES
General Government:
Administration and Finance 356,686 363,986 389,764 25,778
City Council 18,839 17,839 17,949 110
Elections 5,370 5,370 6,035 665
Planning and Building 149,058 149,058 295,217 146,159
CapitalOutlay 2,500 2,500 1,946 (554)
Total General Government 532,453 538,753 710,911 172,158
Public Safety:
Police 117,060 116,560 117,172 612
Fire 245,839 242,339 221,059 (21,280)
CapitalOutlay 5,000 9,000 8,980 (20)
Total Public Safety 367,899 367,899 347,211 (20,688)
(44)
CITY OF SCANDIA, MINNESOTA
SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE
BUDGET AND ACTUAL (CONTINUED)
GENERALFUND
YEAR ENDED DECEMBER 31, 2012
Budgeted Amounts
Actual Variance with
Original Final Amounts Final Budget
EXPENDITURES(CONTINUED)
Public Works:
Public Works $ 724,387 $ 701,211 $ 636,322 $ (64,889)
CapitalOutlay 44,394 67,394 63,479 (3,915)
Total Public Works 768,781 768,605 699,801 (68,804)
Parks and Recreation:
Parks 48,498 48,498 45,259 (3,239)
Community Center 2,484 41,770 37,067 (4,703)
CapitalOutlay 41,770 2,484 2,400 (84)
Total Parks and Recreation 92,752 92,752 84,726 (8,026)
Fixed and Other:
Donations - 1,000 1,000 -
Total Expenditures 1,761,885 1,769,009 1,843,649 74,640
Revenues in Excess of Expenditures 74,795 67,671 151,308 83,637
OTHER FINANCING SOURCES(USES)
Transfers In 5,341 5,341 4,569 (772)
Transfers Out (80,001) (80,001) (80,000) (1)
Total Other Financing Uses (74,660) (74,660) (75,431) (773)
NET CHANGE IN FUND BALANCE $ 135 $ (6,989) 75,877 $ 82,864
Fund Balance- Beginning of Year 1,253,676
FUND BALANCE-END OF YEAR $ 1,329,553
(45)
CITY OF SCANDIA, MINNESOTA
NOTES TO REQUIRED SUPPLEMENTARY INFORMATION
YEAR ENDED DECEMBER 31, 2012
STEWARDSHIP COMPLIANCE AND ACCOUNTABILITY - BUDGETS
The General Fund budget is legally adopted on a basis consistent with U.S. generally accepted
accounting principles. Actual expenditures exceeded budgets during 2012 as follows:
Final
Budget Actual Excess
General Fund
General Government:
Administration and Finance $ 363,986 $ 389,764 $ (25,778)
City Council 17,839 17,949 (110)
Elections 5,370 6,035 (665)
Planning and Building 149,058 295,217 (146,159)
Public Safety:
Police 116,560 117,172 (612)
(46)
COMBINING FUND FINANCIAL STATEMENTS
CITY OF SCANDIA, MINNESOTA
COMBINING BALANCE SHEET
NONMAJOR GOVERNMENTAL FUNDS
DECEMBER 31, 2012
Debt Service Capital Projects
2000 Park Total
Fire Hall Equipment Capital Capital Nonmajor
Bond Fund Certificates Improvement Improvement Funds
ASSETS
Cash and Investments $ 183,322 $ 44,599 $ 177,568 $ 9,406 $ 414,895
Taxes Receivable 6 - 2 - 8
Advance to other funds - - 39,588 - 39,588
Total Assets $ 183,328 $ 44,599 $ 217,158 $ 9,406 $ 454,491
LIABILITIES AND FUND BALANCES
LIABILITIES
Deferred Revenue $ 6 $ - $ 2 $ - $ 8
FUND BALANCES
Nonspendable - - 39,588 - 39,588
Restricted for Debt Service 183,322 44,599 - - 227,921
Assigned for:
Infrastructure Improvement Projects - - 177,568 - 177,568
Acquisition and Development of Parks - - - 9,406 9,406
Unassigned - - - - -
Total Fund Balance 183,322 44,599 217,156 9,406 454,483
Total Liabilities and
Fund Balances $ 183,328 $ 44,599 $ 217,158 $ 9,406 $ 454,491
(47)
CITY OF SCANDIA, MINNESOTA
COMBINING STATEMENT OF REVENUES, EXPENDITURES AND
CHANGES IN FUND BALANCE
NONMAJOR GOVERNMENTAL FUNDS
YEAR ENDED DECEMBER 31, 2012
Debt Service Capital Projects
2000 Park Total
Fire Hall Equipment Capital Capital Nonmajor
Bond Fund Certificates Improvement Improvement Funds
REVENUES
Taxes $ 120,822 $ 83,942 $ 107,611 $ - $ 312,375
Miscellaneous Revenues 707 171 906 44 1,828
Total Revenues 121,529 84,113 108,517 44 314,203
EXPENDITURES
Debt Service:
Principal Payments 100,000 70,000 - - 170,000
Interest Payments 16,675 12,532 - - 29,207
CapitalOutlay - - - 3,574 3,574
Total Expenditures 116,675 82,532 - 3,574 202,781
EXCESS(DEFICIENCY)OF REVENUES
OVER(UNDER)EXPENDITURES 4,854 1,581 108,517 (3,530) 111,422
OTHER FINANCING USES
Transfers Out - - (118,766) - (118,766)
NET CHANGE IN FUND BALANCES 4,854 1,581 (10,249) (3,530) (7,344)
Fund Balance-Beginning of Year 178,468 43,018 227,405 12,936 461,827
FUND BALANCE-END OF YEAR $ 183,322 $ 44,599 $ 217,156 $ 9,406 $ 454,483
(48)
CITY OF SCANDIA, MINNESOTA
STATEMENT OF CHANGES IN ASSETS AND LIABILITIES — FIDUCIARY FUND
YEAR ENDED DECEMBER 31, 2012
Balance Balance
January 1, December 31,
2012 Additions Deductions 2012
ASSETS
CURRENT ASSETS
Cash and Investments $ 117,788 $ 206.801 $ 152,242 $ 172,347
LIABILITIES
CURRENT LIABILITIES
Contractor Deposits $ 117,788 $ 206,801 $ 152,242 $ 172,347
(49)
ni.
OTHER REQUIRED REPORTS
� . CliftonLarsonAllen LLP
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CliftonLarsonAllen
INDEPENDENT AUDITORS' REPORT ON
MINNESOTA LEGAL COMPLIANCE
Honorable Mayor and
Members of the City Council and Citizens
City of Scandia, Minnesota
We have audited, in accordance with auditing standards generally accepted in the United States of
America, the accompanying 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, 2012, and the related notes to the
financial statements, which collectively comprise the City's basic financial statements, and have issued
our report thereon dated May 6, 2013.
The Minnesota Legal Compliance Audit Guide for Political Subdivisions covers seven main categories
of compliance to be tested: contracting and bidding, deposits and investments, conflicts of interest,
public indebtedness, claims and disbursements, miscellaneous City provisions, and tax increment
financing districts. Our study included all of the listed categories except for tax increment financing
districts because the City has no tax increment financing districts.
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 Political Subdivisions.
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.
The purpose of this report is solely to describe the scope of our testing of compliance and the results of
that testing, and not to provide an opinion on compliance. Accordingly, this communication is not
suitable for any other purpose.
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CliftonLarsonAllen LLP
Minneapolis, Minnesota
May 6, 2013
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INTERNATIOI:AL
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CliftonLarsonAllen
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
Honorable Mayor and
Members of the City Council
City of Scandia, Minnesota
We have audited, in accordance with the auditing standards generally acceptd 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, 2012, and the
related notes to the financial statements, which collectively comprise the City's basic financial
statements and have issued our report thereon dated May 6, 2013.
Internal Control Over Financial Reportinq
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 opiion on the effectiveness of the City's internal control.
Our consideration of the 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
weaknesse or significant deficiencies and therefore, material weaknesses or significant deficiencies
may exist that were not identified. However, as described below, we identified certain deficiencies in
internal control that we consider to be material weaknesses.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to prevent, or
detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a
combination of deficiencies, in internal control, such that there is a reasonable possibility that a material
misstatement of the City's financial statements will not be prevented, or detected and corrected on a
timely basis. We consider the deficiencies described below to be material weaknesses.
� n���,ee�n��m rw�im���i (51)
INTERNATIONAL
Honorable Mayor and
Members of the City Council
City of Scandia, Minnesota
Limited Seqrectation of Duties
Condition: Due to the City's limited number of office personnel, segregation of the accounting
functions that is necessary to ensure adequate internal accounting control may not be possible. This is
not unusual in an operation the size of the City; however, the City Council should constantly be aware
of this condition and realize that the concentration of duties and responsibilities in a limited number of
individuals is not desirable from an accounting point of view.
Criteria: Generally, a system of internal control contemplates separation of duties such that no
individual has responsibility to execute a transaction, have physical access to the related assets, and
have responsibility or authority to record the transaction.
Effect: The City is unable to maintain segregation of incompatible duties.
Cause: Limited number of personnel involved in the finance office.
Recommendation: This area should be reviewed periodically and consideration given to improving the
segregation of duties. In making this review, it is most important to consider the benefit derived as
weighed against the cost of the improvements. Management feels it is currently not economically
feasible for the City to hire additional staff in order to adequately segregate all incompatible duties.
Therefore, the City Council needs to be sufficiently involved in the oversight process and controls and
responsibilities should be reviewed periodically.
Manaqement Response:
Management has decided, due to the small size of the City's staff, that the additional costs of
implementing the necessary controls outweigh the benefits that would be derived.
Material Audit Adiustments - Internal Control over the Financial Reportinq Process
Condition: The audit firm proposed, and the City posted to its general ledger accounts, 24 journal
entries to correct misstatements. These entries relate to internal controls over the year-end close-out
process. The absence of a complete control procedure or process in this area is considered a material
• weakness because the potential exists that a material misstatement of the financial statements could
occur and not be prevented or detected by the City's internal control processes.
Criteria: The City should have controls in place to prevent and detect a material misstatement in the
financial statements in a timely manner. Management is responsible for the accuracy and
completeness of all financial records and related information. Their responsibilities include adjusting the
financial statements to correct material misstatements.
Effect: Significant audit adjustments were required to bring the financial statements into accordance
with U.S. generally accepted accounting principles (GAAP).
Cause: The City has not established controls to ensure that all accounts are adjusted to their
appropriate year-end balances in accordance with GAAP.
Recommendation: We recommend the City continue to evaluate its internal control processes to
determine if additional internal control procedures should be implemented to ensure that accounts are
adjusted to their appropriate year-end balances in accordance with GAAP.
(52)
Honorable Mayor and
Members of the City Council
City of Scandia, Minnesota
Manaaement Response:
The amount of journal entries related to the year-end close-out process is reasonable for a city of our
size. The City relies on the audit firm to assist in adjusting accounts to their appropriate year-end
balances in accordance with GAAP as well as prepare the annual financial statements. Management
has decided this is necessary due to the small size of the city staff, its level of expertise and assigned
duties. The additional cost of bringing in more staff outweighs the benefits that would be derived.
Oversiqht of the Financial Reportinq Process
Condition: The City does not have an internal control policy in place over annual financial reporting
under GAAP, therefore, the potential exists that a material misstatement of the annual financial
statements could occur and not be prevented or detected by the City's internal controls.
Criteria: The City must be able to prevent or detect a material misstatement in the annual financial
statements, including footnote disclosures.
Effect: Departures from GAAP would not necessarily be detected by management.
Cause: The City relies on the audit firm to prepare the annual financial statements and related footnote
disclosures. However, they have reviewed and approved the annual financial statements and related
footnote disclosures.
Recommendation: The City should continue to evaluate their internal staff, expertise, and assigned
duties to determine if an internal control policy over the annual financial reporting is beneficial.
Manaqement Response:
The City's internal staff does not have the resources to provide internal control over the annual financial
reporting under GAAP. However, annual financial statements are closely reviewed and discussed with
the audit firm. The City relies on the audit firm to prepare annual financial statements. The additional
cost of providing internal annual financial reporting outweighs the benefits that would be derived.
Comqliance and Other Matters
As part of obtaining reasonable assurance about whether the City's financial statements are free of
material misstatement, we performed tests of its compliance with certain provisions of laws,
regulations, contracts, and grant agreements, noncompliance with which could have a direct and
material effect on the determination of financial statement amounts. However, providing an opinion on
compliance with those provisions was not an objective of our audit and, accordingly, we do not express
such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that
are required to be reported under Government Auditing Standards.
The Citv's Response to Findinas
The City's written responses to the findings identified in our audit have not been subjected to the audit
procedures applied in the audit of the financial statements and, accordingly, we express no opinion on
them.
(53)
Honorable Mayor and
Members of the City Council
City of Scandia, Minnesota
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 result 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.
LL.�
CliftonLarsonAllen LLP
Minneapolis, Minnesota
May 6, 2013
(54)