2000 Management Letter
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~"..... =1 Kern, DeWenter, Viere, Ltd.
.~~ CertIfIed Public Accountants
August 2, 2001
Honorable Mayor and Members of the CIty Council
CIty of AlbertvIlle
AlbertvIlle, Mmnesota
The accompanymg memorandum mcludes financIal trend mformatIon for your CIty and
suggestIons for Improvement of accountIng procedures and mtemal accountIng control measures
that came to our attentIon as a result of our audit of the general purpose fmanclal statements of
the CIty of AlbertvIlle, Mmnesota, for the year ended December 31, 2000. The matters
discussed hereIn were consIdered by us durmg our audIt and they do not modIfy the opInion
expressed m our Independent audItors' report dated August 2,2001, on such statements.
In plannmg and performIng our audIt of the general purpose financIal statements of the CIty of
AlbertvIlle, Mmnesota, for the year ended December 31, 2000, we consIdered the CIty'S Internal
control over financIal reportIng In order to determme our audItIng procedures for the purpose of
expreSSIng our oprmon on the general purpose financIal statements and not to prOVIde assurance
on the Internal control over finanCIal reportIng. However, we noted certaIn matters InvolVIng the
mtemal control over financIal reportIng and its operatIon that we conSIder to be reportable
condItIons Reportable condItIons mvolve matters commg to our attentIon relatIng to slgmficant
defiCIenCIes In the deSIgn or operatIon of the internal control over finanCIal reportIng that, in our
Judgment, could adversely affect the CIty'S abIlIty to record, process, summanze and report
financIal data consIstent WIth the assertIOns of management m the general purpose fInanCIal
statements.
A matenal weakness IS a condItIon m whIch the deSIgn or operatIon of one or more of the
mtemal control components does not reduce to a relatIvely low level the nsk that mIsstatements
In amounts that would be matenal In relatIon to the general purpose financIal statements bemg
audIted may occur and not be detected WIthin a timely penod by employees In the normal course
of performing theIr asSIgned functIons. Our consIderatIon of the Internal control over financIal
reportIng would not necessarIly dIsclose all matters m Internal control that mIght be reportable
condItIons and, accordIngly, would not necessarily dIsclose all reportable conditIons that are also
conSIdered to be matenal weaknesses However, we belIeve none of the reportable conditIons
descnbed In thIS letter are matenal weaknesses
7100 Northland Circle No, SUite 779
Minneapolis, MN 55428-1500
763-537-3077 · Fax 763-537-9682
220 Park Avenue South, PO Box 1304
Sf Cloud, MN 56302
320-251-7010 · Fax 320-251-1784
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www kdv com
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Honorable Mayor and Members of the CIty CouncIl
CIty of AlbertvIlle
TIns report IS mtended solely for the mformatIon and use of the CIty CouncIl, management and
others Wlthm the CIty and IS not mtended to be and should not be used by anyone other than
these specIfied partIes
Agam, we would lIke to express our apprecIatIon for the cooperatIon extended to us by the
employees of the CIty of AlbertvIlle dunng our audtt
4~, ~If,-Izvi Vu..-v-. L-l-cI
Kern, DeWenter VIere, Ltd
St Cloud, Mmnesota
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FINANCIAL ANALYSIS
General Fund
General Fund revenues Increased from $ 1,101,702 In 1999 to $ 1,194,623 In 2000 That
represents an Increase of more than 8 percent from 1999 SInce 1996 revenues have Increased 43
percent or apprmumately 9 percent per year
General Fund expendItures Increased from $ 893,901 In 1999 to $ 1,235,973 In 2000 That
represents an Increase of38 percent from 1999 to 2000 SInce 1996 expendItures have Increased
84 percent or approxImately 17 percent per year
The graphs below and on the folloWIng page present the General Fund revenues by source and
expendItures by department SInce 1996
General Fund Revenues
$1400 000
$800,000
$1,200,000
$1,000,000
$600 000
$400,000
$200,000
$0
1996
1997
1998
1999
2000
. Taxes
. LIcenses and PermIts
. Intergovernmental
. Charges for Services
. Mlscellanous
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FINANCIAL ANALYSIS (ContInued)
General Fund (ContInued)
General Fund Expenditures
$1 400 000
$1,200,000
$1,000,000
$800,000
$600,000
$400 000
$200,000
$0
1996
1997
1998
II Pubhc Safety
II SanItatIon & Econ Dev
1999
2000
II General Government
II Park and Recreanon
llPubhc Works
II MIscellaneous
These graphs Illustrate that expendItures are more volatIle than revenues CapItal expendItures IS
one example that demonstrates thIs, the CIty may have a capItal purchase In one year and not In
another In 2000 the CItr< ~x.pended $ 457,209 out of the General Fund for capItal outlay
compared~~,?~~m!m. -- - --
The four pIe charts on the follOWIng two pages show the revenues by source and expendItures by
department for the General Fund for 2000 and 1999
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FINANCIAL ANALYSIS (Contmued)
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General Fund (Contmued)
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2000 General Fund Revenues
2000 Revenues = S 1,194,623
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Licenses and Penmts
14%
Intelllovemmental
22%
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1999 General Fund Revenues
1999 Revenues = S 1,101,702
Intelllovemmental
26%
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licenses and Perrmts
11%
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Taxes
53%
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FINANCIAL ANALYSIS (Contmued)
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General Fund (Contmued)
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2000 General Fund Expenditures
2000 Expenditures = $1,235,973
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Sanitation & Econ Dev
2%
MIscellaneous
2%
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General Governmant
39%
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1999 General Fund Expenditures
1999 Expenditures = $893,901
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Park and Recreabon
10%
MIscellaneous
0%
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PublIC Safety
39%
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FINANCIAL ANALYSIS (Contmued)
General Fund (Contmued)
Overall, expendttures exceeded revenues by $ 41,350 m 2000, however, after consldermg a
transfer m of $ 144,996 from the CapItal Outlay Reserves Fund and capItal lease proceeds of
$ 123,094 the fund balance mcreased from $ 389,362 to $ 619,158 A five-year summary of
revenues, expendItures and fund balance follows ThIs graph does not reflect transfers m and out
to and from other funds, WhICh, as m the case of 2000 and 1998, WIll Impact the General Fund
balance posItIon at year-end
GENERAL FUND
$1 400000 -
-- - --
--------- -- --- --
------- ------
$1 313331
$1 200000
$1000000
$800 000
$600 000
$400 000
$200 000
$0
1996
1997
1998
1999
2000
. Revenues
. Expenditures
. Fund Balance
The 2000 fund balance of $ 619,158 IS compnsed of $ 700,000 deSIgnated for operatmg capItal
and $ (80,842) ofundeslgnated amounts The amount deSIgnated for operatmg capItal represents
SIX months of the 2001 expendIture budget In order for the CIty to mamtam the SIX month
deSIgnated goal, we recommend the CIty stnve for a "balanced" or zero balance m the
undeslgnated account
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FINANCIAL ANALYSIS (ContInued)
Sewer Fund
The folloWIng graph provIdes a hIstory of operatIng Income (or loss) for the past five years The
yellow bar represents a true measurement of operatIons to be used as a factor In determInIng
whether sewer rates are suffiCIent to cover operatIng costs As the graph IndIcates, rates for the
past four years were sufficIent to cover operatIng costs, whIch Includes deprecIatIOn of fixed
assets Revenues that are sufficIent to cover operatIng costs, IncludIng deprecIatIon, allow for an
accumulatIon of cash to help fund replacement of depreCIable assets
For 2000 and 1999, rates were sufficIent not only In covenng all operatIng costs, but the non-
operatIng expenses as well Non-operatIng costs Include Interest expense on your PF A loan and
the fund's negatIve cash balance The sewer fund generated net Income of$ 48,187 In 2000 and
$ 17,596 In 1999, thereby IncreasIng retaIned earnmgs, as IndIcated In the follOWIng graph
ContInued pOSItIve performance of the sewer fund wIll Improve the fund's cash balance At
December 31, 2000, the fund had a cash defiCIt balance of $ 123,980, compared to a negatIve
cash balance of$ 192,592 at December 31, 1999
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FINANCIAL ANALYSIS (ContInued)
Sewer Fund (Continued)
Sewer Fund Retained Earnings
$250 000
$200 000
$150000
$125063
$123180
$100000
$50 000
$0
1996
1997
1998
1999
2000
Market Value. Tax Capacity and Tax Capacity Rates
The three graphs on the folloWIng pages provIde slgmficant InformatIon about the growth
expenenced by the CIty of AlbertvIlle to help you contInue to analyze your tax rate posItIon
The first graph depIcts market value of all taxable property WIthIn the CIty lImIts, along WIth tax
capacIty generated by such growth As eVIdent from the graph, property market value has nearly
doubled from $ 67,105,600 In 1996 to $ 132,817,500 In 2000 Dunng the same ttme tax capacIty
has Increased almost 75 percent from $ 1,084,628 In 1996 to $ 1,897,648 In 2000 When
revIeWIng thIs InformatIon, It IS Important to note that durmg thIs tIme frame the tax capaCIty rate
structure dId change
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FINANCIAL ANALYSIS (ContInued)
Tax Capacity and Market Value
$150000000
$125000000
$I 00 000 000
..
"
:: $75000000
~
.
:a
$50000000
$25 000 000
$0
1996
1999
$2 000 000
$1 800000
$I 600 000
$1400000
$1200000
€
$1 000000 !.
.
u
..
.
$800 000 !"
$600 000
$400000
$200000
$0
2000
1997
1998
I ClMarket Value
.Tax Capaclly I
The second graph provIdes InSIght as to the Impact the legIslatIve class rate changes has had on
tax capacIty As you are well aware, the State has changed converSIon factors used to convert
market value to tax capacIty As WIth most CItIes In the State, 1998 was the first year
sIgnIficantly Impacted by thIs change As a result, tax capacIty rates have had to Increase to
generate the same level of levy dollars on a fixed market value
Tax Capacity as a Percent of Market Value
1 8
1 6
1 6
1 4
1 2
1 0
08
06
04
02
00
1996
1 6
1997
1998
1999
2000
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FINANCIAL ANALYSIS (ContInued)
Market Value. Tax Capacity and Tax Capacity Rates (Contmued)
The thrrd graph depIcts the CIty'S tax capacIty rates for the past five years If class rate changes
had not been Implemented, your 2000 tax rate based on average 1996 conversIon rates would
have been 41 703, rather than 46701, or approxImately the same as your 1996 rate Although
thIs analysIs provIdes some mformatIon regardmg the Impact of class rate changes, It IS not exact
smce a portIon of your overall conversIon factor change may be due to a change m the mIX of
taxable property (commercIal versus reSIdentIal) as well as legIslatIve class rate changes The
calculatIon IS as follows
2000 Market Value $ 132,817,500
1996 ConversIon Factor 16%
Tax CapacIty Generated $ 2,125,080
Calculated
2000 Tax Levy $ 886,217 Rate
Tax CapacIty, as Calculated Above $ 2,125,080 41 703
Tax Capacity Rate
50
46701
40
30
20
10
o
1996
1997
1998
1999
2000
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MANAGEMENT SUGGESTIONS
In our Judgement, the followmg comments are matters whIch are not reportable condItions as
defined by standards establIshed by the Amencan InstItute of CertIfied PublIc Accountants,
however, we feel these observatIons and suggestions regardmg actIVItIes beyond mtemal control
WIll benefit management
Obtain Sufficient Conateral for an Deposits
Mmnesota Statutes Sec 118A 01 and 118A 03, proVIde that all depOSIts WIth finanCIal
mstItutIons must be collateralIzed m an amount equal to 1100.10 of depOSIts m excess of Federal
DepOSItory Insurance CorporatIon (FDIC) msurance The depOSIts of the CIty at December 31,
2000 were unsecured at Secunty State Bank m the amount of $ 90,216 AddItIonal collateral of
$ 99,237 was needed to secure these deposIts
We recommend the CIty obtam addItIonal collateral and momtor collateral levels to ensure
depOSIts are adequately secured
Obtain Performance Bonds
Mmnesota State Statute 574 26 requIres that contractors domg publIc work pledge a performance
bond m an amount not less than the contracted pnce If the contract IS more than $ 10,000 The
CIty dId not receIve a performance bond for the old CIty Hall reroofing project exceedmg
$ 10,000 m 2000
To be m complIance WIth Mmnesota State Statute 57426, we recommend the CIty obtam
contractor performance bonds on all contracts that exceed $ 10,000
REPORTABLE CONDITIONS
Balance Cash to General Ledeer
Dunng our audIt and reVIew of cash we noted cash dId not balance to the CIty'S general ledger
Monthly bank reconcIlIatIons were not completed to determme If cash balances to the general
ledger When cash IS not reconcIled, the CIty WIll not have current relIable cash balance
mformatIon for whIch to gauge expendIture needs
We recommend the followmg procedures for balancmg cash be Implemented
1 Prepare bank reconcIlIatIon by hstmg the bank balance, depOSIts m tranSIt, outstandmg
checks, and other reconcIlmg Items to arnve at the "book" balance
2 Compare the book balance WIth the cash balance as shown on the general ledger (Account
XXX-10100 & XXX-10400) Cash balances by fund should equal the book balance from
above Remember to take mto conSIderatIOn the Due To/Due From Other Fund accounts for
expendItures and receIpts not gomg through cash
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REPORTABLE CONDITIONS (Contmued)
Balance Cash to General Ledeer (Contmued)
3 Any dIfferences should be mvesttgated nnmedlately and cash adjusted accordmgly One
helpful procedure If cash does not reconctle IS to prepare a proof of cash A proof of cash IS
prepared as follows
· LIst total deposIts and other credIts as shown on the bank statement Add depOSIts m
transIt for the current month and subtract depOSIts m transIt from the pnor month TIns
should equal total receIpts for the month per the receIpt ledger
· LIst total checks and other debIts as shown on the bank statement Add outstandmg
checks for the current month and subtract outstandmg checks from the pnor month TIns
should equal total dIsbursements for the month per the dIsbursement ledger
Once cash IS balanced to the bank and reconctled WIth the general ledger, we further recommend
the cash balances by fund be mc1uded WIth the monthly report to the CIty CouncIl
Lack of Seereeation of Accountine Duties
Dunng our audIt, we noted a condItton that IS consIdered to be a "reportable condltton" as
defmed by standards estabhshed by the Amencan Instttute of Certtfied Pubhc Accountants
Dunng the year ended December 31, 2000, the CIty had a lack of segregatIon of accountmg
dutIes due to a hmIted number of office employees Although thIs meets the defimtton of a
"reportable condltton," It may not be practtcal to correct smce the costs of obtammg deSIrable
segregatton of accountmg dutIes may exceed benefits that could be denved
City Does Not Maintain Historical Cost Fixed Asset Records
The CIty does not mamtam htstoncal cost fixed asset records that proVIde complete accountmg
control over the quantItIes and costs of ItS general fixed assets As a result, we Issued a quahfied
oplnton on the CIty'S general purpose finanCIal statements At thIs tIme, the costs of
Implementmg such a system may exceed potenttal benefits that could be denved Admlmstratton
WIll contmually momtor the sltuatton and Implement changes, If necessary
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Implementation of GASB Statement No. 34 - Basic Financial Statements-and
Manaeement's Discussion and Analysis-for State and Local Governments
Last year, the audIt professIonals at Kern, DeWenter, VIere, Ltd presented the CIty the fIrst of
three mstallments m a gwde to Implement the provIsIons of Governmental Accountmg Standards
Board Statement No 34 ThIs year KDV contmues ItS commItment to provIde the CIty WIth the
mformatIon It needs to make the converSIOn to the new reportmg model ThIs year's
presentatIon covers four mam areas
· ReImbursements and Interfund EhmmatIons
· Reportmg of DIrect and Indrrect Expenses
· Matchmg Long-Term Debt to Related Assets
. FIduCIary Funds
Keepmg m mmd that the CIty WIll be requIred to Implement GASB Statement No 34 for the
year endmg December 31, 2004, we recommend the CIty reVIew our fIrst set of
recommendatIons on ImplementatIon from last year and evaluate the CIty'S progress toward
reachmg these goals
Reimbursements - Interfund Eliminations
Under GASB Statement No 34, mterfund actIvIty should be reported m the fund fmancIal
statements and generally should be ehmmated m the aggregated government-WIde fInanCIal
statements Certam mtemal actIVItIes and balances are ehmmated to aVOId the mappropnate
"doubhng-up" effects those actIVItIes and balances would otherwIse have on aggregated
amounts F or governmental UnItS, there are two types of mterfund actIVIty
1 RECIPROCAL - the government's Internal counterpart to exchange and exchange-lIke
transactIons
· Interfund Loans are amounts that are reqUIred to be repaId and should be reported as
mterfund receIvables m lender funds and mterfund payables m borrower funds If
repayment IS NOT expected WIthm a reasonable tIme (not specIfIed by GASB
Statement No 34), the mterfund balances should be reduced, WIth the lender funds
reportmg a transfer to the borrower fund
For the statement of net assets, amounts owed between funds mcluded m the
governmental actIVItIes column are ehmmated, as well as amounts owed between
funds mc1uded m the busmess-type actIVItIes column However, the net amount
between governmental and busmess-type actIVItIes should be reported as "Internal
Balances" on the statement of actIVItIes The mternal balance between governmental
and busmess-type actIVItIes should net to zero, and therefore be ehmmated m the total
pnmary government column on the statement of net assets
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Amounts owed to fiducIary funds and fiducIary component unIts are reported as
receIVables from and payables to external partIes rather than as mternal balances
· Interfund Services Provided and Used are sales and purchases of goods or servIces
between funds for a pnce comparable to therr external exchange value Under GASH
Statement No 34, mterfund servIces WIll contmue to be reported as revenues m seller
funds and expendttures/expenses m purchaser funds (WIth the exceptton when the
General Fund IS used to account for nsk-fmancmg acttvlty, where mterfund charges
are accounted for as reImbursements)
2 NON-RECIPROCAL - the government's mternal counterpart to non-exchange transacttons
· Interfund Transfers are flows of assets between funds WIthOUt an eqUIvalent flow of
assets m return and WIthOUt a requrrement for repayment In governmental funds,
transfers are reported as other fmancmg sources and uses, whIle m propnetary funds,
transfers are reported after non-operatmg revenues and expenses
F or the statement of acttvlttes, mterfund transfers wlthm governmental acttvltles and
wlthm busmess-type acttvlttes should be ehmmated However, the net amount of
transfers between governmental and busmess-type acttVlttes should be reported
GASH Statement No 34 ehmmates the reSIdual eqUIty (non-recurnng or non-routme
transfers of eqUIty) category of transfers All operatmg and reSIdual eqUIty transfers
are combmed under the new statements and SImply entttled "Transfers "
· Interfund Reimbursements are repayments from the funds responsIble for speCIfic
expendttures/expenses to the funds that ongmally paId for them ReImbursements
should be ehmmated and NOT reported m the finanCIal statements Rather,
reImbursements should reduce expendItures/expenses m the funds that Imttally patd
for them and mcrease expendttures/expenses m the funds actually responsIble for
them
Examples of mterfund reImbursements reqmnng ehmmatton mclude allocattons of
overhead expendItures/expenses Upon ehmmatton, only the functtons to whIch the
allocattons were made WIll report expendttures/expenses
Internal Service funds are used to account for acttvlttes that prOVIde goods or
servIces on a cost-reImbursement basIs to other funds, departments, or agencIes of
the government (the parttclpattng functtons) Internal ServIce fund acttvlty IS
naturally "doubled-up" m the fund fmanclal statements, once as expenses m the
Internal ServIce fund, and once as expenses/expendItures m the partlclpatmg
functIOns, WIth correspondmg revenues reported m the Internal ServIce fund
Interfund acttvlty reported m the Internal ServIce funds WIll be ehmmated m the
government-WIde statements Internal ServIce fund revenues and expenses WIll not
be reported, and any "profit" or "loss" WIll be allocated to partlclpattng functtons In
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other words, Internal ServIce fund actIvIty WIll be adjusted to "break even," and any
net mcome WIll result m a pro rata reductIOn m the charges made to the partlclpatmg
functIons (any net loss WIll conversely result m a pro rata mcrease m the charges to
the partIclpatmg functIons)
DespIte bemg reported as propnetary funds, the types of actIvItIes accounted for m
Internal ServIce funds are usually more governmental than busmess-type m nature
Therefore, any Internal ServIce Fund asset and hablhty balances not ehmmated m
the statement of net assets WIll normally be reported m the governmental actIvItIes
column However, IT enterpnse funds are the predommant partlclpatmg functIons m
an Internal ServIce Fund, any reSIdual assets and hablhtIes should be reported m the
bus mess-type actIvItIes column m the statement of net assets
Internal ServIce fund operatIons may mclude revenues and expenses that are not
"mternal," or that relate to elements that are reported separately m the statement of
actIVItIes An example IS mvestment mcome, wmch IS generally reported m the
general revenues sectIon of the statement of actIvItIes Therefore, If an Internal
ServIce fund has slgmficant mvestment mcome, that amount should be mcluded m
the overall mvestment mcome, rather than allocated to the partlclpatmg functIons
AddItIonally, Internal ServIce fund revenues and expenses pertammg to transactIons
WIth outsIders are not part of the "break even" analYSIS and would be reported as
program revenues and dIrect expenses of the appropnate functIon or program
TransactIons such as the sale of utIhty servIces from an Enterpnse Fund to the
general government are not ellmmated Rather, these transactIons are consIdered
Interfund ServIces ProvIded and Used (see above), WIth correspondmg revenues and
expenses recorded
Interfund actIvIty does not mclude transactIons WIth dIscretely presented component
umts, wmch are consIdered external transactIOns and recorded as revenues and
expendItures/expenses TransactIons WIth blended component umts are reclasSIfied as
mternal actIvIty when mcluded m the government's fmanclal statements
We recommend the CIty take the followmg actIons regardmg reImbursements and mterfund
ehmmatIons pnor to ImplementatIon of GASB Statement No 34
· IdentIfy and segregate mternal transactIons among the types of mterfund actIvIty (see
recIprocal and non-recIprocal sectIon) TIDs may mclude revlsmg the account structure m the
accountIng system as needed to IdentIfy drfferent types of mterfund actIVItIes and balances
· Develop procedures for ehmmatmg and reclasslfymg mterfund actIvItIes and balances
(mcludmg reImbursement expense/expendIture allocatIons that result m the "doublmg-up"
effect)
· Create pohcles for handlmg Internal ServIce Funds TIDs may mclude the IdentIficatIon of
partIcIpatIng functIons and the development of procedures to allocate net mcome/loss
· IdentIfy non-mternal Internal ServIce Fund actIVItIes (such as mvestment mcome, mterest
expense, and transactIons WIth outsIders) that may not be allocated to partIclpatmg functIons
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Reporting of Expenses
GASH Statement No 34 requrres that governments report all expenses by functIon on the
Statement of ActIvItIes except for those that meet the defImtIon of specIal or extraordmary As a
mInImum, governments should report drrect expenses for each functIOn
Direct Expenses are those that are specIfically assocIated WIth a servIce, program or department,
and are therefore clearly IdentIfIable to a partIcular functIon
FunctIons such as general government, support servIces and admInIstratIon mclude expenses that
are, m essence, indirect expenses of other functIons
GASH Statement No 34 does not requrre governments to allocate mdrrect expenses to other
functIons, but governments may choose to allocate some or all of theIr mmrect expenses If
allocated, the Statement of ActIVItIes should present two separate columns for dtrect and mdrrect
expenses A column totalIng drrect and mdIrect expenses may be presented, but IS not requrred
DellrecIatIon
DepreCIatIon expense for capItal assets that can be speCIfIcally IdentIfIed WIth a functIon should
be mcluded as a drrect expense DepreCIatIon expense on "shared" assets should be pro-rated
and recorded as a drrect expense of the appropnate functIons
DepreCIatIon expense on capItal assets that serve all functIons (such as CIty hall) IS not requrred
to be mcluded m the dtrect expenses of the vanous functIons TIns depreCIatIon may be mcluded
as a separate lme on the statement of actIVItIes or as a part of the "general government" functIon
If a separate lme IS presented, the government must clearly mmcate on the face of the statement
that thIs lme Item excludes dIrect depreCIatIon expenses of the vanous programs
DepreCIatIon expense on mfrastructure assets should not be allocated to the vanous functIons,
but should be reported as a drrect expense of the functIon that the government normally
asSOCIates WIth the related capItal outlay
Interest on General Long-Term LIabIlItIes
Expense related to the mterest on long-term debt should generally be conSIdered an mdrrect
expense However, mterest on long-term debt should be mcluded m dtrect expenses when the
borrowmg IS essentIal to the creatIon or contInUIng eXIstence of a program and It would be
mIsleadmg to exclude the mterest from the dtrect expenses of that program
Most mterest on general long-term lIabIlItIes does not qualIfy as a dtrect expense and should be
reported m the Statement of ActIVItIes as a separate lme that clearly mmcates that It excludes
drrect mterest expense, If any
To prepare for thIs aspect of GASH Statement No 34, we recommend the CIty take the
followmg actIons
· IdentIfy the functIons that WIll be reported m the Statement of ActIVItIes
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· EstablIsh a polIcy on whether mdIrect expenses wIll be allocated among functIons or WIll be
presented as theIr own functIon (e g General Government) on the Statement of ActIVItIes
· If mdrrect expenses WIll be allocated, establIsh specIfic cntena on how these expenses WIll
be allocated
· ReVIew capItal assets, mcludmg mfrastructure 1f the modIfied approach IS not used, and
determme to whIch functIon depreCIatIon WIll be asSIgned
· For each asset that IS used by more than one funCtIOn, determme If the depreCIatIon WIll be
pro-rated and recogmzed as a drrect expense of the functIons or presented as part of
unallocated depreCIatIon
· ReVIew mterest on general long-term lIabIlItIes to determme 1f any meets the cntena for
presentatIon as a drrect expense
Matching Long-Term Debt with Capital Assets
The CIty of Albertville WIll dIsplay theIr net assets m the Statement of Net Assets m three
components - Invested In capital assets, net of related debt, restricted, and unrestncted
Invested In capital assets, net of related debt consIsts of all capItal assets, net of accumulated
depreCIatIon and reduced by the outstandmg balances of any debt (mcludmg bonds, mortgages,
notes, or other borrowmgs) attnbutable to the acqmsltIon, constructIon, or Improvement of those
assets
We recommend the CIty revIew theIr documents relatIng to mdebtedness to determme the
appropnate relatIonshIp between the proceeds spent and theIr capItal assets If debt IS Issued for
capItal purposes and some of the proceeds are spent for assets that are not capItalIzed, the CIty IS
not expected to determme how much of the debt actually relates to assets that have been
capItalIzed Unless a slgmficant portIOn of the debt IS spent for noncapltallzable purposes, the
entIre amount could be conSIdered "capItal-related" If debt IS Issued to refund eXlstmg capltal-
related debt, the new debt IS also conSIdered capItal-related If m any gIven year a portIOn of
debt proceeds remam unspent at the end of the year, the portIon of the debt related to the unspent
proceeds should not be mcluded m the calculatIon of Invested In capital assets, net of related
debt Instead, thIs portIOn should be mcluded m the same net assets component as the unspent
proceeds - for example, restricted to capital projects
Fiduciary Funds
FIdUCIary fund reportmg focuses on net assets and changes m net assets FIdUCIary funds should
be used to report assets held m a trustee capacIty or agency capacIty for others, and therefore,
cannot be used to support the government's own programs The fidUCIary fund category
mcludes
· PensIOn and other employee benefit trust funds
· Investment trust funds
· Pnvate-purpose trust funds
· Agency funds
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The three types of trust funds should be used to report resources held and ammmstered by the
reportmg government when It IS actmg m a fiducIary capacIty These funds are mstmgUlshed
from agency funds generally by the eXIstence of a trust agreement that affects the degree of
management's mvolvement and the length of tIme that the resources are held
Definition of Funds
Pension and Other Employee Benefit Trust Funds are used to report resources that are
reqUIred to be held m trust for the members and beneficIanes of defined benefit pensIon plans,
defmed contnbutIon plans, and other post employment and employee benefit plans
Investment Trust Funds are used to report the external portIon of mvestment pools reported by
the sponsonng government, as defmed m GASB 31
Private Purpose Trust Funds such as funds used to report escheat property, are used to report
all other trust arrangements under wmch pnnclpal and mcome benefit mdlvlduals, pnvate
orgamzatIons, or other governments
Aeency Funds are used to report resources held by the reportmg government m a custodIal
capacIty, where assets equal lIabIlItIes Agency funds typIcally mvolve only the receIpt,
temporary mvestment, and remIttance of fiducIary resources to mdIVlduals, pnvate
orgamzatIons, or other governments
Required Financial Statements
The followmg fmancIaI statements are reqUIred to be presented m accordance WIth GASB
Statement No 34
· Statement of FIducIary Nets Assets
· Statement of Changes m FIducIary Net Assets
These fmanclal statements should report the pnmary and all component umts that are fiducIary m
nature In admtIon, the statements should provIde a separate column for each fund type (pensIOn
trust, mvestment trust, pnvate-purpose trust and agency funds)
Measurement Focus and Basis of Accountine
Fmanclal statements of fiducIary funds should be reported usmg the economic resources
measurement focus and the accrual basiS of accountmg, except for the recogmtIon of certam
lIabIlItIes of defined benefit pensIon plans and certam post-employment healthcare plans
The statement of fiduciary net assets should mclude mformatIon about the assets, lIabIlItIes,
and net assets for each fidUCIary fund type GASB statements 25, 26 and 31 proVIde detaIled
gmdance for presentatIon
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The statement of changes in fiduciary net assets should mclude mformatIon about the
addItIons to, deductIons from, and net mcrease (or decrease) for the year m net assets for each
fiduCIary fund type GASB statements 25 and 26 provIde detatled gwdance for presentatIon
The reportIng of agency funds should be contamed m the statement of net assets, where assets
should equal habtlltIes Agency funds should not be reported m the statement of changes m
fidUCIary net assets
Implementation of Stage One and Future Issues - Stage Three
GASB Statement No 34 IS by far the most sIgmficant statement ever adopted relatmg to
governmental finanCIal reportmg ImplementatIon of Stage One Issues, covered prevIously, and
the ImplementatIon of Stage Two Issues IS VItal to the entIre successful ImplementatIon Below
IS a recap of Stage One and future Stage Three Issues
Recap of Implementation Stage One
· Management DISCUSSIon and AnalysIs (MD&A)
. BasIC Fmanclal Statements
. Requrred Supplementary informatIon (RSI)
. EffectIve Date and TranSItIon
. Fund Structure
· Government-WIde Fmanclal Statements - Statement of ActIVItIes
· Infrastructure and FIXed Assets
Future Issues - Implementation Stage Three
· Major Funds - IdentIficatIon and defimtIon
· Drrect Cash-Flow Method - Effects on finanCIal statements
. EqUIty - Endowment effects
· SpeCIal and Extraordmary Items - IdentIficatIon and defrmtIon
· Other Fmancmg Sources and Uses - Transfers
· New Footnote DIsclosure ReqUIrements
· Management DISCUSSIon and AnalYSIS
We Will contInue to prOVIde speCIfic explanatIon of vanous Issues related to your CIty to
successfully Implement GASB Statement No 34
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