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Home My WebLink AboutAudit Management Letter December 31, 2007 CITY OF OAK PARK HEIGHTS, MINNESOTA AUDIT MANAGEMENT LETTER '-' December 31, 2007 Tautges Redpath, Ltd. Certified Public Accountants and Consultants To the Honorable Mayor and Members of the City Council City of Oak Park Heights, Minnesota We have completed the 2007 audit of the City of Oak Park Heights, Minnesota and have issued our report thereon. Our Independent Auditor's Report is included in the City's Annual Financial Report. This Management Letter provides a summary of audit results along with comparisons and trend analysis of financial results. Thank you for the opportunity to serve the City. We are available to discuss this report with you. HLB TAUTGES REDPATH, LTD. White Bear Lake, Minnesota April 21, 2008 4810 White Bear Parkway White Bear Lake, Minnesota 55110 I 651 426 7000 651 426 5004 Fax I www.hlbtr.com HLB Tautges Redpath, Ltd is a member of M International, a world -wide organization of accounting firms and business advisors City of Oak Park Heights, Minnesota Audit Management Letter Report Summary REPORT SUMMARY Several reports are issued in conjunction with the audit. A very brief summary is as follows: Report Name Elements of Report Overview Annual Financial Report (AFR) • Financial statements • Unqualified ( "clean ") • Footnotes opinion on the Financial • Required supplementary Statements _ information • Statistical information Report on Internal Control and on Results of testing • No findings of Compliance and Other Matters • Internal controls over financial noncompliance reporting • Three internal control • Compliance with laws, findings regulations, contracts and grants State Legal Compliance Report • Results of testing certain • No findings of provisions of Minnesota noncompliance Statutes Audit Management Letter Intended to be a working tool for City Council • Comparisons and trend analysis • Outside factors influencing City financial reporting • Policies and procedures City o f O P H Minnes Audit Management Letter Statement of Activities Statement of Activities One of the financial statement presentations required by GASB 34 is the Statement of ., Activities. This schedule presents the net cost of providing various activities and the extent to which these activities are funded by property taxes, and investment earnings. -- i 1 Program Revenues Net (Expense) Revenue and �+ _.._.. - Operating, Capital Changes in Net Assets 1 # 1 Charges For Grants and Grants and Governmental Business -Type , Functions /Procrams EKpenses Services Contributions Contributions Activities Activities Total Governmental activities: ,General government $1,046,676 _ . $140,292 $ $ ($906,384) $ ($906,384) _ ...... . Public safety 1,234,769 ` , 295,384 77,521 (861,864) (861,864) _... _ .. Public works a 796 319,668 583 11,324 (464.450) (464,450 Parks and recreation 184,008 - 64,775 11%233 _......- _ ._ . �.. .. - - ( ) - (119,233) lnt_ere debt: 37,255 - - - (37.255). (37,255) =Total governmental activities E 3,298,733 = 755,344 142,879 i 11,324 (2,389.186) 0 (2,389,186) Business -type activities: _._.. < . Water 387,766 ; f 482,100 "' 94,334 94,334 ... Sanitary sewer 606,458 679,821 73,363: 73,363 ____._ _....�___- - _ _ __. 'Stormsewer 34,277 73,942 39,665 ` 39,665 Sanitation 153,848 1 ; 97,764 (56,084) (56,084 ,.. ;Total business -type activities 1,182,349 ; 1,333,627 0, 0 0 151,278 ; 151,278 Total $4,481,082 = $2, 088,971 _ ; $142,879 $11,324 - , (2,389,186) 151,278 (2237,908) Gene ral revenues: General property taxes 2,730,994 2,730,994 Grants and contributions not restricted to specific programs 111.090 - 111,090 Unrestricted investment earnings 532,827 60,103 592,930 Crain on sale of capital assets. 9.237 9,237 Other 27,626 - 27,626 Transfers (329,589) 329,589 - _. Total general revenues and transfers 3,082,185 ' 389,692 3,471,877 ;Change in net assets 692,999 540,970, ; 1,233,969 Net assets - beginning, aspreviously reported 22.671,220 2208,745 29,879,965 ,Prior enod ad'ustmen[ 39,022 39,022 _ _ . _.. _._p._... _ J ( )• ( ) Net assets - beginning, as restated 22,671,220 7,169,723 29,840,943 Net assets -ending $23,3 $7,710,693 ' ' $31,074,912 �� Includes General Fund, Special Revenue, Debt Service and Capital Project Funds. "" City of Oak Park Heights, Minnesota Audit Management Letter Analysis of Selected Accounts ANALYSIS OF SELECTED ACCOUNTS Summary of Financial Activitv The schedule below presents a condensed financial summary of all funds: All Funds Financial Summary - 2007 Increase (Decrease) in Fund Balance/ Revenue Expenditures Fund Balance/ Net and Other and Other Transfers Net Assets Fund Sources Uses (Net) Assets 12/31/07 General $3,425,731 $2,518,813 ($693,800) $213,118 $2,515,620 Special Revenue Funds: Forfeiture and Seizure 19,444 7,096 12,348 43,136 Economic Development 2,808 522 - 2,286 57,824 Debt Service Funds: Bonds of 1998 60,122 162,688 50,000 (52,566) 460,263 Bonds of 2002 1,175 - (48,490) (47,315) - Capital Project Funds: Capital Revolving 41,708 22,171 48,490 68,027 791,554 Budgeted Projects and Equipment Revolving 120,172 401,922 179,400 (102,350) 931,631 Street Reconstruction 38,734 - 225,000 263,734 951,872 Brekke Park Memorial 18 - - 18 368 Oakgreen Avenue Utilities 1,859 2,603 744 - - Water Tower Rental 29,017 - - 29,017 86,590 Park Development 29,509 538,564 225,000 (284,055) 485,002 Renewal and Replacement 148,663 - 165,380 314,043 3,243,027 Novak Avenue Street and Utility Improvements 243,036 243,036 - - - Sanitary Sewer Connection 29,000 - (25,994) 3,006 479,286 Water Connection 59,596 (8,750) 50,846 718,130 Storm Sewer Connection 48,739 - (16,000) 32,739 915,153 Water Tower Rehabilitation 2,023 376,836 160,000 (214,813) (214,813) Well Rehabilitation 6,587 9,137 27,500 24,950 24,950 Sewer Rehabilitation 1,134 - 67,000 68,134 68,134 Enterprise Funds: Water 1,061,436 387,766 (280,512) 393,158 4,105,871 Sanitary Sewer 838,255 606,458 (148,968) 82,829 3,382,646 Storm Sewer 80,949 34,277 (2,800) 43,872 176,361 Sanitation 98,159 153,848 76,800 21,111 45,815 Total $6,387,874 $5,465,737 $0 $922,137 $19,268,420 City of Oak Park Heig Minnes ^ Audit Management Letter Analysis of Selected Accounts Property 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 decreased from 98.7% to 97.7 %. This one percent decrease amounts to approximately -- $27,000 additional uncollected property taxes. 2003 2004 2005 2006 2007 Tax levy certified $1,993,003 $2,054,070 $2,293,825 $2,474,455 $2,789,655 Less market value homestead credit �� (88,486) (88,534) (85,647) (79,411) (81,066)/ Net levy 1,904,517 1,965,536 2,208,178 2,395,044 2,708,589 Receipts: Current property taxes 1,891,046 1,938,726 2,176,290 2,363,192 2,646,421 Delinquent property taxes 12,386 12,016 20,627 35,587 19,562 Total receipts 1,903,432 1,950,742 2,196,917 2,398,779 2,665,983 Adjustments 10,293 (4,714) (7,830) (2,497) 658/ Increase (decrease) in delinquent taxes receivable 11,378 10,080 3,431 (6,232) 43,264 Delinquent taxes - January 1 20,174 31,552 41,632 45,063 38,831 Delinquent taxes - December 31 $31,552 $41,632 $45,063 $38,831 $82,095 Current collection as a percent of current levy 99.3% 98.6% 98.6% 98.7% 97.7% Total collections as a percent of current levy 95.5% 99.2% 99.5% 100.2% 98.4% ( ' ) MVHC was not paid by the State to the City. City of Oak Park Heights, Minnesota Audit Management Letter Analysis of Selected Accounts Tax Levies, Tax Rates and Tax Capacity A comparison of values for taxes payable in 2005 through 2008 is as follows: 2005 2006 2007 2008 Market value $485,026,700 $529,099,400 $579,089,800 $673,570,600 Tax capacity values: Real estate $6,840,470 $7,401,815 $8,383,673 $10,168,436 Personal property 78,460 84,133 88,065 82,329 Subtotal 6,918,930 7,485,948 8,471,738 10,250,765 Fiscal disparity contribution (954,578) (1,037,753) (1,115,215) (1,508,660) Fiscal disparity distribution 341,985 395,515 445,352 532,706 Total $6,306,337 $6,843,710 $7,801,875 $9,274,811 Tax capacity rates 36.488 36.136 35.731 36,343.000 Tax levy $2,293,825 $2,474,455 $2,789,655 $3,367,480 (I ) Proposed values City of Oak Park Heights, Minnes • , Audit Management Letter Analysis of Selected Accounts A schedule of tax capacity by classification is as follows: CITY OF OAK PARK HEIGHTS 2007 2008 Percent of Percent of Amount City Total Amount City Total Real estate: Agricultural $8 0.0% $ - 0.0% Seasonal 1,979 0.0% 1,987 0.0% Residential homestead 2,332,924 27.5% 2,364,404 23.1% Residential nonhomestead 983,149 11.6% 1,062,713 10.4% Commercial /industrial 3,328,632 39.3% 3,675,262 35.9% Public utility 1,733,703 20.5% 3,060,144 29.9% Railroad 3,278 0.0% 3,926 0.0% Total real estate 8,383,673 99.0% 10,168,436 99.2% Personal property 88,065 1.0% 82,329 0.8% Total tax capacity $8,471,738 100.0% $10,250,765 100.0% Tax Capacity by Property Class - 2008 Agricultural 0.7% Residential a. Homestead 23.19G Public Utility 29.9%, Residential Nonhomestead 10.4%, Commerc ialMdustnal 35.9%, City of Oak Park Heig Minnes Audit Management Letter Analysis of Selected Accounts Bonds Pavable .-. The City had one bond issue outstanding at December 31, 2007. A summary of the 2007 activity of this bond issue is as follows: General Obligation Improvement Bonds ._ of 1998 Balance - January 1, 2007 $875,000 Principal payments (125,000) Balance - December 31, 2007 $750,000 Maturity date 4/1/2008 Repayment source Special assessments and connection charges �. On February 26, 2008, the City council authorized the prepayment of the 1998 Bonds. The remaining balance will be paid on April 1, 2008. City of Oak Park Heights, Minnesota 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, and parks and recreation). 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 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 1,910,848 72% 61,479 2% 671,683 26% 2,644,010 100% 2005 2,218,213 71% 78,137 3% 819,616 26% 3,115,966 100% 2006 2,423,246 77% 92,370 3% 633,057 20% 3,148,673 100% 2007 2,687,730 79% 181,233 5% 547,531 16% 3,416,494 100% Major Revenue Sources - 2007 State Aids 5% Other 16% ^ ^ Property Taxes 79% City of Oak Park Heig Minnes Audit Management Letter General Fund A graph of property taxes, state aids, and other revenue for the General Fund is as follows: $2,900,M) $2.600,1X9) General Fund Revenue by Source $2,400,M) - $2.200,(X9) $2,00),(9X) $1,800,01X) - f State Aids �\ -F All Other $IAOO,O(x) Propeny Taxes $1.21XWM AL $ LINro,olx) $alxl.ax) $2(X),I(X) 1996 1997 1998 1999 211(X) 21X)1 2(X)2 2003 21xA 2(X)5 2(X16 219)7 State Aids State aids of the General Fund have consisted of the following for the past seven years: State Aid 2001 2002 2003 2004 2005 2006 2007 H.A.C.A. $79,603 $ - $ - $ - $ - $ - $ - Market value homestead credit - 97,935 - - 81,066 LGA 4,878 4,881 - - - 27,798 27,984 Police aid 53,650 55,525 58,370 58,419 61,097 62,532 66,525 Other state revenue 4,161 2,040 2,040 3,060 17,040 2,040 5,658 Totals $142,292 $160,381 $60,410 $61,479 $78,137 $92,370 $181,233 �. Change $18,089 ($99,971) $1,069 $16,658 $14,233 $103,096 % Change 13% (62 %) 2% 27% 18% 132% • --y City of Oak Park Heig Minnes Audit Management Letter General Fund Other General Fund Revenue Other revenue of the General Fund has consisted of the following for the past six years: ^ Description 2002 2003 2004 2005 2006 2007 Licenses and permits $183,596 $313,273 $304,594 $365,512 $306,266 $155,820 Charges for services: .... Refuse charge - Junker settlement 28,460 52 - - - - Enterprise 89,780 87,205 90,860 94,140 64,465 63,200 Construction/engineering fee 2,083 14,613 - 5,859 2,354 12,568 Other 23,706 18,455 8,929 31,251 11,946 56,789 Inspections 44,064 88,751 50,337 84,719 - - Fines and forfeits 63,211 61,146 78,274 69,850 81,230 66,189 Earnings on investments 32,052 32,067 39,188 55,431 79,610 93,957 ...� Other 99,986 90,648 99,501 112,854 87,186 91,647 Total $566,938 $706,210 $671,683 $819,616 $633,057 $540,170 Administrative Fee - Enterprise The administrative fee is designed to reimburse the General Fund for overhead costs only. �. Beginning in 2006, the overhead was reduced from 10% to 7 %. Additionally, beginning in 2006 the Sanitation Fund will not be charged an administrative fee. ^ ^ City of Oak Park Heights, Minnesota 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'h% 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. Budget Versus Actual Comparison The General Fund balance increased by $213,118 as the result of positive budget variances primarily relating to revenue as follows: Budget Actual Variance Revenue $3,363,000 $3,426,000 $63,000 Expenditures 2,717,000 2,519,000 198,000 Revenue over expenditures 646,000 907,000 261,000 Transfers out (567,000) (694,000) (127,000) Net increase in fund balance $79,000 $213,000 $134,000 City of . Park Heights, Minnesota 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 2004 15,000 60,000 2005 15,000 45,000 -- 2006 15,000 30,000 2007 15,000 15,000 i City of Oak Park Heig Minnes Audit Management Letter General Fund General Fund Reserves The fund balance of the General Fund increased in 2007. The schedule below reflects the General Fund balance for the past eleven years: Year Ended Fund Increase December 31, Balance (Decrease) 1996 $1,312,593 1997 1,246,347 (66,246) 1998 1,186,663 (59,684) 1999 1,191,081 4,418 2000 1,280,101 89,020 2001 1,173,118 (106,983) 2002 1,329,229 156,111 _ 2003 1,694,611 365,382 2004 1,847,608 152,997 2005 2,103,743 256,135 2006 2,302,502 198,759 2007 2,515,620 213,118 Fund Balance $2,600,000 $2,400,000 $2,200,000 $2,000,000 $1,800,000 -w Actual Fund Balance ..� $1,600,000 —i— Desired Fund Balance $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 City of . Park Heights, Minnesota r Audit Management Letter General Fund Reserve balances are an important component of City financial management. When evaluating the adequacy of reserve balances, there are a number of important factors that must be considered. Several areas to consider are illustrated as follows: — Cash Flow Timing Difference Favorable bond rating Supplements revenues indicator with investment income Intergovernmental Capital Outlay Revenue Cutbacks Replacement Provdes resources for Avoids temporary minor projects or overdrafts prior to major feasibility reports receipts r Provides the City Avoids overburdenmg ... Emergency or greater options to deal of annual budgets for Unanticipated special wRh unexpected events certain capital outlay Expenditures Projects City of Oak Park Heights, Minnesota Audit Management Letter General Fund In 1987, the City adopted Resolution 87 -10 -42 establishing General Fund reserves/ designations for cash flow, employee benefits and general contingency based upon formulas for each category. The formula for the designation for contingent employee benefits was amended by the City Council on December 11, 2001. At December 31, 2006 and 2007, the General Fund balance was reserved or designated as follows: General Fund Balance December 31, 2006 2007 Designated for: Cash flow $1,237,000 $1,698,000 Contingent employee benefits 141,533 183,000 General contingency 439,000 595,000 Subtotal - designated 1,817,533 2,476,000 Undesignated 286,210 39,620 Total fund balance $2,103,743 $2,515,620 City of . Park Heights, Minnesota - Audit Management Letter General Fund Cash Flow Reserve Property taxes and related state aids account for approximately 75% of the revenue of the General Fund. Property taxes and local government aid are not received until July and December of each year (i.e., the second half of the year). Market value homestead credit is not received until October and December of each year. As a result, the City is required to have sufficient reserves at the beginning of the year to fund operations of the first half of the year. For the City of Oak Park Heights, the recommended cash flow reserve is $1,698,000, computed as follows: Cash Flow Reserve 2008 tax levy (includes market value homestead credit aid $3,367,480 2008 anticipated local government aid 28,056 $3,395,536 Recommended reserve (one -half of tax levy and state aids) $1,698,000 r City of Oak Park Heig Minnes Audit Management Letter General Fund — The following graph of monthly General Fund cash balances illustrates the impact of receiving property taxes and state aids in the second half of the year: General Fund Monthly Cash Balances $2,4(X),((X) — 'f �. $2,2(X),(X)) j $1.400.(X)(1 ecrease $2,a)O,aK) $1,8(X).(M $1,6(X).(X)O $1,400,0(X) $12(X).00) $),(XX),(XX) $8(X),(X)) $6(X),(XH) - $4(X),(XX) $2(X),(X)) $o 1231/21XN5 11312(X17 2/28/211)7 1/31/2(X)7 413112(X)7 5/31/21X17 6 /30/21117 7/31/2(1)7 8/312017 9/30/2017 1(b312(N)7 11,3021X)7 12,31/2007 INSeri.l $2.423,246 $2,155,935 $1.983,463 $1.809250 $1.608.555 $1.465,450 $1.1)18,773 $2,309.927 $2.1196,740 $1,943,935 $1,88],296 $1,732.984 $2,552,11941 As shown above, the cash balance decreased $1,400,000 between January 1 and June 30, illustrating the need for the cash flow reserve. City of Oak Park Heights, Minnesota Audit Management Letter General Fund Contingent Emplovee Benefit Reserve The employee benefits reserve is computed based upon accrued, but unpaid, employee benefits as follows: Employee Benefits Reserve December 31, Employee Benefit 2006 2007 Vacation leave carryover $31,650 $35,752 Severance 137,983 147,708 Total $169,633 $183,460 Rounded amount $183,000 • .. This reserve was established to recognize the actual /potential liability for vacation and sick leave. When the reserve was established, a conservative approach was taken in which an amount equal to all vacation leave, all severance and twenty -five percent of the sick leave balance was deemed the appropriate reserve amount. History had shown that this level of reserve is not required. The City amended this reserve component to an amount equal to 50% of vacation leave, 100% of severance and 0% of sick leave. r. City of Oak Park Heights, .. Minnesota Audit Management Letter General Fund General Contingencv Reserve The amount of General Fund reserve required to meet emergency and/or unanticipated expenditures is not readily quantifiable. Rather, the level of this requirement must be established by the City based on the history of the City and the philosophy of "adequate" reserve coverage. Currently, the City of Oak Park Heights has set this reserve equal to 15% of the General Fund operating budget subject to availability of such amounts, as follows: General Contingency Reserve ` December 31, Description 2006 2007 Ensuing year's budget $3,283,930 $3,969,172 Reserve amount @ 15% $493,000 $595,000 1 City of Oak Park Heig Minnes 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 2007. Forfeiture and Seizure Fund This fund was established in 1991 to account for property forfeited pursuant to MS 609.531. A summary of the financial activity of this fund from inception is as follows: Prior Years 2007 Total Revenue: Intergovernmental - bulletproof vests $9,825 $ - $9,825 Earnings on investments 9,785 1,755 11,540 Reimbursements 7,414 - 7,414 Confiscated property 108,638 17,689 126,327 Sale of municipal property 5,046 - 5,046 Total revenue $140,708 $19,444 160,152 Expenditures: Public safety: Materials and supplies $37,587 $4,380 41,967 Contractual services 15,761 2,716 18,477 Capital outlay 56,572 - 56,572 �- Total expenditures $109,920 $7,096 117,016 Fund balance - December 31, 2007 $43,136 _ The use of these funds is restricted by MS 609.531 subd. 5 to "supplement the agency's operating fund or similar fund for use in law enforcement." r City of Oak Park Heights, Minnesota Audit Management Letter Special Revenue Funds Economic Development Fund This fund was established in 1998 to account for the activity of the Oak Park Heights Economic Development Authority. A summary of the financial activity of this fund is as follows: Prior Years 2007 Total Revenue: r Earnings on investments $26,368 $2,808 $29,176 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 $290,088 $2,808 292,896 Expenditures: Community development: Materials and supplies $457 $ - 457 Contractual services 31,480 522 32,002 Interfund loan interest 70,000 - 70,000 Capital outlay 121,500 - 121,500 Transfer to Capital Revolving Fund 11,113 - 11,113 Total expenditures $234,550 $522 235,072 Fund balance - December 31, 2007 $57,824 During 1998, the City purchased the Bell property and demolished the building in 1999. In prior years, this fund had a deficit that was funded by a $260,000 interfund loan from the Capital Revolving Fund. This fund did not have the resources to repay the interfund loan. Therefore, the interfund loan was forgiven. If a sale of the Bell property occurs, the proceeds should be receipted in the Capital Revolving Fund. City of Oak Park Heights, Minnesota Audit Management Letter Debt Service Funds DEBT SERVICE FUNDS The financial statements for the G.O. Improvement Bonds of 1998 are presented in Statements 3 and 4 of the 2007 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 one Debt Service Fund during 2007. G.O. Improvement Bonds of 1998 The City council approved pre - payment of this bond issue. The remaining principal balance of $750,000 will be paid on April 1, 2008. City of Oak Park Heig Minnesota Audit Management Letter Capital Project Funds CAPITAL PROJECT FUNDS The fund balance (deficits) of the Capital Project Funds were as follows at December 31, 2006 and 2007: December 31, Increase Fund 2006 2007 (Decrease) comments Capital Revolving $723,527 $791,554 $68,027 Budgeted Projects and Equipment Revolving 1,033,981 931,631 (102,350) see later comments 2007 expenditures include land purchase .... ($294,000), park shelter ($118,000), Trails Park Development 769,057 485,002 (284,055) ($125,000) Street Reconstruction 688,138 951,872 263,734 receives annual transfer from Water and Sewer _ Renewal and Replacement 2,928,984 3,243,027 314,043 in amount eoual to depreciation Brekke Park Memorial 350 368 18 Water Tower Rental 57,573 86.590 29,017 Oakgreen Avenue Utilities - - - Novak Avenue Street and Utility Improvements ... 2007 expenditure was $377,000. Funded by Water Tower Rehabilitation - (214,813) (214,813) transfer from Water fund of $160,000. Sanitary Sewer Connection 476,280 479,286 3,006 Water Connection 667,284 718,130 50,846 �- Storm Sewer Connection 882,414 915,153 32,739 Well Rehabilitation - 24,950 24,950 Sewer Rehabilitation 68,134 68,134 Totals $8,227,588 $8,480,884 $253,296 ,r, City of • Minnes Audit Management Letter Capital Project Funds Budgeted Proiects and Equipment Revolving Fund The Budgeted Projects and Equipment Revolving Fund (formerly Capital Improvements Fund) was established in 1978 to account for monies set aside for various capital improvements. This fund is budgeted annually by the City Council in conjunction with the City's budget process. As part of such process, the City allocates the monies in this fund to specific projects and/or programs. Such allocation /designations were as follows at December 31, �- 2007: Balance Balance Purpose 12/31106 Revenues Expenditures 12/31/07 Sealcoat/crack seal $86,524 $146,500 $129,594 $103,430 Outdoor storage 35,000 15,000 - 50,000 Municipal building 166,250 10,000 18,675 157,575 .r Recreation: Park building 225,000 - 225,000 - Other 87,030 85,000 67,677 104,353 Computers 20,055 20,700 19,529 21,226 Vehicles: Police 24,314 25,000 85,419 (36,105) Public works 59,179 15,900 - 75,079 Furniture and equipment: Community and development 365 - 365 - Building inspections 78 - - 78 / Police 1,555 5,625 - 7,180 / Streets 200 3,800 - 4,000 Trees 124,334 17,500 6,886 134,948 Parks machinery and equipment - 1,000 - 1,000 / Police radio equipment 43,500 7,500 18,945 32,055 Police computer equipment 20,000 - 19,874 126 Comprehensive plan 57,500 33,878 23,622 Coalition of utility cities 16,000 - 16,000 Civil defense 10,000 - - 10,000 Unallocated 57,097 171,047 1,080 227,064 Totals $1,033,981 $524,572 $626,922 $931,631 City of Oak Park Heights, Minnesota Audit Management Letter Capital Project Funds Connection Charge Funds Based on City estimates, the Connection Charge Funds are scheduled to receive the following future connection charges as development occurs: Estimated Future Connection Charges Sanitary Water Storm Sewer Works Water Total Total $65,599 $340,837 $53,162 $459,598 An analysis of the commitments of the connection charge funds is as follows: Sanitary Water Storm Sewer Works Water Total Fund balance - December 31, 2007 $479,286 $718,130 $915,153 $2,112,569 Future connection charges (est.) 65,599 340,837 53,162 459,598 Subtotal 544,885 1,058,967 968,315 2,572,167 Debt service commitments: Bonds of 1998 (138,875) (48,125) (88,000) (275,000) Subtotal 406,010 1,010,842 880,315 2,297,167 Available for new well - (1,010,842) - (1,010,842) Uncommitted $406,010 $0 $880,315 $1,286,325 r City of Oak Park Heig Minnes r. Audit Management Letter Enterprise Funds ENTERPRISE FUNDS The enterprise fund accounts for four operations - water, sanitary sewer, storm sewer and .. sanitation. Presented below is history of change in net assets by activity. Change in Net Assets by Year Sanitary Storm .� Year Water Sewer Sanitation Sewer Total 2007 $368,759 $68,206 $21,111 $43,872 $501,948 2006 28,623 37,503 38,458 10,742 115,326 2005 226,051 326,221 20,804 39,279 612,355 2004 13,895 12,665 18,151 26,496 71,207 .-. 2003 117,821 87,935 5,457 36,789 248,002 2002 41,573 81,542 3,955 5,794 132,864 2001 41,643 (5,994) (3,604) 5,875 37,920 2000 65,051 (80,152) (255) (4,765) (20,121) 1999 49,552 (111,811) (32,625) 12,279 (82,605) 1998 (31,669) (38,145) (25,637) - (95,451) 1997 11,294 50,550 - - 61,844 1996 26,964 (6,551) - - 20,413 1995 54,581 (2,359) - - 52,222 1994 (302,719) (198,539) - - (501,258) 1993 73,349 40,156 - - 113,505 pre -1993 595,125 595,126 - - 1,190,251 Subtotal 1,379,893 856,353 45,815 176,361 2,458,422 �. Contributed capital - 1/1/93 2,725,978 2,526,293 - - 5,252,271 Net assets - 12/31/07 $4,105,871 $3,382,646 $45,815 $176,361 $7,710,693 r Y City of Oak • Minnesota Audit Management Letter Enterprise Funds - Water Utility Fund A chart of income from operations is as follows: $700.000 Water Operating $ Revenue & 600 00o Expense $500,000 ME Transfer Out $400,000 Y - M Depreciation M All Other Expenses $300.000 Contractual Services O Personal Services —*-- Operating Revenue $200,000 $100,000 $0 2001 2002 2003 2004 2005 2006 2007 The City increased water rates effective January 1, 2003, January 1, 2005 and January 1, 2007. r r City of Oak Park Heig Minnes Audit Management Letter Enterprise Funds Sewer Utilitv Fund A chart of income from operations for the Sewer Utility Fund is as follows: $800,000 Sewer $700 000 Operating y }y1,9p Revenue & Expense $600,000 $500,000 - CM Transfer Out = Depreciation M Personal Services $400,000 EZM All Other Expenses O MCES $300,000 Operating Revenue $200,000 --a $100,000 $0 - 2001 2002 2003 2004 2005 2006 2007 The City revised water and sewer rates as follows: Monthly Rate Monthly Rate Monthly Rate Monthly Rate Monthly Rate Monthly Rate Monthly Rate Monthly Rate Effective Effective Effective Effective Effective Effective Effective Effective Type of Charge 04/01/00 01/01/01 01/01/02 01/01/03 01/01/04 01/01/05 01/01/06 01/01/07 Water: Base fee $7.50 $7.50 $7.50 $7.50 $7.50 $7.50 $7.50 $7.70 Charge per 1,000 gallons for: Usage between 6,000 and 16,000 gallons $1.17 $1.17 $1.17 $1.25 $1.34 $1.34 $1.34 $1.47 Usage between 17,000 and 33,000 gallons $1.47 $1.47 $1.47 $1.57 $1.68 $1.76 $1.76 $2.02 Usage in excess of 33,000 gallons $1.76 $1.76 $1.76 $1.88 $2.01 $2.11 $2.11 $2.43 Sewer: Base fee $12.45 $13.20 $14.00 $14.85 $15.70 $16.65 $16.65 $16.65 Charge per 1,000 gallons for usage in excess of 5,000 gallons $2.32 $2.46 $2.61 $277 $3.00 $3.40 $3.40 $3.40 r r� City of • Minnesota Audit Management Letter Enterprise Funds Sanitation Utilitv Fund 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 Funds 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 (218,616) 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 97,970 181,013 (83,043) 54% 88,500 5,457 2004 96,909 167,258 (70,349) 58% 88,500 18,151 2005 96,876 164,572 (67,696) 59% 88,500 20,804 2006 97,266 147,565 (50,299) 66% 88,500 38,201 2007 98,159 153,848 (55,689) 64% 76,800 21,111 1 City of Oak Park Heig Minnes Audit Management Letter Enterprise Funds Storm Sewer Utilitv Fund The City created the stormwater utility during 1999. A monthly fee (effective October 1, 1999) was established at $1 per household and $10 per acre for commercial properties. The fee for vacant residential property is 50 cents per month and undeveloped commercial " property is $1.50 an acre per month. A chart of income from operation is as follows: $80,000 Storm Sewer �► $70,000 _ Operating Revenue & Expense $60,000 $50,000 M Transfer Out All Other Expenses .. $40,000 Contractual Services =Personal Services $30,000 —— Operating Revenue $20,000 $10,000 $0 2001 2002 2003 2004 2005 2006 2007 ..r w City of Oak Park Heights, Minnesota Audit Management Letter Required Communications COMMUNICATION WITH THOSE CHARGED WITH GOVERNANCE We have audited the financial statements of the governmental activities, the business- " type activities, each major fund, and the aggregate remaining fund information of the City of Oak Park Heights, Minnesota as of and for the year ended December 31, 2007, and has issued " our report thereon dated April 21, 2008. Professional standards require that we provide you with the following information related to our audit. Our Responsibility under U.S. Generally Accepted Auditing Standards and Government Auditing Standards As stated in our engagement letter dated August 1, 2007, our responsibility, as described by professional standards, is to express opinions about whether the financial statements prepared by management with your oversight are fairly presented, in all material y respects, in conformity with U.S. generally accepted accounting principles. Our audit of the financial statements does not relieve you or management of your responsibilities. As part of obtaining reasonable assurance about whether the City of Oak Park Heights, Minnesota's financial statements are free of material misstatement, we performed tests of the ... City of Oak Park Heights, Minnesota's compliance with certain provisions of laws, regulations, contracts, and grants. However, the objective of our tests was not to provide an opinion on compliance with such provisions. City of Oak Park Heights, Minnesota Audit Management Letter Required Communications Planned Scope and Timing of the Audit We performed the audit according to the planned scope identified in our engagement "~ letter and within our anticipated time frame. We also provided for a two -way dialogue with you at the beginning of the audit in a letter regarding auditor communications dated ._ January 8, 2008. Significant Audit Results Oualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. In accordance with the terms of our engagement letter, we will advise management about the appropriateness of accounting policies and their application. The significant accounting policies used by the City of Oak Park Heights, Minnesota are described in Note 1 to the financial statements. No new accounting policies were adopted and the application of existing policies was not changed during 2007. We noted no transactions entered into by the governmental unit during the year for which there is a lack of authoritative guidance or consensus. There are no significant transactions that have been recognized in the financial statements in a different period than when the transaction occurred. --- Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimate affecting the financial statements was management's estimation on the depreciation of capital assets. We evaluated the key factors and assumptions used to Y r City of Oak Park Heights, _ Minnesota Audit Management Letter Required Communications r develop the depreciation of capital assets in determining that it is reasonable in relation to the financial statements taken as a whole. The disclosures in the financial statements are neutral, consistent, and clear. Difficulties Encountered in Performing the Audit We encountered no difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. During the audit, we identified two areas needing adjustments to the water and sewer billings and administrative fees for construction projects. -- Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor's report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated April 21, 2008. City of Oak Park Heights, Minnesota Audit Management Letter Required Communications Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the governmental unit's financial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the governmental unit's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. This information is intended solely for the information and use of Management, members of the City Council and others within the City of Oak Park Heights, Minnesota and ... is not intended to be, and should not be, used by anyone other than these specified parties. jp v