2004 Management Letter
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CITY OF ALBERTVILLE
Wright County, Minnesota
Management Letter
For the Year Ended December 31, 2004
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Februa 18, 2005
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KERN•DEWENTER•VIERE
' Honorable Mayor and City Council
City of Albertville
Albertville, Minnesota
The accom an in memorandum includes financial trend information for our Cit and
p Y g Y Y
suggestions for improvement of accounting procedures and internal accounting control measures
that came to our attention as a result of our audit of the basic financial statements of the City of
Albertville, Minnesota, for the year ended December 31, 2004. 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 February 18, 2005, on such statements.
In planning and performing our audit of the basic financial statements of the City of Albertville,
' Minnesota, for the year ended December 31, 2004, 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 basic 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 basic 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 basic 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. However, we do not believe the reportable conditions
described in this letter are material weaknesses.
KERN•DEWENTER~VIERE
This report is intended solely for the information and use of the City Council, management and
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K.~k, ~~/~~-tom.., ~/~,
KERN, DEWENTER, MERE, LTD.
St. Cloud, Minnesota
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.
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GENERAL FUND
FINANCIAL ANALYSIS
General Fund revenues increased from $ 2,143,360 in 2003 to $ 2,320,678 in 2004. Decreases in
intergovernmental revenues and licenses and permits were offset by increases in the areas of
general property taxes, charges for services and miscellaneous revenues. Property tax revenues
increased 13% over 2003 receipts and totaled $ 1,409,832. Licenses and permits decreased 17%
and totaled $ 572,230. Charges for services and miscellaneous revenues increased 160% and
125%, respectively, while intergovernmental revenues decreased 8%.
The graph below and on the following page present the General Fund revenues by source in a
graph and pie chart formats.
General Fund Revenues
$2,soo,ooo
$2,2sQ,000
$2,000,000
I $92,198
$1,7s0,000 ~ - ---- -
$1600,000 r - - $272,892
$1,260,000 ~ $24691 'i~~
S#)6,0,99
$1,000,000 $268,476
_______ $71621
$760,000 --- $160,3>'_ -_
$600,000 $1,039,OS8
$673,683
$260,000 - -_
$-
^ Taxes
2000
Licenses and Permits
$103,7s6 ~ ,
- --
$81
739 -
~
$46 038
$
8
9,689
, _
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`
$98 229 $14s 17] ~
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~n~~?.,ns~,=~, .... .~
$201,191 $ss,943
s.~, - $67,34s
--
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$691.;839 - --
$572,23ii
$587,020 _ - i
$69,947
-
~ -
-
$1,177,380 ~ ~ $1,261,311
2001 2002 2003
®Charges for Services ^ Intergovernmental
$1,409,832
2004
^ Miscellaneous
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GENERAL FUND
Taxes
58%
Taxes
61%
FINANCIAL ANALYSIS
2003 General Fund Revenues $ 2,143,360
2004 General Fund Revenues $ 2,320,678
Miscellaneous
4%
id Permits
rnmental
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Licenses and Permits
25%
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Intergovernmental
~~ ~o%
Charges for Services
6%
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Miscellaneous ~ Charges for Services
2% 3%
FINANCIAL ANALYSIS
GENERAL FUND
General fund expenditures increased from $ 1,981,263 in 2003 to $ 2,005,118 in 2004, which
represents a change of 1.2%. For governmental fund types, capital outlay items are included in
total expenditures. For 2003, capital outlay expenditures totaled $ 485,829 (primarily in the
streets and highways area) compared to $131,019 in 2004. Without taking into consideration
capital outlay, total general fund expenditures increased 25%. All departments posted increased
activity. A graph depicting the expenditures for the general fund for each of the past five years is
illustrated below. The following page presents the expenditures for 2004 and 2003 using a pie
chart design.
General Fund Expenditures
$2,soo,ooo
$2,000,000
$203,077
$314,353
$1,500,000 $646,296
''. ~~ ~~ ~7t .. °~`
''~ ~P ~ ~ ~~,~37 -
$1,000,000 ~ ~?. ~ 7? _
;;S»,~ ~ ~ ~ ~ X676.787
$564;b71
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$500,000 'r~4
X682,274
', $480,339 $~ 12,513
$571,826
$56,405
2000 2001 2002 2003 2004
I ^ General Government ®Public Safety ^ Public Works ^ -_ _
Culture and Recreation ®Economic Development ^ Miscellaneous
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FINANCIAL ANALYSIS
2003 General Fund Expenditures $ 1,981,263
Miscellaneous
Public
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~rnment
2004 General Fund Expenditures $ 2,005,118
Miscellaneous
Economic Development 1%
Cultwe and Recreation 3%
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8% ~~ - --
Public Works
20%
General Government
34%
Public Safety
34°/
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FINANCIAL ANALYSIS
GENERAL FUND
Overall, revenues exceeded expenditures by $ 315,560 in 2004. 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.
General Fund
$z,6oo,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
$-
The 2004 fund balance of $ 2,222,944 is comprised of $ 1,000,000 designated for operatin„
capital and $ 1,222,944 of undesignated amounts.
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2000 2001 2002 2003 2004
I ^ Revenues ^ Expenditures ^ Fund Balance
FINANCIAL ANALYSIS
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.
j Sewer Fund
$360,000 ~-_ _ _.__---- _. _ - ____.
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$3'S 481
$320,000 } - _ -- ---_ ..
280,142 $270,005
~; ,~ - -
$280,000 ;, _---_ _-_
_ ;a ,
$240,000 ~ _ - ---- - -
- _ - --- ,
~j ,
-.. - _. 7,
$180,677
~ z .,
$160,000 ~ I- $156,658 i ~' $159,848 ~'
-- - $]28,1421 ~ r
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-- *, $105,69/ I_
$97,643 ~~~~
~ $70,888 ~ ~ ~ _
$80,000 __- ~ _- __
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$40,000 ~ Y• __ ~ _ 1:;
1 d ~. ~.-
~ v ))yy
~ .+rl,~• ,~ ~ ..:J '- .hC III
$'
2000 2001 2002 2003 2004
- - ___ - __
^ Operating Income ®Operating Income Without Depreciation I
For the past five years, rates were sufficient not only to cover all operating costs, but the
nonoperating expenses as well. The Sewer Fund generated net income (after nonoperating
revenues and expenses) of $ 48,595 in 2004 and $ 74,524 in 2003; 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, 2004, the Fund had a cash balance of $ 585,454 compared to $ 137,696 at
December 31, 2003.
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FINANCIAL ANALYSIS
MARKET VALUE, TAX CAPACITY AND TAX CAPACITY RATES
The two 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 is evident from the graph, property market value
has increased from $ 13,281,750 in 2000 to $ 390,062,100 in 2004. During the same time, tax
capacity has increased from $ 1,897,648 in 2000 to $ 4,615,593 in 2004. When reviewing this
information, it is important to note that during this time frame the tax capacity rate structure
did change.
Tax Capacity and Market Value
$420,000,000
$385,000,000 -
$350,000,000 -- -
$315,000,000 ----------
$280,000,000 '~
~ $245,000,000 -
~ $270,000,000 -
ia
~ $175,000,000 ~ $rgg~-64~
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$140,000,000 - -
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$105,000,000
$70,000,000 -
I
$35,000,000 ``I
$_ - - -
2000
$
390
,062 10 $5,000,000
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- $4,500,000
---- - -
$4
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- $4,000,000
---- $293,418,600
$3,500,000
3, 98, 2 - $3,000,000
• ---- S
- $2,500,000 U
2. ~2~3,~8
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- _ -
3.
--
~..,i,90
,°
' $2,000,000
'
_ _
~ ~ ~ ~
_ I _- I i '
t $1,500,000
-~
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$1,000,000
'
Iii -_ -
- $500,000
$
-
2001 2002 2003 2004
~ Market Value D Tax Capacity
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FINANCIAL ANALYSIS
MARKET VALUE, TAX CAPACITY AND TAX CAPACITY RATES
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.
Tax Capacity as a Percent of Market Value
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2000 2001 2002 2003 2004
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REPORTABLE CONDITIONS
During our audit, we noted conditions that are considered to be a "reportable conditions" as
defined by standards established by the American Institute of Certified Public Accountants.
LACK OF SEGREGATION OF ACCOUNTING DUTIES
During the year ended December 31, 2004, 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.
LACK OF HISTORICAL COST LAND RECORDS
During our audit, we noted the City did not obtain historical cost, or estimated historical cost,
records for all land owned by the City. As a result, we were unable to opine on the land values
of the City and issued a qualified opinion. We recommend City staff investigate the land values
and create property records for all land owned by the City.
Although we believe these are reportable conditions, we do not believe these are material
weaknesses.
LEGAL COMPLIANCE FINDING
ALL CITY DISBURSEMENTS MUST BE PUBLIC PURPOSE EXPENDITURES
During our audit, we noted there was an expenditure made to purchase employee gift certificates.
Expenditures by a city should meet a public purpose test. The Minnesota Attorney General's
Office has the opinion that payments for employee appreciation do not qualify as public purpose
expenditures.
We recommend the City refrain from paying for items that are not for a public purpose.
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MANAGEMENT SUGGESTIONS
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
REVIEW CAPITAL ASSET POLICY AND IMPLEMENT CONSISTENT
APPLICATION
During our audit of capital assets, we noted the City's capital asset policy established a
capitalization threshold of $100,000 for infrastructure assets. We noted several infrastructure
items related to streets below this dollar amount were included in the City's capital assets for
GASB Statement No. 34 reporting purposes.
We also noted the policy provides for assets to be depreciated on a full month convention
whereas in practice a full year convention is be utilized.
We recommend the City review the accounting for capital assets as provided by the City's
capital asset policy to ensure consistent application of the adopted policy or amend the policy.
APPROVE INVOICES FOR PAYMENT
During our audit, we performed a random test of cash disbursements. We noted for several
disbursements there was no indication of approval prior to payment. We also noted instances
where the paid invoice had not been canceled after payment. It is important invoices be
reviewed and approved prior to payment to ensure that the goods received match the quantities
ordered and payment is made to legitimate vendors. Canceling the invoice after payment is
made is an important control to prevent duplicate payments to a vendor.
During the middle of 2004, the City did implement the procedure of canceling invoices after
payment. They are in the process of ensuring that department heads initial or otherwise approve
all invoices prior to their payment. We recommend that the City follows through with their
procedure to obtain approval on all invoices prior to payment.
CONSIDER WATER ACCESS CHARGES AS A SEPARATE FUND
Currently, the City financial statements present the sewer access charges as a Special Revenue
Fund to keep track of the charges and approved payments separate from the Sewer Fund. This
process is not consistent with the water access charges. The water access charges are recorded
and reported in the Water Fund. This does not allow for efficient tracking of the specific
amounts available to spend specifically from water access charges.
We recommend the City report the water access charges as a separate special revenue fund.
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MANAGEMENT SUGGESTIONS
APPROVE JOURNAL ENTRIES AND RETAIN DOCUMENTATION
During our audit, we noted individuals were allowed to create and post journal entries without
obtaining approval from a second party. We also noted there was no supporting documentation
of the journal entries readily available.
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In order to maintain proper control and integrity of the City's finance system and ensure only
necessary entries are made, we recommend the City Council designate a responsible person for
creating all journal entries and retaining all appropriate documentation supporting each journal
entry. We further recommend the City Council designate a second individual for review and
approval of each entry.
REVIEW AND APPROVE CASH RECONCILIATION
We noted the cash reconciliation is not reviewed and approved by a second individual on a
monthly basis. A second person should review this reconciliation to ensure it is done a timely
and that it is accurate.
We recommend City staff adopt a process to have a second individual review the cash
reconciliations on a monthly basis.
RECONCILE WITHHOLDING ACCOUNTS
During our audit we noted the payroll withholding accounts on the City's financial records are
not reconciled. All payroll withholding accounts should be reconciled on a regular basis to
ensure proper withholding amounts are posted to the general ledger and paid.
We recommend City staff reconcile the payroll withholding accounts monthly to ensure the
proper balances are recorded.
SUMMARY
During the fiscal year ended December 31, 2004, the City staff implemented new processes and
procedures to eliminate the material weakness relating to balancing cash to the City's general
ledger. They also implemented new City-wide internal control procedures and implemented
GASB Statement No. 34. We appreciate the opportunity to work with the City during these
changes and congratulate the City staff for their accomplishments this past year.
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