The URL can be used to link to this page

Home My WebLink AboutAudit Management Letter December 31, 2009 City of Oak Park Heights, Minnesota Audit Management Letter Report Summary RS EPORTUMMARY Several reports are issued in conjunction with the audit. A very brief summary is as follows: Report Name Elements of Report Overview Annual Financial Report (AFR) Financial statements Unqualified (“clean”) opinion on the Financial Footnotes Statements Required supplementary 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 Three internal control Compliance with laws, findings regulations, contracts and grants State Legal Compliance Report Results of testing certain One finding of provisions of Minnesota noncompliance Statutes Audit Management LetterIntended to be a working tool for City Council Comparisons and trend analysis Outside factors influencing City financial reporting Policies and procedures 2 City of Oak Park Heights, Minnesota 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 RevenuesNet (Expense) Revenue and OperatingCapitalChanges in Net Assets Charges ForGrants andGrants andGovernmentalBusiness-Type Functions/ProgramsExpensesServicesContributionsContributionsActivitiesActivitiesTotal Bldg Admin Charges to permits, State police aid Enterprise Funds Xcel Energy fines (1) Governmental activities: General government$1,356,038$84,067$ - $ - ($1,271,971)$ - ($1,271,971) Public safety1,364,734268,44187,2258,680(1,000,388) - (1,000,388) Public works957,30842,40296268,295(845,649) - (845,649) Parks and recreation211,795 - - 612,000400,205 - 400,205 Interest on long-term debt262,586 - - - (262,586) - (262,586) Total governmental activities4,152,461394,91088,187688,975(2,980,389)0(2,980,389) Business-type activities: Water434,577546,606 - - - 112,029112,029 Sanitary sewer680,468651,022 - - - (29,446)(29,446) Storm sewer43,33774,473 - - - 31,13631,136 Total business-type activities1,158,3821,272,101000113,719113,719 Total $5,310,843$1,667,011$88,187$688,975(2,980,389)113,719(2,866,670) General revenues: General property taxes3,537,829 - 3,537,829 Grants and contributions not restricted to specific programs180,430 - 180,430 Unrestricted investment earnings456,93426,174483,108 Gain on sale of capital assets12,165 - 12,165 Other14,186 - 14,186 Transfers(549,139)549,139 - Total general revenues and transfers3,652,405575,3134,227,718 Change in net assets672,016689,0321,361,048 Net assets - beginning24,268,7837,393,00131,661,784 Net assets - ending$24,940,799$8,082,033$33,022,832 (1) Includes General, Special Revenue, Debt Service and Capital Project Funds. 3 City of Oak Park Heights, Minnesota Audit Management Letter Analysis of Selected Accounts ASA NALYSIS OF ELECTEDCCOUNTS Summary of Financial Activity The schedule below presents a condensed financial summary of all funds: All Funds Financial Summary - 2009 Increase (Decrease) inFund Balance/ Revenue ExpendituresFund Balance/Net and Otherand OtherTransfersNetAssets FundSourcesUses(Net)Assets12/31/09 1General$3,835,543$2,939,301($792,600)$103,642$2,720,012 Special Revenue Funds: 2Forfeiture and Seizure5,8298,398 - (2,569)39,614 3Economic Development1,605480 - 1,12561,123 Debt Service Funds: 4Bonds of 2008339,542380,025 - (40,483)86,764 5Bonds of 200922,9397,588 - 15,35115,351 Capital Project Funds: 6Capital Revolving67,790458,766 - (390,976)429,520 7Budgeted Projects and Equipment Revolving27,118317,076427,644137,686931,934 8Street Reconstruction35,015247,894320,000107,1211,424,962 9City Hall Improvements1,318,3833,665,928 - (2,347,545)3,492,930 10Brekke Park Memorial10 - (394)(384) - 11Park Development13,041 - - 13,041498,894 12Moelter Park612,896 - - 612,896612,896 13Renewal and Replacement95,905 - 189,136285,0413,844,043 14Storm Sewer Renewal/Replacement2,730 - 77,00079,730157,730 15Sanitary Sewer Connection 10,384 - - 10,384366,948 16Water Connection22,386430,642 - (408,256)291,596 17Storm Sewer Connection23,578 - - 23,578887,825 18Water Tower Rehabilitation30,6702,60078,847106,917187,070 19Well Rehabilitation20,77336,51751,61435,87068,138 20Sewer Rehabilitation1,2507,670 - (6,420)41,875 Enterprise Funds: 21Water1,455,534434,577(233,470)787,4874,686,554 22Sanitary Sewer663,473680,468(108,227)(125,222)3,171,901 23Storm Sewer79,65443,337(9,550)26,767223,578 Total 24$8,686,048$9,661,267$0($975,219)$24,241,258 4 City of Oak Park Heights, Minnesota Audit Management Letter Analysis of Selected Accounts Property Taxes A summary of property tax activity for the past five years is as follows: 20052006200720082009 Tax levy certified$2,293,825$2,474,455$2,789,655$3,367,480$3,657,865 Less market value homestead credit deduction(85,647)(79,411)(81,066)(81,250)(83,010) Net levy2,208,1782,395,0442,708,5893,286,2303,574,855 Receipts: Current property taxes2,176,2902,363,1922,646,4213,211,3923,417,601 Delinquent property taxes20,62735,58719,56236,77030,364 Total receipts2,196,9172,398,7792,665,9833,248,1623,447,965 Adjustments(7,830)(2,497)658(48,826)(59,731) Increase (decrease) in delinquent taxes receivable3,431(6,232)43,264(10,758)67,159 Delinquent taxes - January 141,63245,06338,83182,09571,337 Delinquent taxes - December 31$45,063$38,831$82,095$71,337$138,496 Current collection as a percent of current levy98.6%98.7%97.7%97.7%95.6% Total collections as a percent of current levy99.5%100.2%98.4%98.8%96.5% 5 City of Oak Park Heights, Minnesota 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: 2006200720082009 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 property84,13388,06582,32987,623 Subtotal7,485,9488,471,73810,250,76511,099,038 Fiscal disparity contribution(1,037,753)(1,115,215)(1,508,660)(2,177,678) Fiscal disparity distribution395,515445,352532,706556,955 Total$6,843,710$7,801,875$9,274,811$9,478,315 Tax capacity rates36.136 35.731 36.343 38.732 Tax levy$2,474,455$2,789,655$3,367,480$3,657,865 6 City of Oak Park Heights, Minnesota Audit Management Letter Analysis of Selected Accounts A schedule of tax capacity by classification is as follows: CITY OF OAK PARK HEIGHTS 20082009 Percent ofPercent of AmountCity TotalAmountCity Total Real estate: Agricultural$ - 0.0% $7220.0% Seasonal1,9870.0% 1,8970.0% Residential homestead2,364,40423.1% 2,391,88721.6% Residential nonhomestead1,062,71310.4% 1,091,8399.8% Commercial/industrial3,675,26235.9% 3,952,52335.6% Public utility3,060,14429.9% 3,568,95732.2% Railroad3,9260.0% 3,5900.0% Total real estate10,168,43699.2% 11,011,41599.2% Personal property82,3290.8% 87,6230.8% Total tax capacity$10,250,765100.0% $11,099,038100.0% Tax Capacity by Property Class -2009 Personal Property 0.8% Residential Homestead 21.6% Public Utility 32.2% Residential Nonhomestead 9.8% Commercial/Industrial 35.6% 7 City of Oak Park Heights, Minnesota Audit Management Letter General Fund GF ENERALUND 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: Property TaxesState AidsAll OtherTotal Revenue YearAmountPercentAmountPercentAmountPercentAmountPercent 1999$1,333,19462%$139,8757%$674,76231%$2,147,831100% 20001,405,002 62%145,514 6%712,026 32%2,262,542 100% 20011,524,300 66%142,292 6%631,284 28%2,297,876 100% 20021,748,634 71%160,381 6%566,938 23%2,475,953 100% 20031,859,203 71%60,410 2%706,210 27%2,625,823 100% 20041,910,848 72%61,479 2%671,683 26%2,644,010 100% 20052,218,213 71%78,137 3%819,616 26%3,115,966 100% 20062,423,246 77%92,370 3%633,057 20%3,148,673 100% 20072,687,730 79%181,233 5%547,531 16%3,416,494 100% 20083,156,807 82%120,701 3%592,538 15%3,870,046 100% 20093,134,378 82%249,822 7%439,143 11%3,823,343 100% Major Revenue Sources -2009 State Aids 7% Other 11% Property Taxes 82% 8 City of Oak Park Heights, Minnesota Audit Management Letter General Fund A graph of property taxes, state aids, and other revenue for the General Fund is as follows: üíôìððôððð General Fund üíôîððôððð Revenue by Source üíôðððôððð üîôèððôððð üîôêððôððð üîôìððôððð üîôîððôððð üîôðððôððð Í¬¿¬» ß·¼ ß´´ Ñ¬¸»® üïôèððôððð Ð®±°»®¬§ Ì¿¨» üïôêððôððð üïôìððôððð üïôîððôððð üïôðððôððð üèððôððð üêððôððð üìððôððð üîððôððð ü ó ïçççîðððîððïîððîîððíîððìîððëîððêîððéîððèîððç State Aids State aids of the General Fund have consisted of the following for the past seven years: State Aid2003200420052006200720082009 Market value homestead credit$ - $ - $ - $ - $81,066$40,625$ - LGA - - - 27,79827,98414,028 - Police aid58,37058,41961,09762,53266,52560,40469,392 Utility valuation transition aid - - - - - - 178,390 Other state revenue2,0403,06017,0402,0405,6585,6442,040 Totals$60,410$61,479$78,137$92,370$181,233$120,701$249,822 Change$1,069$16,658$14,233$88,863($60,532)$129,121 % Change2% 27% 18% 96% (33%)107% 9 City of Oak Park Heights, Minnesota 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: Description200420052006200720082009 Licenses and permits$304,594$365,512$306,266$155,820$203,041$100,074 Charges for services: Enterprise90,86094,14064,46563,20062,04064,400 Construction/engineering fee - 5,8592,35412,5682,602 - Other8,92931,25111,94656,78915,6789,890 Inspections50,33784,719 - - - - Fines and forfeits78,27469,85081,23066,18963,60270,102 Earnings on investments39,18855,43179,61093,95790,00455,439 Other99,501112,85487,18691,647155,571139,238 Total$671,683$819,616$633,057$540,170$592,538$439,143 Budget Versus Actual Comparison The General Fund balance increased by $103,642. Reduced spending in nearly all departments compensated for lower than expected revenue as follows: BudgetActualVariance Revenue$4,012,265$3,823,343($188,922) Expenditures3,219,5902,939,301280,289 Revenue over expenditures792,675884,04291,367 Other financing sources (uses): Sale of property - 12,20012,200 Transfers out(792,600)(792,600) - Net change in fund balance$75$103,642$103,567 10 City of Oak Park Heights, Minnesota Audit Management Letter General Fund General Fund Reserves The fund balance of the General Fund increased in 2009. The schedule below reflects the General Fund balance for the past several years: Year EndedFundIncrease December 31,Balance(Decrease) 1996$1,312,593 19971,246,347($66,246) 19981,186,663(59,684) 19991,191,0814,418 20001,280,10189,020 20011,173,118(106,983) 20021,329,229156,111 20031,694,611365,382 20041,847,608152,997 20052,103,743256,135 20062,302,502198,759 20072,515,620213,118 20082,616,370100,750 20092,720,012103,642 11 City of Oak Park Heights, Minnesota Audit Management Letter General Fund Fund Balance $2,800,000 $2,600,000 $2,400,000 $2,200,000 $2,000,000 $1,800,000 Actual Fund Balance Desired Fund Balance $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 1997199819992000200120022003200420052006200720082009 12 City of Oak Park Heights, Minnesota 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: ïØØÙ×ÎËëØÊØËÇØûÜÑÜÏÚØÊ ûØÏØ×ÔÉÊÎ×ëØÊØËÇØûÜÑÜÏÚØÊ Cash Flow Timing Favorable bond rating Supplements revenues Difference indicatorwith investment income Intergovernmental Capital Outlay Revenue Cutbacks Replacement Avoids temporary Provides resources for overdrafts prior to major minor projects or receipts feasibility reports Avoids overburdening Provides the City of annual budgets for greater options to deal Emergency or certain capital outlay Special with unexpected events Unanticipated Projects Expenditures 13 City of Oak Park Heights, Minnesota 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, 2008 and 2009, the General Fund balance was reserved or designated as follows: General Fund Balance December 31, 20082009 Designated for: Cash flow$1,541,000$1,558,000 Contingent employee benefits188,000188,000 General contingency542,000557,000 Ensuing year's budget - 193,635 Subtotal - designated2,271,0002,496,635 Undesignated345,370223,377 Total fund balance$2,616,370$2,720,012 14 City of Oak Park Heights, Minnesota 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 the majority of state aid are not received until July and December of each year (i.e., the second half of the 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 $1,558,000, computed as follows: Cash Flow Reserve 2010 tax levy (includes market value homestead credit aid$3,374,704 2010 anticipated PERA aid and utility transition aid104,987 Less 50% of transfers out(363,425) $3,116,266 Recommended reserve (one-half of tax levy and state aids)$1,558,000 15 City of Oak Park Heights, Minnesota 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: General Fund Monthly Cash Balances $3,000,000 $2,800,000 $2,600,000 $2,400,000 $1,609,000 decrease $2,200,000 $2,000,000 $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 12/31/20081/31/20092/28/20093/31/20094/30/20095/31/20096/30/20097/31/20098/31/20099/30/200910/31/200911/30/200912/31/2009 Cash $2,755,611$2,564,925$2,314,723$2,110,682$1,867,039$1,713,576$1,146,182$2,602,802$2,343,075$2,118,903$1,971,185$1,816,480$2,852,966 As shown above, the cash balance decreased $1,609,000 between January 1 and June 30, illustrating the need for the cash flow reserve. 16 City of Oak Park Heights, Minnesota 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 December 31, Employee Benefit20082009 Vacation leave carryover$37,456$42,467 Severance150,322145,873 Total$187,778$188,340 Rounded amount$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. 17 City of Oak Park Heights, Minnesota 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, Description20082009 Ensuing year's budget$4,012,190$4,076,173 Less 50% of transfers out(396,300)(363,425) Total$3,615,890$3,712,748 Reserve amount @ 15%$542,000$557,000 Designation for Ensuing Year’s Budget For 2010, the General Fund has budgeted revenue of $4,076,176. Of this amount, $193,635 is fund balance from December 31, 2009 which is planned to be used in 2010 in order to balance the budget. Therefore, $193,635 has been designated at year-end by the City through its budgeting process. 18 City of Oak Park Heights, Minnesota Audit Management Letter Special Revenue Funds SRF PECIALEVENUEUNDS 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 2009. Forfeiture and Seizure Fund This fund was established in 1991 to account for property forfeited pursuant to MS 609.531. A summary of the financial activity of this fund from inception is as follows: Prior Years2009Total Revenue: Intergovernmental - bulletproof vests$9,825$ - $9,825 Earnings on investments13,4971,04214,539 Reimbursements7,7693018,070 Confiscated property143,4144,486147,900 Sale of municipal property5,046 - 5,046 Total revenue$179,551$5,829185,380 Expenditures: Public safety: Materials and supplies$49,132$6,07655,208 Contractual services18,7272,32221,049 Capital outlay69,509 - 69,509 Total expenditures$137,368$8,398145,766 Fund balance - December 31, 2009$39,614 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." 19 City of Oak Park Heights, Minnesota 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: Prior Years2009Total Revenue: Earnings on investments$31,710$1,605$33,315 Interfund loan interest1,113 - 1,113 Refunds and reimbursements2,531 - 2,531 Sale of municipal property76 - 76 Transfer from Capital Revolving Fund260,000 - 260,000 Total revenue$295,430$1,605297,035 Expenditures: Community development: Materials and supplies$457$ - 457 Contractual services32,36248032,842 Interfund loan interest70,000 - 70,000 Capital outlay121,500 - 121,500 Transfer to Capital Revolving Fund11,113 - 11,113 Total expenditures$235,432$480235,912 Fund balance - December 31, 2009$61,123 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 $260,000 interfund loan from the Capital Revolving Fund. This fund did not have the resources to repay the interfund loan. Therefore, the interfund loan was forgiven. If a sale of the Bell property occurs, the proceeds should be receipted in the Capital Revolving Fund. 20 City of Oak Park Heights, Minnesota Audit Management Letter Debt Service Funds DSF EBTERVICEUNDS The financial statements for the G.O. Capital Improvement Bonds of 2008 and 2009 are presented in Statements 15 and 16 of the 2009 Annual Financial Report. Debt Service Funds are a type of governmental fund to account for the accumulation of resources for the payment of interest and principal on debt (other than Enterprise Fund debt). The City maintained two Debt Service Funds during 2009. 21 City of Oak Park Heights, Minnesota Audit Management Letter Debt Service Funds Capital Improvement Bonds of 2008 The bond was issued to finance the construction of City Hall. The repayment of the bond issue is to be funded by property tax levy. A schedule of actual and projected tax levies (per the bond resolution) and debt payments are as follows: Cash and CurrentTotalCash and Current Assets BalancePropertyOtherInvestmentProjectedDebtOtherAssets Balance YearJanuary 1TaxesReceiptsInterestReceiptsPaymentsDisbursementsDecember 31 2008$ - $ - $242,303$7,457$249,760$122,513$ - $127,247 2009127,247336,292 - 3,250339,542380,025 - 86,764 201086,764372,400 - 1,736374,136391,650 - 69,250 201169,250382,200 - 1,454383,654392,526 - 60,378 201260,378392,000 - 1,331393,331403,030 - 50,679 201350,679401,800 - 1,195402,995412,845 - 40,829 201440,829411,600 - 1,061412,661422,018 - 31,472 201531,472421,400 - 942422,342430,418 - 23,396 201623,396431,200 - 854432,054438,000 - 17,450 201717,450441,000 - 806441,806449,720 - 9,536 20189,536450,800 - 725451,525460,470 - 591 2019591460,600 - 629461,229470,346 - (8,526) 2020(8,526)475,300 - 552475,852484,324 - (16,998) 2021(16,998)490,000 - 499490,499496,724 - (23,223) 2022(23,223)504,700 - 488505,188513,125 - (31,160) 2023(31,160)519,400 - 443519,843533,325 - (44,642) 2024(44,642)534,100 - 298534,398551,922 - (62,166) 2025(62,166)548,800 - 66548,866578,882 - (92,182) 2026(92,182)563,500 - - 563,500598,512 - (127,194) 2027(127,194)583,100 - - 583,100611,200 - (155,294) 2028(155,294)607,600 - - 607,600636,840 - (184,534) Total$9,327,792$242,303$23,786$9,593,881$9,778,415$0 Assumptions Property tax collection rate.....................................98% Investment interest rate...........................................2.00% Negative interest charged to funds?.....................no 22 City of Oak Park Heights, Minnesota Audit Management Letter Debt Service Funds Capital Improvement Bonds of 2009 The bond was issued as additional financing for the construction of City Hall. The repayment of the bond issue is to be funded by a $122,000 transfer from the General Fund in 2010 and by a property tax levy collectible in 2011 through 2019. A schedule of actual and projected tax levies (per the bond resolution) and debt payments are as follows: City of Oak Park Heights, Minnesota Projection of Cashflow General Obligation Improvement Bonds of 2009 Cash and CurrentTotalCash and Current Assets BalancePropertyOtherInvestmentProjectedDebtOtherAssets Balance YearJanuary 1TaxesReceiptsInterestReceiptsPaymentsDisbursementsDecember 31 2008$ - $ - $ - $ - $ - $ - $ - $ - 2009 - - 21,5821,35722,9397,588 - 15,351 201015,351 - 122,000141122,141130,350 - 7,142 20117,142131,320 - 438131,758129,150 - 9,750 20129,750133,280 - 502133,782132,650 - 10,882 201310,882135,240 - 539135,779135,760 - 10,901 201410,901136,220 - 550136,770138,560 - 9,111 20159,111137,200 - 529137,729140,858 - 5,982 20165,982139,160 - 489139,649142,678 - 2,953 20172,953140,140 - 449140,589144,114 - (572) 2018(572)141,120 - 394141,514150,084 - (9,142) 2019(9,142)142,100 - 242142,342155,326 - (22,126) Total$1,235,780$143,582$5,812$1,385,174$1,407,118$0 Assumptions Property tax collection rate..............................98% Investment interest rate....................................2.00% Negative interest charged to funds?.................no 23 City of Oak Park Heights, Minnesota Audit Management Letter Capital Project Funds CPF APITALROJECTUNDS The fund balance (deficit) of the Capital Project Funds were as follows at December 31, 2008 and 2009: December 31,Increase Fund20082009(Decrease)Comments financed 50% of land purchase for water tower and Capital Revolving$820,496$429,520($390,976)well site Budgeted Projects and Equipment Revolving794,248931,934137,686see later comments Park Development485,853498,89413,041 received $612,000 contribution from Xcel Energy Moelter Park - 612,896612,896for park improvements received $320,000 transfer from General Fund and Street Reconstruction1,317,8411,424,962107,121financed 2009 mill and overlay project receives annual transfer from Water and Sewer in amount equal to depreciation Renewal and Replacement3,559,0023,844,043285,041 Brekke Park Memorial384 - (384)transferred balance to Budgeted Projects Fund City Hall Improvements5,840,4753,492,930(2,347,545)$1.2M bonds issued in 2009 Water Tower Rehabilitation80,153187,070106,917received $78,847 transfer from Water Utility Storm Sewer Renewal and Replacement78,000157,73079,730received $77,000 transfer from General Fund received $9,571 of connection charges Sanitary Sewer Connection356,564366,94810,384 received $18,160 of connection charges, financed 50% of land purchase for water tower and well site Water Connection699,852291,596(408,256) Storm Sewer Connection864,247887,82523,578received $23,198 of connection charges Well Rehabilitation32,26868,13835,870received $51,614 transfer from Water Utility Sewer Rehabilitation48,29541,875(6,420) Totals$14,977,678$13,236,361($1,741,317) 24 City of Oak Park Heights, Minnesota 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, 2009: BalanceRevenuesIntra-fundBalance Purpose12/31/08and TransfersExpendituresTransfer12/31/09 Sealcoat/crack seal$117,147$165,000$97,646$ - $184,501 Outdoor storage65,000 - - - 65,000 Municipal building160,989 - - - 160,989 Recreation: Park and trail improvements2,17263,00063,623 - 1,549 Trail maintenance10,00025,0002,700 - 32,300 Park building maintenance5,000 - - - 5,000 Brekke Park memorial fund - 394 - - 394 Computers13,31611,5003,610 - 21,206 Document imaging - 40,00034,012 - 5,988 Vehicles: Police6,47554,50029,573 - 31,402 Public works81,55444,90049,309 - 77,145 Building official238 - - - 238 Furniture and equipment: Building inspections78 - - - 78 Police 4,310251,289 - 3,046 Trees127,250 - 12,350 - 114,900 Public works equipment59,76814,10016,855 - 57,013 Police radio equipment25,8055,6533,878 - 27,580 Police computer equipment126 - - - 126 Police in-squad video systems - 9,250 - - 9,250 Comprehensive plan2,372 - 2,231 - 141 Coalition of utility cities16,000 - - - 16,000 Civil defense10,000 - - - 10,000 Unallocated86,64821,440 - - 108,088 Totals$794,248$454,762$317,076$0$931,934 25 City of Oak Park Heights, Minnesota 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: Estimated Future Connection Charges SanitaryWaterStorm SewerWorksWaterTotal Total$50,602$262,969$41,012$354,583 An analysis of the commitments of the connection charge funds is as follows: SanitaryWaterStorm SewerWorksWaterTotal Fund balance - December 31, 2009$366,948$291,596$887,825$1,546,369 Future connection charges (est.)50,602262,96941,012354,583 Subtotal417,550554,565928,8371,900,952 Available for new well - (554,565) - (554,565) Uncommitted$417,550$0$928,837$1,346,387 26 City of Oak Park Heights, Minnesota Audit Management Letter Enterprise Funds EF NTERPRISEUNDS Enterprise funds account for water, sanitary sewer and storm sewer operations. Presented below is history of change in net assets by activity. Change in Net Assets by Year SanitaryStorm YearWaterSewerSanitationSewerTotal 2009$787,487($125,222)$ - $26,767$689,032 2008(206,804)(85,523)(45,814)20,450(317,691) 2007368,75968,20621,11043,872501,947 200628,62337,50338,45810,742115,326 2005226,051326,22120,80439,279612,355 200413,89512,66518,15126,49671,207 2003117,82187,9355,45736,789248,002 200241,573 81,542 3,955 5,794 132,864 200141,643 (5,994) (3,604) 5,875 37,920 200065,051 (80,152) (255) (4,765) (20,121) 199949,552 (111,811) (32,625) 12,279 (82,605) 1998(31,669) (38,145) (25,637) - (95,451) 199711,294 50,550 - - 61,844 199626,964 (6,551) - - 20,413 199554,581 (2,359) - - 52,222 1994(302,719) (198,539) - - (501,258) 199373,349 40,156 - - 113,505 pre-1993595,125 595,126 - - 1,190,251 Subtotal1,960,576645,6080223,5782,829,762 Contributed capital - 1/1/932,725,9782,526,293 - - 5,252,271 Net assets - 12/31/09$4,686,554$3,171,901$0$223,578$8,082,033 27 City of Oak Park Heights, Minnesota Audit Management Letter Enterprise Funds Water Utility Fund A chart of income from operations is as follows: $800,000 Water Operating Revenue & Expense $700,000 $600,000 $500,000 Transfer Out Depreciation All Other Expenses $400,000 Contractual Services Personal Services Operating Revenue $300,000 $200,000 $100,000 $0 20022003200420052006200720082009 The City increased water rates effective January 1, 2003, 2004, 2005, 2007, 2008, 2009, and July 1, 2009. 28 City of Oak Park Heights, Minnesota 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 Revenue & $800,000 Expense $700,000 $600,000 Transfer Out Depreciation $500,000 Personal Services All Other Expenses $400,000 MCES Operating Revenue $300,000 $200,000 $100,000 $0 20022003200420052006200720082009 The City increased sewer rates effective January 1, 2001, 2002, 2003, 2004, 2005, 2009 and July 1, 2009. 29 City of Oak Park Heights, Minnesota Audit Management Letter Enterprise Funds The City revised water and sewer rates as follows: Monthly RateQuarterly Rate EffectiveEffectiveEffectiveEffectiveEffectiveEffectiveEffectiveEffectiveEffective Type of Charge01/01/0201/01/0301/01/0401/01/0501/01/0601/01/0701/01/0801/01/0907/01/09 Water: Base fee$7.50$7.50$7.50$7.50$7.50$23.10$24.35$26.24$28.31 Charge per 1,000 gallons for: Usage between 6,000 and 16,000 gallons$1.17$1.25$1.34$1.34$1.34$1.47$1.62$1.78$1.96 Usage between 17,000 and 33,000 gallons$1.47$1.57$1.68$1.76$1.76$2.02$2.22$2.44$2.68 Usage in excess of 33,000 gallons$1.76$1.88$2.01$2.11$2.11$2.43$2.67$2.94$3.23 Sewer: Base fee$14.00$14.85$15.70$16.65$16.65$49.95$49.95$51.70$54.28 Charge per 1,000 gallons for usage in excess of 5,000 gallons$2.61$2.77$3.00$3.40$3.40$3.40$3.40$3.52$3.70 30 City of Oak Park Heights, Minnesota Audit Management Letter Enterprise Funds Storm Sewer Utility 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: $80,000 Storm Sewer Operating Revenue & Expense $70,000 $60,000 $50,000 Transfer Out All Other Expenses $40,000 Contractual Services Personal Services Operating Revenue $30,000 $20,000 $10,000 $0 20022003200420052006200720082009 31 City of Oak Park Heights, Minnesota Audit Management Letter Communication With Those Charged With Governance CWTCWG OMMUNICATIONITHHOSEHARGEDITHOVERNANCE 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, 2009, and have issued our report thereon dated March 15, 2010. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated December 16, 2009. Professional standards also require that we communicate to you the following information related to our audit. 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. For 2009, the City implemented GASB Statement No. 45 regarding Other Post Employment Benefits (OPEB). We noted no transactions entered into by the governmental unit during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. 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 32 City of Oak Park Heights, Minnesota Audit Management Letter Communication With Those Charged With Governance the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the financial statements was management’s estimation on the depreciation of capital assets and the net OPEB obligation. 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. 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 performing 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. We identified four known misstatements, two of which were corrected (prepaid items of $49,100 and $9,360 of grant revenue and expenditures) and two of which were not corrected (market value adjustment of $47,288 and prepaid insurance of $14,233). None of the misstatements detected as a result of audit procedures were material, either individually or in the aggregate, to each opinion unit’s financial statements taken as a whole. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a financial accounting, reporting, or auditing matter, whether or not resolved 33 City of Oak Park Heights, Minnesota Audit Management Letter Communication With Those Charged With Governance 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 March 15, 2010. 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 determine 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 the City Council and Management of 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. 34