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A. 2009 Audit Report 1 0 0 CITY OF MEMORANDUM CHANHASSEN TO: Mayor City Council Members 7700 Market Boulevard PO Box 147 FROM: Greg Sticha, Finance Director Chanhassen, MN 55317 DATE: June 28, 2010 1 y Administration 0 Phone: 952.227.1100 SUBJ: Review of 2009 Audit Fax: 952.227.1110 Building Inspections The Finance Department just finished another audit cycle. Dave Mol from HLB Phone: 952.227.1180 Tautges Redpath will be present to review the financial results and audit findings Fax: 952.227.1190 • of the 2009 audit. Engineering BACKGROUND Phone: 952.227.1160 Fax: 952.227.1170 Once again the financial statements take into account the city's entire financial Finance picture and are in a format similar to a proprietary or for - profit organization. This Phone: 952.227.1140 includes a statement of activities that break out the primary government and Fax; 952.227.1110 proprietary revenues and expenses by function. Park & Recreation Phone: 952.227.1120 For 2009, the General Fund finished with a $7,860 decrease in fund balance, Fax: 952.227.1110 which is what staff estimated in April. As you know, earlier in the year staff predicted a much larger deficit due to revenue shortfalls. The final fund balance Recreation Center is a testament to all city departments who did a great job cutting costs throughout 2310 Coulter Boulevard 2009 to get us to the minimal deficit. Phone: 952.227.1400 Fax: 952.227.1404 AUDIT FINDINGS Planning & Natural Resources There are three reports that HLB Tautges Redpath completes for the City. The Phone: 952.227.1130 first is the Independent Auditor's Report on Compliance with Minnesota Legal Fax: 952.227.1110 Compliance Guide for Local Government. This report is submitted to the Office Public Works of the State Auditor along with the annual report. There were no findings in this 1591 Park Road report for 2009. Phone: 952.227.1300 Fax: 952.227,1310 The second report is the Independent Auditor's Report on Compliance and on Internal Control over Financial Reporting. This report lists conditions that could Senior Center affect our ability to properly record and report transactions. These conditions do Phone: 952.227.1125 not rise to the level of a material weakness in our controls, but should be corrected Fax: 952227.1110 to help ensure that procedures are properly followed. There were no instances of Web Site non - compliance noted in this report either. www.ci.chanhassen.mn.us Chanhassen is a Community for Life - Providing for Today and Planning for Tomorrow Review of 2009 Audit June 28, 2010 Page 2 of 2 The third report is titled, "Communication with Those Charged with Governance." This is a longer description of summary information that highlights comparisons and trends for financial results. This also reviews city policies, procedures and systems, and outside factors that may affect the city's financial operations. This is something that HLB Tautges Redpath does outside of the scope of audit requirements. There were no substantial or material findings in this report; however, there were two minor uncorrected misstatements to the financial statements that the auditors will review with the council on Monday night. Attached is the PowerPoint presentation that will be reviewed with council on Monday, as well as each of the three mentioned reports. ATTACHMENTS 1. PowerPoint Presentation 2. Report on Compliance with Minnesota Legal Compliance Guide for Local Governments 3. Report on Internal Controls over Financial Reporting 4. 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Certified Public Accountants and Consultants REPORT ON COMPLIANCE WITH MINNESOTA LEGAL COMPLIANCE AUDIT GUIDE FOR LOCAL GOVERNMENT To the Honorable Mayor and Members of the City Council City of Chanhassen, Minnesota We have audited the financial statements of the City of Chanhassen, Minnesota, as of and for the year ended December 31, 2009 and have issued our report thereon dated June 3, 2010. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the provisions of the Minnesota Legal Compliance Audit Guide for Local Government promulgated by the State Auditor pursuant to Minnesota Statutes Section 6.65. Accordingly, the audit included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. The Minnesota Legal Compliance Audit Guide for Local Government covers seven categories of compliance to be tested: contracting and bidding, deposits and investments, conflicts of interest, public indebtedness, claims and disbursements, miscellaneous provisions and tax increment financing. Our study included all of the listed categories. The results of our tests indicate that for the items tested, the City of Chanhassen, Minnesota complied with the material terms and conditions of applicable legal provisions. This report is intended solely for the information and use of the City of Chanhassen, Minnesota's City council and management and is not intended to be, and should not be, used by anyone other than these specified parties. tL e 1G�0' f La HLB TAUTGES REDPATH, LTD. White Bear Lake, Minnesota June 3, 2010 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 111 International, a world -wide organization of accounting firms and business advisors. Equal Opportunity Employer H LB Tautges Redpath, Ltd. Certified Public Accountants and Consultants REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Honorable Mayor and Members of the City Council City of Chanhassen, Minnesota 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 Chanhassen, Minnesota, as of and for the year ended December 31, 2009 which collectively comprise the City of Chanhassen, Minnesota's basic financial statements, and have issued our report thereon, dated June 3, 2010. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered the City of Chanhassen, Minnesota's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City of Chanhassen, Minnesota's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City of Chanhassen, Minnesota's internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. 4810 White Bear Parkway White Bear Lake, Minnesota 55110 I 651 426 7000 651 426 5004 Fax I www.hlbtr.com HLB Tautges Bedpath, Ltd. is a member of 111 International, a world -wide organization of accounting firms and business advisors. I Equal Opportunity Employer City of Chanhassen, Minnesota Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Page 2 Compliance and Other Matters As part of obtaining reasonable assurance about whether the City of Chanhassen, Minnesota's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We also noted certain additional matters that we reported to management of the City of Chanhassen, Minnesota in a separate letter dated June 3, 2010. This report is intended solely for the information and use of the City of Chanhassen, Minnesota's City Council and management and is not intended to be, and should not be, used by anyone other than these specified parties. ri t4 15 0 , 2 _ e t-r3- HLB TAUTGES REDPATH, LTD. White Bear Lake, Minnesota June 3, 2010 H LB Tautges Redpath, Ltd. Certified Public Accountants and Consultants COMMUNICATION WITH THOSE CHARGED WITH GOVERNANCE To the Honorable Mayor and Members of the City Council City of Chanhassen, Minnesota 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 Chanhassen, Minnesota as of and for the year ended December 31, 2009, and have issued our report thereon dated June 3, 2010. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards and Government Auditing Standards, as well as certain information related to the planning scope and timing of our audit. We have communicated such information in our letter to you dated February 8, 2010. Professional standards also require that we communicate to you the following information related to our audit. Significant Audit Results Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City 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 2009. We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimate affecting the financial statements was management's estimate of the net OPEB obligation which is based on the OPEB actuarial study. We evaluated the key factors and assumptions used to develop the estimate for the net OPEB obligation in determining that it is reasonable in relation to the financial statements taken as a whole. Certain financial statement disclosures are particularly sensitive because of the significance to financial statement users. The City does not have any particularly sensitive disclosures in its financial statements. 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 fr International, a world -wide organization of accounting firms and business advisors. 1 Equal Opportunity Employer • City of Chanhassen, Minnesota Communication With Those Charged With Governance Page2 Difficulties Encountered in Performing the Audit We encountered no significant 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 determined that their effects are immaterial, both individually and in the aggregate, to the financial statements taken as a whole. We identified two known uncorrected misstatement of the financial statements. • Bond discounts and issuance costs are not amortized over the life of the bond, but instead are recorded during the year in which the bond was sold. As a result, assets and net assets of the governmental activities and business -type activities are understated by $50,669 and $79,599, respectively, at December 31, 2009. • During the year, the City identified that certain water and sewer customers were not being billed for usage. The City billed these customers for water and sewer charges in the amount of $33,530 and $23,351, respectively. Of these amounts, the charges relating to prior year's water and sewer usage was $26,073 and $16,802, respectively. The City recorded the entire amount of these billings in the current year rather than recording the portion of charges relating to prior year as a prior period adjustment. 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 June 3, 2010. Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the City'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. City of Chanhassen, Minnesota Communication With Those Charged With Governance Page 3 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 City's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Closing This information is intended solely for the information and use of the City of Chanhassen, Minnesota's City Council and management, and is not intended to be, and should not be, used by anyone other than these specified parties. 1 TaGd5-4. A.? t r 7 - HLB TAUTGES REDPATH, LTD. White Bear Lake, Minnesota June 3, 2010