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A. Review of 2004 AuditA CITYOF CHANHASSEN 7700 Blarket Boulevard PO Box 147 O!/aqi~assen MN 55317 Administration Pt~one 952 227 1!00 Fax 952227 1110 Building Inspections Phsrle: 952 227 1180 Fax: 952 2271190 Engineering Phoue: 952227 1160 Fax: 9522271170 Finance Pk-)ee: 952 2271140 Fax 952 2271110 Park & Recreation P%ne: 952227 1120 Fax: 952 227 1110 Reoreatior Center 2310 Couiter Boulevard Phone: 95222,7 ~490 Fax: 9522271404 Planning & Natural Resources Phenix 9522271130 Fax: 952 227 !1!0 Public Works 1591 Park F~oad P!'~one: 952227 1300 Fax 952 227 1310 Senior Center Fax 952 22/1110 Web Site ,~¢.,w ci chanhasserl ri r us MEMORANDUM TO: FROM: DATE: SUBJECT: Mayor City Council Members Bruce M. DeJong, Finance Director/~:~; July 19, 2004 ~~' Review of 2004 Audit The Finance Department just endured a rather lengthy audit process during which we also converted to our financial statement presentation to conform to Government Accounting Standards Board (GASB) Statement 34. Rob Tautges, the engagement partner and Melanie Accola, the audit manager, from HLB Tautges, Repath will be here on Monday evening to review the financial results, audit findings, and help walk the City Council through the new accounting statements. Background The intent of the GASB 34 presentation format is to look at the city from an entity-wide perspective and to focus on major funds. This breaks up the traditional format in which the general fund was presented separately, along with combining statements for the special revenue, debt service, capital projects, enterprise, and fiduciary funds. These funds are now broken out into major and non-major based on percentage of assets or liabilities or revenues and expenditures. For 2003, the General Fund had a large increase in fund balance of $915,829. This comes from three parts: the first was a total surplus of revenue over expenditures of $304,722; the second was a $82,929 duplicate payable that was caught during the audit process; and the third was a change in accounting principle that removed the liability for vacation and sick leave payout from our general fund which increased the fund balance by $528,178. This last change was noted in our TIF discussion as money that would be available to pay TIF deficits. Another highlight of our audit process was the closing of 17 debt service funds and 8 capital projects funds. This was the result of several projects being completed and many bond issues being paid in full. This will simplify the statement presentation in the future and make it much easier to determine the total balance in any specific area such as TIF District #1. The City of Chanhassen · A gro,ang :or'nm miry with clean lakes quality schoois a oharrsin,q do,,,,,,otov',,r ~l~riving busulesses ~,s, indin(l trails and beauliiul parks A great ~/.ace ~o live, work and lsia},' Review of 2004 Audit July 26, 2004 Page 2 of 3 CITYOF CHAN SEN 7700 N~arket Boulevard PO Box 142 Ohanhassen, MN 55317 Administration Phone 952227 1100 Fax: 952227 1110 Building Inspections Pl'eoe: 9522271180 Fax: 952227 1!90 Engineering Pi'one 952 227 1160 Fax 9522271170 Finance Phor'e: 952 227 1140 Fax 9522271110 Park & Recreation R~orle: 952 227 1120 Fax 952 227'1110 Recreation Ceoter 2310 6ou!ter Bas',evard Phone: 952227 1400 Fax: 952 227 1404 Planning & Natural Resources PI on,~: !}522271130 Fax 952227 1! 10 Public Works 1591 Park F~oad Pisone 952 2271300 Fax 952 227 1310 Senior Center Phone: 952227 1125 Fax: 952 227 1110 Web Site ,w,,w ~:i "l:anl,asser~ nn us Audit Findings There are three reports that HLB Tautges, Repath completes for the City. The first is the Independent Auditor's Report on Compliance With Minnesota Legal Compliance Guide for Local Government. This report is submitted to the Office of the State Auditor along with the annual report. There were three findings. The first was that deposits were not fully collateralized at the end of the year. We should have had collateral of 110% of the amount deposited at our bank, but did not. Staff has contacted M&I bank and will confer with them in the future prior to collecting our tax settlements to make sure that we are fully collateralized at all times during the year. The second was that brokerage acknowledgements were not received or retained from all brokers. Brokerage acknowledgements set out the types of investments that the City can make according to state law and any further restrictions that that the investment policy requires. Staff did have acknowledgements from prior year and the investment policy has not changed since those investment restrictions were last acknowledged. Staff will make sure that new acknowledgements are received and on file at the beginning of each year. The third finding was that we had not reported property that has been unclaimed for at least three years to the State of Minnesota. The property was unclaimed checks that have been uncashed for three years. We do have a policy of trying to contact payees of outstanding checks. We send a letter to the last known address and ask if the check has been lost. If it has, then we issue a replacement after receiving a signed statement that the payee will not cash the original check if it is found. The checks in question are now reported to the State. In the future we will report any old checks to the State in accordance with the statute. The second report is the Independent Auditor's Report on Compliance and on Internal Control over Financial Reporting. This reports list conditions that could affect our ability to properly record and report transactions. These conditions do not rise to the level of a material weakness in our controls, but should be corrected to help ensure that procedures are properly followed. The Cily of Chanhassen. A growing community with clears lakes quality schools, a charmiog dow,,r~town, tf~rivioo businesses wir~¢rlg trails, aod beautiful parks A great place to !~,,,,e work and Review of 2004 Audit July 26, 2004 Page 3 of 3 CITYOF CHANHASSEN 7700 Market Boulevard PO Box 147 O~a!!lsasser/MN 55317 Administration Phone: 9522271100 Fax~ 9522271110 Building Inspections Pqone 952 2271180 Fax; 952 2271190 Engineering P~lone 952 2271160 Fax: 9522271170 Finance Phor,e 9522271 Fax: 952227 1110 Park & Recreation Phone: 9522271120 Fax; 9522271110 Recreagon 2310 Coulte~ BoCeva d Phoebe: 952 2271400 Fax~ 9522271404 Planning & Natural Resources PPone: 952 2271130 Fax 952 2271110 Public Works 1591 Park Road Phone: 952227 1300 Fax; 952 22713!0 Senior Center Phone 952227 1125 Fax: 952227 1110 Web Site ¢,w~, J chaa/sassee Reconciliations have not always been performed on a timely basis. While progress has been made in completing these on a timely basis, we still need some help with getting them done. Mr. Gerhardt and I have decided to have contract for some help from HLB Tautges, Redpath to get us completely up-to-date. After we are caught up and procedures are in place, then we will make a determination whether additional resources are necessary on an on-going basis. We have a very small staff compared to most other cities our size. As a result, everyone is cross-trained to fill in when someone is gone. That means all finance staff currently have the ability to post journal entries. We have not always followed a full approval process that is always completed prior to posting journal entries. When we acquire new software, this should not be an issue because we can program business rules that will require approval prior to posting. In implementing our purchasing policy, we had a few hiccups. Those generally related to having all parties sign off on receipts. That should include signatures from both the employee making the purchase and their supervisor. Staff is implementing procedures that will ensure all purchases are properly endorsed prior to payment. Payroll forms were not completed for all employees prior to them being paid. Staff is implementing procedures that will ensure all employment forms are properly signed prior to payment. The third report is the audit management letter. This is a longer description of summary information and charts 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. They feel this information helps make the somewhat murky world of governmental accounting more understandable to laymen and clarifies the issues the city faces. Mr. Tautges and Ms. Accola will explain this information and will be happy to respond to your questions on Monday along with me. Enclosures: Consolidated Annual Financial Report (CAFR) Report on Compliance with Minnesota Legal Compliance Guide Report on Compliance and on Internal Control Audit Management Letter The City of Chanhassen, A growing comrnuoity with clean lakes, quality sohools a clsa~rning clowntowr~ thrMr'9 businesses windie,g trails and beautiful parks A greai place to live work and play