A-1. Review of 2015 Audit Report, Redpath & CompanyA -
MEMORANDUM
CITY OF TO: Mayor & City Council
CHAUSEN FROM: Greg Sticha, Finance Director
CRUSEN
7700 Market Boulevard DATE: July 11, 2016
PO Box 147
Chanhassen, MN 55317 SUBJ: Review 2015 Audit & Approval of Year End Transfers
Administration
The Finance Department just finished another audit cycle. Andy Herring & Dave Mol from
Phone: 952.227.1100
Redpath & Company will be present to review the financial results and audit findings for 2015.
Fax: 952.227.1110
BACKGROUND
Building Inspections
Phone: 952.227.1180
Audit: The financial statements take into account the city's entire financial picture and are in a
Fax: 952.227.1190
format similar to a proprietary or for-profit organization. This includes a statement of activities
that break out the primary government and proprietary revenues and expenses by function.
Engineering
Phone: 952.227.1160
There are three reports that HLB Tautges Redpath completes for the city as part of the audit.
Fax: 952.227.1170
Attached are copies of all three reports and representatives from Redpath & Company will review
Finance
each report with City Council. In addition, they will be reviewing a PowerPoint that will give
Phone: 952.227.1140
some insight on how a number of various funds finished the 2015 audit year.
Fax: 952.227.1110
Year End Transfers: After the audit has been completed any General Fund Surplus for the year
Park & Recreation
end can be transferred to any fund the City Council desires. This year the General Fund had a
Phone: 952.227.1120
surplus of $421,281. Previous Councils have committed to the completion of picnic shelters at all
Fax: 952.227.1110
of the city's neighborhood parks using any surpluses created in the General Fund. The amount
needed for this year's picnic shelters would be $120,000.
Recreation Center
2310 Coulter Boulevard
Phone: 952.227.1400
It has also been the practice of previous councils to transfer any remaining General Fund Surplus
Fax: 952.227.1404
to the Revolving Assessment Construction Fund in order to pay for the city portion of the annual
street improvement projects. Therefore, the remaining amount of surplus that could be transferred
Planning &
to the Revolving Assessment Construction Fund would be $301,281. Staff is recommending a
Natural Resources
transfer of these funds consistent with other General Fund surpluses.
Phone: 952.227.1130
Fax: 952.227.1110
In addition, staff is also recommending the closing of Fund #600 (Special Assessment Project
Fund). This fund was set up in the 1990s to account for various special assessment street
Public Works
reconstruction projects. In 2005, the city established its current Revolving Assessment
7901 Park Place
Construction Fund (Fund #601) to account for all future street reconstruction/improvement
Phone: 952.227.1300
Fax: 952.227.1310
projects. All of the old special assessments accounted for in Fund #600 have now been paid and
there is a remaining cash balance of $81,084. Staff is recommending the transfer of these
Senior Center
remaining funds into the new fund established in 2005 (Fund #601) and the closing of fund #600.
Phone: 952.227.1125
Fax: 952.227.1110
ATTACHMENTS
Website 1. Audit Reports that will be presented by the Auditors.
www.ci.chanhassen.mn.us 2. PowerPoint Presentation dated July 11, 2016.
3. Resolution Authorizing year end transfers.
fAgregs\audit\2015\review of 2015 audit & ye tsfs.docx
Chanhassen is a Community for Life - Providing for Today and Planning forTomorrow
R EP.OATH
A N DM P
INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN
AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH
GO VERNMENT A UDITING STANDARDS
To the Honorable Mayor, Members of
the City Council and Management
City of Chanhassen, Minnesota
We have audited, in accordance with the 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, 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, 2015, and the related notes to the financial statements,
which collectively comprise the City of Chanhassen, Minnesota's basic financial statements
and have issued our report thereon dated June 24, 2016.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the City of
Chanhassen, Minnesota's internal control over financial reporting (internal control) to
determine the audit procedures that are appropriate in the circumstances 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.
Accordingly, we do not express an opinion on the effectiveness of the City of Chanhassen,
Minnesota's internal control.
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. A significant deficiency is a deficiency,
or a combination of deficiencies, in internal control that is less severe than a material
weakness, yet important enough to merit attention by those charged with governance.
4810 White Bear Parkway, St. Paul, MN, 55110 651.426.7000 www.redpathcpas.com
Our consideration of internal control was for the limited purpose described in the first
paragraph of this section and was not designed to identify all deficiencies in internal control
that might be material weaknesses or significant deficiencies. Given these limitations, during
our audit we did not identify any deficiencies in internal control that we consider to be material
weaknesses. However, material weaknesses may exist that have not been identified.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City of Chanhassen,
Minnesota's financial statements are free from 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, 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.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and
compliance and the results of that testing, and not to provide an opinion on the effectiveness
of the entity's internal control or on compliance. This report is an integral part of an audit
performed in accordance with Government Auditing Standards in considering the entity's
internal control and compliance. Accordingly, this communication is not suitable for any
other purpose.
REDPATH AND COMPANY, LTD.
St. Paul, Minnesota
June 24, 2016
REdTH
A N D CMAP N Y
MINNESOTA LEGAL COMPLIANCE
To the Honorable Mayor and
Members of the City Council
City of Chanhassen, Minnesota
We have audited, 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, 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, 2015, and the related notes to the financial statements, and have issued our report
thereon dated June 24, 2016.
The Minnesota Legal Compliance Audit Guide for Cities, promulgated by the State Auditor
pursuant to Minn. Stat. § 6.65, contains 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 audit considered all
of the listed categories.
In connection with our audit, nothing came to our attention that caused us to believe that the City
of Chanhassen, Minnesota failed to comply with the provisions of the Minnesota Legal
Compliance Audit Guide for Cities. However, our audit was not directed primarily toward
obtaining knowledge of such noncompliance. Accordingly, had we performed additional
procedures, other matters may have come to our attention regarding the City of Chanhassen,
Minnesota's noncompliance with the above referenced provisions.
The purpose of this report is solely to describe the scope of our testing of compliance and the
results of that testing, and not to provide an opinion on compliance. Accordingly, this
communication is not suitable for any other purpose.
REDPATH AND COMPANY, LTD.
St. Paul, Minnesota
June 24, 2016
4810 White Bear Parkway, St. Paul, MN, 55110 651.426.7000 www.redpathcpas.com
REdTH
A N DPCCOMAP N Y
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, 2015. Professional standards
require that we provide you with information about our responsibilities under generally
accepted auditing standards, Government Auditing Standards, as well as certain information
related to the planned scope and timing of our audit. We have communicated such
information in our letter to you dated May 16, 2016. Professional standards also require that
we communicate to you the following information related to our audit.
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 Notes 8 and 18 to the financial statements, the City implemented
GASB Statement No. 68, Accounting and Financial Reporting for Pensions — an Amendment
of GASB Statement No. 27 for the year ended December 31, 2015. The most significant
effect of this standard is that it required the City to record its proportionate share of the net
pension liability of defined benefit pension plans, as well as related deferred inflows and
outflows of resources. These items are only reported on full -accrual financial statements.
The liability was initially recorded by restating beginning net position. It should be noted
that the City's contribution requirements to pension plans have not changed as a result of this
standard.
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 estimates affecting the financial statements were management's estimate
of the portion of construction projects which will be capitalized and estimates relating to the
net pension liability. Estimates relating to construction projects are based on feasibility
4810 White Bear Parkway, St. Paul, MN, 55110 651.426.7000 www.redpathcpas.com
City of Chanhassen, Minnesota
Communication With Those Charged With Governance
Page 2
reports and estimates of the City Engineer. Estimates relating to the net pension liability are
based on actuarial studies. 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 their
significance to financial statement users. Determining sensitivity is subjective, however, we
believe the disclosures most likely to be considered sensitive are Note 8 — Defined Benefit
Pension Plans and Note 18 — Change in Accounting Principle.
The financial statement disclosures 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 clearly trivial, and communicate them to
the appropriate level of management. There were no uncorrected misstatements that have an
effect on our opinion on the financial statements. Audit procedures detected a keying error in
recording an addition to capital assets, which initially resulted in a $500,000 overstatement to
Sewer Fund capital assets. The item was subsequently corrected.
Disagreements with Management
For purposes of this letter, a disagreement with management is 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 24, 2016.
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.
Other Matters
We applied certain limited procedures to management's discussion and analysis, the
budgetary comparison information, the schedule of funding progress, and the pension related
information, which are required supplementary information (RSI) that supplements the basic
financial statements. Our procedures consisted of inquiries of management regarding the
methods of preparing the information and comparing the information for consistency with
management's responses to our inquiries, the basic financial statements, and other knowledge
we obtained during our audit of the basic financial statements. We did not audit the RSI and
do not express an opinion or provide any assurance on the RSI.
We were engaged to report on the combining and individual nonmajor fund financial
statements and schedules which accompany the financial statements but are not RSI. With
respect to this supplementary information, 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.
We were not engaged to report on the introductory section, the statistical section or the
other information, which accompany the financial statements but are not RSI. We did not
audit or perform other procedures on this other information and we do not express an opinion
or provide any assurance it.
Restriction on Use
This information is intended solely for the use of the City Council and management of
the City of Chanhassen, Minnesota and is not intended to be, and should not be, used by
anyone other than these specified parties.
REDPATH AND COMPANY, LTD.
St. Paul, Minnesota
June 24, 2016
David Mol, CPA
Partner
Andy Hering, CPA
Director
REd
A N 0
Reports Issued by Auditor
Opinion on the Fair Presentation of the Financial
Statements
Report on Internal Controls
Report on Minnesota Legal Compliance
Communication to Those Charged with Governance
2
REdAMPATNYH
A N D
Opinion on Financial Statements
17 What did we do?
Determine the financial statements are presented in accordance
with GAAP and free of material misstatement.
r, How did we do it?
Audit Standards
GAAS (AICPA)
— GAGAS (GAO)
What is the result?
- A "clean" or Unmodified opinion was issued on the 2015
financial statements.
REdAMPATNYH
A N 0 C
Excellence in Financial Reporting
rk
Government Finance Officers Association
Certificate of
Achievement
for Excellence
in Financial
Reporting
Presented to
City of Chanhassen
Minnesota
For its Comprehensivc Annual
Financial Rcport
for the Fiscal Year Fnded
December 31, 2014
Executive Direciorr( 70
4
REdATH
A N D C O M P A N Y
Report on Internal Controls
7 What did we do?
We gained an understanding of internal controls in place and
their effectiveness in order to design our audit procedures
P, What is the result?
No findings on internal control over financial reporting.
5
REdPCOAM.TNYH
AN D
Report on Minnesota Legal Compliance
r What did we do?
10 Determine the City has complied with certain Minnesota
Statutes / Laws that pertain to financial transactions
How did we do it?
Select sample of transactions to test for compliance with
statutory provisions.
What is the result?
No findings of noncompliance.
REdS
AND
Communication to Those Charged with Governance
7 Accounting policies used and/or changed.
• GASB 68 relating to pensions was implemented.
— City's proportionate share of PERNs net pension liability ($4,326,000)
— Fire Relief net pension liability ($625,000)
7 Accounting estimates in the financial statements.
• Capitalization of construction projects
• Net pension liability
No difficulties encountered in performing the audit.
rlFinancial statement adjustments identified during the audit
• Capitalization of assets
r No disagreements with management.
R Other Matters
• More changes in accounting standards on the way.
REd,BW
AND
Pensions
7 GASB No. 68
City's proportionate share of PERNs net pension liability now required to be
reported in the financial statements.
11 PERA's Net Pension Liability at June 30, 2015
• GERF $5.586 billion (76% funded)
• PEPFF $1.384 billion (84% funded)
City of Chanhassen's share
GERF: 0.0791% or $4,099,000
• PEPFF: 0.020% or $227,000
�^ Impact on City of Chanhassen
• No change in funding
City contribution requirement
— GERF: 7.5% of wages
— PEPFF: 16.2% of wages
R ECJCPOTH
A N DMAP N Y
Summary of Financial Activity
Increase
(Decrease) Fund
Interfund in Fund Balance
Fund Type Revenue Expenditures Transfers Balance 12/31/15
General $10,550,000 $10,129,000 ($700,000) ($279,000) $5,330,000
Special Revenue 246,000
Debt Service 2,091,000
Capital Project 7,537,000
191,000 - 55,000 460,000
2,256,000 673,000 508,000 4,069,000
485,000 (761, 000)
7,763, 000
Total $20,424,000 $21,359,000 $458,000 ($477,000) $17,622,000
Footnotes:
General Fund — see next slide
Debt Service — Tax increment bonds paid off in 2015 ($635,000)
Capital Project:
Expenditures include 1) TH101 ($826,000), 2) 2014 Street project ($1,335,000) and
3) Capital equipment replacement ($1,186,000).
J
REdDATH
AND COMPANY
General Fund Budget Performance
2015
Fund balance - January 1
Fund balance - December 31
5,609,000
$5,330,000
Footnotes:
1. Revenue budget variance due to Permit Revenue ($301,000) and Fire State Aid ($46,000).
2. Transfer out was to Revolving Assessment Fund to provide for interfund loan for well #15.
zo
RECD.- AIrk,
AN D O O M P A N V
Budget
Budget
Actual
Variance
Revenues $10,165,000
$10,550,000
$385,000
Expenditures 10,165,000
10,129,000
36,000
Revenues over (under) expenditure, -
421,000
421,000
Transfer out -
(700,000)
(700,000)
Net increase in fund balance -
(279,000)
(279,000)
Fund balance - January 1
Fund balance - December 31
5,609,000
$5,330,000
Footnotes:
1. Revenue budget variance due to Permit Revenue ($301,000) and Fire State Aid ($46,000).
2. Transfer out was to Revolving Assessment Fund to provide for interfund loan for well #15.
zo
RECD.- AIrk,
AN D O O M P A N V
General Fund Balance Cash Flow Reserve
$6,000,000 -
$5,500,000 -
$5,000,000 -
$4,500,000 -
$4,000,000 -
$3,500,000 -
$3,000,000 -
$2,500,000 -
$2,000,000 -
$1,500,000 -
$1,000,000 -
$500,000 -
$3,071,000
decrease
from
12/31/14
through
5/31/15
$ 12/31/2014 1/31/20 5 2/28/20 5 3/31/20 5 4/30/20 5 5/31/20 5 1 6/30/20 5 7/31/20 5 8/31/20 5 1 9/30/20 5110/31/2015111/30/20)15112/3E2 015
■S nesl $5,791,000 $5,275,000 $4,790,000 $3,656,000 $3,152,000 $2,720,000 $5,139,0001 $4,909,0001$4,441,0001$3,958,0001$3,667,0001$2,067,0001$5,471,0001
11 p F( -_ i
AND rml
COMRANY
Water Fund
$3,500,000 --
$3,000,000 --
$2,500,000 --
$2,000,000
$1,500,000 -
$1,000,000 -
$500,000 -
2011 2012 2013 2014 2015
� Depreciation
�7 Operating Expenses (excludes
depreciation)
�— Operating Revenue
r�cCnjam H
AND'COMPANY
Sewer Fund
$3,400,000 -
$3,200,000 -
$3,000,000 -
$2,800,000 -
$2,600,000 -
$2,400,000 -
$2,200,000 -
$2,000,000 -
$1,800,000 -
$1,600,000 -
$1,400,000 -
$1,200,000 -
$1,000,000
$800,000 -
$600,000
$400,000
$200,000
1
-- $3,400,000
$3,200,000
$3,000,000
$2,800,000
- $2,600,000
$2,400,000
$2,200,000
$2,000,000
$1,800,000
$1,600,000
$1,400,000
- $1,200,000
- $1,000,000
- $800,000
- $600,000
- $400,000
- $200,000
2011 2012 2013 2014 2015
� Depreciation
Operating Expenses
(excludes
depreciation)
t Operating Revenue
RECJCPOTAN DMAP N Y
CITY OF CHANHASSEN
CARVER AND HENNEPIN COUNTIES, MINNESOTA
DATE: Julv 11, 2016 RESOLUTION NO: 2016 -
MOTION BY: SECONDED BY:
A RESOLUTION AUTHORIZING A TRANSFER FROM THE GENERAL FUND
SURPLUS FROM THE YEAR ENDING DECEMBER 31, 2015, AND THE CLOSING OF
FUND #600 (SPECIAL ASSESSMENT PROJECT FUND) WITH ANY REMAING
FUNDS TO BE TRASFERRED TO THE REVLOVING ASSESSMENT
CONSTRUCTION FUND (FUND #601)
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF CHANHASSEN
AS FOLLOWS:
That the city had a surplus in the city's General Fund for fiscal year ending
December 31, 2015 of $421,281; and
2. That a transfer of $120,000 from the city's General Fund (10 1) to the city's Capital
Equipment Construction Fund (400), to be used for the ongoing construction of
picnic shelters in the various neighborhood parks; and
3. A transfer of $301,281 from the city's General Fund (101) to the city's Revolving
Assessment Construction Fund (601) to aid in the funding of the ongoing city
portion of street reconstruction projects; and
4. A transfer of the remaining cash balance in the Special Assessment Project Fund
(600) of $81,084 to the Revolving Assessment Construction Fund (601); and
5. The permanent closing of the Special Assessment Project Fund (600).
Passed and adopted by the Chanhassen City Council this 11th day of July, 2016.
ATTEST:
Todd Gerhardt, City Manager Denny Laufenburger, Mayor
YES NO ABSENT