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A. Presentation of 2011 AuditBuilding Inspections The Finance Department just finished another audit cycle. Andy Herring from A CITY OF MEMORANDUM CHMNSEN TO: Mayor & City Council 7700 Market Boulevard Governments G PO Box 147 FROM: , Greg Sticha, Finance Director Chanhassen, MN 55317 DATE: June 25, 2012 revenues and expenses by function. Park & Recreation Administration Phone: 952.227.1100 SUBJ: Review 2011 Audit Fax: 952.227.1110 Assessment Construction Fund as in years past. There is a resolution on tonight's Building Inspections The Finance Department just finished another audit cycle. Andy Herring from Phone: 952.227.1180 HLB Tautges Redpath will be present to review the financial results and audit Fax: 952.227.1190 findings for 2011. Engineering Phone: 952.227.1160 BACKGROUND Fax: 952.227.1170 Governments The financial statements take into account the city's entire financial picture and Finance are in a format similar to a proprietary or for - profit organization. This includes a Phone: 952.227.1140 statement of activities that break out the primary government and proprietary Fax: 952.227.1110 revenues and expenses by function. Park & Recreation Phone: 952.227.1120 For 2011, the General Fund finished with a $421,539 increase in fund balance. Fax: 952.227.1110 Staff is recommending that this surplus be transferred to the Revolving Assessment Construction Fund as in years past. There is a resolution on tonight's Recreation Center agenda for approval of this transfer. 2310 Coulter Boulevard Phone: 952.227.1400 There are three reports that HLB Tautges Redpath completes for the city as part of Fax: 952.227.1404 the audit. Attached are copies of all three reports and representatives from HLB Planning & Tautges Redpath will review each report with the city council. In addition, they Natural Resources will be reviewing a PowerPoint that will give some insight on how a number of Phone: 952.227.1130 various funds finished the 2011 audit year. Fax: 952.227.1110 Web Site www.ci.chanhassen.mn.us f \gregs \audit\2011\reviewof2011 audit.docx Chanhassen is a Community for Life - Providing for Today and Planning for Tomorrow ATTACHMENTS Public Works 7901 Park Place Phone: 952.227.1300 1. Report on Compliance with Minnesota Legal Compliance Guide for Local Fax: 952.227.1310 Governments 2. Report on Internal Controls over Financial Reporting Senior Center 3. Report on Communication with Those Charged with Governance Phone: 952.227.1125 Fax: 952.227.1110 Web Site www.ci.chanhassen.mn.us f \gregs \audit\2011\reviewof2011 audit.docx Chanhassen is a Community for Life - Providing for Today and Planning for Tomorrow TAUTGES REDPATH, LTD. Certified Public Accountants REPORT ON COMPLIANCE WITH MINNESOTA LEGAL COMPLIANCE AUDIT GUIDE FOR POLITICAL SUBDIVISIONS 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, 2011 and have issued our report thereon dated June 15, 2012. 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 Political Subdivisions 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 Political Subdivisions 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. 1 I� / , � HLB TAUTGES REDPATH, LTD. June 15, 2012 4810 White Bear Parkway White Bear Lake, MN 55110 651.426.7000 651.426.5004 fax www.hlbtr.com Equal Opportunity Employer 100- Percent Employee -Owned HU TautiM Redpath. W. is a member of HLR IntermtloneL a wortd -wide network of Independent accounting firms and business adWsors. 1 TAUTGES REDPAT", LYE► Certirted Public Accountants 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 A UDITING 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, 2011 which collectively comprise the City of Chanhassen, Minnesota's basic financial statements and have issued our report thereon, dated June 15, 2012. 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 Management of the City of Chanhassen, Minnesota is responsible for establishing and maintaining effective 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. However, we 4810 White Bear Parkway White Bear Lake; MN 55110 651.426.7000 651.426.5004 fax www.hlbtr.com Equal Opportunity Employer 100- Percent Employee -Owned All Tautges Redpeth Ltd. Is a member -of 146E International; a world -wide network of independent accounting firms and business advisors. City of Chanhassen, Minnesota Report on Internal Control Over Financial Reporting> and on Compliance and Other Matters Page 2' HLB TAUTGES REDPATH, LTD. June 15, 2012 CITY OF CHANHASSEN, MINNESOTA SCHEDULE OF FINDINGS AND RESPONSES For The Year Ended December 31, 2011 2011 -1 Prior Period Adjustment and Financial Statement Corrections Criteria: Audit standards specify that a restatement of previously issued financial statements be considered a deficiency in internal control if the misstatement is not detected or corrected on a timely basis. Condition: During 2011, City staff discovered revenue had been understated in prior years and as a result a prior period adjustment was recorded to increase beginning net assets. In addition, audit staff detected corrections to the tinning of, revenue recognition,, accounts payable and expenditure coding. The items detected by audit staff were not material to financial' statements Cause: In our viewpoint, the guidance provided by audit standards; regarding financial statement corrections combined with the complexity of governmental accounting will result in most local governments receiving a finding in this regard. Effect: There is an increased risk that financial statement misstatements may occur. Recommendation: We recommend City staff continue to attempt to: appropriately record these types of transactions. Views of Responsible Officials and Corrective Action Plan: It is the intent of the City's staff to minimize the number of audit adjustments needed each year. TAUTGE5 REDPATH, LTp 1 Certified Publk Accountants 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 for the year ended December 31, 2011. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, as well as certain information related to the planning scope and timing of our audit. We have communicated such information in our letter to you dated January 16, 2012. 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. As described in Note 13 to the financial statements, the City implemented GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions in 2011. GASB Statement No. 54 changed fund balance classifications for governmental_ fund statements. The former classifications of reserved, designated and undesignated have been replaced with nonspendable, restricted, committed, assigned and unassigned. Definitions for each new classification can be found in note 1P to the financial statements. 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 iii expected. The most sensitive estimates affecting the financial statements were management's estimate of the portion of construction projects which will be capitalized and factors used to calculate the net OPEB obligation. The estimates relating to construction projects are based on feasibility reports and estimates of the City Engineer. Estimates relating to the OPEB 4810 White Bear Parkway White Bear Lake, MN 55110 651.426.7000 651.426.5004 fax www.hlbtr.com Equal Opportunity Employer 100- Percent Employee- Owned HLB Tautges Redpath. Ltd. is a'. member of HLBintemational, a world-wide network of independent accounting firms and business advisors. City of Chanhassen Minnesota Communication With Those Charged With Governance Page 2 obligation are based on an actuarial study. We evaluated the key factors and assumptions used to develop these estimates in determining that they are 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. Difficulties Encountered in Performing the Audit We encountered no difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the 'audit, other than those that are trivial, and communicate them to the appropriate_ level of management. We identified two known uncorrected misstatements of the financial statements. Certain 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 business -type activities are understated by $51,000 at December 31, 2011. , • During 2011, the City recorded a $47,000 refund related to construction of the public works facility that should have been recorded in 2010. As a result, 2011 revenues are overstated, but the fund balance at December 31, 2011 is correctly reported. , Management has determined that the effects of the above misstatements are immaterial, both individually and in the aggregate, to. the financial statements taken as a whole. We agree with that conclusion. Management also corrected a misstatement relating to franchise fees, which resulted in a prior period adjustment, as well as adjustments to intergovernmental revenue, accounts payable,, and the coding of expenditures which were not material to the financial statements 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. City of Chanhassen, Minnesota Communication With Those Charged With Governance Page 3 Management Representations We have requested certain representations from management that are included in the management representation letter dated June 15 2012. 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. 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. Improvement Refunding Bonds, Series 2009A The payment schedule of 2009A bonds includes a $3,515,000 principal payment on February 1, 2014. The improvements funded by this bond issue included parcels `that -are expected to be developed in the future. The financing plan anticipates a special assessment prepayment related to these parcels to be collected in 2013 to fund the February 1 2014 principal payment. We recommend the City monitor the status of these parcels and determine an action plan in the event the special assessments are not collected in the anticipated timeframe. Surface Water Charges Audit procedures found one commercial customer whose billing was based on an incorrect acreage amount. The incorrect acreage amount was due to a re- platting in May 2011 and resulted in an under - billed amount of $116.90 per quarter from May 2011 through November 2011. It is our understanding City staff will be reviewing acreage amounts for all commercial accounts in 2012. City of Chanhassen, Minnesota Communication With Those Charged With Governance Page 4 Other Information in Documents Containing Audited Financial Statements With respect to the supplementary information accompanying the financial statements, we made certain inquiries of management and evaluated the form, content,, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. 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. C HLB TAUTGES REDPATH, LTD. June 15, 2012