Loading...
1989 - Comp. Annual Financial Report I' 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ABDO, ABDO & EICK CERTIFIED PUBLIC ACCOUNTANTS 1060 NORTHLAND PLAZA, 3800 WEST 80th STREET MINNEAPOLIS, MINNESOTA 55431 TELEPHONE 612-835-9090 . FAX 612-896-3620 Member of American Institute of Certified Public Accountants Offices In: Bloomington Mankato Owatonna May 8, 1990 Honorable Mayor and City Council City of Shorewood Shorewood, Minnesota Dear Council Members: We have audited the financial statements of the City of Shorewood, Minnesota for the year ended December 31, 1989 and have issued our report dated March 23, 1990. We have not performed any substantive auditing procedures subsequent to that date. As part of our audit, we have made a study and evaluation of the City's system of internal accounting control to the extent we considered necessary to evaluate the system as required by generally accepted auditing standards. The purpose of our study and evaluation was to determine the nature, timing and extent of the auditing procedures necessary for expressing an opinion on the financial statements. Our study and evaluation, made for the limited purpose described in the first paragraph, would not necessarily disclose all material weaknesses in the system. Accordingly, we do not express an opinion on the system of internal accounting control of the City of Shorewood taken as a whole. Our study and evaluation disclosed that even though the City has a small office staff, your organization has segregation of duties to the extent practicable. Internal accounting control contemplates an adequate segregation of duties so that no one individual handles a transaction from inception to completion. While we recognize that your organization is not large enough to permit an adequate segregation of duties in all respects, it is important, however, that you are aware of this condition. The following is a listing of other items that warrant your review: Special Assessments Special assessments are a significant revenue source earmarked to repay bond principal and interest. The Deputy City Clerk is responsible for maintaining the assessment records, certifying new assessment roles to the County and collecting and notifying the County of any amounts prepaid. Currently, the Finance Department is not involved in maintaining, updating or reconciling the assessment records with the County. We recommend the Finance Department be responsible for superv1s1ng the maintenance, certification and reconciliation of special assessment records. I' Page Two MOO, MOO & ErCK CERTIFIED PUBLIC ACCOUNTANTS 1 1 Currently, the City is assessing an equalization charge against properties hooking into the sewer system. The assessments, if not prepaid, are certified to the County for collection over a four year period. The assessments are credited to the 1971 and 1972 Sewer Improvement Bond Fund (the bonds are now defeased). 1 1 We recommend in the future the City consider using a hookup charge or an availability charge system payable in one installment. This fee would be credited to the Sewer Operating Fund and be designated for future repair and maintenance. We believe this type of a system would be easier to administer. 1 Contract Documents 1 During the audit we examined various contract and bid documents. The bid documents we reviewed were in the files of the public works department and other contract documents were not readily accessible. 1 We recommend all contract, bid and other legal documents be centrally filed in a neat and orderly manner for ease of reference. 1 General Fund 1 The fund balance at December 31, 1989 was $953,875 which is an increase of $182,277 over the prior year. The fund balance is approximately fifty percent of the 1989 budgeted expenditures. 1 The entire fund balance in 1989 is designated for working capital. In prior years the fund balance required for working capital was included as part of the undesignated balance. The designation is in response to a League memo dated April 16, 1990 in which they suggested the fund balance required for working capital be specifically identified. In addition, a portion of the fund balance beyond your working capital requirements should be designated for contingencies, capital outlay program requirements, etc, as appropriate. 1 1 The fund balances of cities will be a topic of considerable discussion as the legislature struggles with its own budget problems. 1 Debt Service Funds 1989 Transactions 1 During 1989 several debt service transactions took place. The 1971 and 1972 Sewer Improvement bonds outstanding were defeased. The fund balance of $409,887 plus the special assessments receivable are available to be used at the Council's discretion for any public purpose. The Council should carefully examine all the opportunities available for the use of these funds. It is a source of funds available to the City which cannot be replenished. 1 1 In addition, permanent bonds were issued to replace the temporary bonds issued to finance the Shorewood Oaks improvements. 1 1 I- Page Three ABoo, ABoo & EICK 1 CERTIFIED PUBLIC ACCOUNTANTS 1 1974 Sewer Improvement 1 The fund balance plus the future special assessments will not be sufficient to repay all the bonds outstanding. An additional source of funding will be required over the remaining four years of the bond. 1 Southeast Project 1 This fund has a fund balance deficit of $90,541 at year end. Financing sources have been identified to eliminate this deficit. The deficit will be eliminated by a transfer from the Southeast Water Debt Service Fund. The transfer was reviewed and approved by the City's bond counsel. 1 Water Enterprise Fund 1 The Water Fund reported operating income of $12,418 in 1989. The fund still has a cash deficit of $36,615 at year end. Because the revenues have not been sufficient, the G.O. Water Revenue Bonds have been repaid through a tax levy. 1 We recommend the Council review the Water Fund operation and establish rates which are sufficient to cover the fund's operating costs, meet its debt service requirements, and establish cash reserves for major maintenance needs. 1 Sewer Fund 1 In 1989 the estimated costs of Sewer Improvements prior to 1978 were recorded in the City's accounting records. The additional depreciation recorded in the 1989 expenses was $160,638. Because of this the Sewer Fund reported a net loss of $49,596 in 1989 compared to a net income of $29,454 the previous year. 1 * * * * * 1 1 This report is intended solely for the use of management and the council. The comments and recommendations in the report are purely constructive in nature and should be read in this context. 1 Our audit would not necessarily disclose all weaknesses in the system because it was based on selected tests of the accounting records ~nd related data. 1 If you have any questions or wish to discuss this, please contact us. Thank you for the opportu~ity to be of continued service to you, and for the courtesy and cooperation extended to us by your staff. Sincerely, 1 ABDO, ABDO & EICK Certified pu~ Accountants !~.1oen. ::- 1 1 I - ~ ' . . I ABDO, ABDO & EICK CERTIFIED F>UBLIC ACCOUNTANTS I 1060 NORTHLAND PLAZA, 3800 WEST 80th STREET MINNEAPOLIS, MINNESOTA 55431 TELEPHONE 612-835-9090 . FAX 612-896-3620 I Member of American Institute of Certified Public Accountants Offices In: Bloomington Mankato Owatonna May 8, 1990 I I Honorable Mayor and City Council City of Shorewood Shorewood, Minnesota I Dear Council Members: I We have audited the financial statements of tue City of Shorewood, Minnesota for the year ended December 31, 1989 and have issued our report dated March 23, 1990. We have not performed any substantive auditing procedures subsequent to that date. As part of our audit, we have made a study and evaluation of the City's system of internal accounting control to the extent we considered necessary to evaluate the system as required by generally accepted auditing standards. The purpose of our study and evaluation was to determine the nature, timing and extent of the auditing procedures necessary for expressing an opinion on the financial statements. I I I Our study and evaluation, made for the limited purpose described in the first paragraph, would not necessarily disclose all material weaknesses in the system. Accordingly, we do not express an opinion on the system of internal accounting control of the City of Shorewood taken as a whole. Our study and evaluation disclosed that even though the City has a small office staff, your organization has segregation of duties to the extent practicable. Internal accounting control contemplates an adequate segregation of duties so that no one individual handles a transaction from inception to completion. While we recognize that your organization is not large enough to permit an adequate segregation of duties in all respects, it is important, however, that you are aware of this condition. I I I The following is a listing of other items that warrant your review: I Special Assessments I Special assessments are a significant revenue source earmarked to repay bond principal and interest. The Deputy City Clerk is responsible for maintaining the assessment records, certifying new assessment roles to the County and collecting and notifying the County of any amounts prepaid. Currently, the Finance Department is not involved in maintaining, updating or reconciling the assessment records with the County. I I We recommend the Finance Department be responsible for superv1s1ng the maintenance, certification and reconciliation of special assessment records. I I -. . Page Two . . ABoo, ABoo & EICK CERTIFIED PUBL.IC ACCOUNTANTS I I Currently, the City is assessing an equalization charge against properties hooking into the sewer system. The assessments, if not prepaid, are certified to the County for collection over a four year period. The assessments are credited to the 1971 and 1972 Sewer Improvement Bond Fund (the bonds are now defeased). I I We recommend in the future the City consider using a hookup charge or an availability charge system payable in one installment. This fee would be credited to the Sewer Operating Fund and be designated for future repair and maintenance. We believe this type of a system would be easier to administer. I Contract Documents I During the audit we examined various contract and bid documents. The bid documents we reviewed were in the files of the public works department and other contract documents were not readily accessible. I We recommend all contract, bid and other legai documents be centrally filed in a neat and orderly manner for ease of reference. I General Fund I The fund balance at December 31, 1989 was $953,875 which is an increase of $182,277 over the prior year. The fund balance is approximately fifty percent of the 1989 budgeted expenditures. I The entire fund balance in 1989 is designated for working capital. In prior years the fund balance required for working capital was included as part of the undesignated balance. The designation is in response to a League memo dated April 16, 1990 in which they suggested the fund balance required for working capital be specifically identified. In addition, a portion of the fund balance beyond your working capital requirements should be designated for contingencies, capital outlay program requirements, etc, as appropriate. I I The fund balances of cities will be a topic of considerable discussion as the legislature struggles with its own budget problems. I Debt Service Funds 1989 Transactions I During 1989 several debt service transactions took place. The 1971 and 1972 Sewer Improvement bonds outstanding were defeased. The fund balance of $409,887 plus the special assessments receivable are available to be used at the Council's discretion for any public purpose. The Council should carefully examine all the opportunities available for the use of these funds. It is a source of funds available to the City which cannot be replenished. I I In addition, permanent bonds were issued to replace the temporary bonds issued to finance the Shorewood Oaks improvements. I I I . J ... . I I I I I I I I I I I I I I I I I I Page Three . ABoo, ABoo & EICK . CERTIFIED PUBLIC ACCOUNTANTS 1974 Sewer Improvement The fund balance plus the future special assessments will not be sufficient to repay all the bonds outstanding. An additional source of funding will be required over the remaining four years of the bond. Southeast Project This fund has a fund balance deficit of $90,541 at year end. Financing sources have been identified to eliminate this deficit. The deficit will be eliminated by a transfer from the Southeast Water Debt Service Fund. The transfer was reviewed and approved by the City's bond counsel. Water Enterprise Fund The Water Fund reported operating income of $12,418 in 1989. The fund still has a cash deficit of $36,615 at year end. Bacause the revenues have not been sufficient, the G.O. Water Revenue Bonds have been repaid through a tax levy. We recommend the ~ouncil review the Water Fund operation and establish rates' which are sufficient to cover the fund's operating costs, meet its debt service requirements, and establish cash reserves for major maintenance needs. Sewer Fund In 1989 the estimated costs of Sewer Improvements prior to 1978 were recorded in the City's accounting records. The additional depreciation recorded in the 1989 expenses was $160,638. Because of this the Sewer Fund reported a net loss of $49,596 in 1989 compared to a net income of $29,454 the previous year. * * * * * This report is intended solely for the use of management and the council. The comments and recommendations in the report are purely constructive in nature and should be read in this context. Our audit would not necessarily disclose all weaknesses in the system because it was based on selected tests of the accounting records and related data. If you have any questions or wish to discuss this, please contact us. Thank you for the opportunity to be of continued service to you, and for the courtesy and cooperation extended to us by your staff. Sincerely, ABDO, ABDO & EICK Certified PU~ Accountants l,.1oen. ~ I I MAYOR Jan Haugen COUNCI L Kristi Stover Robert Gagne Barb Brancel Vern Wanen I CITY OF SHOREWOOD I 5755 COUNTRY CLUB ROAD . SHOREWOOD, MINNESOTA 55331 . (612) 474-3236 I TO: MAYOR. COUN::ILMEMBERS AND MEMBERS OF THE FINANCIAL ADVISORY BOARD ALAN ROLEK, FINANCE DIRECl'OR ~.. MAY 10, 1990 I I FROM: DA TE: SUBJECT: 1989 ANNUAL FINANCIAL AUDIT REPORT I Attached for your review is the 1989 Annual Financial Audit Report for the City of ShorE:Wood. Also included is the audit management letter and letter of internal control. I The annual audit of the city's financial statements is required by law to exanine the city's compliance with legal requirements and with generally accepted accounting principles. The auditor examines the city's financial condition and other financial data and canments on these in the audit management letter. I I The audit management letter points out improvements in procedures and certain areas in several different funds that the City Council may want to addres s in the coming months. These areas will be discussed in greater detail by Ga ry Groen of Abdo, Ab do & Eick. the City's auditing firm, in the audit presentation on May 14. I I Please review the audit report and give me a call if you have any questions or canments. I will be happy to discuss any part of the audit report with you. I cc: Larry Whittaker I I I I I A Residential Community on Lake Minnetonka's South Shore I I I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA TABLE OF CONTENTS I. INTRODUCTORY SECTION Elected and Appointed Officials II. FINANCIAL SECTION Page Independent Auditor's Report General Purpose Financial Statements Combined Balance Sheet - All Fund Types and Account Groups Combined Statement of Revenue, Expenditures and Changes in Fund Balance - All Governmental Fund Types Statement of Revenue, Expenditures and Changes in Fund Balance - Budget and Actual - General Fund Combined Statement of Revenue, Expenses and Changes in Retained Earnings - All Proprietary Fund Types Combined Statement of Cash Flows - All Proprietary Fund Types Notes to Financial Statements 2 3 4 5 6 7 - 21 Combining and Individual Fund Statements General Fund Balance Sheet Statement of Revenue, Expenditures and Changes in Fund Balance - Budget and Actual Debt Service Funds Combining Balance Sheet Combining Statement of Revenue, Expenditures and Changes in Fund Balance Capital Projects Funds Combining Balance Sheet Combining Statement of Revenue, Expenditures and Changes in Fund Balance Proprietary Fund Types Combining Balance Sheet Combining Statement of Revenue, Expenses and Changes in Retained Earnings Combining Statement of Cash Flows 22 23 - 27 28 29 30 31 32 33 34 III. OTHER REPORTS Independent Auditor's Report on Internal Control Structure Based Solely on a Study and Evaluation Made as a Part of an Audit of the General Purpose Financial Statements Independent Auditor's Report on Compliance Based on an Audit of the General Purpose Financial Statements 35 - 36 37 I I I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD. MINNESOTA ELECTED AND APPOINTED OFFICIALS DECEMBER 31. 1989 Elected Officials Term Expires Jan Haugen Barbara Brancel Robert Gagne Jr. Kristi Stover Vern Watten Mayor Council Member Council Member Council Member Council Member 1992 1990 1992 1992 1990 Appointed Officials Larry Whittaker Alan Rolek City Administrator Finance Director I I ABDO, ABDO &: EICK CERTIFIED PUBLIC ACCOUNTANTS I 1060 NORTHLAND PLAZA, 3800 WEST BOth STREET MINNEAPOLIS, MINNESOTA 55431 TELEPHONE 612-835-9090 FAX 612-896-3620 INDEPENDENT AUDITOR'S REPORT Offices In: Bloomington Mankato Owatonna I Member of American Inlmute of Certified Public Accountants I Honorable Mayor and City Council City of Shorewood, Minnesota I We have audited the accompanying general purpose financial statements of the City of Shorewood, Minnesota, for the year ended December 31, 1989 as listed in the table of contents. These financial statements are the responsibility of the City of Shorewood, Minnesota's management. Our responsibility is to express an opinion on these financial statements based on our audit. I I Except as discussed in the following paragraph, we conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. I I I Because the City does not maintain general fixed assets records which provide complete accounting control over quantities and original costs of all property, it is impracticable 'to audit the accompanying financial statements of the General Fixed Assets Account Group, and therefore, we express no opinion on them. I I In our opinion, except for the effects on the financial statements of such adjustments, if any, as might have been determined to be necessary had we audited the General Fixed Assets Account Group, the general purpose financial statements referred to above present fairly, in all material respects, the financial position of the City of Shorewood, Minnesota at December 31, 1989 and the results of its operations and changes in financial position and statement of cash flows of its Proprietary Fund Types for the year then ended, in conformity with generally accepted accounting principles. I I I Our audit was made for the purpose of forming an oplnlon on the general purpose financial statements taken as a whole. The combining and individual fund financial statements listed in the table of contents are presented for the purpose of additional analysis and are not a required part of the general purpose financial statements of the City of Shorewood, Minnesota. The information has been subjected to the auditing procedures applied in the audit of the general purpose financial statements and, in our opinion, is fairly stated in all material respects in relation to the general purpose financial statements taken as a whole. , . ~, ~ r ~ ABDO, ABDO & EICK Certified Public Accountants I I March 23, 1990 Minneapolis, Minnesota I I I I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA COMBINED BALANCE SHEET ALL FUND TYPES AND ACCOUNT GROUPS DECEMBER 31, 1989 CITY OF SHOREWOOD, MINNESOTA COMBINED BALANCE SHEET ALL FUND TYPES AND ACCOUNT GROUPS DECEMBER 31, 1989 Governmental Fund Types Assets General Cash and investments Cash on hand Receivables Taxes Accounts Accrued interest Contracts Special assessments Inventories, at cost Prepaid expenses Property and equipment, net Bond discount, net Other debits Amounts available Amounts to be provided for general long-term debt $ 913 409 100 83 024 82 871 26 787 94 199 Total Assets $1 200 390 Liabilities and Fund Equity Liabilities Accounts and contracts payable Salaries and compensated absences Refundable deposits payable Accrued interest payable Deferred revenue Bonds payable $ 34 987 20 280 28 180 163 068 Total liabilities 246 515 Fund equity Investment in general fixed assets Contributed capital Retained earnings - unreserved Fund balance Reserved Unreserved 953 875 Total fund equity 953 875 Total liabilities and fund equity $1 200 390 See Notes to Financial Statements -2- Debt Service $1 853 219 38 590 1 919 229 $3 811 038 $ 1 890 748 1 890 748 1 510 303 409 987 1 920 290 $3 811 038 Capital Projects $ (9 766) 1 495 $ (8 271) $ 20 436 20 436 (28 707) (28 707) $ (8 271) I I I I I I I I I I I I I I I I I I I Fund balance, January 1 771 598 2 677 309 40 885 I I I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA COMBINED STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE ALL GOVERNMENTAL FUND TYPES YEAR ENDED DECEMBER 31, 1989 Total revenue Debt Capita 1 General Service Projects $1 118 886 $ $ 207 129 405 022 11 .954 105 244 4 665 830 682 80 926 189 622 9 897 17 152 19 810 61 1 953 636 1 020 304 27 110 610 659 362 066 74 565 66 911 570 981 36 057 83 502 86 645 2 604 150 253 115 1 768 684 2 857 265 122 702 184 952 (1 836 961) (95 592) 1 079 942 23 325 26 000 (26 000) (2 675) 1 079 942 26 000 Revenue General property taxes Licenses and permits Intergovernmental Charges for services Fines Miscellaneous Special assessments Interest on investments Park dedication fees Other Expenditures General government Public safety Police protection Fire protection Other Public works Parks and recreation Debt service Principal Interest and service charges Total expenditures Excess revenue (expenditures) Other financing sources Proceeds of bonds issued Operating transfer in Operating transfer out Total other financing sources (uses) Excess revenue and other financing sources over (under) expenditures and other uses 182 277 (757 019) (69 592) Fund balance, December 31 $ 953 875 $1 920 290 $(28 707) See Notes to Financial Statements -3- I I Total I (Memorandum Only) 1989 1988 I $1 118 886 $1 087 099 207 129 330 408 405 022 368 288 11 954 10 532 I 105 244 91 385 835 347 1 204 901 I 280 445 218 937 17 152 99 102 19 871 31 078 I 3 001 050 3 441 730 I 610 659 646 923 362 066 344 714 I 74 565 68 414 66 911 110 589 607 038 1 337 749 170 147 252 312 I 2 604 150 435 000 I 253 115 274 636 4 748 651 3 470 337 I (1 747 601) (28 607) I 1 079 942 49 325 16 000 (26 000) I 1 103 267 16 000 I (644 334) (12 607) I 3 489 792 3 502 399 I $2 845 458 $3 489 792 I -3- I I I I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA STATEMENT OF REVENUE, EXPENDITURES AND CHANGES BUDGET AND ACTUAL GENERAL FUND YEAR ENDED DECEMBER 31, 1989 IN FUND BALANCE Total revenue Variance Favorable Budget Actual (Unfavorable) $1 282 956 $1 118 886 $(164 070) 170 200 207 129 36 929 199 735 405 022 205 287 16 300 11 954 (4 346) 70 000 105 244 35 244 4 665 4 665 35 000 80 926 45 926 15 000 19 810 4 810 1 789 191 1 953 636 164 445 636 894 610 659 26 235 363 017 362 066 951 74 832 74 565 267 69 827 66 911 2 916 676 862 570 981 105 881 76 760 83 502 (6 742) 1 898 192 1 768 684 129 508 (109 001) 184 952 293 953 Revenue General property taxes Licenses and permits Intergovernmental Charges for services Fines Miscellaneous Special assessments Interest on investments Other Expenditures General government Public safety Police protection Fire protection Other Public works Parks and recreation Total expenditures Excess revenue (expenditures) Other financing sources (uses) Operating transfer in 23 325 Operating transfer out 23 325 (26 000) (26 000) Total other financing sources (uses) 23 325 (2 675) (26 000) Excess revenue and other financing sources over (under) expenditures and other uses Fund balance, January 1 Fund balance, December 31 $ (85 676) 182 277 $ 267 953 771 598 $ 953 875 See Notes to Financial Statements -4- I I CITY OF SHOREWOOD, MINNESOTA COMBINED STATEMENT OF REVENUE, EXPENSES AND CHANGES IN RETAINED EARNINGS ALL PROPRIETARY FUND TYPES YEAR ENDED DECEMBER 31, 1989 I I I I I I I I Total expenses $1 198 775 963 846 234 929 655 039 23 562 913 530 122 633 14 149 15 046 225 106 13 990 100 168 1 104 18 129 19 195 45 091 6 666 312 113 36 965 5 199 935 554 (22 024) 16 914 2 402 42 208 (7 154) 54 370 32 346 (23 325) 9 021 164 388 296 460 $ 469 869 I I Sales Less cost of sales Gross profit Charges for services Permits and connection fees Gross profit and revenue I Expenses Personal services Supp lie s Repairs and maintenance Depreciation Professional services Contractual services Communication Insurance - general Water purchases . Utilities Other Metropolitan Waste Control Commission disposal charge Rent Advertising I I I Ope rat ing income Other revenue (expenses) Taxes Property tax credits Interest income Interest expense Total other revenue (expenses) Net income before transfers Other financing uses Operating transfers out Net income (loss) Add: Credit for deprecition on contributed assets Retained earnings, January 1 I I I Retained earnings, December 31 See Notes to Financial Statements -5- I CITY OF SHOREWOOD, MINNESOTA COMBINED STATEMENT OF CASH FLOWS ALL PROPRIETARY FUND TYPES YEAR ENDED DECEMBER 31, 1989 I I Increase (decrease) in cash and cash equivalents I Cash flows from operating activities Operating income (loss) Other income related to operations Adjustments to reconcile operating income to net cash provided by operating activities Depreciation and amortization Changes in assets and liabilities (Increase) in - Accounts and assessments receivable Accrued interest receivable Inventory Prepaid expenses Increase in - Accounts payable Accrued wages Accrued interest payable Cash provided by operating activities $ (22 024) 54 370 225 291 (55 151) (4 948) 17 439 (438 ) 16 542 2 480 ( 931) 232 630 (23 325) I I I I I Cash flows (for) noncapital financing activities Operating transfer to General Fund I I Cash flows (for) capital and related financing activities Bond principal paid Acquisition of property and equipment, net Assets acquired from other funds I Cash flows (for) capital and related financing activities (10 000) (3 991 221) 3 958 437 (42 784) 166 521 382 884 $ 549 405 Increase in cash and cash equivalents I Cash and cash equivalents, January 1 I Cash and cash equivalents, December 31 I I I I See Notes to Financial Statements -6- I I CITY OF SHOREWOOD, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1989 I Note 1: Summary of Significant Accounting Policies I A. City Structure and Scope of the Entity I The City of Shorewood operates under "Optional Plan A" as defined in the State of Minnesota Statutes. Under this Plan, the the government of the City is, directed by a Council composed of an elected mayor and four elected trustees or council members. The Council exercises legislative authority and determines all matters of policy. The Council appoints personnel responsible for the proper administration of all affairs relating to the City. I I For financial reporting purposes, in conformance with section 2100 of the Governmental Accounting and Reporting Standards of the Governmental Accounting Standards Board, the City's financial statements and footnotes include all Boards and Commissions over which City officials exercise oversight responsibility. I I I Oversight responsibility includes such aspects as appointment of governing body members, budget review, approval of property tax levies, outstanding debt secured by City full faith and credit or revenues, responsibility for funding deficits, and others. I I The accounting policies of the City of Shorewood conform to generally accepted accounting principles as applicable to governments. The following is a summary of the more significant policies. B. Basis of Presentation I I The accounts of the City are organized on the basis of funds and account groups, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of se~f-balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures, or expenses, as appropriate. Government resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. The various funds are grouped, in the financial statements in this report, into four generic fund types and two broad fund type categories as follows: I I GOVERNMENTAL FUNDS I I General Fund - The General Fund is the general operating fund of the City and accounts for all revenues and expenditures not required to be accounted for in another fund. I -7- I I I Note 1: I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1989 Summary of Significant Accounting Policies - continued Debt Service Funds - The Debt Service Funds are used to account for the accumulation of resources for, and the payment of, general long-term debt principal, interest and related costs. Capital Projects Funds - Capital Projects Funds account for all resources used for the acquisition and construction of major capital facilities. PROPRIETARY FUNDS Enterprise Funds - Enterprise Funds are used to account for operations (a) that are financed and operated in a manner similar to private business enterprises where the intent of the governing body is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or (b) where the revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. Fixed Assets and Long-term Liabilities Account Groups The Governmental Fund Types previously discussed are designed to account for the financial flow of a particular fund; therefore, generally include only current assets and current liabilities on their balance sheets. Their reported fund balance is considered a measure of available spendable resources. The City also maintains two account groups for noncurrent assets and liabilities. These account groups are concerned only with the measurement of financial position. They are as follows: General Fixed Assets Group of Accounts (unaudited) - This separate group of accounts contains the fixed assets used in the Governmental Fund Type operations. They are assets of the City as a whole and not of individual funds. Public domain general fixed assets consisting of certain improvements other than buildings, including curbs and gutters, streets and sidewalks and drainage systems, are capitalized along with other general fixed assets. No depreciation has been provided on the assets in this account group. All fixed assets are valued at historical or estimated historical cost. Donated fixed assets are valued at their estimated fair value on the date donated. -8- I I Note 1: I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1989 Summary of Significant Accounting Policies - continued General Long-term Debt Group of Accounts - This separate group of accounts contains the long-term liabilities of the City expected to be financed from Governmental Funds. They are liabilities of the City as a whole and not of individual funds. The exception to this rule is for Enterprise Fund long-term debt which is accounted for in that fund type. All Proprietary Funds are accounted for on a cost of services or capital maintenance measurement focus. Therefore, all assets and liabilities, both current and noncurrent, are included on their balance sheets. All fixed assets are stated at historical or estimated historical cost and are depreciated using the straight- line method over their estimated useful lives. Depreciation on contributed assets is also charged to operations. Their estimated useful lives are as follows: Assets Furniture and Equipment Distribution and Collection System Estimated Useful Lives 10 years 40 years C. Basis of Accounting Basis of accounting refers to when revenues and expenditures or expenses are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurements made, regardless of the measurement focus app lied. Governmental Funds are accounted for using the modified accrual basis of accounting. Their revenue is recognized when it becomes measurable and available. Substantially all sources of revenue are accrued except special assessments which are recognized when received in cash and tax revenue which is recognized when received in cash or within sixty days after year end. Expenditures are generally recognized under the modified accrual basis of accounting when the related fund liability is incurred. Exceptions to this general rule include: (1) principal and interest on long-term debt which are recognized when due. Proprietary Funds are accounted for using the accrual basis of accounting. Their revenue is recognized when it is earned and expenses are recognized when they are incurred. -9- I CITY OF 5 HOREWOOD, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1989 I Note 1: Summary of Significant Accounting Policies - continued I D. Budgets and Budgetary Data I The City's budgeting procedures are as follows: I The City Administrator submits to the City Council a proposed operating budget for the fiscal year commencing the following January 1. The operating budget includes proposed expenditures and the means of financing them. Budgets for the General Fund are adopted on a basis consistent with generally accepted accounting principles (GAAP). Budgeted amounts shown in the financial statements are as originally adopted by the City Council. Unencumbered appropriations lapse at year end. I I E. Accumulated Unpaid Vacation and Sick Pay I Accumulated unpaid vacation has been accrued in the Enterprise Funds and recognized as an expense when earned. In the Governmental Funds, the liability has been recorded in the general long-term debt account group and is recognized as an expenditure when paid. Sick leave may be accumulated but is not payable upon termination from City employment and therefore no liability is reported at year end. I I F. Total Memorandum Only I Total columns on the combined financial statements are captioned "memorandum only" to indicate that they are presented only to facilitate analysis. Data in these columns does not present financial position, results of operations, or changes in financial position in conformity with generally accepted accounting principles. Neither is such data comparable to a consolidation. Interfund eliminations have not been made in the aggregation of this data. I I Note 2: Compliance and Accountability I The following funds had fund balance deficits at year end: I Fund Deficit Amount I Capital Projects Fund Southeast Project Enterprise Fund Water Fund $ 90 541 244 984 I I -10- I I CITY OF SHOREWOOD, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1989 I Note 3: Detail on Accounts I A. Cash and Temporary Investments I Cash balances from all funds are pooled and invested, to the extent available, in certificates of deposit and other authorized investments. Investments are carried at cost which approximates market value. Earnings from such investments are allocated on the basis of applicable participation by each of the funds. I In accordance with Minnesota Statutes, the City maintains deposits at those depository banks authorized by the City Council. Minnesota Statutes require that all City deposits be protected by insurance, surety bond, or collateral. The market value of collateral pledged must equal 110% of the deposits not covered by insurance or bonds (140% in the case of mortgage notes pledged). Authorized collateral includes the legal investments described below, as well as certain first mortgage notes, and certain other State or local government obligations. Minnesota Statutes require that securities pledged as collateral be held in safekeeping by the City treasurer or in a financial institution other than that furnishing the collateral. At December 31, 1989, the City did have sufficient collateral to secure its deposits. I I I I I Cash and investment balances are summarized as follows: Bank Balances Carrying Amount I (1) Cash and certificates of deposit insured or collateralized by securities held by the City or its agent in the City's name $2 841 330 $2 808 826 (2) Uncollateralized cash and certificates of deposit I I $2 841 330 $2 808 826 Total Investments I The City also invests idle funds as authorized by Minnesota Statutes, as follows: I (a) Direct obligation or obligations guaranteed by the United States or its agencies. I (b) Shares of investment companies registered under the Federal Investment Company Act of 1940 and whose only investments are in securities described in (a) above. I (c) Bankers acceptances of United States Banks eligible for purchase by the Federal Reserve System. I -11- I I CITY OF SHOREWOOD, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1989 I Note 3: Detail on Accounts - continued I I (d) Commercial paper issued by United States corporations or their Canadian subsidiaries, of the highest quality, and maturing in 270 days of less. I (e) Repurchase or reverse repurchase agreements with banks that are members of the Federal Reserve System with capitalization exceeding $10,000,000, a primary reporting dealer in U.S. government securities to the Federal Reserve Bank of New York, or certain Minnesota securities broker-dealer. I I Balances at December 31, 1989: Securities Credit Risk Category Carrying Type 1 2 3 Amounts U.S. Government $300 000 $ $ $300 000 Commercial Paper 197 441 197 441 $300 000 $ $197 441 $497 441 I I I The City's investments are categorized above to give an indication of the level of risk assumed at year end. Category 1 includes investments that are incurred or registered or for which the securities are held by the City or its agent in the City's name. Category 2 includes uninsured and unregistered investments for which the securities are held by the broker's or dealer's trust department or agent in the City's name. Category 3 includes uninsured and unregistered investments for which the securities are held by the broker or dealer, or by its trust department or agent but not in the City's name. I I B. Property Taxes I I The City Council annually adopts a tax levy and certifies it to the County for collection. The County is responsible for collecting all property taxes for the City. These taxes attach an enforceable lien on taxable property within the City on January 1 and are payable by the property owners in May and October each year. The taxes are collected by the County Treasurer and tax settlements are made to the City three or four times each year. I I Taxes payable on homestead property, as defined by State Statutes, are partially reduced by a homestead credit. These credits are paid to the City by the State of Minnesota in lieu of taxes levied against homestead property. The State remits this credit in two equal installments in July and December each year. I I Allowances are provided for the amount of delinquent taxes receivable, which are not remitted to the City within sixty days after the year end. This allowance is reported as deferred revenue. -12- I I I I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1989 Notp 3: Detail on Accounts - continued C. Contract Receivable The balance is receivable in monthly installments, including 10% interest, of $833 through April 1, 1993 at which time the balance of $91,898 is due. The receivable is offset by deferred revenue and the payments are recognized as revenue when received. D. Special Assessments Receivable Special assessments are recognized as a receivable and deferred revenue when the assessments are certified to the County for collection. Special assessments are recognized as revenue when received in cash. E. Inventory The inventories of the Proprietary Funds are stated at the lower of cost or market on the first-in, first-out basis. F. Property, Plant and Equipment A summary of Proprietary Fund Type property, plant and equipment at December 31, 1989 follows: Liquor Funds Water Sewer Store I Store II Total Fixtures and equipment $ 13 303 $ 21 786 $ 24 917 $ 8 736 $ 68 742 Collection and distribution systems 2 108 807 6 837 489 8 946 296 Total 2 122 110 6 859 275 24 917 8 736 9 015 038 Less accumulated depreciation (350 575) (2 857 959) (24 917) (6 334) (3 239 785) Net $1 771 535 $4 001 316 $ $ 2 402 $5 775 253 A summary of general fixed assets (unaudited) and changes are as follows: Balance Balance Beginning End of Year Addit ions of Year Land and buildings $1 095 190 $ $1 095 190 Furniture and equipment 698 785 146 425 845 210 Total $1 793 975 $146 425 $1 940 400 -13- I I I I I I I I I I I I I I I I I I I Note 3: CITY OF SHOREWOOD, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1989 Detail on Accounts - continued G. Long-term Debt The following is a summary of bond transactions of the City for the year ended December 31, 1989: Bonds payable, beginning of year Bonds issued Bonds retired Bonds payable, end of year General Long-term Revenue Total $4 530 000 1 095 000 (2 635 000) $2 990 000 $4 435 000 1 095 000 (2 625 000) $2 905 000 $ 95 000 (10 000) $ 85 000 Bonds payable at December 31, 1989 are comprised of the following types of issues: General Long-term Debt $875,000 General Obligation Improvement Refunding Bonds dated April 1, 1987 are payable in annual principal installments of $60,000 to $65,000 through February 1, 2001 together with interest at 4.6 to 6.6%. $ 745 000 $1,095,000 General Obligation Improvement Bonds of 1989 dated October 1, 1989 are payable in annual principal installments of $55,000 to $85,000 through February 1, 2003 together with interest at 6.0 to 6.570' 1 095 000 $1,250,000 General Obligation Improvement Bonds dated January 1, 1974 are payable in annual principal installments of $30,000 to $70,000 through January 1, 1994 together with interest at 5.5 to 5.770. 200 000 $985,000 General Obligation Improvement Bonds dated August 1, 1986 are due in annual principal installments of $65,000 to $70,000 through February 1, 2002 together with interest at 6.0 to 7.970' 865 000 Total General Long-term Debt $2 905 000 -14- I I Note 3: I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1989 Detail on Accounts - continued Revenue Bonds $140,000 General Obligation Water Revenue Bonds of 1980 dated September 1, 1980 are payable in annual principal installments of $10,000 to $15,000 through September 1, 1996 together with interest at 8.0 to 8.5/. $ 85 000 The annual requirements to amortize all debt outstanding as of December 31, 1989, including interest payments totalling $1,293,533 are as follows: Year Ending General December 31 Long-term Revenue Total 1990 $ 429 991 $ 17 125 $ 447 116 1991 456 050 16 325 472 375 1992 439 320 15 500 454 820 1993 383 280 14 675 397 955 1994 363 151 18 825 381 976 Thereafter 2 095 466 33 825 2 129 291 Total $4 167 258 $116 275 $4 283 533 The amount available for debt service, in the Debt Service Funds, is $1,510,303. Future tax levies and special assessments will be the primary source of revenue to retire the bonds. On April 29, 1987 the City issued general obligation refunding bonds in the amount of $875,000 to advance refund $1,250,000 outstanding 1984 general obligation bonds. The proceeds of the refunding issue plus additional cash from the debt service have been placed in an irrevocable escrow account and have been invested in U.S. Government obligations. The maturities of these investments coincide with the principal and interest payment dates of the refunded bonds and have been certified to be sufficient to pay all principal and interest on the refunded bonds when due, as required by applicable laws. Accordingly, the original refunded bonds have been removed and the new advance refunding bonds are reported on the financial statements. The City remains contingently liable in the remote possibility that the escrow account is insufficient to pay the refunded bonds. -15- I I Note 3: I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD. MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31. 1989 Detail on Accounts - continued During 1989. the City defeased the balances remaining to be paid on the following bond issues: Bond Issue Bond Principal Balance Defeased $415.000 G.O. Sewer Improvement Bonds dated December 1, 1971 $2,300,000 G.O. Sewer Improvement Bonds dated June 1, 1972 $1,600,000 G.O. Sewer Improvement Bonds dated November 1, 1972 $80,000 G.O. Water Improvement Bonds dated July 1, 1973 $ 75 000 390 000 360 000 10 000 Total $835 000 The City provided the cash from the debt service funds which has been placed in an irrevocable escrow agreement and invested in U.S. Government Securities. The maturities of these. investments coincide with the principal and interest payment dates of the defeased bond issues. Accordingly, the defeased bond issues are not reported as a liability of the City. The City does, however, remain contingently liable in the remote possibility that the escrow account is insufficient to pay the defeased bonds. H. Fund Equity Fund equity balances are classified as follows to reflect the limitations and restrictions of the respective funds: Proprietary Funds Contributed Capital - This balance represents the cost of property contributed to the Proprietary Funds by other City funds. Changes occurring in this account during the year were as follows: Water Sewer Fund Fund Total Balance, beginning of year $1 869 471 $ 411 989 $2 281 460 Additions 90 000 3 868 437 3 958 437 Depreciation on contributed assets (3 750 ) (160 638) (164 388) Balance, end of year $1 955 721 $4 119 788 $6 075 509 Investment in General Fixed Assets represents the City's equity in its general fixed assets. -16- I CITY OF SHOREWOOD, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1989 I Note 3: Detail on Accounts - continued I Reserved fund balance represents amounts restricted by provisions of the various bonds which have been issued. I Unreserved and designated fund balance in the General Fund represents the amount necessary to provide working capital until the fund's major revenues are received in the following year. I Unreserved and undesignated fund balance represents resources available to meet future years' expenditures. I Note 4: Segment Information for Proprietary Funds I The City provides services which are accounted for in the Enterprise Funds. The segment information for these Enterprise Funds for the year ended December 31, 1989, is as follows: I I Liquor Funds Water Sewer Store I Store II Total Gross profit and operating revenue $ 176 719 $ 501 882 $ 91 123 $143 806 $ 913 530 Depreciation expense 53 314 171 172 620 225 106 Operating income (loss) 12 418 (79 908) 14 495 30 971 (22 024) Operating transfer out 7 775 15 550 23 325 Net income after transfers 24 580 (49 596) 12 818 21 219 9 021 Contributed capital 1 955 721 4 119 788 6 075 509 Net working capital 12 913 571 919 103 190 155 814 843 836 Total equity 1 710 737 4 573 235 103 190 158 216 6 545 378 Note 5: Statutory Debt Limit I I I In accordance with Minnesota Statutes, the City may not incur or be subject to net debt in excess of two percent of its market value. Net debt is payable solely from ad valorem taxes and, therefore, excludes debt financed partially or entirely by special assessments, enterprise fund revenues or tax increments. I I Note 6: Defined Benefit Pension Plan A. Plan Description I I I All full-time and certain part-time employees of the City of Shorewood are covered by defined benefit pension plans administered by the Public Employee Retirement Association of Minnesota (PERA). PERA administers the Public Employees Retirement Fund (PERF) which is a cost-sharing multiple-employer retirement plan. PERF members belong to either the Coordinated Plan or the Basic Plan. Coordinated members are covered by Social Security and Basic members are not. All new members must participate in the Coordinated Plan. The payroll for employees covered by PERF for the year ended December 31, 1989 was $430,445; the City's total payroll was $491,940. I ~17- I I I Note 6: I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1989 Defined Benefit Pension Plan PERA provides retirement benefits as well as disability benefits to members, and benefits to survivors upon death of eligible members. Benefits are established by State Statute, and vest after three years of credited service. The defined retirement benefits are based on a member's average salary for any five successive years of allowable service, age, and years of credit at termination of service. Two methods are used to compute benefits for Coordinated and Basic members. The retiring member receives the higher of a step-rate benefit accrual formula (Method 1) or a level accrual formula (Method 2). Under Method 1, the annuity accrual rate for a Basic member is 2 percent of average salary for each of the first 10 years of service and 2.5 percent for each remaining year. For a Coordinated member, the annuity accrual rate is 1 percent of average salary for each of the first 10 years and 1.5 percent for each remaining year. Using Method 2, the annuity accrual rate is 2.5 percent of average salary for Basic members and 1.5 percent for Coordinated members. For PERF members whose annuity is calculated using Method 1, a full annuity is available when age plus years of service equal 90. There are different types of annuities available to members upon retirement. A normal annuity is a lifetime annuity that ceases upon the death of the retiree. No survivor annuity is payable. There are also various types of joint and survivor annuity options available which will reduce the monthly normal annuity amount, because the annuity is payable over joint lives. Members may also leave their contributions in the fund upon termination of public service, in order to qualify for a deferred annuity at retirement age. Refunds of contributions are available at any time to members who leave public service, but before retirement benefits begin. B. Contributions Required and Contributions Made Minnesota Statutes Chapter 353 sets the rates for employer and employee contributions. The City makes annual contributions to the pension plans equal to the amount required by State Statutes. According to Minnesota Statutes Chapter 356.215, Subd. 4(g), the date of full funding required for the PERF is the year 2020. As part of the annual actuarial valuation, PERA's actuary determines the sufficiency of the statutory contribution rates towards meeting the required full funding deadline. The actuary compares the actual cntribution rate to a "required" contribution rate. Current combined statutory contribution rates and actuarially required contribution rates for the plans are as follows: Statutory Rates Employee Employer Required Rates PERF (Basic and Coordinated Plans) 4.27% 4.67% 9.42% -18- I CITY OF SHOREWOOD, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1989 I Note 6: Defined Benefit Pension Plan - continued I . Total contributions made by the City during fiscal year 1989 were: I Amounts Employee Employer Percentage of Covered Payroll Employee Employer I PERF $ 17 623 $ 18 696 4.10'10 4.3570 I The City's contribution for the year ended June 30, 1989 to the PERF represented .04 percent of total contributions required of all participating entities. I C. Funding Status and Progress 1. Pension Benefit Obligations I I The "pension benefit obligation" is a standardized disclosure measure of the present value of pension benefits, adjusted for the effects of projected salary increases and step-rate benefits, estimated to be payable in the future as a result of employee service to date. The measure, which is the actuarial present value of credited projected benefits, is intended to help users assess PERA's funding status on a going-concern basis, assess progress made in accumulating sufficient assets to pay benefits when due, and make comparisons among Public Employees Retirement Systems and among employers. PERA does not make separate measurements of assets and pension benefit obligations for individual employers. I I I The pension benefit obligations as of June 30, 1989, are shown below: I (In thousands) PERF I Total pension benefit obligations Net assets available for benefits, at cost (Market Value for PERF = $3,801,129) Unfunded pension benefit obligation $3 714 257 I 2 934 977 I $ 779 280 I The measurement of the pension benefit obligation is based on an actuarial valuation as of June 30, 1989. Net assets available to pay pension benefits were valued as of June 30, 1989. I -19- I I CITY OF SHOREWOOD, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1989 I Note 6: Defined Benefit Pension Plan - continued I 2. Changes in Actuarial Methods and Benefit Provisions I A number of benefit improvements became effective during fiscal year 1989. Some of the major improvements affecting each fund include a reduction in the period required for vesting from five years to three years; an option for members hired before July 1, 1989, to have their annuity calculated under a level benefit accrual formula; the interest rate credited on refunds of member contributions increased from 5 percent to 6 percent; and the provision for an automatic bounce back feature for all joint and survivor annuity options. I I I I For each fund, there were changes in the actuarial assumptions used in the annual actuarial valuation. Effective for all funds beginning in fiscal year 1989, the preretirement interest rate assumption was increased from 8 percent to 8.5 percent. Additionally for the PERF, the amortization target date has been changed to 2020. Shown below are the effects on the pension benefit obligation of these changes in plan benefits and actuarial assumptions. I I Increase (Decrease) in Pension Benefit Obligation Due to: (In Thousands) I PERF Changes in plan benefits $127 472 I Changes in actuarial assumptions (84 154) I Net increase in pension benefit obligations $ 43 318 I D. Ten-Year Historical Trend Information I Ten-year historical trend information is presented in PERA's Comprehensive Annual Financial Report for the year ended June 30, 1989. This information is useful in assessing the pension plan's accumulation of sufficient assets to pay pension benefits as they become due. I E. Related Party Investments I As of June 30, 1989, and for the fiscal year then ended, PERA held no securities issued by the City or other related parties. I -20- I 1- I Note 7: I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1989 Change in Presentation - Statement of Cash Flows The City has adopted the provisions of Statement No. 9 of the Governmental Accounting Standards Board, "Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and Governmental Entities That Use Proprietary Fund Accounting,'1 in 1989. The Statements of Changes in Financial Position for 1988 have been restated to conform to the 1989 Statements of Cash Flows format. For purposes of this statement, all highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. -21- I I I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA GENERAL FUND BALANCE SHEET DECEMBER 31, 1989 AND 1988 1989 1988 Assets Cash and investments $ 913 409 $ 798 422 Cash on hand 100 100 Receivables Taxes 83 024 76 577 Accounts 82 871 25 102 Accrued interest 26 787 15 758 Contract 94 199 94 708 Total assets $1 200 390 $1 010 667 Liabilities and Fund Balance Liabi lit ies Accounts and contracts payable Salaries payable Refundable deposits payable Deferred revenue $ 34 987 20 280 28 180 163 068 $ 43 963 16 133 19 500 159 473 Total liabilities 246 515 239 069 Fund balance Unreserved Designated for working capital Undesignated 953 875 771 598 Total fund balance 953 875 771 598 Total liabilities and fund balance $1 200 390 $1 010 667 -22- I I I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA GENERAL FUND STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL YEAR ENDED DECEMBER 31, 1989 (With comparative amounts for the year ended December 31, 1988) Revenue General property taxes General property taxes Fiscal disparities Forfeit tax sales Penalties and interest Total Licenses and permits Business Nonbusiness Total Intergovernmental State Local government aid Property tax credits Other County Road Recycling Total Charges for services General government Streets and highways Refuse Parks and recreation Total Fines Other revenue Interest on investments Sale of property Special assessment Other Total Total revenue Budget $1 282 956 1 282 956 8 700 161 500 170 200 163 505 25 000 11 230 199 735 12 000 3 600 700 16 300 70 000 35 000 15 000 50 000 1 789 191 1989 Actual $1 039 125 63 547 3 511 12 703 1 118 886 8 600 198 529 207 129 163 313 171 665 24 176 27 666 18 202 405 022 8 823 3 131 11 954 105 244 80 926 4 665 19 810 105 401 1 953 636 -23- Variance Favorable (Unfavorable) $(243 831) 63 547 3 511 12 703 (164 070) (100) 37 029 36 929 (192 ) 171 665 24 176 2 666 6972 205 287 (3 177) (469) (700) (4 346) 35 244 45 926 4 665 4 810 55 401 164 445 1988 Actual $1 008 874 55 387 3 039 19 799 1 087 099 8 681 321 727 330 408 160 088 177 760 3 160 24 992 2 288 368 288 5 046 1 800 3 680 10 526 91 385 50 164 16 169 200 13 909 80 442 1 968 148 I I I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA GENERAL FUND STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL - CONTINUED YEAR ENDED DECEMBER 31, 1989 (With comparative amounts for the year ended December 31, 1988) 1989 Budget Actual Variance Favorable (Unfavorable) 1988 Actual Expenditures General government Mayor and Council Personal services $ 9 626 $ 9 754 $ (128 ) $ 9 626 Supplies 250 315 (65) 191 Other services and charges 33 891 30 601 3 290 16 708 Total 43 767 40 670 3 097 26 525 Administrator Personal services 50 166 45 797 4 369 51 096 Supplies 100 116 (16) Other services and charges 15 840 16 076 (236) 6 697 Capital outlay 800 712 88 160 Total 66 906 62 701 4 205 57 953 Finance Personal services 65 995 53 066 12 929 58 608 Supplies 1 500 1 532 (32) 3 068 Other services and charges 13 875 11 305 2 570 23 941 Capital outlay 6 950 440 6 510 10 193 Total 88 320 66 343 21 977 95 810 Professional- services Supplies 500 451 49 420 Other services and charges 129 160 146 617 (17 457) 102 681 Total 129 660 147 068 (17 408) 103 101 Planning and zoning Personal services 55 439 57 550 (2 111 ) 45 013 Supplies 300 278 22 819 Other services and charges 2 050 1 401 649 767 Capital outlay 125 127 ( 2) Total 57 914 59 356 (1 442) 46 599 Municipal building Supplies 3 000 2 457 543 7 486 Other services and charges 115 300 129 311 (14011) 82 867 Capital outlay 41 100 20 914 20 186 149 911 Total 159 400 152 682 6 718 240 264 -24- I CITY OF SHOREWOOD, MINNESOTA GENERAL FUND STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE I BUDGET AND ACTUAL - CONTINUED YEAR ENDED DECEMBER 31, 1989 (With comparative amounts for the year ended December 31, 1988) I 1989 Variance Favorable 1988 I Expenditures - continued Budget Actual (Unfavorable) Actual General government Other general government I services Personal services $ 67 027 $ 65 033 $ 1 994 $ 52 919 Supplies 10 000 8 364 1 636 R 704 I Other services and charges 13 365 6 827 6 538 4 342 Capital outlay 535 1 615 (1 080) 10 706 Total 90 927 81 839 9 08R 76 671 I Total general government 636 894 610 659 26 235 646 923 I Public safety Police protection Other services and charges 350 292 350 292 343 172 I Misce llaneous 12 725 11 774 951 1 542 Total 363 017 362 066 951 344 714 I Fire protection Other services and charges 74 832 74 565 267 68 414 I Protective inspection Personal se rvice s 48 727 44 913 3 814 22 069 Supplies 200 370 (170) 483 Other services and charges 19 145 20 466 (1 321) 86 791 I Capital outlay 1 755 1 162 593 1 246 Total 69 827 66 911 2 916 110 589 I Total public safety 507 676 503 542 4 134 523 717 I Public works General maintenance Personal services 79 038 94 533 (15 495) 85 537 Supplies 6 000 4 488 1 512 25 757 I Other services and charges 30 725 22 516 8 209 6 764 Capita lout lay 120 000 106 104 13 896 135 824 I Total 235 763 227 641 8 122 253 R82 Garage I Supplies 200 242 (42) 1 350 Other services and charges 11 900 12 320 ( 420) 8 106 Capital outlay 2 000 804 1 196 I Total 14 100 13 366 734 9 456 -25- I I CITY OF SHOREWOOD, MINNESOTA GENERAL FUND STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE I BUDGET AND ACTUAL - CONTINUED YEAR ENDED DECEMBER 31, 1989 (With comparative amounts for the year ended December 31, 1988) I 1989 Variance Favorable 1988 I Budget Actual (Unfavorable) Actual Expenditures - continued Public works I Streets and roadways Personal services $ 56 198 $ 55 060 $ 1 138 $ 60 080 Supplies 55 000 .36 560 18 440 56 460 I Other services and charges 10 591 11 778 (1 187) 675 Capital outlay 200 000 151 387y 48 613 197 655 Total 321 789 254 785 67 004 314 870 I Snow and ice removal Personal services 16 276 14 949 1 327 15 474 I Supplies 10 000 11 631 (1 631 ) 8 692 Total 26 276 26 580/ (304 ) 24 166 I Traffic control Personal services Supplies 5 000 2 263 2 737 7 176 I Other services and charges 23 400 22 599 801 19 026 Total 28 400 24 862 3 538 26 202 I Sanitat ion and waste removal Personal services 6 718 4 637 2 081 4 265 Other services and charges 22 700 12 899 9 801 12 145 I Total 29 418 17 536 ' 11 882 16 410 I Tree maintenance Personal services 9 966 5 621 4 345 9 855 Other services and charges 11 150 590 10 560 15 149 I Total 21 116 6 211 14 905 25 004 Total public works 676 862 570 981 105 881 669 990 I Parks and recreation Personal services 60 151 55 960 4 191 41 594 I Supplies 9 369 6 000 3 369 7 684 Other services and charges 7 240 21 542 (14 302) 8 686 I Total parks and recreation 76 760 83 502 (6 742) 57 964 Total expenditures 1 898 192 1 768 684 129 508 1 898 594 I -26- I I I I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA GENERAL FUND STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL - CONTINUED YEAR ENDED DECEMBER 31, 1989 (With comparative amounts for the year ended December 31, 1988) Excess revenue (expenditures) 1989 Variance Favorable 1988 Budget Actual (Unfavorable) Actual $ (109 001) $ 184 952 $ 293 953 $ 69 554 Other financing sources (uses) Operating transfer in Operating transfer out 23 325 23 325 (26 000) 16 000 (26 000) Total Other Financing Sources (Uses) 23 325 (2 675) (26 000) 16 000 Excess revenue and other financing sources over (under) expenditures and other uses $ (85 676) 182 277 $ 267 953 85 554 Fund balance, January 1 771 598 686 044 Fund balance, December 31 $ 953 875 $ 771 598 -27- CITY OF SHOREWOOD, MINNESOTA DEBT SERVICE FUNDS COMBINING BALANCE SHEET DECEMBER 31, 1989 (With comparative totals as of December 31, 1988) 1984 Improvement (1987 Refunding) Assets Cash and investments Accrued interest receivable Special assessments receivable Delinquent Deferred $632 805 13 084 96 938 Total assets $742 827 Liabilities and Fund Balance Liabi lities Deferred revenue $ 96 938 Fund balance Reserved for debt service Unreserved - undesignated 645 889 Total liabilities and fund balance $742 827 -28- Shorewood Oaks $ 194 237 4 015 983 782 $1 182 034 $ 983 782 198 252 $1 182 034 1971 and 1972 Sewer Improvement $393 465 8 414 38 859 341 369 $782 107 $372 120 409 987 $782 107 I I I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA DEBT SERVICE FUNDS COMBINING STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE YEAR ENDED DECEMBER 31, 1989 (With comparative totals for the year ended December 31, 1988) 1984 Improvement (1987 Refunding) 1971 and 1972 Sewer Shorewood Oaks Improvement Revenue Special assessments Interest on investments $ 20 709 $ 326 898 $ 239 250 48 903 44 281 51 210 69 612 371 179 290 460 65 000 1 450 000 949 150 44 617 97 081 31 617 109 617 1 547 081 980 767 (40 005) (1 175 902) (690 307) 1 079 942 Total revenue Expenditures Principal Interest and service charges Total expenditures Excess revenue (expenditures) Other financing sources (uses) Proceeds of bonds issued Excess revenue and other financing sources over (under) expenditures (40 005) (95 960) (690 307) Fund balance, January 1 685 894 294 212 1 110 991 Residual equity transfer (10 697) Fund balance, December 31 $645 889 $ 409 987 $ 198 252 -29- I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I Southeast 1973 1974 Water Water Sewer (1986 Total Improvement Improvement Improvement) 1989 1988 $ $ 93 037 $150 788 $ 830 682 $1 204 701 546 44 682 189 622 147 427 93 583 195 '470 1 020 304 1 352 128 70 000 70 000 2 604 150 435 000 15 370 64 430 253 115 274 636 85 370 134 430 2 857 265 709 636 8213 61 040 (1 836 961) 642 492 1 079 942 (10 697) 10 697 8213 17 928 61 040 578 981 (757 019) 2 677 309 642 492 2 034 817 $ $ 26 141 $640 021 $1 920 290 $2 677 309 -29- I I I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA CAPITAL PROJECTS FUNDS COMBINING BALANCE SHEET DECEMBER 31, 1989 (With comparative totals as of December 31, 1988) Park Capital Improvement Southeast Project Shorewood Oaks Total 1989 1988 Assets Cash and investments Accrued interest receivable $ 13 502 $(81 854) $ 58 586 $ (9 766) $137 722 285 1 210 1 495 2 642 Total assets $ 13 787 $(81 854) $ 59 796 $ (8 271) $140 364 Liabilities and Fund Balance Liabilit ies Accounts and contracts payable $ 11 711 $ 8 687 $ 38 $ 20 436 $ 99 479 Fund balance Unreserved 2 076 (90 541) 59 758 (28 707) 40 885 Total liabilities and fund balance $ 13 787 $(81 854) $ 59 796 $ (8 271) $140 364 -30- I I I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA CAPITAL PROJECTS FUNDS COMBINING STATEMENT OF REVENUE, EXPENDITURES AND CHANGES IN FUND BALANCE YEAR ENDED DECEMBER 31, 1989 (With comparative totals for the year ended December 31, 1988) Revenue Charges for services Donations Interest on investments Park dedication fees Total revenue Expenditures Professional services Construction costs Total expenditures Excess revenue (expenditures) Other financing sources Operating transfer in Excess revenue and other financing sources over (under) expenditures Fund balance, January 1 Fund balance, December 31 $ 2 076 Park Capital Improvement Southeast Project Shorewood Oaks Total 1989 1988 $ $ $ $ $ 6 1 000 61 61 3 161 17 152 6 736 9 897 17 152 21 346 99 102 20 374 6 736 27 110 121 454 14 427 72 218 2 822 14 600 6 306 12 329 23 555 99 147 64 922 797 185 86 645 17 422 18 635 122 702 862 107 (66 271) (17 422) (11 899) (95 592) (740 653) 26 000 26 000 (40 271) (17 422) (11 899) (69 592) (740 653) 42 347 (73 119) 781 538 71 657 40 885 $(90 541) $ 59 758 $(28 707) $ 40 885 -31- CITY OF SHOREWOOD, MINNESOTA PROPRIETARY FUND TYPES COMBINING BALANCE SHEET DECEMBER 31, 1989 (With comparative totals as of December Assets Current assets Cash and investments Cash on hand Receivables Accounts Accrued interest Special assessment Delinquent Deferred Inventories, at cost Prepaid expenses Total current assets Property and equipment~ at cost Less accumulated depreciation Total property and equipment Other assets Bond discount~ net of amortization Total assets Liabilities and Fund Equity Current liabilities Accounts and contracts payable Accrued salaries payable Accrued interest payable Deferred revenue Current portion of long-term debt Total current liabilities Long-term liabilities Bonds payable less current portion above Total liabilities Fund equity Contributed capital Retained earnings - unreserved Total fund equity Total liabilities and fund equity -32- 31~ 1988) Water Sewer Fund Fund $ (36 615) $ 417 789 41 567 120 379 8 748 1 494 10 942 15 958 32 547 3 833 2 334 26 237 592 739 2 122 110 6 859 275 (350 575) (2 857 959) 1 771 535 4 001 316 1 289 $1 799 061 $4 594 055 $ 3 103 221 $ 20 549 271 10 000 13 324 20 820 75 000 88 324 20 820 1 955 721 (244 984) 4 119 788 453 447 1 710 737 4 573 235 $1 799 061 $4 594 055 I I I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA PROPRIETARY FUND TYPES COMBINING STATEMENT OF REVENUE, EXPENSES AND CHANGES IN RETAINED EARNINGS YEAR ENDED DECEMBER 31, 1989 (With comparative totals for the year ended December 31, 1988) Water Fund Sales Less cost of sales Gross profit Charges for services Permits and connection fees Gross profit and revenue $ 162 257 14 462 176 719 Expenses Personal services Supplies Repairs and maintenance Depreciation Professional services Contracted services Communication Insurance - general Water purchases Utilities Other Metropolitan Waste Control Commission disposal charges Rent Advertising Total expenses Operating income (loss) Other revenue (expenses) Taxes Special assessments Property tax credits Interest income Other income (expenses) Interest expense Total other revenue (expenses) Net income (loss) before transfers Other financing uses Operating transfers out Net income (loss) Add: Credit for depreciation on contributed assets Retained earnings, January 1 24 580 3 750 (273 314) Retained earnings, December 31 $(244 984) -33- Sewer Fund $ 492 782 9 100 501 882 (49 596) 160 638 342 405 $453 447 I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I CITY OF SHOREWOOD, MINNESOTA PROPRIETARY FUND TYPES COMBINING STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1989 Increase (decrease) in cash and cash equivalents Cash flows from operating activities Operating income (loss) Other income related to operations Adjustments to reconcile operating income to net cash provided by operating activities Depreciation and amortization Changes in assets and liabilities (Increase) decrease in - Accounts and assessments receivable Accrued interest receivable Inventory Prepaid expenses Increase (decrease) in - Accounts payable Accrued wages Interest payable Cash provided by operating activities Cash flows from noncapita1 financing activities Operating transfer to General Fund Cash flows from capital and related financing activities Bond principal paid Acquisition of property and equipment, net Assets acquired from other funds Cash flows from capital and related financing activities Increase in cash and cash equivalents Cash and cash equivalents, January 1 Cash and cash equivalents, December 31 Water Fund $ 12 418 $ 12 162 53 499 (24 677) (83) (4 325) 160 (931) 48 223 (10 000) Sewer Fund Liquor Fund (79 908) $ 45 466 30 312 11 896 171 172 (31 104 ) (3 485) 1 416 14 238 246 102 887 (122 784) (3 868 437) 90 000 3 868 437 (42 784) 620 630 (1 463) 17 439 (1 771) 6 629 2 074 81 520 (23 325) 5 439 102 887 58 195 (42 054) 314 902 110 036 $(36 615) $ 417 789 $168 231 -34- Total $ (22 024) 54 370 225 291 (55 151) (4 948) 17 439 (438) 16 542 2 480 (931) 232 630 (23 325) (10 000) (3 991 221) 3 958 437 (42 784) 166 521 382 884 $ 549 405 I I ABDO, ABDO & EICK CERTIFIED PUBl.IC ACCOUNTANTS 1060 NORTHLAND PLAZA, 3800 WEST 80th STREET MINNEAPOLIS, MINNESOTA 55431 TELEPHONE 612-835-9090 FAX 612-896-3620 I I Member of Amerlcen Instttute of Certified Public Accountants Offices In: Bloomington Mankato Owatonna I INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL STRUCTURE BASED SOLELY ON A STUDY AND EVALUATION MADE AS A PART OF AN AUDIT OF THE GENERAL PURPOSE FINANCIAL STATEMENTS I I Honorable Mayor and City Council City of Shorewood, Minnesota I We have audited the general purpose financial statements of the City of Shorewood, Minnesota, as of and for the year ended December 31, 1989, and have issued our report thereon dated March 23, 1990. I We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the general purpose financial statements are free of material misstatement. I I In planning and performing our audit of the general purpose financial statements of the City of Shorewood, Minnesota for the year ended December 31, 1989, we considered its internal control structure in order to determine our auditing procedures for the purpose of expressing our opinion on the general purpose financial statements and not to provide assurance on the internal control structure. I I The management of the City of Shorewood, Minnesota is responsible for establishing and maintaining an internal control structure. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of internal control structure policies and procedures. The objectives of an internal control structure are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of general purpose financial statements in accordance with generally accepted accounting principles. Because of inherent limitations in any internal control structure, errors or irregularities may nevertheless occur and not be detected. Also, projection of any evaluation of the structure to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the effectiveness of the design and operation of policies and procedures may deteriorate. I I I I I I I Page Two ABDO, ABDO a EICK CERTIFIED PUBLIC ACCOUNTANTS I For the purpose of this report, we have classified the significant internal control structure policies and procedures in the following categories: I o Cash receipts o Cash disbursements o Payroll I I For all of the internal control structure categories listed above, we obtained an understanding of the design of relevant policies and procedures and whether they have been placed in operation, and we assessed control risk. I We noted certain matters involving the internal control structure and its operation that we consider to be reportable conditions under standards established by the American Institute of Certified Public Accountants. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control structure that, in our judgment, could adversely affect the entity's ability to record, process, summarize, and report financial data consistent with the assertions of management in the general purpose financial statements. I I Our study and evaluation disclosed that because of the limited size of your office staff, your organization has limited segregation of duties. A good system of internal control structure contemplates an adequate segregation of duties so that no one individual handles a transaction from inception to completion. While we recognize that your organization is not large enough to permit an adequate segregation of duties in all respects, it is important, however, that you be aware of this reportable condition. I I I A material weakness is a reportable condition in which the design or operation of the specific internal control structure elements does not reduce to a relatively low level the risk that errors or irregularities in amounts that would be material in relation to the general purpose financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. I I Our consideration of the internal control structure would not necessarily disclose all matters in the internal control structure that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses as defined above. I We also noted other matters involving the internal control structure and its operation which have been reported to the management of the City of Shorewood, Minnesota in a separate letter dated March 23, 1990. I I This report is intended for the information of management and the State Auditor's Office. This restriction is not intended to limit the distribution of this report, which is a matter of public record. I March 23, 1990 Minneapolis, Minnesota ~~ , ABDO, ABDO & EICK Certified Public Accountants # ~~ . I I I I Anno, Anno & EICK CERTIFIED PUBLIC ACCOUNTANTS 1060 NORTHLAND PLAZA, 3800 WEST BOth STREET MINNEAPOLIS, MINNESOTA 55431 TELEPHONE 612-835-9090 FAX 612-896-3620 I I INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE BASED ON AN AUDIT OF THE GENERAL PURPOSE FINANCIAL STATEMENTS Offices In: Bloomington Mankato Owatonna I Member of American Inltltute of Certified Public Accountants I Honorable Mayor and City Council City of Shorewood, Minnesota I We have audited the general purpose financial statements of the City of Shorewood, Minnesota for the year ended December 31, 1989, and have issued our report thereon dated March 23, 1990. I We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the general purpose financial statements are free of material misstatement. I I Our audit was also conducted in accordance with the provisions of the Legal Compliance Audit Guide promulgated by the Legal Compliance Task Force pursuant to Minnesota Statutes. The Legal Compliance Audit Guide covers five main categories of compliance to be tested: contracting and bidding, deposits and investments, conflicts of interest, public indebtedness, and claims and disbursements. Ou~ study included all of the listed categories. I I Compliance with laws, regulations, contracts and grants applicable to the City of Shorewood is the responsibility of the City's management. As part of obtaining reasonable assurance about whether the general purpose financial statements are free of material misstatement, we performed tests of the City's compliance with certain provisions of laws, regulations, contracts, and grants. However, our objective was not to provide an opinion on overall compliance with such provisions. I I I The results of our tests indicate that, with respect to the items tested, the City of Shorewood complied, in all material respects, with the provisions referred to in the preceding paragraph. With respect to items not tested, nothing came to our attention that caused us to believe that the City had not complied, in all material respects, with those provisions. I I This report is intended for the information of management and the State Auditor's Office. This restriction is not intended to limit the distribution of this report, which is a matter of public record. , . ~, ~f ta4 ABDO, ABDO & EICK Certified Public Accountants I March 23, 1990 Minneapolis, Minnesota I