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Home My WebLink AboutAudit Management LetterAUDIT MANAGEMENT LETTER December 31, 2008 This page intentionally left blank r " u 77 71 k =171117 =7 � ° F. - ° Report Summary Several reports are issued in conjunction with the audit. A very brief summary is as follows: R eport of -•. Overview Annual Financial Report (AFR) • Financial statements ® Unqualified ( "clean ") • Footnotes opinion on the Financial • Required supplementary Statements information • Statistical information Report on Internal Control and on Results of testing • No findings of Compliance and Other Matters • Internal controls over financial noncompliance reporting • Two internal control • Compliance with laws, findings regulations, contracts and grants State Legal Compliance Report • Results of testing certain • No findings of provisions of Minnesota noncompliance Statutes Audit Management Letter Intended to be a working tool for City Council • Comparisons and trend analysis • Outside factors influencing City financial reporting • Policies and procedures Audit Management Letter Statement of Activities Statement of Activities One of the financial statement presentations required by GASB 34 is the Statement of Activities. This schedule presents the net cost of providing various activities and the extent to which these activities are funded by property taxes, and investment earnings. Program Revenues Net (Expense) Revenue and Operating Capital Changes in Net Assets Charges For Grants and Grants and Governmental Business -Type Functions /Programs Expenses Services Contributions Contributions Activities Activities Total 1d73g (ntereston AdnwChai'gest° pe s, as5esstoernt -- Fliterprise Fnnds State police tines :aid culls Governmental activities 0 General government $1,477,836 $93,429 $ - $ ($1,384,407) $ ($1,384,407) Public safety 1,347,164 383 74,090 (889,614) - (889,614) Public works 796,532 26,364 10,358 10,091 (749,719) (749,719) Parks and recreation 224,426 - 6,100 - (218,326) (218,326) Interest on long-term debt 138,399 - - - (138,399)' (138,399) Total governmental activities 3,984,357 503,253 90,548 10,091 (3,380,465) 0 (3,380,465) Business -type activities: Water 405,965 475,658 69,693 69,693 Sanitary sewer 670,661 656,809 (13,852) (13,852) Stomtsewer 59,115 74,257 15,142 15,142 Sanitation 494 494 494 Total business-type activities 1,135,741 1,207,218 0 0 0 71,477 71,477 Total $5,120,098 $1,710,471 $90,548 $10,091 (3,380,465) 71,4 (3,308,988) General revenues: General property taxes 3,261,049 - 3,261,049 Grants and contributions not restricted to specific programs 56,693 - 56,693 Unrestricted investment earnings 606,996 , 43,080° 650,076 Gain on sale ofeapital assets 20,895 - 20,895 Other 22,148 22,148 Abatement ofproperty taxes (115,000) (115,000) Transfers 432,248 (432,248) Total general revenues and transfers 4,285,029 (389,168) 3,895,861 Change in net assets 904,564 (317,691) 586,873 Net assets - beginning 23,364,219 7,710,692 31,074,911 Net assets - ending $24,268,783 ' $7,393,001 $31,661,784 (r) Includes General Fund, Special Revenue, Debt Set and Capital Project Funds Audit Management Letter Analysis of Selected Accounts ANALYSIS OF SELECTED ACCOUNTS Summary of Financial Activity The schedule below presents a condensed financial summary of all funds: Audit Management Letter Increase (Decrease) in Fund Balance/ Revenue Expenditures Fund Balance/ Net and Other and Other Transfers Net Assets Fund Sources Uses (Net) Assets 12/31/08 General $4,006,335 $3,085,151 ($820,434) $100,750 $2,616,370 Special Revenue Funds: Forfeiture and Seizure 19,399 20,352 (953) 42,183 Economic Development 2,534 360 - 2,174 59,998 Debt Service Funds: Bonds of 1998 3,840 760,833 296,730 (460,263) - Bonds of 2008 249,760 122,513 - 127,247 127,247 Capital Project Funds: Capital Revolving 64,291 13,619 (21,730) 28,942 820,496 Budgeted Projects and Equipment Revolving 40,242 717,525 539,900 (137,383) 794,248 Street Reconstruction 45,969 - 320,000 365,969 1,317,841 City Hall Improvements 6,195,802 355,327 - 5,840,475 5,840,475 Brekke Park Memorial 16 - 16 384 Water Tower Rental 25,523 - (112,113) (86,590) - Park Development 21,021 20,170 - 851 485,853 Renewal and Replacement 142,455 - 173,520 315,975 3,559,002 Storm Sewer Renewal /Replacement 1,000 77,000 78,000 78,000 Sanitary Sewer Connection 16,153 (138,875) (122,722) 356,564 Water Connection 29,847 (48,125) (18,278) 699,852 Storm Sewer Connection 37,094 - (88,000) (50,906) 864,247 Water Tower Rehabilitation 5,605 1,599 290,960 294,966 80,153 Well Rehabilitation 907 39,839 46,250 7,318 32,268 Sewer Rehabilitation 2,846 22,685 - (19,839) 48,295 Enterprise Funds: Water 550,362 406,165 (351,001) (206,804) 3,899,067 Sanitary Sewer 700,354 670,661 (115,216) (85,523) 3,297,123 Storm Sewer 81,865 59,115 (2,300) 20,450 196,811 Sanitation 752 - (46,566) (45,814) - Total $12,243,972 $6,295,914 $0 $5,948,058 $25,216,477 Audit Management Letter Analysis of Selected Accounts Property Taxes A summary of property tax activity for the past five years is as follows: 2004 2005 2006 2007 2008 Tax levy certified Less market value homestead credit Net levy Receipts: Current property taxes Delinquent property taxes Total receipts Adjustments Increase (decrease) in delinquent taxes receivable Delinquent taxes - January 1 Delinquent taxes - December 31 Current collection as a percent of current levy $2,054,070 $2,293,825 $2,474,455 $2,789,655 $3,367,480 (88,534) (85,647) (79,411) (81,066) (81,250) 1,965,536 2,208,178 2,395,044 2,708,589 3,286,230 1,938,726 2,176,290 2,363,192 2,646,421 3,211,392 12,016 20,627 35,587 19,562 36,770 1,950,742 2,196,917 2,398,779 2,665,983 3,248,162 (4,714 ) (7,830) (2,497 ) 658 (48,826) 10,080 3,431 (6,232) 43,264 (10,758) 31,552 41,632 45,063 38,831 82,095 $41,632 $45,063 $38,831 $82,095 $71,337 98.6% 98.6% 98.7% 97.7% 97.7% 99.2% 99.5% 100.2% 98.4% 98.8% Total collections as a percent of current levy Audit Management Letter Analysis of Selected Accounts Tax Levies, Tax Rates and Tax Capacity A comparison of values for taxes payable in 2006 through 2009 is as follows: 2006 2007 2008 2009 Market value $529,099,400 $579,089,800 $673,570,600 $718,753,400 Tax capacity values: Real estate $7,401,815 $8,383,673 $10,168,436 $11,011,415 Personal property 84,133 88,065 82,329 87,623 Subtotal 7,485,948 8,471,738 10,250,765 11,099,038 Fiscal disparity contribution (1,037,753) (1,115,215) (1,508,660) (2,177,678) Fiscal disparity distribution 395,515 445,352 532,706 556,955 Total $6,843,710 $7,801,875 $9,274,811 $9,478,315 Tax capacity rates 36.136 35.731 36.343 38.732 Tax levy $2,474,455 $2,789,655 $3,367,480 $3,657,865 ( ' ) Proposed values Audit Management Letter Analysis of Selected Accounts A schedule of tax capacity by classification is as follows: Audit Management Letter CITY OF OAK PARK HEIGHTS 2008 2009 Percent of Percent of Amount City Total Amount City Total Real estate: Agricultural $ - 0.0% $722 0.0% Seasonal 1,987 0.0% 1,897 0.0% Residential homestead 2,364,404 23.1% 2,391,887 21.6% Residential nonhomestead 1,062,713 10.4% 1,091,839 9.8% Commercial /industrial 3,675,262 35.9% 3,952,523 35.6% Public utility 3,060,144 29.9% 3,568,957 32.2% Railroad 3,926 0.0% 3,590 0.0% Total real estate 10,168,436 99.2% 11,011,415 99.2% Personal property 82,329 0.8% 87,623 0.8% Total tax capacity $10,250,765 100.0% $11,099,038 100.0% Audit Management Letter General Fund The General Fund of the City is maintained to account for expenditures common to all cities (general government, public safety, public works, and parks and recreation). A history of major revenue sources that support the General Fund are as follows: NJajor Revenue Sources - 2008 StateAi& 3% Other 15% Property Taxes 82% Audit Management Letter Property Taxes State Aids All Other Total Revenue Year Amount Percent Amount Percent Amount Percent Amount Percent 1997 $1,387,227 65% $137,951 6% $619,874 29% $2,145,052 100% 1998 1,479,490 69% 133,484 6% 529,143 25% 2,142,117 100% 1999 1,333,194 62% 139,875 7% 674,762 31% 2,147,831 100% 2000 1,405,002 62% 145,514 6% 712,026 32% 2,262,542 100% 2001 1,524,300 66% 142,292 6% 631,284 28% 2,297,876 100% 2002 1,748,634 71% 160,381 6% 566,938 23% 2,475,953 100% 2003 1,859,203 71% 60,410 2% 706,210 27% 2,625,823 100% 2004 1,910,848 72% 61,479 2% 671,683 26% 2,644,010 100% 2005 2,218,213 '71% 78,137 3% 819,616 26% 3,115,966 100% 2006 2,423,246 77% 92,370 3% 633,057 20% 3,148,673 100% 2007 2,687,730 79% 181,233 5% 547,531 16% 3,416,494 100% 2008 3,271,807 82% 120,701 3% 592,538 15% 3,985,046 100% NJajor Revenue Sources - 2008 StateAi& 3% Other 15% Property Taxes 82% Audit Management Letter General Fund A graph of property taxes, state aids, and other revenue for the General Fund is as follows: State Aids State aids of the General Fund have consisted of the following for the past seven years: State Aid H. A.C.A. Market value homestead credit LGA Police aid Other state revenue Totals Change 2002 2003 2004 2005 2006 2007 2008 97,935 - - 81,066 40,625 4,881 - - - 27,798 27,984 14,028 55,525 58,370 58,419 61,097 62,532 66,525 60,404 2,040 2,040 3,060 17,040 2,040 5,658 5,644 $160,381 $60,410 $61,479 $78,137 $92,370 $181,233 $120,701 ($99,971) $1,069 $16,658 $14,233 $88,863 ($60,532) (62 %) 2% 27% 18% 114% (66 %) % Change Audit Management Letter General Fund Other General Fund Revenue Other revenue of the General Fund has consisted of the following for the past six years: Description Licenses and permits Charges for services: Refuse charge - Junker settlement Enterprise Construction/engineering fee Other Inspections Fines and forfeits Earnings on investments Other Total 2003 2004 2005 2006 2007 2008 $313,273 $304,594 $365,512 $306,266 $155,820 $203,041 52 - - - - - 87,205 90,860 94,140 64,465 63,200 62,040 14,613 - 5,859 2,354 12,568 2,602 18,455 8,929 31,251 11,946 56,789 15,678 88,751 50,337 84,719 - - - 61,146 78,274 69,850 81,230 66,189 63,602 32,067 39,188 55,431 79,610 93,957 90,004 90,648 99,501 112,854 87,186 91,647 155,571 $706,210 $671,683 $819,616 $633,057 $540,170 $592,538 Budget Versus Actual Comparison The General Fund balance increased by $100,750 as the result of positive budget variances primarily relating to expenditures as follows: Budget Actual Variance Revenue $3,986,066 $3,985,046 ($1,020) Expenditures 3,118,872 3,085,151 33,721 Revenue over expenditures 867,194 899,895 32,701 Other financing sources (uses): Sale of property - 21,289 21,289 Transfers in - 46,566 46,566 Transfers out (867,000) (867,000) - Net change in fund balance $194 $100,750 $100,556 Audit Management Letter General Fund General Fund Reserves The fund balance of the General Fund increased in 2008. The schedule below reflects the General Fund balance for the past several years: Year Ended Fund Increase December 31, Balance (Decrease) 1996 $1,312,593 1997 1,246,347 (66,246) 1998 1,186,663 (59,684) 1999 1,191,081 4,418 2000 1,280,101 89,020 2001 1,173,118 (106,983) 2002 1,3 29,229 156,111 2003 1,694,611 365,382 2004 1,847,608 152,997 2005 2,103,743 256,135 2006 2,302,502 198,759 2007 2,515,620 213,118 2008 2,616,370 100,750 Audit Management Letter General Fund Audit Management Letter General Fund Reserve balances are an important component of City financial management. When evaluating the adequacy of reserve balances, there are a number of important factors that must be considered. Several areas to consider are illustrated as follows: Audit Management Letter General Fund In 1987, the City adopted Resolution 87 -10 -42 establishing General Fund reserves/ designations for cash flow, employee benefits and general contingency based upon formulas for each category. The formula for the designation for contingent employee benefits was amended by the City Council on December 11, 2001 and on November 25, 2008. At December 31, 2007 and 2008, the General Fund balance was reserved or designated as follows: General Fund Balance December 31, Designated for: Cash flow Contingent employee benefits General contingency Subtotal - designated Undesignated Total fund balance 2007 2008 $1,698,000 $1,541,000 183,000 188,000 595,000 542,000 2,476,000 2,271,000 39,620 345,370 $2,515,620 $2,616,370 Audit Management Letter General Fund Cash Flow Reserve Property taxes and related state aids account for approximately 75% of the revenue of the General Fund. Property taxes and local government aid are not received until July and December of each year (i.e., the second half of the year). Market value homestead credit is not received until October and December of each year. As a result, the City is required to have sufficient reserves at the beginning of the year to fund operations of the first half of the year. For the City of Oak Park Heights, the recommended cash flow reserve is $1,541,000, computed as follows: Cash Flow Reserve 2009 tax levy (includes market value homestead credit aid 2009 anticipated PERA aid and utility transition aid Less 50% of transfers out $3,297,865 180,430 (396,300) $3,081,995 Recommended reserve (one -half of tax levy and state aids) $1,541,000 Audit Management Letter General Fund The following graph of monthly General Fund cash balances illustrates the impact of receiving property taxes and state aids in the second half of the year: As shown above, the cash balance decreased $1,493,000 between January 1 and June 30, illustrating the need for the cash flow reserve. Audit Management Letter General Fund Contingent Employee Benefit Reserve The employee benefits reserve is computed based upon accrued, but unpaid, employee benefits as follows: Employee Benefits Reserve Employee Benefit Vacation leave carryover Severance Total Rounded amount December 31, 2007 2008 $35,752 $37,456 147,708 150,322 $183,460 $187,778 $188,000 This reserve was established to recognize the actual /potential liability for vacation and sick leave. When the reserve was established, a conservative approach was taken in which an amount equal to all vacation leave, all severance and twenty -five percent of the sick leave balance was deemed the appropriate reserve amount. History had shown that this level of reserve is not required. The City amended this reserve component to an amount equal to 50% of vacation leave, 100% of severance and 0% of sick leave. Audit Management Letter General Fund General Contingency Reserve The amount of General Fund reserve required to meet emergency and /or unanticipated expenditures is not readily quantifiable. Rather, the level of this requirement must be established by the City based on the history of the City and the philosophy of "adequate" reserve coverage. Currently, the City of Oak Park Heights has set this reserve equal to 15% of the General Fund operating budget subject to availability of such amounts, as follows: General Contingency Reserve December 31, Description 2007 2008 Ensuing year's budget Less 50% of transfers out Total Reserve amount @ 15% $3,969,172 $4,012,190 (396,300) $3,969,172 $3,615,890 $595,000 $542,000 Audit Management Letter Special Revenue Funds Special Revenue Funds are a classification of funds to account for revenues (and expenditures related thereto) segregated by City policy, Federal or State statutes for specific purposes. The City maintained two Special Revenue Funds during 2008. Forfeiture and Seizure Fund This fund was established in 1991 to account for property forfeited pursuant to NIS 609.531. A summary of the financial activity of this fund from inception is as follows: The use of these funds is restricted by MS 609.531 subd. 5 to "supplement the agency's operating fund or similar fund for use in law enforcement." Audit Management Letter Prior Years 2008 Total Revenue: Intergovernmental - bulletproof vests $9,825 $ - $9,825 Earnings on investments 11,540 1,957 13,497 Reimbursements 7,414 355 7,769 Confiscated property 126,327 17,087 143,414 Sale of municipal property 5,046 - 5,046 Total revenue $160,152 $19,399 179,551 Expenditures: Public safety: Materials and supplies $41,967 $7,165 49,132 Contractual services 18,477 250 18,727 Capital outlay 56,572 12,937 69,509 Total expenditures $117,016 $20,352 137,368 Fund balance - December 31, 2008 $42,183 The use of these funds is restricted by MS 609.531 subd. 5 to "supplement the agency's operating fund or similar fund for use in law enforcement." Audit Management Letter Special Revenue Funds Economic Development Fund This fund was established in 1998 to account for the activity of the Oak Park Heights Economic Development Authority. A summary of the financial activity of this fund is as follows: During 1998, the City purchased the Bell property and demolished the building in 1999. In prior years, this fund had a deficit that was funded by a $260,000 interfund loan from the Capital Revolving Fund. This fund did not have the resources to repay the interfund loan. Therefore, the interfund loan was forgiven. If a sale of the Bell property occurs, the proceeds should be receipted in the Capital Revolving Fund. Audit Management Letter Prior Years 2008 Total Revenue: Earnings on investments $29,176 $2,534 $31,710 Interfund loan interest 1,113 - 1,113 Refunds and reimbursements 2,531 - 2,531 Sale of municipal property 76 - 76 Transfer from Capital Revolving Fund 260,000 - 260,000 Total revenue $292,896 $2,534 295,430 Expenditures: Community development: Materials and supplies $457 $ - 457 Contractual services 32,002 360 32,362 Interfund loan interest 70,000 - 70,000 Capital outlay 121,500 - 121,500 Transfer to Capital Revolving Fund 11,113 - 11,113 Total expenditures $235,072 $360 235,432 Fund balance - December 31, 2008 $59,998 During 1998, the City purchased the Bell property and demolished the building in 1999. In prior years, this fund had a deficit that was funded by a $260,000 interfund loan from the Capital Revolving Fund. This fund did not have the resources to repay the interfund loan. Therefore, the interfund loan was forgiven. If a sale of the Bell property occurs, the proceeds should be receipted in the Capital Revolving Fund. Audit Management Letter Debt Service Funds The financial statements for the G.O. Improvement Bonds of 1998 are presented in Statements 3 and 4 of the 2008 Annual Financial Report. Debt Service Funds are a type of governmental fund to account for the accumulation of resources for the payment of interest and principal on debt (other than Enterprise Fund debt). The City maintained two Debt Service Funds during 2008. Improvement Bonds of 1998 The City council approved pre - payment of this bond issue. The remaining principal balance of $750,000 was paid on April 1, 2008. Audit Management Letter Debt Service Funds Capital Improvement Bonds of 2008 The bond was issued to finance the construction of City Hall. The repayment of the bond issue is to be funded by property tax levy. A schedule of projected tax levies (per the bond resolution) and debt payments are as follows: Audit Management Letter Total Cash Balance Property Special Other Investment Projected Debt Other Cash Balance Year January 1 Taxes Assessments Receipts Interest Receipts Payments Disbursement December 31 2008 $ $ - $ $242,303 $7,457 $249,760 $ 122,513 $ $ 127,247 2009 127,247 352,800 - 2,450 355,250 380,026 102,471 2010 102,471 372,400 2,050 374,450 391,650 85,271 2011 85,271 382,200 1,775 383,975 392,526 76,720 2012 76,720 392,000 1,658 393,658 403,030 67,348 2013 67,348 401,800 1,529 403,329 412,845 57,832 2014 57,832 411,600 1,401 413,001 422,018 48,815 2015 48,815 421,400 1,289 422,689 430,418 41,086 2016 41,086 431,200 - 1,208 432,408 438,000 - 35,494 2017 35,494 441,000 - 1,167 442,167 449,720 27,941 2018 27,941 450,800 - 1,093 451,893 460,470 19,364 2019 19,364 460,600 - 1,005 461,605 470,346 10,623 2020 10,623 475,300 - 935 476,235 484,324 2,534 2021 2,534 490,000 - 889 490,889 496,724 (3,301) 2022 (3,301) 504,700 - 887 505,587 513,125 (10,839) 2023 (10,839) 519,400 - 850 520,250 533,325 (23,914) 2024 (23,914) 534,100 - 713 534,813 551,922 (41,023) 2025 (41,023) 548,800 - 489 549,289 578,882 (70,616) 2026 (70,616) 563,500 - 40 563,540 598,512 - (105,588) 2027 (105,588) 583,100 - 583,100 611,200 (133,688) 2028 48,815 607,600 - 2,819 610,419 636,840 22,394 Total $9,344,300 $0 $242,303 $31,704 $9,618,307 $9,778,416 $0 Assumptions Special assessment collection rate .................... 95% Property tax collection rate . ............................... 98% Investment interest r ate ..... ............................... 2.00% Negative interest charged to fiords ? .................. no Audit Management Letter ct Funds ..� w. The fund balance (deficits) of the Capital Project Funds were as follows at December 31, 2007 and 2008: Fund December 31, Increase (Decrease) Comments 2007 2008 Capital Revolving $791,554 $820,496 $28,942 Budgeted Projects and Equipment Revolvin 931,631 794,248 (137,383 ) see later comments Park Development 485,002 485,853 851 Street Reconstruction 951,872 1,317,841 365,969 Received $320,000 from General Fund Renewal and Replacement 3,243,027 3,559,002 315,975 I Receives annual transfer from Water and Sewer in amount equal to depreciation Brekke Park Memorial 368 384 16 Water Tower Rental 86,590 - (86,590) $112,113 transfer to Water Tower rehab in 2008 City Hall Improvements - 5,840,475 5,840,475 $6.3M bonds issued in 2008 Water Tower Rehabilitation (214,813) 80,153 294,966 Received transfer from Water Utility ($178,847) and Water Tower Rental ($112,113) Stone Sewer Renewal and Replacement - 78,000 78,000 New fund for 2008. Sanitary Sewer Connection 479,286 356,564 (122,722) $138,875 transfer to 1998 Bonds Debt Service to prepay bonds Water Connection 718,130 699,852 (18,278) $48,125 transfer to 1998 Bonds Debt Service to prepay bonds Storm Sewer Connection 915,153 864,247 (50,906) $88,000 transfer to 1998 Bonds Debt Service to prepay bonds Well Rehabilitation 24,950 32,268 7,318 Sewer Rehabilitation 68,134 48,295 (19,839) Totals $8,480,884 $14,977,678 $6,496,794 Audit Management Letter Capital Project Funds Budgeted Projects and Equipment Revolving Fund The Budgeted Projects and Equipment Revolving Fund (formerly Capital Improvements Fund) was established in 1978 to account for monies set aside for various capital improvements. This fund is budgeted annually by the City Council in conjunction with the City's budget process. As part of such process, the City allocates the monies in this fund to specific projects and /or programs. Such allocation /designations were as follows at December 31, 2008: Audit Management Letter Balance Intra -fund Balance Purpose 12/31/07 Revenues Expenditures Transfer 12/31/08 Sealcoat/crack seal $103,430 $100,000 $86,283 $ $117,147 Outdoor storage 50,000 15,000 - 65,000 Municipal building 157,575 10,000 6,586 160,989 Recreation: Park and trail improvements 99,353 193,700 480,881 190,000 2,172 Trail maintenance 5,000 5,000 - - 10,000 Park building maintenance - 5,000 - 5,000 Computers 21,226 4,000 11,910 13,316 Vehicles: Police (36,105) 83,000 40,420 6,475 Public works 75,079 29,900 23,425 81,554 Building official - 15,000 14,762 238 Furniture and equipment: Building inspections 78 - - 78 Police 7,180 400 3,270 - 4,310 Trees 134,948 - 7,698 127,250 Public works equipment 5,000 60,000 5,232 59,768 Police radio equipment 32,055 - 6,250 25,805 Police computer equipment 126 - 126 Comprehensive plan 23,622 21,250 2,372 Coalition of utility cities 16,000 - 16,000 Civil defense 10,000 - - - 10,000 Unallocated 227,064 59,142 9,558 (190,000) 86,648 Totals $931,631 $580,142 $717,525 $0 $794,248 Audit Management Letter Capital Project Funds Connection Charge Funds Based on City estimates, the Connection Charge Funds are scheduled to receive the following future connection charges as development occurs: An analysis of the commitments of the connection charge funds is as follows: Audit Management Letter Sanitary Water Stonn Sewer Works Water Total Fund balance - December 31, 2008 $356,564 $699,852 $864,247 $1,920,663 Future connection charges (est.) 50,602 262,969 41,012 354,583 Subtotal 407,166 962,821 905,259 2,275,246 Available for new well - (962,821) - (962,821) Uncommitted $407,166 $0 $905,259 $1,312,425 Audit Management Letter Enterprise Funds WE The enterprise fund accounts for four operations - water, sanitary sewer, storm sewer and sanitation. Presented below is history of change in net assets by activity. Audit Management Letter Change in Net Assets by Year Sanitary Storm Year Water Sewer Sanitation Sewer Total 2008 ($206,804) ($85,523) ($45,814) $20,450 ($317,691) 2007 368,759 68,206 21,110 43,872 501,947 2006 28,623 37,503 38,458 10,742 115,326 2005 226,051 326,221 20,804 39,279 612,355 2004 13,895 12,665 18,151 26,496 71,207 2003 117,821 87,935 5,457 36,789 248,002 2002 41,573 81,542 3,955 5,794 132,864 2001 41,643 (5,994) (3,604) 5,875 37,920 2000 65,051 (80,152) (255) (4,765) (20,121) 1999 49,552 (111,811) (32,625) 12,279 (82,605) 1998 (31,669) (38,145) (25,637) - (95,451) 1997 11,294 50,550 - - 61,844 1996 26,964 (6,551) - - 20,413 1995 54,581 (2,359) - - 52,222 1994 (302,719) (198,539) - - (501,258) 1993 73,349 40,156 - - 113,505 pre -1993 595,125 595,126 - - 1,190,251 Subtotal 1,173,089 770,830 0 196,811 2,458,421 Contributed capital - 1/1/93 2,725,978 2,526,293 - - 5,252,271 Net assets - 12/31/08 $3,899,067 $3,297,123 $0 $196,811 $7,710,692 Audit Management Letter Enterprise Funds Water Utility Fund A chart of income from operations is as follows: The City increased water rates effective January 1, 2003, January 1, 2004, January 1, 2005, January 1, 2007 and January 1, 2008. Audit Management Letter Enterprise Funds Sewer Utility Fund A chart of income from operations for the Sewer Utility Fund is as follows: $900,000 sewer Operating $800,000 Revenue & Expense �� $700,000 y � $600,000 ETransfer Out $500,000 Depreciation Personal Services E — I AII Other Expenses $400,000 ®MCES �¢- Operating Revenuc $300,000 $200,000 $100,000 $0 2001 2002 2003 2004 2005 2006 2007 2008 The City increased sewer rates effective January 1, 2001, 2002, 2003, 2004 and 2005. Audit Management Letter Enterprise Funds The City revised water and sewer rates as follows: Audit Management Letter Monthly Rate Quarterly Rate Effective Effective Effective Effective Effective Effective Effective Effective Effective Type of Charge 04/01/00 01/01/01 01/01/02 01/01/03 01/01/04 01/01/05 01/01/06 01/01/07 01/01/08 Water: Base fee $7.50 $7.50 $7.50 $7.50 $7.50 $7.50 $7.50 $23.10 $24.35 Charge per 1,000 gallons for: Usage between 6,000 and 16,000 gallons $1.17 $1.17 $1.17 $1.25 $1.34 $1.34 $1.34 $1.47 $1.62 Usage between 17,000 and 33,000 gallons $1.47 $1_47 $1.47 $1.57 $1.68 $1.76 $1.76 $2.02 $2.22 Usage in excess of 33,000 gallons $1.76 $1.76 $1.76 $1.88 $2.01 $2.11 $2.11 $2.43 $2.67 Sewer: Base fee $12.45 $13.20 $14.00 $14.85 $15.70 $16.65 $16.65 $49.95 $49.95 Charge per 1,000 gallons for usage in excess of 5,000 gallons $2.32 $2.46 $2.61 $2.77 $3.00 $3.40 $3.40 $3.40 $3.40 Audit Management Letter Enterprise Funds Storm Sewer Util'y Fund The City created the stormwater utility during 1999. A monthly fee (effective October 1, 1999) was established at $1 per household and $10 per acre for commercial properties. The fee for vacant residential property is 50 cents per month and undeveloped commercial property is $1.50 an acre per month. A chart of income from operation is as follows: Audit Management Letter Communication With Those Charged With Governance • ME I We have audited the financial statements of the governmental activities, the business- type activities, each major fund, and the aggregate remaining fund information of the City of Oak Park Heights, Minnesota as of and for the year ended December 31, 2008, and has issued our report thereon dated April 14, 2009. Professional standards require that we provide you with the following information related to our audit. Our Responsibility under U.S. Generally Accepted Auditing Standards and Government Auditing Standards As stated in our engagement letter dated July 11, 2008, our responsibility, as described by professional standards, is to express opinions about whether the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles. Our audit of the financial statements does not relieve you or management of your responsibilities. As part of obtaining reasonable assurance about whether the City of Oak Park Heights, Minnesota's financial statements are free of material misstatement, we performed tests of the City of Oak Park Heights, Minnesota's compliance with certain provisions of laws, regulations, contracts, and grants. However, the objective of our tests was not to provide an opinion on compliance with such provisions. Audit Management Letter Communication With Those Charqed With Governance Planned Scope and 'Timing of the Audit We performed the audit according to the planned scope identified in our engagement letter and within our anticipated time frame. We also provided for a two -way dialogue with you at the beginning of the audit in a letter regarding auditor communications dated January 12, 2009. Significant Audit Results Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City of Oak Park Heights, Minnesota are described in Note 1 to the financial statements. No new accounting policies were adopted and the application of existing policies was not changed during 2008. We noted no transactions entered into by the governmental unit during the year for which there is a lack of authoritative guidance or consensus. There are no significant transactions that have been recognized in the financial statements in a different period than when the transaction occurred. Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimate affecting the financial statements was management's estimation on the depreciation of capital assets. We evaluated the key factors and assumptions used to develop the depreciation of capital assets in determining that it is reasonable in relation to the financial statements taken as a whole. Audit Management Letter Communication With Those Charaed With Governance The disclosures in the financial statements are neutral, consistent, and clear. Difficulties Encountered in Performing the Audit We encountered no difficulties in dealing with management in perfonning and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. During the audit, we identified adjustments regarding the presentation of bonds issued. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor's report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated April 14, 2009. Audit Management Letter Communication With Those Charged With Governance Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the governmental unit's financial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to detennine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the governmental unit's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. This information is intended solely for the information and use of Management, members of the City Council and others within the City of Oak Park Heights, Minnesota and is not intended to be, and should not be, used by anyone other than these specified parties. Audit Management Letter