2003 Management Letter
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CITY OF ALBERTVILLE
Wright County, Minnesota
Management Letter
For the Year Ended December 31,2003
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KDV
KERN. DEWENTER-VIERE
May 28, 2004
Honorable Mayor and Members of the City Council
City of Albertville
Albertville, Minnesota
The accompanying memorandum includes financial trend information for your City and
suggestions for improvement of accounting procedures and internal accounting control measures
that came to our attention as a result of our audit of the general purpose financial statements of
the City of Albertville, Minnesota, for the year ended December 31, 2003. The matters
discussed herein were considered by us during our audit and they do not modify the opinion
expressed in our independent auditors' report dated May 28, 2004, on such statements.
In planning and performing our audit of the general purpose financial statements of the City of
Albertville, Minnesota, for the year ended December 31,2003, we considered the City's
internal control over financial reporting 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 over financial reporting. However, we noted certain
matters involving the internal control over financial reporting and its operation that we consider
to be reportable conditions. Reportable conditions involve matters coming to our attention
relating to significant 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, summarize and report financial data consistent with the assertions of management in
the general purpose financial statements.
A material weakness is a condition in which the design or operation of one or more of the
internal control components does not reduce to a relatively low level the risk that misstatements
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. Our consideration of the internal control over financial
reporting would not necessarily disclose all matters in internal control that might be reportable
conditions and, accordingly, would not necessarily disclose all reportable conditions that are also
considered to be material weaknesses. We believe one of the reportable conditions described in
this letter is a material weakness.
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K-DV
KERN. DEWENTER.VIERE
This report is intended solely for the information and use of the City Council, management and
others within the City and is not intended to be and should not be used by anyone other than
these specified parties.
We would like to express our appreciation for the cooperation extended to us by the
representatives of the City of Albertville during our audit.
K.lAn.., ~Mf'l-,fl/V, Vi..VLL, L.f-d.
KERN, DEWENTER, VIERE, LTD.
Minneapolis, Minnesota
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CITY OF ALBERTVILLE
Wright County, Minnesota
FINANCIAL ANALYSIS
December 31,2003
GENERAL FUND
General Fund revenues increased from $ 2,114,675 in 2002 to $ 2,143,360 in 2003. Reductions
in intergovernmental revenues and charges for services were offset by increases in the areas of
general property taxes and licenses and permits. Property tax revenues increased by 6% over
2002 receipts and totaled $ 1,251,311. Licenses and permits revenue increased 18% and totaled
$ 691,839. Intergovernmental revenues were $ 98,229 which represents a 51 % reduction from
2002 revenues.
General Fund expenditures increased from $ 1,943,550 in 2002 to $ 1,981,263 in 2003. That
represents an increase of approximately 2% over 2002 expenditures. Expenditures relating to
fire protection experienced a decrease of $ 429,025 or 75% from 2002 levels due to a large
capital purchase in 2002. Capital outlay in the area of streets and highways were largely
responsible for a 142% increase in expenditures relating to public works activities.
The graphs below and on the following page present the General Fund revenues by source and
expenditures by department since 1999.
General Fund Revenues
$2,250,000
$750,000
$46 038
$2,000,000
$1,750,000
$1,500,000
$1,250,000
$1,000,000
$500,000
$250,000
$0
1999
2000
2001
2002
2003
. Taxes
III Licenses and Permits
11 Charges for Services
o Intergovernmental
o Miscellaneous
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CITY OF ALBERTVILLE
Wright County, Minnesota
FINANCIAL ANALYSIS
December 31,2003
GENERAL FUND (CONTINUED)
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$2,000,000
$1,800,000
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$1,600,000
$1,400,000
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$1,200,000
$1,000,000
$800,000
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$600,000
$400,000
$200,000
General Fund Expenditures
$271,960
$607,628
$0
1999
2000
2001
. Public Safety
. Sanitation & Econ Dev
2002
2003
. General Government
I!J Park and Recreation
o Public Works
o Miscellaneous
These graphs illustrate expenditures by function, which includes capital outlay. The four pie
charts on the following two pages show the revenues by source and expenditures by department
for the General Fund for 2003 and 2002.
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CITY OF ALBERTVILLE
Wright County, Minnesota
FINANCIAL ANALYSIS
December 31,2003
GENERAL FUND (CONTINUED)
2002 General Fund Revenues $ 2,114,675
Taxes
55%
Licenses and Permits
28%
2003 General Fund Revenues $ 2,143,360
Taxes
58%
Licenses and Permits
32%
Charges for Services
3%
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CITY OF ALBERTVILLE
Wright County, Minnesota
FINANCIAL ANALYSIS
December 31, 2003
GENERAL FUND (CONTINUED)
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2002 General Fund Expenditures $ 1,943,550
Park and Recreation
10% ~
Public \V arks "
2%
Miscellaneous
/- 1%
General Government
30%,
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Sanitation & Ecan De\'
Public Safety
43%
2003 General Fund Expenditures $ 1,981,263
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Sanitation & Econ Dev
Park and Recreation 2%
8%
Miscellaneous
1%
General Government
29%
Public Safety
29%
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CITY OF ALBERTVILLE
Wright County, Minnesota
FINANCIAL ANALYSIS
December 31, 2003
GENERAL FUND (CONTINUED)
Overall, revenues exceeded expenditures by $ 162,097 in 2003. A five-year summary of
revenues, expenditures and fund balance follows. This graph does not reflect transfer activity to
and from other funds occurring during the year. It also does not reflect other financing sources
and uses such as the proceeds from sales of fixed assets. In 2000 and 2003, this impacted the
General Fund balance at year-end as illustrated in the graph.
General Fund
$2,600,000
$2,400,000
$2,200,000
$2,000,000
$1,800,000
$1,600,000
$1,400,000
$1,200,000
$1,000,000
$800,000
$600,000
$400,000
$200,000
$0
1999
$2,540,495
2000
2001
2002
2003
. Revenues
o Expenditures
. Fund Balance
The 2003 fund balance of $ 2,540,495 is comprised of $ 1,000,000 designated for operating
capital and $ 1,540,495 of un designated amounts. The amount designated for operating capital
represents six months of the 2003 expenditure budget.
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SEWER FUND
CITY OF ALBERTVILLE
Wright County, Minnesota
FINANCIAL ANALYSIS
December 31, 2003
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.
Sewer Fund
$300,000
$280,000
$260,000
$240,000
$220,000
$200,000
$180,000
$160,000
$140,000
$120,000
$100,000
$80,000
$60,149
$60,000
$40,000
$20,000
$0
1999
$280,142
2000
2003
2001
2002
o Operating Income
. Operating Income W/O Depr
For the past four years rates were sufficient not only to cover all operating costs, but the
nonoperating expenses as well. With the elimination ofthe fund's negative cash balance in prior
years, nonoperating expense includes interest on the PF A loan balance. The Sewer Fund
generated net income (after nonoperating revenues and expenses) of$ 74,524 in 2003 and
$ 90,403 in 2002; thereby increasing retained earnings, as indicated in the following graph.
Continued positive performance of the Sewer Fund will improve the fund's cash balance. At
December 31, 2003, the fund had a cash balance of$ 137,696 compared to a negative cash balance
of $ 20,112 at December 31, 2002.
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CITY OF ALBERTVILLE
Wright County, Minnesota
FINANCIAL ANALYSIS
December 31, 2003
SEWER FUND (CONTINUED)
Sewer Fund Retained Earnings
$350,000
$320,440
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
$0
1999 2000 2001 2002 2003
MARKET VALUE, TAX CAPACITY AND TAX CAPACITY RATES
The three graphs on the following pages provide significant information about the growth
experienced 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
more than doubled from $ 106,206,900 in 1999 to $ 293,418,600 in 2003. During the same
time tax capacity has increased from $ 1,459,274 in 1999 to $ 3,398,721 in 2003. When
reviewing this information, it is important to note that during this time frame the tax capacity
rate structure did change.
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CITY OF ALBERTVILLE
Wright County, Minnesota
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FINANCIAL ANALYSIS
December 31, 2003
MARKET VALUE, T AX CAPACITY AND T AX CAPACITY RATES (CONTINUED)
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Tax Capacity and Market Value
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$325,000,000
$300,000,000
$275,000,000
$250,000,000
$225,000,000
$200,000,000
$175,000,000
$150,000,000
$125,000,000
$100,000,000
$75,000,000
$50,000,000
$25,000,000
$0
1999
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2000 200 I 2002
$4,000,000
$3.500,000
$3,000,000
$2.500,000
.€,
~
$2,000,000 '"
"
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"
r-
$1.500,000
$!'OOO,OOO
$500,000
$0
2003
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I [J Market Value . Tax Capacity I
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The second graph provides insight as to the impact the legislative class rate changes have had on
tax capacity. As you are well aware, the State has changed conversion factors used to convert
market value to tax capacity. As a result, tax capacity rates have had to increase to generate the
same level of levy dollars on a fixed market value.
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Tax Capacity as a Percent of Market Value
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1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
1999
1.5
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2000
2001
2002
2003
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CITY OF ALBERTVILLE
Wright County, Minnesota
MATERIAL WEAKNESS
December 31, 2003
BALANCE CASH TO GENERAL LEDGER
During our audit and review of cash we noted cash did not reconcile to the City's general ledger.
Monthly bank reconciliations were not completed to determine if cash balances to the general
ledger. When cash is not reconciled, the City will not have current reliable cash balance
information for which to gauge expenditure needs.
We recommend the following procedures for balancing cash be implemented:
1. Prepare bank reconciliation by listing the bank balance, deposits in transit, outstanding
checks, and other reconciling items to arrive at the "book" balance.
2. Compare the book balance with the cash balance as shown on the general ledger (Account
XXX-IOIOO & XXX-I 0400). Cash balances by fund should equal the book balance from
above. Remember to take into consideration the Due To/Due From Other Fund accounts for
expenditures and receipts not going through cash.
3. Any differences should be investigated immediately and cash adjusted accordingly. One
helpful procedure if cash does not reconcile is to prepare a proof of cash. A proof of cash is
prepared as follows:
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List total deposits and other credits as shown on the bank statement. Add deposits in
transit for the current month and subtract deposits in transit from the prior month. This
should equal total receipts for the month per the receipt ledger.
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List total checks and other debits as shown on the bank statement. Add outstanding
checks for the current month and subtract outstanding checks from the prior month. This
should equal total disbursements for the month per the disbursement ledger.
Once cash is balanced to the bank and reconciled with the general ledger, we further recommend
the cash balances by fund be included with the monthly report to the City Council.
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CITY OF ALBERTVILLE
Wright County, Minnesota
REPORTABLE CONDITIONS
December 31,2003
LACK OF SEGREGATION OF ACCOUNTING DUTIES
During our audit, we noted a condition that is considered to be a "reportable condition" as
defined by standards established by the American Institute of Certified Public Accountants.
During the year ended December 31, 2003, the City had a lack of segregation of accounting duties
due to a limited number of office employees. Although this meets the definition of a "reportable
condition," it may not be practical to correct since the costs of obtaining desirable segregation of
accounting duties may exceed benefits that could be derived.
CITY DOES NOT MAINTAIN HISTORICAL COST FIXED ASSET RECORDS
The City does not maintain historical cost fixed asset records that provide complete accounting
control over the quantities and costs of its general fixed assets. As a result, we issued a qualified
opinion on the City's general purpose financial statements. In order to comply with GASB
Statement No. 34, the City will need to take an inventory of fixed assets. A physical count
performed annually will allow the organization to maintain better control of all fixed assets. The
City should update this listing annually with the additions and disposals. We recommend
Administration get an appraisal and continually monitor the situation and implement changes.
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CITY OF ALBERTVILLE
Wright County, Minnesota
MANAGEMENT SUGGESTIONS
December 31, 2003
In our judgment the following comments are matters which are not reportable conditions as
defined by standards established by the American Institute of Certified Public Accountants;
however, we feel these observations and suggestions regarding activities will benefit
management.
STAGES TO IMPLEMENT GASB STATEMENT NO. 34
The auditing professionals at Kern, DeWenter, Viere, Ltd. have developed a plan that will help
you implement GASB Statement No. 34 in an effective and efficient manner. We assessed
GASB Statement No. 34 in its entirety and we have developed three Implementation Stages.
Each Stage presents issues we believe the City needs to address in order to prepare for reporting
in accordance with GASB Statement No. 34. To develop each stage, we assessed each area of
the statement and, based on our knowledge and experience with Minnesota cities, prioritized the
issues. Implementation stages one through three were provided to the City in previous years to
serve as an aid in implementing the new requirements outlined in GASB Statement No. 34.
During our fiscal year 2002 audit, we noticed the City has made limited progress toward the
implementation of GASB Statement No. 34.
Keeping in mind the City of Albertville is required to implement GASB Statement No. 34 for the
fiscal year ending December 31, 2004, we recommend the City review our recommendations on
implementation from prior years and evaluate the City's progress toward reaching these goals. We
are available to help you develop a personalized, specific plan if additional assistance is needed.
OBTAIN CURRENT W-4'S
During our review of the payroll process, we noted four employees federal and state
withholdings did not agree with the W -4 in their personnel file.
We recommend the Clerk-Treasurer verify all employees withholdings on their W-4's are
imputed correctly into the payroll system.
INTERNAL CONTROLS - PAYROLL ACCOUNTS
During our audit we noted instances where employees were not using timecards. In other
instances, the timecards that were used were not signed by the employee's supervisor. When
timecards are not used and approved, there is no oversight of the payroll process and the City is
not able to determine ifthe amount on the payroll register is an accurate amount.
We recommend the City required employees use timecards daily and that department heads
approve all timecards.
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CITY OF ALBERTVILLE
Wright County, Minnesota
MANAGEMENT SUGGESTIONS
December 31, 2003
PURCHASES AND BUDGETING
As a part of our audit, we review various policies and procedures. Our analysis indicated that
purchases are not periodically compared to budget. Failure to compare the expenditures to
budget can result in expenditures in excess of the approved budget amounts.
We recommend the City to compare the expenditures to budget monthly.
UPDATE AUTHORIZED SIGNATURE REQUIREMENTS AND AUTHORIZED
SIGNERS
While auditing the City's cash accounts, a review of the signature cards at Premier Bank
indicates that not all of the City accounts require two signatures. The bank only requires one
signature to allow checks to clear on certain City accounts. Furthermore, a review of the
confirmation sent from the State Bank of Rogers indicates that some authorized signers are not
current employees of the City or members of the City Council.
We recommend the City Administrator contact the banks to revise the authorized signers and
signature requirements so that all accounts require two signatures of current employees or
members ofthe City Council. This action may prevent potential problems with unauthorized
disbursements.
ACCOUNTING FOR CHANGE IN MARKET VALUE AND INTEREST INCOME
We noticed that the City incorrectly recorded the change in market value of investments. The
City credited the investment and debited a balance sheet account. The offset to investments is a
change in market value, a revenue account. The City also failed to record all investment interest
throughout the year.
Our recommendation is for the City to record all interest received monthly and to record the
offset of the change in market value of investments as a revenue account.
PERFORM INTEREST ALLOCATION
The financial records of the City did not show that interest received during the year was allocated
to all funds. Without the allocation of interest, some of the funds were lacking the earnings they
should have received.
We recommend the Clerk allocate interest received to the funds of the City on a monthly or
quarterly basis. This allocation should be based on the cash balance of each fund compared to
the cash balance of all of the funds.
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