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Home My WebLink AboutAudit Management Letter CITY OF OAK PARK HEIGHTS, MINNESOTA AUDIT MANAGEMENT LETTER December 31, 2003 XM Tatxtges Redpa Ltd. Certified Pnblic Acconniants an(] ConsnItants To the Honorable Mayor and Members of the City Council City of Oak Park Heights, Minnesota We have. cornpleted the 2003 audit of the City of Oak Park heights., Minnesota and have issued onfr report thereon. Otir Independent Anditor's Report is incliAed in the City's Annual Financial Rcport. I'llis Management Letter provides a stinimary of audit results along with comparisons and trend analysis of resents. Thank yoti lor the opportunity to serve the City. We are available to discuss this report Witt) year..), March 1 (8, 200/1- A9 1-11JI TAUTGES REDPATI-1, LTD. Cedified Public Ac.cotintants White 8ear Lake Office,: 481 White Bear Parkway, While Bear Lako, Wrinom.)[a 55110, USA Hastings Office: 1303 Smith Fronla ' (to Road, Stji le 13, 1 lastirigs, MN 55033, USA 651 480 4990 Fax: 651 Vb!)004 HLB lautijes Hodpath, Ltd is a membfir of R I NInicomoonal A world wide ofganualton (if 'iccomiting homs and business advisors • ® 0 • Audit Management Letter Report Summary REPORT SUMMARY Several reports are issued in conjunction with the audit. A very brief summary is as follows: .• • IVI T ®• Required Reports Annual Financial Relmr•t (A FR) ® Financial statements a Unqualified ( "clean ") • Footnotes opinion on the General • Supplemental information Purpose Financial Statements Rel)ort on ComlViance and Internal Results of testing ® No compliance findings Control ® Internal controls over ® No reportable conditions financial reporting in internal control. ® Compliance with laws, regulations, contracts and grants State Legal C'omplianee Report @ Results of testing certain No compliance findings provisions of Minnesota Statutes Discretionary e Management Letter Inlendecl to be a working tool for w See page 3 of this report City Council for Executive Summary ® Comparisons and trend analysis ® Outside factors influencing the City, such as State funding ® Policies and procedures • ® ® • 0 Audit Management Letter Executive Summary EXECUTIVE SUMMARY Several areas highlighted for your reference include the following: O The City's property tax collection rate continues to be very .strong (99% Page 4 for 2003). O The City has minor delinquent special assessment balances, which is the k result of very good collection rates (99% for 2003). Page 7 O The General Fund balance increase of $365,000 during 2003 is a result of favorable budget variances in both revenues and expenditures. Page "14 i O The General Fund balance at December 31, 2003 was sufficient to fulfill all the reserve requirements per City policy. page 20 The financial reporting requirements of GA.SD 34 will be effective for 2004. Audit Management Letter Combined Balance Sheet COMBINED BALANCE SHEET The Combined Financial Statements provide an "all funds" financial presentation of the City, 'These financial statements are presented on pages €3 through 13 of the 2003 Annual Financial Report. The following comments relate to these financial statements. Pi - o perty Taxes Property taxes receivable consist of taxes levied in the previous seven years by the City but not yet collected by the County and remitted to the City. The collection rate on property taxes remains strong as illustrated below. 2000 2001 2002 2003 Current levy $1,440,200 $1,588,435 $1,967,579 $1,993,003 Less market value homestead credit - - (100,985) (88,486) Net levy 1,440,200 1,588,435 1,866,594 1904,517 Receipts: Current 1,426,390 1,566,938 1,803,503 1,891,046 Delinquent 13,454 16,563 (18,789) 12,386 Total receipts 1,439,844 1,583,501 1,784,714 1,903,432 Adjustments (2,220) (2.851) (85,905) 10,293 Increase (decrease) in delinquent taxes receviable (1,864) 2,083 (4,025) 11,378 Delinquent taxes - January 1 23,980 22,116 24,199 20,174 Delinquent taxes - December 31 $22,116 $24,199 $20,174 $31 552 Current collection as a percent of current levy 99.0% 98.6% 96.8% 99.3% Total collections as a percent of current levy 100.0% 99.7% 90.7% 95.5% e 0 6 16 Audit Management Letter Combined Balance Sheet During 2002, the taxable valuation of the St. Croix Mall was reduced resulting in abatements of unpaid taxes on this property, and the repayment by the City of taxes collected in prior years. Tax bevies, Tax Rates and Tax Cavacit-� A comparison of values for taxes payable in 2002, 2003 and 2004 is as follows: 2002 2003 2004 Market value $349,905,900 $406,640,800 $447,871,200 Tax capacity values: Real estate $5,085,897 $5,895,692 $6,363,354 Personal property 77,543 78,851 82,573 Subtotal 5,163,440 5,974,543 6,445,927 Fiscal disparity contribution (611,097) (657,651) (798,048) Fiscal disparity distribution 221,368 2.53,076 313,675 Total $4,773,711 $5,569,968 $5,961,554 Tax capacity rates 41.741 35.799 Not available Tax levy $1,967,579 $1,993,003 $2,054,070 Audit Management Letter Combined Balance Sheet /\ schedule of "Pay 2004 Tax Capacity 6n Classification" iGas follows: CITY OF OAK PARKS HEIGHTS -PAYABLE 2004 Puncentof City Total Real estate: /\ noohoo` mtead 30,390 0.6% . Seasonal 2 0.0% Residential homestead 1,954,027 303% Residential nouhooexteud sing unit 135/516 2.1% Residential noohonestoudl-3units 87,851 1.4% Residential nonhonestoudapartments 425 6.6% Total residential 04y.2l7 |0.|�� - -~ Commercial 2,294,385 35.6% Industrial 0,448 0.1% Railroad 2,628 0.0% Totaloon`mcroial6oduntrial 2,303,461 95.7% Public utility 233 3.6% Public utility uloogcomachinery 1 16.5Y6 Public utility other machinery 117 1.8% Total utility 1�17 __ 22.0% Total real estate 6,363,354 98.7% Personal property uu ___ 82 l.31.3% Tu �l�xpad t y 6,445,927 100.0% | --- ' - Tax Capacity by Property Class H CA 35.7% 114 !1 1111 10 6 Total Residential Persoiral Property 1.3% Total Utility 22.0% Nonlionvestead 10 1%. -- - Audit Management Letter Combined Balance Sheet Special Assessments Receivable Special assessments receivable consisted of the following types and amounts: December 31, Increase Description 2002 2003 (Decrease) Delinquent $6,267 $634 ($5,633) Deferred 1,190,879 973,853 (217,026) Due from County 3,824 4,029 205 Totals $1,200,970 $978,516 ($222,454) Delinquent special assessments receivable consist of amounts which have been spread for collection in 2003 and prior years but have not been collected at December 31, 2003. The City has minor delinquent balances which is the result of very good collection rates (99.7% for 2003). Deferred special assessments consist of the remaining principal installments on assessment rolls. These assessments are generally collectible over a time period consistent with the debt payment schedule of the related bond issue. • Audit Management Letter Combined Balance Sheet Bonds Payable The City had three bond issues outstanding during 2003. A summary of the 2003 activity of each bond issue is as follows: General General General Obligation Obligation Obligation Improvement Refunding Refunding Bonds Bonds Bonds of 1998 of 2001 of 2002 Totals Balance - January 1, 2003 $1,400,000 $360,000 $510,000 $2,270,000 Bonds issued - - - - Principal payments (150,000) (125,000) (135,000) (410,000) Balance - December 31, 2003 $1,250,000 $235,000 $375,000 $1,860,000 Detail of outstanding bond issues is contained in Exhibit 2 of the 2003 Annual Financial Report. A summary of the City's bond issues is as follows: Maturity Bond Issue Repayment Source Date Bonds of 1998 Special assessments and connection charges 12/1/13 Bonds of 2001 Property taxes and special assessments 12/1/05 Bonds of 2002 Connection charges 12/1/06 • f ,ak Park Heights, • ............. . ... Audit Management Letter General Fund GENERAL FUND The General Fund of the City is maintained to account for expenditures common to all cities (general government, public safety, public works, recreation and community development). A history of major revenue sources that support the General Fund are as follows: Property Taxes State Aids All other Total Revenue Year Amount Percent Amount Percent Amount Percent Amount Percent 1994 $1,232,906 68% $118,768 7% $465,964 25% $1,817,638 1 00% 1995 1,354,677 68% 124,860 6% 520,466 26% 2,000,003 100% 1996 1,390,443 66% 119,274 6% 581,850 28% 2,091,567 100% 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* 1,919,203 78% 66,040 3% 477,813 19% 2,463,056 100% *Budgeted 2003 Actual State Aids 2% Other 27% Prop • • - Audit Management Letter General Fund A graph of property taxes, state aids, and other revenue for the General Fund is as follows: $2,000,000 General Tend Revenue by Source $1,800,000 $1,600,000 $1,400,000 - -- $1,200,000 –'-- Ip- - -- - --I _ M State Aids N Other Revenue $1,000,000 111 Property Taxes $800,000 - -- °— -- $600,000 rI�I t $400,000 $200,000 n I, $0 t I 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Budget Audit Management Letter General Fund State Aids State aids of the General Fund have consisted of the following for the past six years (with 2004 budget): 2004 State Aid 1998 1999 2000 2001 2002 2003 Budget H.A.C.A. $74,464 $74,983 $79,583 $79,603 $ - $ - $ Market value homestead credit - - - - 97,935 LGA - - 4,878 4,878 4,881 Local performance aid 5,133 4,884 - - - - Police aid 51,198 56,409 57,013 53,650 55,525 58,370 56,000 Other state revenue 2,689 3,599 4,040 4,161 2,040 2,040 10,040 Totals $133,484 $139,875 $145,514 $142,292 $160,381 $60,410 $66,040 Change $6,391 $5,639 ($3,222) $18,089 ($99,971) $5,630 % Change 5% 4% (2 %) 13% (62 %) 9% Other General Fund Revenue Other revenue of the General Fund have consisted of the following for the past five years (with 2004 budget): 2004 Description 1999 2000 2001 2002 2003 Budget Licenses and permits $227,693 $314,527 $213,651 $183,596 $313,273 $157,315 Charges for services: Refuse charge - Junker settlement 25,718 27,655 28,422 28,460 52 - Enterprise 80,655 99,400 95,300 89,780 87,205 90,860 Tax increment administration fee 7,253 3,450 452 - - - Construction/engineering fee 56,632 - - 2,083 14,613 - Other 23,767 18,092 30,097 23,706 18,455 15,000 Inspections 36,122 45,018 43,047 44,064 88,751 41,000 Fines and forfeits 58,886 56,326 63,655 63,211 61,146 69,000 Earnings on investments 36,970 48,363 48,559 32,052 32,067 28,000 Other 121,066 99,195 108,101 99,986 90,648 76,638 Total $674,762 $712,026 $631,284 $566,938 $706,210 $477,813 Emma Audit Management Letter General Fund Defuse Charge — Junker Settlement Effective January 1, 1998, the City council authorized an additional refuse charge of $6.50 per quarter. This additional charge was effective for five years and ended December 31, 2002. This surcharge was designed to recover a 1996 court judgment and other costs of approximately $140,000 related to the landfill lawsuit. Surcharge revenue has been as follows: Year Amount 1998 $28,887 1999 25,718 2000 27,655 2001 28,422 2002 28,460 2003 52 Total $139,194 Administrative Fee m Enterprise Prior to 1998, the General Fund received an administrative fee from the Water and Sewer Utility Fund. This fee was designed to reimburse the General Fund for labor and overhead costs incurred. Beginning in 1998, the City eliminated the labor portion of the administrative fee and began allocating actual labor costs directly to the Water and Sewer Utility Fund. The administrative fee is designed to reimburse the General Fund for overhead costs only. .d • Audit Management Letter General Fund Administrative Fee ® Capital Proiects The City's General Fund incurs costs related to capital improvement projects. 'These costs include staff time, supplies, and other overhead items. The City established a 1 1 /2% administrative fee to recover these costs effective January 1, 1999. The administrative fee is charged to a project with the corresponding revenue receipted in the General Fund. The fee is charged at project inception and is based on the contract awarded. During 2003, one project was charged $14,613 for administrative fees. Budget Versus Actual Comparison The fund balance of the General Fund was $1,694,611 at December 31, 2003 representing a $365,382 increase during 2003. The following schedule illustrates the change in fund balance on a budget variance basis. 2003 Favorable (Unfavorable) 2004 Budget Actual Variance Budget Revenue: General property taxes: Current and delinquent $1,842,516 $1,844,234 $1,718 $1,904,203 Payment in lien of taxes 15,000 13,912 (1,088) 15,000 Other taxes - 1,057 1,057 - Total general property taxes 1,857,516 1,859,203 1,687 1,919,203 Intergovernmental 179,078 79,171 (99,907) 81,778 Licenses and permits 166,050 313,273 147,223 157,315 Charges for services 142,905 209,076 66,171 146,860 Fines and forfeits 67,000 61,146 (5,854) 69,000 Earnings on investments 30,000 32,067 2,067 28,000 Refunds and reimbursements 59,175 69,903 10,728 60,900 Donations and contributions - 1,500 1,500 - Other - 484 484 - Total revenue 2,501,724 2,625,823 124,099 2,463,056 Audit Management Letter General Fund 2003 Favorable (Unfavorable) 2004 Budget Actual Variance Budget Expenditures: General government: Mayor and council $75,940 $58,984 $16,956 $63,990 City administration 147,505 131,747 15,758 177,710 Legal 28,500 21,847 6,653 30,000 General management and building 75,800 63,423 12,377 63,375 Elections 250 1,824 (1,574) 5,790 Finance 172,635 170,115 2,520 159,950 Computer system 7,000 6,435 565 20,000 Audit 13,000 12,750 250 14,500 Insurance 233,770 222,385 11,385 250,350 Assessing 18,500 18,126 374 18,700 Planning and zoning 29,500 28,757 743 29,150 Engineering 27,000 30,526 (3,526) 27,000 General contingency 10,000 2,113 7,887 10,000 Total general government 839,400 769,032 70,368 870,515 Public safety: Police department 850,565 814,746 35,819 880,155 Building inspections 110,125 101,646 8,479 110,285 Fire protection 97,280 99,680 (2,400) 1 18, 185 Animal control 1,650 1,334 316 1,900 Total public safety 1,059,620 1,0 42,214 1, 110,525 Public works: Street maintenance 41,070 30,618 10,452 40,010 Snow removal 67,300 56,699 10,601 61,900 Street lighting 48,000 44,803 3, 197 48,000 Arborist 10,505 10,397 108 - Tree removal and planting 18,500 18,207 293 25,505 Total public works 185_,375 160,724 24,651 175,4 15 Recreation: Parks, playgrounds and rinks 101,155 95,818 5,337 110,395 Community development 27,130 19,796 7,334 - Total expenditures 2,212,680 2,062,776 149,904 2,266,850 Revenue over expenditures 289,044 563,047 274,003 196,206 Other financing sources (uses): Operating transfers to Capital Project Fund (98,000) (109, 165) (11,165) (99,800) Operating transfers to Enterprise Fund (88,500) (88,500) (88,500) Total other financing sources (uses) (186,500) (197,665) (11,165) (188,300) Net increase in fund balance $102,544 $365,382 $262,838 $7,906 Amm • Audit Management Letter General Fund As shown on the previous page, the General Fund balance increased by $365,382 as the result of positive budget variances primarily relating to expenditures as follows: Budget actual Variance Revenue /transfers in $2,501,724 $2,625,823 $124,099 Expenditures /transfers out 2,399,180 2,260,441 138,739 Increase in fund balance `6102,544 $365,382 $262,838 A summary of the significant budget variances is as follows: Revenue: Intergovernmental — the unfavorable budget variance is related to the state aid cut (market value homestead credit). Licenses and Permits — the favorable budget variance relates to higher activity than was anticipated. Expenditures: General Government — City Administrator — at the time the budget was prepared, the City administrator position was unfilled, the budget assumed the position would be filled for the entire year, but the position wasn't filled until April 2003. Mavor and Council — the budget anticipated costs for professional services (lobbying) that was delayed until 2004. Also, printing and publishing was less than anticipated. e e Audit Management Letter General Fund General Fund — Long Term Commitments During 1996, the City approved a pledge of $200,000 to the St. Croix Sport Facility Commission. A summary of the activity related to this pledge is as follows: Year Payments Balance Beginning balance $200,000 1998 $50,000 150,000 1999 15,000 135,000 2000 15,000 120,000 2001 15,000 105,000 2002 15,000 90,000 2003 15,000 75,000 The remaining amount will be paid in annual installments of $15,000. Audit Management Letter General Fund General Fund Reserves The fund balance of the General Fund increased in 2003. The schedule below reflects the General Fund balance for the past ten years: Year Ended Fund Increase December 31, Balance Decrease 1993 $1,106,882 1994 1,197,835 $90,953 1995 1,280,597 82,762 1996 1,312,593 31,996 1997 1,246,347 (66,246) 1993 1,186,663 (59,684) 1999 1,191,081 4,418 2000 1,230,101 39,020 200 t 1,173,118 (106,983) 2002 1,329,229 156,111 2003 1,694,611 365,382 The 1997 decrease in fund balance was the result of the council decision to use fund balance rather than levy taxes for the Bonds of 1995. The 1993 decrease in fund balance was a budgeted decrease. The 2001 decrease was the result of unfavorable variances in both revenue and expenditures. The 2003 increase was the result of favorable budget variances for both revenues and expenditures (see page 15). Sm Audit Management Utter General Fund Fund Balance $1,800,000 $1,600,000 $1,400,000 •... ,. ,,,.,.., ,... .—.'u . Actual Fund Balance . " „,. $1,200,000 � ”` Desired Fund Balance $1,000,000 $800,000 $600,000 1996 1997 1998 1999 2000 2001 2002 2003 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: Cash Flow Timing Favorable bond rating Supplements revenues Difference indicator with investment income Intergovernmental Capital Outlay Revenue Cutbacks Replacement I�III�i Provides resources for Avoids temporary mirror projects or overdrafts prior to major feasibility reports receipts i { t Avoids overburdening Provides the City greater options to deal f, � ,I 'I llj'I t I of annual budgets for Emergency or certain capital outlay Unanticipated Special with unexpected events Expenditures Projects • Samoa • • • 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. At December 31, 2002 and 2003, the General Fund balance was reserved or designated as follows: General Fund Balance December 31, 2002 2003 Designated for: Cash flow $973,000 $996,000 Contingent employee benefits 122,365 128,458 General contingency 233,864 368,000 Subtotal - designated 1,329,229 1,492,458 Undesignated - 202,153 Total fund balance $1,329,229 $1,694,611 • Audit Management Letter General Fund Cash Flow Reserve Property taxes and related state aids account for approximately 73% 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 $996,000, computed as follows: Cash Flow Reserve 2004 tax levy (includes market value homestead credit aid) $1,992,650 Recommended reserve (one -half of tax levy and state aids) $996,000 1 • . 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: $1,800,000 General Fund Montlily Casl1 Balances $1,600,000 $1,400,000 $1,200,000 $1,000,000 — $686,000 decrease $800,000 $600,000 $400,000 $200,000 — Imilt 1/1/2004 1 1/31/2004 212812001 313112004 4/30/20114 5/31/2004 6/30/2004 7/312004 01/2004 9/30/2004 10/3!/2004 II 30/21104 12/31/2004 I•Scriesl $1,142,000 $1,227,000 $1,062,000 $906,000 $756,000 $608,000 $456,000 $1,281,000 $1,209,000 $1,062,000 $1,070,000 $985,000 $1,665,000 As shown above, the cash balance decreased $686,000 between January 1 and June 30, illustrating the need for the cash flow reserve. We recommend the City continue to monitor the cash flow needs of the General Fund. ESM Audit Management Letter General Fund Contingent Emiplovee Benefit Deserve The employee benefits reserve is computed based upon accrued, but unpaid, employee benefits as follows: Employee Benefits Reserve December 31, Employee Benefit 2002 2003 Vacation leave carryover $26,889 $25,741 Severance 95,476 102,717 Total $122,365 $128,458 This reserve was established to recognise 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 has 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 Contin2enev Reserve The amount of General Fund reserve required to meet emergency and /or unanticipated expenditures is not readily quantifiable. loather, 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 3 "1, Description 2002 2003 Ensuing year's budget $2,501,680 $2,455,150 Reserve amount (r) 15 %, $375,000 $368,000 Amount available (ci) December 31 $233,864 $570,153 As shown above, the fund balance available at December 31, 2003 is greater than the amount needed to fulfill the contingency reserve requirement. Audit Management Letter Special Revenue Funds 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 2003. Forfeiture and Seizure Fund This fund was established in 199 1 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 Fears 2003 Total Revenue: Intergovernmental - bulletproof vests $7,170 $ - $7,170 Earnings on investments 5,919 986 6,905 Reimbursements 3,011 462 3,473 Confiscated property 80,417 4,122 84,539 Sale of municipal property 2,517 2,529 5,046 Total $99,034 $8,099 107,133 Expenditures: Public safety: Materials and supplies $16,561 $1,361 17,922 Contractual services 4,2 t7 1,327 5,544 Capital outlay 49,056 1,978 51,034 Total $69,834 $4,666 74,500 Fund balance - December 3 t, 2003 $32,633 The use of these funds is restricted by MS 609,531 subd. S to "supplement the agency's operating fund or similar fund for use in law enforcement." 0 Audit Management Letter Special Revenue Funds Economic Development Fund This fund was established in 1993 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 Years 20 Total Revenue: Earnings on investments $19,166 $1,599 $20,765 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 $282,886 $1,599 284,485 Expenditures: Community development: Materials and supplies $457 $ - 457 Contractual services 29,674 390 30,064 Interfund loan interest 70,000 - 70,000 Capital outlay 121,500 - 121,500 Transfer to Capital Revolving Fund 11,113 - 11,113 Total expenditures $232,744 $390 233,134 Fund balance - December 31, 2003 $51,351 H Audit Management Letter Special Revenue Funds During 1998, the City purchased the Bell property. The City demolished the building in 1999 and is marketing the property as a business and industrial site. The estimated value of the property is approximately $124,500 (61,000 square feet @ $2.04 per square foot). The fund deficit was funded by a $260,000 interfund loan from the Capital Devolving Fund. This fund did not have the resources to repay the interfund loan. Therefore, the City forgave the interfund loan. If a sale of the Bell property occurs, the proceeds should be receipted in the Capital Devolving Fund. • Audit Management Letter Debt Service Funds DEBT SERVICE FUNDS The combining financial statements for the Debt Service Funds are presented in Statements 10 and 11 of the 2003 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 three Debt Service Funds during 2003 as follows: Fund Balance December 31, Increase Fund 2002 2003 (Decrease) G.O. Crossover Refunding Bonds of 1993 / Refunding Bonds of 2002 $331,985 $360,864 $28,879 G.O. Improvement Bonds of 1995 /Refunding Bonds of 2001 147,162 111,803 (35,359) G.O. Improvement Bonds of 1998 108,984 117,542 8,558 Totals $588,131 $590,209 $2,078 Refunding Bonds of 2002 The Mater and Sewer Revenue Bonds of 1991 were issued to provide financing for Phase 1 of the City 9s Annexation Area Extended (A.A.E.) Trunk facility improvements. The City established special area connection charges to provide for the retirement of these bonds and for financing additional trunk facilities in this area. These bonds were refinanced by the Refunding Bonds of 1993 to reduce interest costs by approximately $95,000 over the remaining term of these bond issues. During 2002, the bonds were again refinanced by the Refunding Bonds of 2002 to reduce interest costs by an additional $ 17,000. During 2002, the City transferred $145,000 from the A.A.E. Connection Charge Funds to this Debt Service Fund for this bond issue. This cash transfer (along with special assessments and other assets committed to these bonds) will be sufficient to meet the 2003 through 2005 scheduled debt payments. __Am E M Audit Management Letter Debt Service Funds Future 2004 planned cash transfers are as follows: Sanitary Water Year Sewer Works Total 2004 $5,000 $50,000 $55,000 A projection of cash flow of the Water and Sewer Refunding Bonds of 1993 / Refunding Bonds of 2002 assuming cash transfers from the Connection Charge Fund is as follows: City of Oak Park tteiglrts, Nlinnesota Projection of Cashflow Water and Sewer Refunding Bonds of 2002 Total Cash Balance Property Special Investment Projected Debt Other Cash Balance Year January 1 Taxes Assessments Transfers Interest Receipts Payments Disbursements December 31 2004 $360,864 $ $ $55,000 $3,502 $58,502 $158,323 $ $261,043 2005 261,043 - 2,459 2,459 165,323 98,179 2006 98.179 - 922 922 66,722 32,379 Total $0 $0 $55,000 $6,883 $61,883 $390,368 $0 Assumptions Special assessment collection rate.......... 95% Property tax collection rate .............. 99% Investment interest rate .... .......... . .......... 100% Negative interest charged to funds'? ...... . .. no As shown above, this fund has a projected surplus of $32,379 upon final bond maturity. This projection indicates the City is able to reduce the planned transfer from the Connection Charge Funds. 0 Audit Management Letter Debt Service Funds G.O. IRefundin2 Bonds of 2001 This bond was issued to provide financing for the first phase of the street reconstruction project. This bond will be repaid by a combination of special assessments and property taxes. A projection of cash flow of the Refunding Bonds of 2001 is as follows: City or Oak Park Heights, Minnesota Projection of'C'ashtlow General Obligation Refunding Bonds of2001 Total Cash Balance Property Special Other Investment Projected Debt Other Cash Balance Year January 1 'faxes Assessments Receipts Interest Receipts Payments Disbursements December 31 2004 $146,009 $60,766 $29,764 $ $1,558 $92,088 $132,325 $ $105,772 2005 105,772 61,380 28,052 1,178 90,610 113,575 82,807 2006 82,807 - - 828 828 - 83,635 Total $122,146 $57,816 $0 $3,564 $183,526 $245,900 $0 Assumptions Special assessment collection rate .................... 95 %, Property tax collection rate . ............................... 99% Investment interest rate ... ............................... 1.00% Negative interest charged to Funds ? .................. no As shown above, this fund is projected to have a surplus of $83,000 upon final bond maturity. Audit Management Letter Debt Service Funds G.O. Improvement ovement Bonds of 1998 This bond was issued in 1998 to provide financing for fern Center and Phase Three of the 58` Street improvement, This bond is scheduled to be repaid by special assessments and connection charges. The assessment rolls for both projects were adopted in 1999. A projection of cash flow of the Improvement Bonds of 1998 is as follows: Cite of Oak Park Heights, Minnesota Projection orCashfloNv General Obligation Improvement Bonds of 1998 Total Cash Balance Property Special Other Investment Projected Debt Other Cash Balance Ycar January I 'faxes Assessments Receipts Interest Receipts Payments Disbursements December 31 2004 F115.378 $ $111,625 $55,000 $1,199 $167,824 $177,688 $ $105,514 2005 105,514 107,590 50,000 1,102 158,692 172,812 91,394 2006 91,394 103,555 55,000 972 159,527 167,813 83,108 2007 83,108 99,521 50,000 892 150,413 162,687 70,834 2008 70,834 95,486 50,000 776 146,262 157,500 59,596 2009 59,596 91,452 50,000 671 142,123 152,250 49,468 2010 49,468 87,417 50,000 578 137,995 146,938 40,525 2011 40,525 83,382 45,000 492 128,874 141,562 27,838 2012 27,838 79,348 50,000 377 129,725 136,125 21,437 2013 21,437 75,313 30,000 305 105,618 130,625 (3,570) 2014 (3,570) 71,278 - 142 71,420 67,851 Total $0 $1,005,967 $485,000 $7,506 $1,498,473 $1,546,000 $0 Assumptions Special assessment collection rate ............ .. 95% Property tax collection rate......... .... 99% Investment interest rate .... ......... ....... 100% Negative interest charged to funds " ............. no As shown above, this Debt Service Fund will require connection charge revenue to finance the debt service. Audit Management Letter Capital Project Funds CAPITAL PROJECT FUNDS The financial statements for the Capital Project Funds are presented in Statements 12 and 13 of the City's 2003 Annual Financial Report, The fund balance (deficits) of the Capital Project Funds were as follows at December 31, 2002 and 2003° December 31, Increase Fund 2002 2003 (Decrease) Capital Revolving $344,630 $423,629 $78,999 Budgeted Projects and Equipment Devolving 174,255 244,524 70,269 Superamerica /Valvoline Oil 2,425 2,761 336 Park Development 329,474 315,204 (14,270) Street Reconstruction 382,430 394,666 12,236 Renewal and Replacement 2,039,446 2,19 1,864 152,418 Central Business District (190) - 190 Brekke Park Memorial 216 223 7 Mclean Square - - AAE - Fern Center 4,660 (4,660) Boutwells Landing - - - AAE - Oak Park Station Phase It - - - AAE - Sanitary Sewer Connection 307,599 405,985 98,386 AAE - Water Connection 145,243 253,542 108,299 AAE - Storm Sewer Connection 644,246 930,231 285,985 Totals $4,374,434 $5,162,629 $788,195 0 Audit Management Letter Capital Project Funds Capital Revolvini? Fund During 1984, the City established the Capital Revolving Fund (formerly Closed Bond Fund). Initial financing for this fund was provided through the residual balances of closed (or defeased) special assessment Debt Service Funds of the City. A summary of transactions for 2002 and 2003 is as follows: Capital Revolving Fund Description 2002 2003 Financial resources: General property taxes $9 $12 Special assessments 88,957 83,880 Earnings on investments 11,242 11,349 Refunds and reimbursements - 77 Total financial resources 100,208 95,318 Financial uses: Expenditures 13,874 16,319 Total financial uses 13,874 16,319 Increase in fund balance 86,334 78,999 Fund balance - January 1 258,296 344,630 Fund balance - December 31 $344,630 $423,629 0 ° 0 0 Audit Management Letter Capital Project Funds Budgeted Protects and Equinment RevolvinL- 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. A schedule of activity for 2002 and 2003 is as follows: Description 2002 2003 Financial resources: Earnings on investments $5,953 $5,874 Donations 93,700 2,605 Refunds and reimbursements 14,888 5,750 Sale of equipment - 8,188 Transfers in: General Fund 112,375 108,975 Enterprise Fund 7,600 9,900 Total financial resources 234,516 141,292 Financial uses: Expenditures: Scatcoat /crackfilling 59,870 - Vehicles 25,821 38,108 Furniture and equipment 5,579 22,634 Computers 6,200 10,008 Recreation 10,409 - Other - 273 Total financial uses t07,879 71,023 Increase in fund balance 126,637 70,269 Fund balance - January t 47,618 174,255 Fund balance - December 31 $174,255 $244,524 • ® • • Audit Management Letter Capital Project Funds 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, 2003: Balance Balance Purpose 12/31/2002 Revenues Expenditures 12/31/2003 Sealcoat /crack seal $13,325 $35,000 $ - $48,325 Recreation: Park building 130,000 - - 80,000 Other 19,474 5,000 - 24,474 Computers - 28,000 (10,008) 17,992 Vehicles: Police 679 38,188 (28,390) 10,477 Public works 15,375 9,900 (9,718) 15,557 Furniture and equipment: Community and development 365 - 365 Building inspections 500 - 500 Police 2,256 2,605 (1,659) 3,202 Streets 200 - - 200 'frees 33,900 5,750 (273) 39,377 Parks machinery and equipment - 10,975 (20,975) (10,000) Unallocated 8,181 5,874 - 14,055 Totals $174,2.55 $141,292 ($71,023) $244,524 0 ® 0 0 Audit Management Letter Capital Project Funds Park Develooment This fund was established by Resolution 88 -12-33 to account for the development of the City's parks and recreational areas. The fund balance was $315,204 at December 31, 2003, as follows: Prior Years 2003 Total Financing sources: Park fees $322,800 $19,600 $342,400 Earnings on investments 141,645 10,265 151,910 Donations and contributions 4,937 - 4,937 Total financing sources $469,382 __.. $29,865 499,247 Financing uses: Professional services $24,533 $4,000 28,533 Park signs 15,902 15,902 Valley View Park bridge 65,616 - 65,616 Trail paving 29,794 - 29,794 Playground equipment /benclies 4,063 40,t35 44,198 Total financing uses $139,908 $44,135 184,043 Fund balance - December 31, 2003 $315,204 E 5 Audit Management Letter Capital Project Funds A, summary of park dedication fees is as follows: Park Development Fee AAE Area: Autumn Ridge - Phase 1 $11,700 Autumn Ridge - Phase I1 4,294 Autumn Ridge - Phase 111 11,250 Brackey Addition 98,735 Haase Addition 25,795 River Hills 12,150 Wal -Mart 36,750 Brackey - Oal Park Pond 28,823 Brackey - Outlots A & B 9,047 Subtotal 238,544 All Other: East Oaks - Swager 10,400 Valley View Estates - 1 18,140 Valley Vicw Estates - H 12,580 Valley View Estates - IV 7,700 Stillwater Ford 21,036 Horn 4 Me 19,600 Other 14,400 Subtotal 103,856 Total $342,400 The above balance at December 31, 2003 has not been designated for any specific project. • Audit Management Letter Capital Project Funds Street Reconstruction This fund was established to account for the first phase of the street reconstruction program. A summary of financial activity is as follows: Prior Years 2003 Total Financial resources: Bond proceeds $1,062,456 $ - $1,062,456 Earnings on investments 119,173 12,236 131,409 Refunds and reimbursements 10,000 - 10,000 Transfers in: General Fund 12,011 - 12,011 St. Croix Mall TIF 145,800 - 145,800 Budgeted projects and equipment revolving 352,718 - 352,718 Renewal and replacement 15,854 - t5,854 Total financial resources $1,718,012 $12,236 1,730,248 Financial uses: Project costs $1,327,916 $ - 1,327,916 Residual equity transfer (7,666) Fund balance - December 31, 2003 $394,666 The City combined all street reconstruction monies during 1998 by transferring the street reconstruction portion of the Budgeted Projects and Equipment Revolving Fund to this fund. These monies will provide partial financing for the next phase of street reconstruction. Audit Management Letter Capital Project Funds Renewal and Replacement This fund was established in 1994 for the purpose of creating a reserve balance for partial financing of future costs to renew and /or replace existing utility systems. This partial financing will be required as these systems are replaced because it is anticipated the City will be unable to assess 100% of such replacements. Initial funding was provided by a transfer of $574,378 from the Water and Sewer [Utility Fund. This transfer represented depreciation charges accumulated since 1969. Annually thereafter, additional transfers equal to depreciation on contributed assets are to be transferred. A summary of the financial activity from inception is as follows: Prior Fears 2003 Total Financial sources: Transfer from water and sewer utility: Initial (1994) $574,378 $ - $574,378 Annual 1,003,279 148,66E> 1,151,945 Earnings on investments 551,756 64,356 616,112 Total financial sources $2,129,413 $213,022 2,342,435 Financial uses: Well No. 1 maintenance $ - $43,266 43,266 Flouride system 1,581 - 1,581 Lift station repair 11,804 17,338 29,142 Other 599 - 599 Transfer out: Deep Well #3 60,129 - 60,129 Street reconstruction 15,854 - 15,854 Total financial uses $89,967 $60,604 150,571 Fund balance - December 31, 2003 $2,191,864 Audit Management Letter Capital project Funds Central Business District This fund was established in 1999 to account for costs associated with the Central Business District. Prior Fears 2003 Total Financial sources: Met Council grant $9,497 $ - $9,497 Earnings on investments 1,799 - 1,799 Contributions: VSSA 2,500 - 2,500 Nolde 500 - 500 Other 3,500 - 3,500 Transfer from General Fund 15,000 - 15,000 Transfer from Economic Development Fund 11,113 - 11,113 Transfer from TIF Fund 4,667 - 4,667 Residual equity transfer - 190 190 Total financial sources $48,576 $190 48,766 Financial uses: Professional services 47,653 - 47,653 Interfund loan interest 1,113 - 1,1 13 Total financial uses $48,766 $0 48,766 Fund balance - December 31, 2003 $0 Brekke Parr Memorial orial This fund was established in 1999 to account for the donations received for Brekke Park. The fund balance was $223 at December 31, 2003. • • Audit management Letter Capital Project Funds E — Oak Park Station Phase I This fund was established in 2002 to account for expenditures associated with the Oak Park Station commercial site development. A summary of the financial activity is as follows: Actual Budget Revenues: Developer reimbursement $ 143,952 $173,250 Expenditures: Contractor 108,775 115,500 Engineer 34,239 54,250 Legal 653 1,500 Other 285 2,000 Total expenditures 143,952 173,250 Fund balance - December 31, 2003 $0 $0 0 Audit Management Letter Capital Project Funds Sanitary Sewer Connection Clrarie Fun A summary of the financial activity of this fund from inception is as follows: Prior Years 2003 Total Revenue: Special assessments $18,441 $8,618 $27,059 Earnings on investments 109,890 12,220 122,110 Connection charges: River Hil Is 1 st and 2nd 39,725 39,725 Highway 36 10,551 - 10,55 Wal -Mart 38,751 - 38,751 ISD #834 201,373 - 201,373 Brackey 53,311 - 53,311 Brackey West - Oak Park Pond 45,461 - 45,461 Brackey West - Outlots A & B 16,161 - 16,161 Autumn Ridge 1 st, 2nd and 3rd 65,547 - 65,547 Haase addition 3,186 - 3,186 Valley Senior Service Al (fiance 139,131 85,221 224,352 Kern Center 68,474 - 68,474 Hom 4 Me Corp. - 2,293 2,293 Commercial Parmcrs (Kohls) - 64,155 64,155 Other 14,690 - 14,690 Total revenue $824,692 $172,507 997,199 Expenditures: Transfcr to debt service $258,150 $70,400 328,550 Kern Center 20,200 - 20,200 School District improvements 160,000 _ 160,000 River Hills I st 30,942 - 30,942 60th Street sanitary sewer 47,801 3,721 51,522 Total expenditures $517,093 $74,121 591,214 Find balance - December 31, 2003 $405,985 E N Audit Management Letter Capital Project Funds Water Connection Charge Fund A summary of the financial activity of this fund from inception is as follows: Prior Years 2003 Total Revenue: Special assessments $32,015 $15,001 $47,016 Earnings on investments 118,732 8,002 126,734 Connection charges: River Hills 1 st and 2nd 64,798 - 64,798 Highway 36 18,352 - 18,352 Wal -Mart 67,088 - 67,088 ISD #834 405,34 t - 405,341 Brackey 162,444 162,444 Brackey West - Oak Park Pond 96,509 - 96,509 Brackey West - Outlets A & B 10,506 - 10,506 Autumn Ridge 1st, 2nd and 3rd 103,372 - 103,372 Haase addition 5,542 - 5,542 Valley Senior Service Alliance 241,522 118,681 360,203 Fern Center 119,173 119,173 Horn 4 Me Corp. - 3,990 3,990 Commercial Partners (Kohls) - 1 1 1,625 111,625 Other 25,538 - 25,538 Total revenue $1,470,932 $257,299 1,728,231 Expenditures: Transfer to debt service $1,115,750 $149,000 1,264,750 School District improvements 145,000 - 145,000 River Hills I st 29,739 m 29,739 Kern Center 35,2 - 35,200 Total expenditures $1,325,689 $149,000 1,474,689 Fund balance - December 31, 2003 $253,542 a 0 0 Audit Management Letter Capital Project Funds Storm Sewer Connection Char 2e Fund A summary of the financial activity of this fund from inception is as follows: Prior Years 2003 Total Revenue: Special assessments $40,594 $18,986 $59,580 Earnings on investments 153,559 25,657 179,216 Connection charges: River Hills 1st and 2nd 50,411 50,411 Highway 36 23,253 23,253 Wal -Mart 68,511 68,511 ISD #834 289,348 289,348 Brackey 117,511 117,511 Brackey West - Oak Park Pond 122,262 122,262 Brackey West - Outlots A & B 13,310 - 13,310 Autumn Ridge 1st, 2nd and 3rd 124,046 124,046 Haase addition 7,021 - 7,021 Valley Senior Service Alliance 305,968 185,915 491,883 Kern Center 150,896 - 150,896 Hom 4 Me Corp. - 5.057 5,057 Commercial Partners (Kohls) - 191,470 191,470 Other 32,374 2,000 34,374 Total revenue $1,499,064 $429,085 1,928,149 Expenditures: Transfer to Revolving Capital Fund $270,000 $ - 270,000 Transfer to Debt Service Fund 41,600 25,600 67,200 Long Lake storm sewer 27,820 - 27,820 Kern Center 44,600 - 44,600 Wal -Mart 41,232 - 41,232 Storm drainage report 9,910 - 9,910 River Hills 1st 13,757 - 13,757 Valley Point 2nd 17,211 - 17,211 School district improvement 289,348 - 289,348 Brackey addition 99,340 - 99.340 AUAR fees - 117,500 117,500 Total expenditures $854,818 $143,100 997,918 Fund balance - December 31, 2003 $930,231 e E Audit Management Letter Capital Project Funds Connection Charge Fund Commitments The fund balance at December 31, 2003 is committed for future debt service payments for the Refunding Bonds of 1993. Such future commitments (cash transfers) are as follows: Future 'Transfers to 2002 Refunding Bonds Debt Service Fund Sanitary water Year Sewer works Total 2004 $5,000 $50,000 $55,000 Fund balance $307,599 $145,253 $452,452 As shown above, the Connection Charge balances at December 31, 2003 represent sufficient amounts to meet the sanitary sewer and water works debt commitments for 2004. ® �a • ® ® • • Audit Management Letter Capital Project Funds This fund is also committed for future debt service payments on the Bonds of 1995. Such future commitments (cash transfer) are as follows: )Future Transfers to 1998 Bond Debt Service Fund Sanitary Water Storm Year Sewer Works Sewer Total 2004 $27,775 $9,625 $17,600 $55,000 2005 25,250 8,750 16,000 50,000 2006 27,775 9,625 17,600 55,000 2007 25,250 8,750 16,000 50,000 2008 25,250 8,750 16,000 50,000 2009 25,250 8,750 16,000 50,000 2010 25,250 8,750 16,000 50,000 2011 22,725 7,875 14,400 45,000 2012 25,250 8,750 16,000 50,000 2013 15,150 5,250 9,600 30,000 Total $244,925 $84,875 $155,200 $485,000 a E M Audit Management Letter Capital Project 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 Sanitary Water Storm Sewer Works Water Total Haase Addition $33,700 $58,800 $74,400 $166,900 Kern Center 120,200 209,230 264,950 594,380 Oakgreen Village (Phase I and II 85,900 149,500 189, 400 424,800 Total $239,800 $417,530 $528,750 $1,186,080 An analysis of the commitments of the connection charge funds is as follows: Sanitary Water Storm Sewer Works Water Total Fund balance - December 31, 2003 $405,985 $253,542 $930,231 $1,589,758 Future connection charges 239,800 417,530 528,750 1,186,080 Subtotal 645,785 671,072 1,458,981 2,775,838 Debt service commitments: Bonds of 2002 (5,000) (50,000) - (55,000) Bonds of 1998 (244,925) (84,875) (155,200) (485,000) Subtotal 395,860 536,197 1,303,781 2,235,838 Available for new well - (536,197) - (536,197) Uncommitted $395,860 $0 $1,303,781 $1,699,641 As shown above, connection charges should be sufficient to fund the debt service requirement, The City has designated a portion ($200,000) of the retained earnings of the Utility Fund to provide additional financing for the 2002 Bonds if needed. There is sufficient 0 0 Audit Management Letter Capital Project Funds fund balance in the Sanitary Sewer Connection Charge Fund for the debt service commitments of these bonds. The Area and Connection charge fee was established in 1990 and was based on the "Report on Municipal Services to the Annexation Area Extended" dated August 1989, prepared by Bonestroo, Rosene, Anderlik and Associates, Inc. That report based the fee on the following costs: Storm sewer $1,579,500 Sanitary sewer 1,092,500 Water system: Well 350,000 Water tower 687,500 Lines 776,250 Total $4,485,750 As shown above, the Area and Connection charge fee included an amount for a third well. __ma Audit Management Letter Enterprise Fund ENTERPRISE UN The financial statements for the Enterprise Fund are presented in Statements 14, 15 and 16 of the City's 2003 Annual Financial Report. The enterprise fund accounts for the operations of four departments - water, sanitary sewer, storm sewer and sanitation. Presented below is history of the annual change in retained earnings allocated by department. It should be noted the allocation of pre -1993 amounts was estimated by an equal split between water and sanitary sewer: Net Change in Retained Earnings By Year Sanitary Storm Year Water Sewer Sanitation Sewer Total 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 Total $742,565 $411,758 ($52,709) $55,972 $1,157,586 • Audit Management Letter Enterprise Fund Condensed comparative operating statements of income and expense for the utility operations of the City are as follows: Water Department 2002 2003 Amount Percent Amount Percent Revenue: Customer billings and other $321,700 100.00% $386,301 100.00 %, Operating expenses: Personal services 123,603 38.42% 121,253 31.39% Contractual services 114,967 35.74 %, 72,253 18.70% Administrative and personnel charges 27,540 8.56% 23,275 6.03% Other 6,387 1.99% 8,936 2.31% Depreciation: On purchased assets 1 t,039 3.43 %, 11,537 2.99 %, On contributed assets 75,603 23.50% 78,066 20.2(% Total operating expenses 359,139 111.64% 315,320 81.63% Net operating income (loss) ($37,439) (11.64 %) $70,981 18.37% Audit Management Letter Enterprise Fund A chart of income from operation is as follows: $450,000 Water Operating $400,000 In Revenue & Expense $350,000 $300,000 EM Depreciation $250,000 ME All Other Expenses M Contractual Services $200,000 E= Personal Services Operating Revenue $150,000 $100,000 $50,000 $0 1998 1999 2000 2001 2002 2003 As shown above, the water department incurred a loss in 1998. The City had a study performed and increased water rates based on the study's results. The City incurred a loss in 2002, primarily due to decreased customer billings as a result of lower water sales caused by an unusually wet summer. The City increased water rates effective January 1, 2003 and January 1, 2004. boom • Audit Management Letter Enterprise Fund Sewer Department 2002 2003 Amount Percent Amount Percent Revenue: Customer billings and other $514,929 100.00% $540,587 100.00% Operating expenses: Personal services 80,064 15.55% 81,489 15.07% MCES 257,783 50.06% 274,430 50.77% Other contractual services 52,334 10.16% 42,154 7.80% Administrative and personnel charges 40,560 7.88% 41,840 7.74% Other 2,435 0.47% 3,561 0.66% Depreciation: On purchased assets 2,804 0.54% 3,017 0.56% On contributed assets 70,344 13.66% 70,600 13.06% Total operating expenses 506,324 98.32% 517,091 95.66% Net operating income (loss) $8,605 1.68% $23,496 4.34% A chart of income from operations is as follows: $600,000 Sewer Operating " Revenue & Expense $500,000 — $400,000 MIN Depreciation �q 1 1 1 Ii i I , I I�I I�1�r JII�iYh'i(,pol u MW Personal Services $300,000 �i N ®All Other Expenses V1 4 4 � �I I I III �II i ® I � MCES III pp u9 II / •• Operating Revenue $200,000 $100,000 - -- — $0 -- — — — 1998 1999 2000 2001 2002 2003 Audit Management Letter Enterprise Fund As shown on the previous pages, the sewer operating account incurred losses for 1997 through 2001. The sewer operating account has net income of $23,496 for 2003. The City revised rates as follows: Ndonthly Rate Monthly Rate Monthly Rate Monthly Rate Monthly Rate i`lonthly Rate Effective Effective Effective Effective Effective Effective Type of Charge 01/01/99 04/01/00 01/01/01 01/01/02 0110103 01/01/04 Water. Base fee $7 05 $7 50 $7 50 $7 50 S7 50 S7 50 Charge per 1,000 gallons for Usage between 6,000and 16,000 gallons $1 10 SI 17 $1 17 $1.17 S1.25 $1.34 Usage hethveen17 ,000 and 33,000gallons S1.38 S14'7 $147 $1.47 $1.57 $168 Usage m excess of33,000 gallons $1 65 $1 76 51 76 $1 76 $1.88 $201 Sewer: Base fee $11.55 $1245 $t320 $1400 514.85 51570 Charge per 1,000 gallons fot usage m excess of 5,000 gallons $2.15 S2 32 $246 $261 $2 77 $3 00 The City implemented monthly utility billings effective January 1, 1999. • Audit Management Letter Enterprise Fund Sanitation The City began charging for refuse collection in 1988. Prior to 1998, this activity was accounted for in the General Fund, The City moved this activity to the Enterprise Fund during 1998. Refuse collection revenue as a percent of refuse collection expenditures/ expense is as follows: Refuse 'Transfer Refuse Collection Revenue as a from Net Collection Expenditures/ Net Percent of General Income Year Revenue Expenses Cost Expenditures Fund (Loss) General Fund: 1992 $66,076 $251,121 ($185,045) 26% $ - $ 1993 103,039 297,452 (194,413) 35% - 1994 108,310 326,926 (2 18,616) 33% - 1995 110,021 334,053 (224,032) 33% - - 1996 103,444 326,036 (222,592) 32% - 1997 87,830 298,842 (211,012) 29% - Enterprise Fund: 1998 93,014 309,051 (216,037) 30 % 190,400 (25,637) 1999 71,585 169,210 (97,625) 42% 65,000 (32,625) 2000 87,434 175,164 (87,730) 50% 84,000 (3,730) 2001 97,575 184,179 (86,604) 53% 83,000 (3,604) 2002 98,030 182,575 (84,545) 54% 88,500 3,955 2003 97,400 185,840 (88,440) 52% 88,500 60 2004 97,970 181,013 (83,043) 54% 88,500 5,457 The 1999 loss was funded by fund balance. A transfer to the 66 All Funds" reserve account of $23,000 was cancelled to cover this loss. As shown above, the City subsidy of sanitation activity has decreased from $224,032 in 1995 to $88,500 budgeted for 2004. • Audit Management Letter Enterprise Fund Storm Sewer Operating 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 condensed operating statement of income and expense for this fund is as follows: Storm Sewer 2002 2003 Amount Percent Amount Percent Revenue: Customer billings $62,992 100.00% $68,568 100.00% Expenses: Personal services 27,757 44.06% 11,070 16.14% Contractual services 23,576 37.43% 15,011 21.89% Materials and supplies 1,065 1.69% 498 0.73% Administrative and personnel charges 4,800 7.62% 5,200 7.58% Total operating expenses 57,198 90.80% 31,779 46.34% Net operating income $5,794 9.20% $36,789 53.66% • Audit Management Letter Internal Control INTERNAL CONTROL A separate internal control report has been issued in conjunction with the audit. The report cited no reportable conditions. Other matters that are not required to be included in the internal control letter are as follows: Contract Chanfae Orders Audit procedures disclosed two instances relating to construction type contracts of amounts paid that exceeded the approved amount (as adjusted for change orders). The two contracts are summarized as follows: Amount Original Change Adjusted Paid "Through Project Contract Orders Contract 12/31/03 Well #1 maintenance $26,830 $10,500 $37,330 $39,215 Oak Park Station 102,543 - 102,543 108,775 It is our understanding the overage relates to changes in quantities needed and not a change in unit price. However, change orders were not obtained for these two contracts. We recommend the City obtain and approve all contract change orders. _.Am