HomeMy WebLinkAboutManagement Report and Recommendations CITY OF OAK PARK HEIGHTS, MINNESOTA
MANAGEMENT REPORT AND RECOMMENDATIONS
DECEMBER 31, 1986
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City of Oak Park Heights, Minnesota
Management Report, Page 2
General and Special Revenue Funds
The General and Special Revenue Funds of the City are maintained to account for the
current and capital outlay expenditures common to all cities. Current financial
reporting standards allow a city to reasonably compare its financial operations with
other similar cities and also with its own prior year's financial operations.
Since 1978, State aids and local property taxes (used to finance the General and
Special Revenue Funds of the City of Oak Park Heights) and their percent to total reve-
nue for these funds, were as follows:
State Aids Property Taxes All Other Total Revenue
Year Amount Percent Amount Percent Amount Percent Amount Percent
1978 $106,746 21.60% $211,577 42.85% $104,831 35.55% $423,154 100.00%
1979 111,149 22.74 219,802 44.97 157,815 32.29 488,766 100.00
1980 124,222 25.27 276,402 56.23 89,933 18.50 490,557 100.00
1981 124,936 20.53 386,515 63.50 97,250 15.97 608,701 100.00
1982 122,425 18.28 423,843 63.28 123,559 18.44 669,827 100.00
1983 149,391 19.75 482,084 63.72 125 16.53 756,505 100.00
1984 152,245 17.41 543,573 61.97 181,288 20.62 877,106 100.00
1985 157,995 18.83 559,613 63.49 163,771 17.68 881,379 100.00
1986 168,341 18.43 579,557 63.44 165,625 18.13 913,523 100.00
A graph of State aids and property taxes for the City is as follows:
General & Special Revenue Feeds
$600,000 -- $600,000
$500,000 _ - $500,000
$400,000 -• - $400,000
$300 $300,000
<:
$200,000
00
$200 ,000
$100,000 - - - $100
$0 -- $0
1978 1979 1980 1981 1982 1983 1984 1985 1985
1 E3 Other Revenue M State Aids - Property Taxes
The City's tax base consists primarily of the NSP power plant. As such, the
homestead credit has less overall effect on the portion of certified levies paid by pro-
perty owners.
City of Oak Park Heights, Minnesota
Management Report, Page 3
A schedule of assessed valuations for the past four years is as follows:
1983/1984 1984/1985 1985/1986 1986/1987
Base Percent Base Percent Base Percent Base Percent
Assessed Valuations:
Utility $29,904,933 64.18% $31,304,209 62.73% $28,831,290 57.79% $29,926,431 57.31%
Commercial 5,248,074 11.26 6,289,156 12.60 7,861,914 15.76 8,427,825 16.14
Homestead 6,912,602 14.83 7,061,578 14.15 7,323,194 14.68 7,582,866 14.52
All other 4,532,959 9.73 5,248,639 10.52 5,870,636 11.77 6,278,172 12.03
Total tax base $46,598,568 100.00% $49,903,582 100.00% $49,887,034 100.00% $52,215,294 100.00%
Assessed Valuation
Change:
Utility $ 2,516,694 9.19% $ 1,399,276 4.68% $(2,472,919) (7.90$) $ 1,095,141 3.80%
Commercial 165,606 3.26 1,041,082 19.84 1,572,758 25.01 565,911 7.20
Homestead (623,289) (8.27) 148,976 2.16 261,616 3.70 259,672 3.55
All other 288,195 6.79 715,680 15.79 621,997 11.85 407,536 6.94
Total $ 2,347,206 5.30% $ 3,305,014 7.09% $ (16,548) (0.03$) $ 2,328,260 4.67%
The preceding data indicates that the City has been required to rely on increased
property taxes to fund the increased levels and costs of providing City services. State
aids have consisted of the following over the past several years:
Description 1980 1981 1982 1983 1984 1985 1986
Local government aid $ 79,564 $ 75,994 $ 68,950 $ 82,324 $ 94,074 $ 99,652 $ 99,656
Homestead credits 20,174 28,487 35,291 49,840 46,887 45,775 51,793
Police aid 9,037 9,751 10,263 10,720 11,284 11,669 16,892
Diseased tree 15,016 -0- 3,576 -0- -0- -0- -0-
Other 431 10,704 4,345 6,507 -0- 899 -0-
Totals $124,222 $124,936 $122,425 $149,391 $152,245 $157,995 $168,341
Change $ 13,073 $ 714 $ (2,511) $ 26,966 $ 2,854 $ 5,750 $ 10,346
Percent Change 11.76% .57% (2.01 % 22.03% 1.91% 3.78% 6.55%
General & Special Revenue Funds
$1 00,000
$90,000
$80,000
$70,00
$60,� -
$50,000 };
$40,080
$20,000
.
$1 080 r =
{
1979 1980 1981 1982 1983 1984 1985 1986
1 N Local Gov't Aid ® 1wtnestead Credit El State- Other l
City of Oak Park Heights, Minnesota
Management Report, Page 4
The following schedules and graphs reflect the combined revenue of the General and
Special Revenue Funds for the past three years. Additional detail of the revenue is
presented in Statements 7 and 9 of the 1986 Annual Financial Report.
Description 1986 1985 1984
General property taxes $ 579,557 $ 559,613 $ 543,573
Intergovernmental:
State 168,341 157,995 152,245
Federal 23,857 38,207 40,217
County 307 452 497
Licenses and permits 22,716 15,569 15,967
Charges for services 35,031 33,068 33,318
Interest on investments 40,729 43,997 49,681
All other revenue 42,985 32,478 41,608
Total $ 913,523 $ 881,379 $ 877,106
$600,000 —
$500,000 General & Special
Revenue Foods
$400,000 —
1984
$300 - '..:.. — 1955
$200,000 — 1986
$100,000 —
$0 -
Property State Revenue Federal All Other
Taxes Revenue
City of Oak Park Heights, Minnesota
Management Report, Page 5
Total expenditures of the General and Special Revenue Funds increased by 13.6% in
1986 as compared to 1985. Expenditures for the past three years are as follows by major
classification.
Description 1986 1985 1984
Current expenditures:
General government $ 206,642 $ 176,495 $ 154,095
Public safety 286,424 258,079 227,844
Streets and highways 53,558 70,352 60,414
Sanitation 97,266 75,169 74,652
Recreation 94,351 85,002 79,938
Capital outlay 33,606 14,312 9,820
Totals $ 771,847 $ 679,409 $ 606,763
A graphic illustration of the above expenditures is presented below.
General & Special Revenue Funds
301
200000
1 50000
100000 _x
50000 "
0
General Gov't Public Safety Streets & Sanitation Recreation Capital
> i Outlay
■ 1984 a 1985 ® 1986
City of Oak Park Heights, Minnesota
Management Report, Page 6
Condensed Combined Financial Statements
The Condensed Combined Financial Statements of the City are presented in Statements
1 through 5 of the 1986 Annual Financial Report. The following comments relate to these
Financial Statements of the City.
Cash And Investments
December 31, Increase
Description 1986 1985 (Decrease)
Clerk's balance:
Checking account (overdraft) $ (14,005) $ (6,144) $ (7,861)
Investments 2,260,472 1,952,591 307,881
Petty cash 50 50 -0-
Totals $2,246,517 $1,946,497 $ 300,020
The December 31, 1986 and 1985 checking account overdrafts are book overdrafts only
and do not reflect bank overdrafts. These balances are a result of the City's policy of
depositing cash in interest bearing accounts in order to maximize investment earnings on
City monies not needed for current expenditures. During 1986, the City maintained an
average negative book balance in the checking account of $3,400. The City earned
$133,400 of interest on investments during 1986 compared to $131,100 in 1985. This
increase is primarily the result of greater monies available to invest. Investment
yields were actually lower in 1986 as compared to 1985, as shown below. Investments at
December 31, 1986 and 1985 were as follows:
December 31,
1986 1985
Investment Description Yield Balance Yield Balance
Certificate of Deposit 5.75 $ 335,000 8.00 $ 246,000
Certificate of Deposit 5.85 345,000 8.00 348,000
Certificate of Deposit 5.52 361,300 8.10 221,000
Certificate of Deposit 5.52 545,000 7.95 117,700
Certificate of Deposit 5.75 240,000 7.95 418,000
Certificate of Deposit 5.60 346,000 8.00 166,000
Certificate of Deposit 8.05 363,400
Money Market 5.40 88,172 6.10 72,493
Totals $ 2,260,472 $ 1,952,593
City of Oak Park Heights, Minnesota
Management Report, Page 7
Security For Deposits /Depositories
Minnesota statutes (MS 118) requires City Council approval of depositories and that
certain levels of pledged security be maintained for deposits which are not insured
and /or guaranteed by the Federal government. Audit tests disclosed that the City of Oak
Park Heights was in full compliance with such statutes at December 31, 1986.
Due From (To) Other Funds
During the course of the year end audit, certain adjustments are required to correct
codings of receipts and /or disbursements. Some of these adjustments are recorded
directly through the accounting records. Others are adjusted on trial balances and
therefore require City action to approve and record such adjustments. Interfund cash
adjustments to be approved by the City Council are as follows;
Fund
No. Fund Description Due From Due To
101 General 1,864.65
500 Closed Bond Fund 158.53 706.45
502 Storm Sewer Improvement Bond of 1971 178.19
510 Completed Construction 842.98
518 G.O. Improvement Bonds of 1982 1,390.39
519 G.O. Improvement Bonds of 1983 3,155.27
702 Utility 373.48
To reallocate assessment collections
101 General 77.15
301 Storm Drainage Improvements 21.58
403 G.O. Storm Sewer Bonds 16.83
500 Closed Bond Fund 2.66 65.54
502 Storm Sewer Improvement Bonds of 1971 136.76
518 G.O. Improvement Bonds of 1982 189.44
To reallocate tax collections
403 G.O. Storm Sewer Bonds 2,880.00
500 Closed Bond Fund 2,880.00
To adjust interest on interfund loan
101 General Fund 2,500.00
702 Utility 2,500.00
To reallocate proceeds from sale of
truck
The above interfund adjustments require City Council approval.
City of Oak Park Heights, Minnesota
Management Report, Page 8
In addition to the above adjustments, various other adjustments have been recorded
on year end trial balances. These adjustments must be recorded to effect proper
beginning balances for the 1987 records of the City. We are available to assist the
City in adjusting the computer balances.
Due From Other Governmental Units
December 31, Increase
Description 1986 1985 (Decrease)
Fines $ 2,672 $ 1,680 $ 992
Revenue sharing allocation -0- 9 (9,498)
MWCC final cost allocation 2,370 6,626 (4,256)
Totals $ 5,042 $ 17,804 $(12,762)
All. of the above amounts are currently collectible. The decrease in the Revenue
Sharing receivable reflects the expiration of that program.
The decrease in the MWCC final cost allocation has an adverse impact on the MWCC
expense of the City (see later commentary).
Taxes Receivable - Delinquent
Taxes Receivable - Delinquent consist of taxes levied in the previous six years by
the City but not collected by the County and remitted to the City.
The collection rate on property taxes was approximately 98% for 1986 as compared to
a 1985 rate of 1010. Property tax collections were as follows for the past four years:
1986 1985 1984 1983
Delinquent taxes - January 1 $ 15,762 $ 21,698 $ 15,622 $ 16,175
Current levy 722,273 722,719 696,639 605,259
Total collectible 738,035 744,417 712,261 621,434
Receipts:
Property owners 652,959 673,518 635,680 542,446
State 58,360 55,137 54,883 63,366
Total receipts 711,319 728,655 690,563 605,812
Delinquent taxes - December 31 $ 26,716 $ 15,762 $ 21,698 $ 15,622
Total collections as a percent
of current levy 98% 101% 990 1000
City of Oak Park Heights, Minnesota
Management Report, Page 9
The above schedule indicates that the City is realizing an excellent collection rate
for property taxes.
Special Assessments Receivable
Special assessments receivable consisted of the following types and amounts:
December 31, Increase
Description 1986 1985 (Decrease)
Delinquent $ 10,882 $ 12,020 $ (1,138)
Due from County 296 4,247 (3,951)
Deferred 174,900 209,459 (34,559)
Special deferred - Council action 14,800 14,800 -0-
Totals $200,878 $240,526 $ (39,648)
Deferred special assessments consist of the remaining principal installments on
assessment rolls. Certain balances calculated by the City are at variance with County
records. We recommend that the City contact the County to reconcile these differences.
We are available to assist the City.
Delinquent special assessments have been as follows for the past several years.
Percent
Delinquent Increase Increase
December 31, Assessments (Decrease) (Decrease)
1978 $ 5,867
1979 7,368 $ 1,501 25.580
1980 12,177 4,809 65.26
1981 16,356 4,179 34.31
1982 27,275 10,919 66.76
1983 8,195 (19,080) (30.05)
1984 13,850 5,655 69.01
1985 12,020 (1,830) (13.21)
1986 10,882 (1,138) (9.47)
City of Oak Park Heights, Minnesota
Management Report, Page 10
The change in delinquent assessments receivable over the past three years was as
follows:
1986 1985 1984
Delinquent balance - January 1 $ 12,020 $ 13,850 $ 8,195
Add:
Current installments 45,734 69,510 93,917
Amount collectible 57,754 83,360 102,112
Less collections:
Current 40,547 64,533 85,506
Delinquent 6,210 6,471 2, 234
Total collections 46,757 71,004 87,740
Adjustments (115) (336) (522)
Delinquent balance - December 31 $ 10,882 $ 12,020 $ 13,850
Current collections as a percent
of current levy 88.650 92.840 91.04%
Total collections as a percent
of current levy 102.23% 102.15% 93.42%
The above schedule indicates that the City is maintaining excellent collection
rates for special assessments.
The amount reported as "Special Deferred" consists of an assessment which has been
deferred pending future connection to the sanitary sewer line. This amount was deferred
by City Council Resolution 84 -1 -1. The resolution does not stipulate the amount of
interest to be collected upon connection (if any). We recommend that the City clarify
the interest terms for this (and future) special assessment deferrals.
Fixed Assets
The City currently does not maintain detailed records nor accounting controls over
general fixed assets. This is not uncommon to suburban Minnesota cities. The effect,
however, is that the control over movable assets is diminished. Additionally, docu-
mented information for insurance claims may not be readily available.
City of Oak Park Heights, Minnesota
Management Report, Page 11
The cost of a complete fixed asset system may be prohibitive for the entire City at
this time. Accumulation of fixed asset records for various departments, however, could
be accomplished at a lesser cost and all departments could eventually be phased in. The
task would require research into accounting records and physical identification of cer-
tain movable assets. The benefit of such an effort would be greater safeguarding of
City assets. The City is currently reviewing internal computer capability options. The
City has acquired a computer system capable of maintaining fixed asset records. The
City has been requested to share the cost of developing and refining fixed asset soft-
ware. We recommend that the City determine the estimated cost and review the features
of the proposed system. We are available to assist the City in this area.
The City owns certain developer constructed assets which were financed by the deve-
loper (as opposed to a City project). The City inspects these projects and upon comple-
tion these water and sewer mains are considered property of the City. We recommend the
City obtain final project costs and add this information to the enterprise fixed asset
records.
Compensated Absences Payable
Compensated Absences Payable consist of employee benefits for vacation and severance
pay which are vested by the employee and for which payment is probable. Severance pay
benefits are payable to the City's police employees who have been with the City in
excess of 10 years. These employees have vested severance pay which totaled $16,174 and
$13,570 at December 31, 1986 and 1985 respectively. Also included in the accrual for
compensated absences is vacation pay benefits for all City employees of $1,717 at
December 31, 1985 and $1,881 at December 31, 1986.
City of Oak Park Heights, Minnesota
Management Report, Page 12
Bonds Payable
Bond Issues
Special Special Revenue
Assessments District Bonds Totals
Balance - January 1, 1986 $ 286,000 $ 195,000 $ 155,000 $ 636,000
Principal Payments (54,000) (5,000) (15,000) (74,000)
Balance - December 31, 1986 $ 232,000 $ 190,000 $ 140,000 $ 562,000
Detail of outstanding bond issues are contained in Exhibits 2 and 3 of the 1986
Annual Financial Report. As shown above, outstanding debt decreased by 12% during 1986
from $636,000 to $562,000. A decrease of $54,000 or 10% is scheduled for 1987.
Fund Equity
December 31, Increase
Fund Group 1986 1985 (Decrease)
Fund balance:
General $ 692,520 $ 656,865 $ 35,655
Special Revenue 35,671 33,029 2,642
Debt Service 5,163 4,141 1,022
Capital Project 176,494 65,600 110,894
Special Assessment:
Construction 89,186 91,590 (2,404)
Debt Service 768,110 658,855 109,255
Totals 1,767,144 1,510,080 257,064
Retained earnings:
Enterprise 530,939 458,555 72,384
Totals - All Funds $2,298,083 $1,968,635 $329,448
The various causes for other equity changes are discussed in the following section
of this report.
City of Oak Park Heights, Minnesota
Management Report, Page 13
General Fund
The financial statements for the General Fund are presented in Statements 6 and 7 of
the City's 1986 Annual Financial Report. The fund balance of the General Fund was
$692,520 at December 31, 1986 representing a $35,655 increase during 1986. This
increase was the result of the following:
• Actual revenue greater than (less than) budgeted revenue:
General property taxes $ (9,650)
Intergovernmental 5,205
Licenses and permits 7,491
Fines and forfeits 10,474
Interest on investments 3,486
Charges for current services 3,031
Sale of property 1,880
Other (859) 21,058
• Budgeted expenditures less than (in excess of)
actual expenditures:
General government (38,164)
Public safety (5,999)
Street and highways 15,692
Sanitation 6,734
Recreation 3,849
Other (526)
Contingency 31,425 13,011
• Residual equity transfers in 1,534
• Unbudgeted transfer out (413)
• Fund balance budgeted increase 465
Net increase in fund balance for 1986 $ 35,655
Details of the above amounts are presented in Statement 7 of the Annual Financial
Report. The fund balance of the General Fund has increased over the past several years.
The schedule below reflects the fund balances for the past ten years:
Year Ended Fund Increase
December 31, Balance (Decrease)
1977 $268,754 $ 29,251
1978 225,943 (42,811)
1979 186,836 (39,107)
1980 127,647 (59,189)
1981 182,939 55,292
1982 300,999 118,060
1983 453,507 152,508
1984 579,612 126,105
1985 656,865 77,253
1986 692,520 35,655
City of Oak Park Heights, Minnesota
Management Report, Page 14
The City has achieved and maintained a sound fund balance level for its General
Fund. This level is adequate to meet several required needs as follows:
Reserve for Cash Flow
( timing difference between
expenditure dates and
major revenue receipts )
Reserve for
Emergency/
Unanticipated Reserve for
Expenditures Capital Outlay
Replacement
ADEQUATE
GENERAL FUND
RESERVE BALANCE
Wo ... I I I ml�i �a'
Reserve for Reserve for
Intergovernmental Special City
Revenue Reductions Council Projects
City of Oak Park Heights, Minnesota
Management Report, Page 15
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.
The reserve requirement to deal with unforeseen intergovernmental revenue reductions
is also difficult to quantify. State and Federal legislation dealing with shared aids
is somewhat unpredictable. The City must strive to remain current on the effects of
changing legislation and budget such aids accordingly. A reserve balance in the City's
General Fund will mitigate the adverse effects of aid reductions which are received
after expenditure budget commitments are made.
The City's minimum cash flow reserve requirement is measurable. For the City of Oak
Park Heights, the minimum required surplus is $432,500 computed as follows:
1987 Budgeted Levy (Includes Homestead Credit) $ 745,000
1987 Anticipated Local Government Aid 120,000
Total $ 865,000
Minimum Required Cash -Flow
Reserve (One -Half of Total) $ 432,500
The City has demonstrated that a financially sound General Fund is attainable
through prudent fiscal planning. The City has met its cash flow required reserve and
also has approximately $260,000 of other General Fund reserves to fulfill the various
other reserve requirements as described in this report.
City of Oak Park Heights, Minnesota
Management Report, Page 16
Without this adequate General Fund reserve, the independence and autonomy of the City
may be impaired. The City of Oak Park Heights has taken actions over the past several
years to improve the financial position of its General Fund. These actions have pro-
vided the City the ability to establish a Capital Improvement Fund funded primarily from
General Fund transfers (see later comments - Capital Improvement Fund and Capital
Replacement /Acquisition Budgeting). We commend the City for these actions and encourage
the City to continue to monitor this reserve balance. An adequate reserve structure
will enable the City to retain its financial independence and integrity during the pre-
sent change in economic environment.
The City may benefit from adopting a formal policy on required reserve balances of
the General Fund. Such a policy would allow for measurement criteria of the various
reserve requirements. We recommend that the City consider the adoption of such a policy
in 1987.
City of Oak Park Heights, Minnesota
Management Report, Page 17
Special Revenue Fund
The financial statements for the Revenue Sharing Fund are presented in Statements 8
and 9 of the City's 1986 Annual Financial Report. A summary of the Revenue Sharing
transactions from inception through December 31, 1986 is as follows:
Prior
Years 1986 Total
Revenue:
Revenue sharing entitlements $531,930 $ 23,857 $555,787
Interest on investments 46,738 2,243 48,981
Donations and contributions 11,490 11,490
Total revenue $578,668 $ 37,590 616,258
Expenditures:
Professional and consultant
services $ 2, 61 6 2, 61 6
Park land acquisition 78,578 78,578
Playground equipment 10,789 10,789
Land easement 5,750 5,750
Public safety $ 7,500 7,500
Police vehicles - equipment 60,855 22,387 83,242
Park fencing 23,457 23,457
Fire protection 3,498 3,498
Youth service bureau 20,708 4,500 25,208
Shade trees 16,380 16,380
Valley View Park improvement 50,945 50,945
Office equipment 8,706 318 9,024
Public works vehicles 27,650 27,650
City hall expansion 75,000 75,000
Sanitation and waste 158,500 158,500
Other 2,207 243 2,450
Total expenditures $545,639 $ 34,948 580,587
Balance - December 31, 1986 $ 35,671
Federal legislation has eliminated Revenue Sharing. We recommend that the City
close this fund in 1987. This can be accomplished by amending the 1987 budget to
expend all remaining Revenue Sharing Fund monies. The City currently has $4,500
budgeted for Youth Service Bureau and $14,000 for Public Works equipment. Additionally
the City will purchase a truck for $12,999 in 1987 which was budgeted for as a 1986
acquisition.
City of Oak Park Heights, Minnesota
Management Report, Page 18
Debt Service Funds
The financial statements for the City's Debt Service Fund is presented in Statements
10 and 11 of the 1986 Annual Financial Report. Debt Service Funds are governmental type
funds used to account for the accumulation of resources to provide payment of principal
and interest on general debt. The City has one general debt bond outstanding, Storm
Sewer Bonds of 1982.
These bonds were issued to provide financing for the Storm Sewer District construc-
tion. The City Council established this district in October, 1982 per City ordinance
1600. A projection of the final fund position based on scheduled levies and debt
requirements is as follows:
Fund Balance - December 31, 1986 $ 5,163
Additions:
Future scheduled tax levies 408,791
Total 413,954
Deductions:
Debt requirements:
Principal 190,000
Interest 199,300
Total 389,300
Projected Fund Balance $ 24,654
Normal Projected Fund Balance -
5a of debt requirements $ 19,500
The above projection indicates that this fund will have adequate assets to meet
bonded debt payments. The original projection from 1983 indicated that periodic cash
flow deficiencies would occur throughout the term of the issue (i.e. bond payments were
due one month preceding tax remittances). This situation will continue until this fund
builds a reserve balance (from tax collections over 950 of levied taxes) to compensate
for this one month timing difference.
City of Oak Park Heights, Minnesota
Management Report, Page 19
Capital Project Funds
The financial statements for the Capital Project Funds are presented in Statements
12 and 13 of the City's 1986 Annual Financial Report. The City had three Capital
Project Funds at December 31, 1986.
Capital Improvements Fund (401)
The Capital Improvements Fund was established in 1978 to account for monies set
aside for capital improvements as follows:
Municipal
Building
Street Expansion/
Reconstruction Unallocated Retrofit Sealcoat Recreation Total
Revenue and Other Sources:
Transfers from General Fund:
1978 through 1980 $ 70,000 $ 40,000 $ 7,500 $ 117,500
1981 20,000 2,500 22,500
1982 20,000 6,075 26,075
1983 20,000 2,500 22,500
1984 20,000 2,500 22,500
1985 20,000 2,500 22,500
1986 $ 50,000 $ 4,500 20,000 30,000 104,500
Total transfers 50,000 4,500 70,000 160,000 53,575 338,075
Sale of property 9,414
9,414
Donation 750 750
Interest allocated to
specific functions 27,371 2,621 29,992
Total revenue and
other sources 50,000 4,500 106,785 160,000 56,946 378,231
Expenditures and Other Uses:
Transfers out:
Municipal building expansion (91,438) (91,438)
Direct expenditures (15,347) (96,484) (21,946) (133,777)
Sub -total $ 50,000 $ 4,500 $ -0- $ 63,516 $ 35,000 153,016
Add:
Unallocated interest earnings 13,622
Fund balance - December 31, 1986 $ 166,638
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City of Oak Park Heights, Minnesota
Management Report, Page 21
Brekke Park Improvement (402)
During 1984, the City established this fund to effect park improvements. The
financing and expenditures to date have been as follows:
Financing sources:
Transfer from General Fund $ 190,000
Interest on investments 298
Total $ 1 90, 298
Expenditures:
Contractor 163,647
Engineering 16,996
Legal and other 8,121
Transfer to General Fund (residual
equity transfer) 1,534
Total 190,298
Fund balance (deficit) - December 31, 1986 $ -0-
This project was complete at December 3, 1985, The City closed this fund in 1986
by a transfer to the General Fund.
EDP System (404)
The City established this fund in 1985 to account for all computer acquisition
costs. Financing for this fund was provided by a budgeted transfer of $50,000 from the
General Fund in 1985. Financing and expenditures (to date) have been as follows:
Financing sources:
Transfer from General Fund $ 50,000
Interest on investments 2,499
Total $ 52,499
Expenditures:
Hardware 22,012
Software 1 5, 945
Facility changes (electrical) 1,134
Other costs 1,472
Total 40,563
Fund balance - December 31 $ 11,936
City of Oak Park Heights, Miil..nesota
Management Report, Page 22
As of December 31, 1985, most hardware purchases had been made. During 1986, addi-
tional software and implementation costs were incurred. Remaining software of approxi-
mately $2,000 will be purchased during 1987. Upon full (or substantially full)
implementation of the system, we recommend that this fund be closed to the City's
General Fund.
Special Assessment Funds
The combining financial statements for the Special Assessment Funds are presented in
Statements 14 and 15 of the City's 1986 Annual Financial Report. A Special Assessment
Fund is organized to account for both the construction and financing of assessable
improvement projects.
During 1986, the City prepared a "Special Assessment Debt Service Study" based on
December 31, 1985 financial data. The cash flow schedules were computer generated which
allowed for presentation of various optional schedules.
The results of the most recent debt service study indicate that the Special
Assessment Debt Service Funds are in a sound financial position, and that these funds
should develop additional reserve balances if the City's assessment and tax collection
rates stay at a high level. We recommend that the City monitor actual results with pro-
jected results.
City of Oak Park Heights, Minnesota
Management Report, Page 23
Closed Bond Fund
During 1984, the City established the Closed Bond Fund. Initial funding for this
fund was provided through the residual balances of closed (or defeased) special
assessment bond funds of the City. A summary of transactions from inception is as
follows:
Financing sources:
General property taxes $ 1,402
Special assessments 16,113
Interest on investments 82,590
Interfund interest 7,413
Connection charges 49,529
Transfers in:
G.O. Bonds of 1967 and 1968 431,460
G.O. Bonds of 1976 59,526
G.O. Bonds of 1977 72,292
G.O. Bonds of 1978 and 1979 108,343
Sewer and Water Bonds of 1982 1,764
Total financing sources $ 830,432
Financing uses:
Professional services 1,178
Transfers out:
Sewer and Water Bonds of 1982 (construction) 40,364
G.O. Improvement Bonds of 1983 (construction) 4,270
Total financing uses 45,812
Fund Balance - December 31, 1986 $ 784,620
The purpose of the Closed Bond Fund is to receive residual balances of closed spe-
cial assessment bonds. Amounts on hand at December 31, 1986 are available for use at
the Council's discretion. We recommend that the City review the existing and projected
cash balance of this fund and establish City policy regarding the allowable use of such
monies. Several areas to consider are:
• Temporary funding of other debt service fund deficits.
• Supplemental financing of construction deficits.
• Full financing of minor construction projects.
• Supplemental financing of replacement of systems (water and sewer) which had
been previously assessed.
• Long -term capital improvement program financing (see later comments).
City of Oak Park Heights, Minnesota
Management Report, Page 24
Special Assessment Construction Accounts
The financial statements for these funds are presented in Statements 14 and 15 of
the 1986 Annual Financial Report. The City maintained the following construction funds
during 1986 and 1985.
Fund Balance (Deficit)
December 31, Increase
Description 1986 1985 (Decrease)
Interim Construction $ (107) $ (520) $ 413
Completed Construction 89,293 92,110 (2,817)
Totals $ 89,186 $ 91,590 $ (2,404)
Completed Construction (510)
This fund was established in 1977 by closing several construction accounts to one
account. This account has a fund balance of $89,293 at December 31, 1986. The fund
balance is composed of the following net assets at December 31, 1986 and 1985.
December 31,
1986 1985
Cash and investments $ 50,023 $ 45,612
Due from other funds 843 473
Special Assessments Receivable 38,439 47,248
Due to other funds -0- (1,211)
Refund payable (12) (12)
Totals $ 89,293 $ 92,110
City of Oak Park Heights, Minnesota
Management Report, Page 25
A summary of transactions in this fund from inception (1977) through December 31,
1986 is as follows:
Prior
Years 1986 Total
FINANCIAL SOURCES:
Transfers In /(Out) - Unbonded
Construction Projects:
• Swager #2 -5 $ 30,019 $ 30,019
• Port of Sunnyside 28,256 28,256
• Valley View Storm Sewer 9,693 9,693
• Prison Utilities (17,340) (17,340)
• Other 768 768
Interest on Investments 14,424 $ 3,232 17,656
Interest on Assessments 38,655 3,661 42,316
Other 2,236 437 2,673
Total Financial Sources 106,711 7,330 114,041
EXPENDITURES - Professional Services 14,601 10,147 24,748
REMAINING BALANCE $ 92,110 $ (2,817) $ 89,293
The remaining balance is available to be used by the City for Council designated
purposes.
Special Assessment Fund Reporting
National reporting standards have been amended regarding the financial statement
presentation for special assessment funds. The City will be required to amend reporting
procedures to comply with the new reporting standards.
The Governmental Accounting Standards Board (GASB) has issued Statement No. 6
(Accounting and Financial Reporting for Special Assessments). The most significant
changes which effect the City's Annual Financial Report are as follows:
1. Special Assessment Funds will no longer be presented in the combined and com-
bining financial statements of the City.
2. The City will now be required to split the balance sheet and operating state-
ment related to special assessment activities between the following funds and
account groups:
• Debt Service Fund
• Capital Project Fund
• Enterprise Fund
• General Long -Term Debt Group of Accounts
City of Oak Park Heights, Minnesota
Management Report, Page 26
3. Balance sheets contained in the combined and combining financial statements
will no longer present a matching of cash, special assessments receivable and
other assets compared to outstanding bond principal for the various special
assessment bonds of the City.
4. Projects which are funded in part by water and sewer fund reserves will
require a splitting of debt between the General Long Term Debt Group of
Accounts and the Enterprise Fund. The construction costs will require appor-
tionment on two separate bases of accounting (accrual versus modified
accrual). This reporting requirement may require separate internal fund
structure to comply with the terms of bond resolutions (legal requirement).
The City would then be required to apportion internal fund reporting to an
acceptable third party report format.
The accounting principals relating to special assessments have been under scrutiny
for a number of years. There have been a variety of proposals to amend the "generally
accepted accompanying principals" related to special assessment funds. Until the
issuance of GASB #6, there had been a lack concurrence of correct reporting procedures
and therefore financial statements were often not comparable between various cities.
Although we concur with the establishment of one consistent "generally accepted
accounting principal" for special assessments, there will be a different set of finan-
cial data published in the financial statements to judge and manage the special
assessment funds of the City. We recommend that the City plan for the conversion of the
1987 Annual Financial Report to the new reporting standards. We are available to
assist the City in this area.
City of Oak Park Heights, Minnesota
Management Report, Page 27
Enterprise Fund
The financial statements for the Enterprise Fund (Water and Sewer Utilities) are
presented in Statements 16, 17 and 18 of the City's 1986 Annual Financial Report.
Condensed comparative operating statements of income and expense for the utility opera-
tions excluding depreciation on contributed assets of the City are as follows:
Water Department
1986 1985
Amount Percent Amount Percent
Revenue:
Customer billings and other $ 89,213 100.00% $ 82,757 100.00%
Operating expenses:
Contractual services 24,022 26.93 26,832 32.42
Administrative and personnel charges 15,000 16.81 15,000 18.13
Other 15,787 17.70 4, 31 6 5.22
Total operating expenses 54,809 61.44 46,148 55.77
Net income before depreciation 34,404 38.56% 36,609 44.23%
Depreciation - purchased assets 7,498 7,559
Net operating income $ 26,906 $ 29,050
Water Operating Revenue and Expense
$90,000
$80,000
$70,000
$60,000
Contractual Services
$50,000
$40,000
All Other Expenses
$ �0 Operating Revenue
$20,000 -
$10,000 }
1982 1983 1984 1985 1986
City of Oak Park Heights, Minnesota
Management Report, Page 28
Sewer Department
1986 1985
Amount Percent Amount Percent
Revenue:
Customer billings and other $133,489 100.00% $119,060 100.00%
Operating expenses:
MWCC 83,373 62.46 65,253 54.81
Other contractual services 7,270 5.45 8,556 7.19
Administrative charges 15,000 11.23 15,000 12.60
Other 1,073 .80 769 .65
Total operating expenses 106,716 79.94 89,578 75.25
Net income before depreciation 26,773 20.06% 29,482 24.75%
Depreciation - purchased assets 2,018 2,079
Net operating income $ 24,755 $ 27,403
Sever 0peretin! Revenue end EXPenee
$140,000
$120,
$100,000 —
0 mwcc
$80,0 e All Other Expenses
$60 , cm — i
Operating OP � Revenue
$ +'fA d i'Yt' 0
�...VV VVS�.. V
1982 1983 1984 1985 1986
City of Oak Park Heights, Minnesota
Management Report, Page 29
The single largest expense of the Sewer Operations is the contractual services of
the Metropolitan Waste Control Commission (MWCC). The MWCC charges comprise over 75% of
sewer expenses. The City must set rates at levels adequate to pay for the pass- through
cost, or provide funding from other City funds. In view of this financial structure and
arrangement, the City's ability to exercise control over its sewer operations is
limited. The City could be construed to be acting only as an agent for the MWCC with
regard to sanitary sewer operations. A summary of MWCC charges is as follows;
MWCC Bimngs
$100,000
$90,000
$80,000 '
$ 0 ,000
' 000
$50,000
$40.1000 f E
$30,000
$20,000 :, r
$1 000 _ f
a _
� 1979 1980 1981 1982 1983 1984 1985 1986 1987
MVM Estmnated ® MVCC Actual
City of Oak Park Heights, Minnesota
Management Report, Page 30
The MWCC bills the City annually on an estimated basis. These estimated billings
are adjusted at a later date and the City is billed the additional amount or given a
refund. These estimated billings vary from year to year and may cause material variances
in annual profits or losses of the Sewer operations. The Metropolitan Waste Control
Commission billings for the period 1974 through 1987 (see graph) were as follows:
Estimated Actual
Percent Percent
Year Amount Change Amount Change
1974 $ (3,825) $ 258
1975 (1,954) 6,641
1976 4,682 11,698
1977 13,903 9,949
1978 20,387 8,723
1979 26,202 28.520 34,090 290.81%
1980 19,257 (26.51) 34,197 .31
1981 39,492 105.08 34,048 (.44)
1982 56,553 43.20 47,736 40.20
1983 66,348 17.32 43,970 (7.89)
1984 75,338 13.55 68,712 56.27
1985 71,879 (4.59) 69,509 1.01
1986 85,742 19.29 Not available
1987 95,219 11.05 Not available
Note: The bracketed figures above indicate payments from the MWCC.
There are two basic factors which contribute to increased billings from the MWCC.
The first is changes in use of the system. The estimated increase usage for 1987 over
1986 for the City of Oak Park Heights is 2.36% (from 127 to 130 million gallons). The
second factor which affects the billings from MWCC is their cost to process gallonage.
Their cost to process (per million gallons) remained constant in 1985 and 1986 at $787.
However, the 1987 cost to process increased 6.6% to $839. The combination of these fac-
tors increased the City's estimated cost in 1987 by 11 %. As the system gains users, the
increased usage part of overall increases should be offset by the billings to new users.
The per unit portion of the increase, however, must be borne in full by existing users
or be subsidized by overall City operations.
City of Oak Park Heights, Minnesota
Management Report, Page 31
The City must maintain an adequate level of income to:
° Offset MWCC expenses (and other City expenses).
• Meet bonded debt requirements ($22,000 to $28,000 per year).
' Provide for capital replacement.
• Establish a means of paying for emergency or unanticipated expenses such as
major repairs.
We concur with the City's efforts to commission rate studies and recommend that
annual rate reviews continue to be a standard procedure for the City.
Internal Accounting Controls
Current auditing standards require an auditor to communicate any material weaknesses
in internal accounting controls directly to City council and /or City Administrators.
Our examination for 1986, disclosed no material deficiencies in the City's system of
internal controls not identified in this report or past reports to the City Council.
As part of our examination, we made a study and evaluation of the
system of internal accounting control of the City of Oak Park Heights to
the extent we considered necessary to evaluate the system, as required by
generally accepted auditing standards. The purpose of our study and eva-
luation was to determine the nature, timing and extent of the auditing
procedures necessary for the expression of an opinion on the City's finan-
cial statements. Our study was more limited than would be necessary to
express an opinion on the system of internal accounting control taken as a
whole or on any of the categories of controls identified.
The City of Oak Park Heights is responsible for establishing and main-
taining a system of internal accounting control. The objective of inter-
nal accounting control is to provide reasonable, but not absolute,
assurance as to the safeguarding of assets against loss from unauthorized
use or disposition, and the reliability of financial records for preparing
financial statements and maintaining accountability for assets. The con-
cept of reasonable assurance recognizes that the cost of a system of
internal accounting control should not exceed the benefits derived and
also recognizes that the evaluation of these factors necessarily requires
estimates and judgments by management.
There are inherent limitations that should be recognized in con-
sidering the potential effectiveness of any system of internal accounting
control. In the performance of most control procedures, errors can result
from misunderstanding of instructions, mistakes of judgment, carelessness,
or other personal factors. Control procedures whose effectiveness depends
upon segregation of duties can be circumvented by collusion. Similarly,
control procedures can be circumvented intentionally by management either
with respect to the execution and recording of transactions or with
respect to the estimates and judgments required in the preparation of
financial statements.
City of Oak Park Heights, Minnesota
Management Report, Page 32
Also, projection of any evaluation of the system to future periods is
subject to the risk that the procedures may become inadequate because of
changes in conditions and that the degree of compliance with the proce-
dures may deteriorate.
Our study and evaluation made for the limited purpose described in the
first paragraph would not necessarily disclose all material weaknesses in
the system. Accordingly, we do not express an opinion on the system of
internal accounting control of the City of Oak Park Heights taken as a
whole. However, our study and evaluation disclosed that a substantial
portion of the accounting process is performed by a single employee.
Ideal conditions call for segregation of duties to establish a system of
internal testing of procedures performed. Additionally, our evaluation
disclosed that the City does not maintain a system of control over fixed
assets. These conditions are common to cities of this size. Any modifi-
cation of internal controls in these areas must be viewed from a
cost /benefit perspective.
These conditions were considered in determining the nature, timing,
and extent of the audit tests to be applied in our examination of the
December 31, 1986 financial statements, and this report does not affect
our report on the financial statements dated March 13, 1986.
This report is intended solely for the use of the City of Oak Park
Heights and should not be used for any other purposes.
Other Internal Control Areas
During the course of the audit, the following areas were noted which represent minor
areas of internal control which should be improved.
Council Minutes
The City Council apparently approved a pay increase for part -time police officers on
November 26, 1986. This Council action was not reflected in the official minutes of
the City Council. We recommend that the official minutes include such Council
approvals.
Revenue Sharing
The audit disclosed that the publication of the availability of the Use Report of
Revenue Sharing Funds was not made. We recommend that the City publish this notice.
Utility Billings
The utility billing system does not have the ability to calculate certain charges on
the exact basis of the City Council approving resolution. This results in billing
misstatements (in certain instances) of So or 100. The City has determined that a
software adjustment is not cost beneficial.
City of Oak Park Heights, Minnesota
Management Report, Page 33
Computer System
The City's Finance /Administration Department has implemented the following phases of
the computer system:
Utility accounts receivable
• Word processing
• General ledger including accounts payable, receipting and bank
reconciliations.
Payroll
The Police Department substantially implemented all phases of applications. We
recommend that the City continue to monitor the security and accuracy of the system and
evaluate the adequacy of the support provided by the software vendor.
Capital Replacement /Acquisition Budgeting
For the past several years the City has been taking steps to improve the financial
position and strength of its primary operating funds (General and Water /Sewer Utility)
and Debt Service Funds. These actions have resulted in a solid financial position for
the City today. It is now appropriate for the City to implement policy and procedures
to insure continued financial soundness while maintaining the desired level of current
services.
The operating funds of the City (General and Water /Sewer Utilities) are controlled
by the annual budget process and budgetary reporting. This process and system
(augmented by the new EDP accounting system) is sufficient to provide controls to
insure future financial soundness.
City of Oak Park Heights, Minnesota
Management Report, Page 34
The Capital Funds of the City (Capital Project Funds the Special Assessment -
Construction Accounts) do not function on an annual cycle. Additionally, Enterprise
Fund Capital replacement /acquisition requirements fluctuate substantially. Accordingly,
an annual budget will not provide sufficient controls to insure future financial sound-
ness. These projects /programs are long -term in nature and require long -term budgetary
controls. Additionally, such controls must be fashioned in such a way as to allow for
constant updating as required by changing circumstances.
The 1986 operating budget (General Fund) of the City included transfers of $104,500
for major capital outlay budget items.
We recommend that the City begin a policy of capital budgeting (long -term) in addi-
tion to annual operating budgets. Our office is available to develop a capital
budgeting system on one of our PC systems. Once developed, this system may be trans-
ferable to the City's new EDP System.
City of Oak Park Heights, Minnesota
Management Report, Page 35
Summary
The following listing is a summary of the items which should be recorded, investi-
gated and /or resolved during 1987.
• Continue to monitor legislative actions which can affect the financing of City
government. (Page 1)
• Contact the County to reconcile various deferred special assessment balances.
(Page 9)
• Clarify the interest terms for current and future special assessment deferrals.
(Page 10)
• Review the benefits of establishing computerized fixed asset records. (Page 11)
• Obtain final construction costs for developer contributed assets and add this
information to the Enterprise fixed assets records. (Page 11)
• Continue efforts to monitor and maintain adequate reserve balances in the City's
General Fund. (Pages 13 to 16)
• Consider adopting a formal policy on required reserve balances of the General
Fund. (Page 16)
• Close the Revenue Sharing Fund by amending the 1987 budget to expend all
remaining Revenue Sharing Fund monies. (Page 17)
• Close the Storm Sewer Drainage Improvement Fund through a transfer from the
General Fund. (Page 20)
• Close the EDP System Fund to the General Fund upon full implementation of the
system. (Page 22)
• Monitor actual results of the Special Assessment Debt Service Funds with the
projected results. (Page 22)
• Establish City policy regarding intended use of the existing and projected
balance of the Closed Bond Fund. (Pages 23 to 24)
• Plan for the conversion of the 1987 Annual Financial Report to the new reporting
standards required by GASB Statement 6. (Pages 25 to 26)
• Continue efforts to review utility rates as reported in the City's "Water and
Sewer Rate Study ". (Pages 27 to 31)
City of Oak Park Heights, Minnesota
Management Report, Page 36
• Include all Council approvals in the official minutes of the City Council.
(Page 32)
• Continue efforts to review internal computer systems and review internal
controls affected. (Page 33)
• Begin a policy of capital budgeting (long -term) in addition to annual operating
budgets. (Page 34)
Respectfully submitted,
VOTO, TAUTGES, REDPATH & CO., LTD.
Certified Public Accountants
May 1, 1987