2018 Management Communication i
�
�I
,
�
. . • ' ' • �.� �` `� �� � �'. .� -� - �_ - -
City of Albertville
; Albertville, Minnesota
For the Year Ended
; December 31, 2018
ABDO '
EICK 8� � �eOp��
+I'r�oc.��ss.
��jJ�'�(; (���in�
1V1L JL l�l W I.1,1' l�t���►�►���i���
(;�rrllfied 1't�Llic�:lccuiuilan(s A G,n.,rtl(un(s � �ll1I�)('1'`
�
ABDO
EICK 8�
�L 1�l W I.1.1'
r.;��rr�i��,1 l'rrGlir Ir���ninr�r�i�,�C� C�,n.,ir(r�n,r.� June 17, 2019
Management, Honorable Mayor and City Council
City of Albertville, Minnesota
We have audited the financial statements of the governmental activities, the business-type activities, each major fund and
the aggregate remaining fund information of the City of Albertville, Minnesota (the City),for the year ended
December 31, 2018 and have issued our report thereon dated June 17, 2019. Professional standards require that we
provide you with information about our responsibilities under generally accepted auditing standards and Govemment
Auditing Standards, as well as certain information related to the planned scope and timing of our audit. We have
communicated such information in our letter dated October 10, 2018. Professional standards require that we provide you
with the following information related to our audit.
Our Responsibility under Auditing Standards Generally Accepted in the United States of America and
Government Auditing Standards
As stated in our engagement letter, our responsibility, as described by professional standards, is to express opinions
about whether the financial statements prepared by management with your oversight are fairly presented, in all material
respects, in conformity with accounting principles generally accepted in the United States of America. Our audit of the
financial statements does not relieve you or management of your responsibilities.
Our responsibility is to plan and perform the audit to obtain reasonable, but not absolute, assurance that the financial
statements are free of material misstatement.As part of our audit,we considered the internal control over financial
reporting of the City. Such considerations were solely for the purpose of determining our audit procedures and not to
provide any assurance concerning such internal control.We are responsible for communicating significant matters related
to the audit that are, in our professional judgment, relevant to your responsibilities in overseeing the financial reporting
process. However,we are not required to design procedures specifically to identify such matters.
Significant Audit Findings
In planning and performing our audit of the financial statements,we considered the City's internal control over financial
reporting (internal control)to determine the audit procedures that are appropriate in the circumstances for the purpose of
expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness
of the City's internal control.Accordingly, we do not express an opinion on the effectiveness of the City's internal control.
A deficiency in internal control exists when the design or operation of a control does not allow management or employees,
in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely
basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a
reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected
and corrected on a timely basis.A significant deficiency is a deficiency, or a combination of deficiencies, in internal control
that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was
not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and
therefore, material weaknesses or significant deficiencies may exist that were not identified. Given these limitations,
during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses.We did
identify a certain deficiency in internal control, described on the following page as item 2018-001 that we consider to be a
significant deficiency.
520� Eden Avenue,Suite 250
Edina.MN 55436 2
952 835 9090 � Fax 952 835.3261
2018-001 Limited Segregation of Duties
Condition: During our audit, we reviewed procedures over major transaction cycles and found the City to
have limited segregation of duties related to cash disbursements, payroll, utility billing, and
receipting.
Criteria: There are four general categories of duties: authorization, custody, record keeping and
reconciliation. In an ideal system, different employees perform each of these four major functions.
In other words, no one person has control of two or more of these responsibilities.
Cause: As a result of the limited number of staff,the City is not able to completely segregate all
accounting functions. All cycles have the same person performing or access to some of the
authorization, custody, and recording functions.
Effect: The existence of this limited segregation of duties increases the risk of fraud.
Recommendation: While we recognize the number of staff is not large enough to eliminate this deficiency, we
recommend that the City evaluate the current procedures and segregate duties where possible
and implement any compensating controls. We are aware some compensating controls are in
place; however, it is important that the City Council is aware of this condition and monitor all
financial information.
Management Response:
Management is aware of the lack of segregation, which is due to limited office staff, and continues to look for opportunities
to provide additional segregation in a cost effective manner.
Compliance
As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement,we
performed tests of compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with
which could have a direct and material effect on the determination of financial statement amounts. However, providing an
opinion on compliance with those provisions was not an objective of our audit.While our audit provides a reasonable
basis for our opinion, it does not provide a legal determination of the City's compliance with those requirements.The
results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under
Government Auditing Standards or statutes set forth by the State of Minnesota.
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies. The significant accounting
policies used by the City are described in Note 1 to the financial statements. No new accounting policies were adopted
and the application of existing policies were not changed during the year ended December 31, 2018. We noted no
transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus.All
significant transactions have been recognized in the financial statements in the proper period.
('��c���l��
+ I'i•c►�•t�;:
(,uin<,
Iit��i��i�l u�.�
3 \iiiiil,��i•:
Accounting estimates are an integral part of the financial statements prepared by management and are based on
managemenYs knowledge and experience about past and current events and assumptions about future events. Certain
accounting estimates are particularly sensitive because of their significance to the financial statements and because of the
possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates
affecting the financial statements were capital asset basis, depreciation, and compensated absences, allocation of payroll,
and the liability for the City's pensions.
• ManagemenYs estimate of depreciation is based on estimated useful lives of the assets. Depreciation is
calculated using the straight-line method.
• Allocations of gross wages and payroll benefits are approved by the City Council within the City's budget and are
derived from each employee's estimated time to be spent servicing the respective function of the City. These
allocations are also used in allocating accrued compensated absences payable.
• ManagemenYs estimate of its pension liability is based on several factors including, but not limited to, anticipated
investment return rate, retirement age for active employees, life expectancy, salary increases and form of annuity
payment upon retirement.
o The allocation of the pension liability related to Minnesota Public Employee Retirement Association
(PERA) is based on the City's proportionate share of employer contributions to the PERA cost-sharing
multiple employer Coordinated pension plan.
We evaluated the key factors and assumptions used to develop these accounting estimates in determining that it is
reasonable in relation to the financial statements taken as a whole.
The disclosures in the financial statements are neutral, consistent, and clear. Certain financial statement disclosures are
particularly sensitive because of their significance to financial statement users.
Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management in performing and completing our audit.
Corrected and Uncorrected Misstatements
Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than
those that are trivial, and communicate them to the appropriate level of management. Management has corrected all such
misstatements. In addition, none of the misstatements detected as a result of audit procedures and corrected by
management were material, either individually or in the aggregate, to each opinion uniYs financial statements taken as a
whole.
Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a financial accounting,
reporting, or auditing matter, whether or not resolved to our satisfaction that could be significant to the financial
statements or the auditor's report. We are pleased to report that no such disagreements arose during the course of our
audit.
Management Representations
We have requested certain representations from management that are included in the management representation letter
dated June 17, 2019.
I'���,��It�
-{-�'i•c►��t�;:
(;��iu�,
I;�����irl���,
4 \tni�l���i•:
Management Consultations with Other Independent Accountants
In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar
to obtaining a"second opinion" on certain situations. If a consultation involves application of an accounting principle to the
governmental unit's financial statements or a determination of the type of auditor's opinion that may be expressed on
those statements, our professional standards require the consulting accountant to check with us to determine that the
consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants.
Other Audit Findings or Issues
We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with
management each year prior to retention as the City's auditors. However, these discussions occurred in the normal
course of our professional relationship and our responses were not a condition to our retention.
Other Matters
We applied certain limited procedures to the required supplementary information (RSI) (ManagemenYs Discussion and
Analysis, the Schedules of Employer's Share of the Net Pension Liability,the Schedule of Changes in Net Pension
Liability(Asset) and Related Ratios, and the Schedules of Employer's Contributions)which is information that
supplements the basic financial statements. Our procedures consisted of inquiries of management regarding the methods
of preparing the information and comparing the information for consistency with managemenYs responses to our inquiries,
the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements.We
did not audit the RSI and do not express an opinion or provide any assurance on the RSI.
We were engaged to report on the supplementary information (combining and individual fund financial statements and
schedules), which accompany the financial statements but are not RSI.With respect to this supplementary information,
we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to
determine that the information complies with accounting principles generally accepted in the United States of America, the
method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation
to our audit of the financial statements.We compared and reconciled the supplementary information to the underlying
accounting records used to prepare the financial statements or to the financial statements themselves.
We were not engaged to report on the introductory section and statistical section which accompanies the financial
statements but are not RSi. We did not audit or perform other procedures on this other information and we do not express
an opinion or provide any assurance on them.
I't��,��1��
+ ��rc►�•��;�
(,ui n�,
�it�����lx�ii�.�
5 \ii�iif���i�•
Future Accounting Standard Changes
The following Governmental Accounting Standards Board (GASB) Statements have been issued and may have an impact
on future City financial statements: �'>
GASB Statement No. 83 - Certain Asset Retirement Obligations
Summary
This Statement addresses accounting and financial reporting for certain asset retirement obligations (AROs).An ARO is a
legally enforceable liability associated with the retirement of a tangible capital asset.A government that has legal
obligations to perform future asset retirement activities related to its tangible capital assets should recognize a liability
based on the guidance in this Statement.
This Statement establishes criteria for determining the timing and pattern of recognition of a liability and a corresponding
deferred outflow of resources for AROs. This Statement requires that recognition occur when the liability is both incurred
and reasonably estimable. The determination of when the liability is incurred should be based on the occurrence of
external laws, regulations, contracts, or court judgments, together with the occurrence of an internal event that obligates a
government to perform asset retirement activities. Laws and regulations may require governments to take specific actions
to retire certain tangible capital assets at the end of the useful lives of those capital assets, such as decommissioning
nuclear reactors and dismantling and removing sewage treatment plants. Other obligations to retire tangible capital assets
may arise from contracts or court judgments. Internal obligating events include the occurrence of contamination, placing
into operation a tangible capital asset that is required to be retired, abandoning a tangible capital asset before it is placed
into operation, or acquiring a tangible capital asset that has an existing ARO.
This Statement requires the measurement of an ARO to be based on the best estimate of the current value of outlays
expected to be incurred.The best estimate should include probability weighting of all potential outcomes,when such
information is available or can be obtained at reasonable cost. If probability weighting is not feasible at reasonable cost,
the most likely amount should be used. This Statement requires that a deferred outflow of resources associated with an
ARO be measured at the amount of the corresponding liability upon initial measurement.
This Statement requires the current value of a governmenYs AROs to be adjusted for the effects of general inflation or
deflation at least annually. In addition, it requires a government to evaluate all relevant factors at least annually to
determine whether the effects of one or more of the factors are expected to significantly change the estimated asset
retirement outlays.A government should remeasure an ARO only when the result of the evaluation indicates there is a
significant change in the estimated outlays.The deferred outflows of resources should be reduced and recognized as
outflows of resources (for example, as an expense) in a systematic and rational manner over the estimated useful life of
the tangible capital asset.
A government may have a minority share (less than 50 percent) of ownership interest in a jointly owned tangible capital
asset in which a nongovernmental entity is the majority owner and reports its ARO in accordance with the guidance of
another recognized accounting standards setter. Additionally, a government may have a minority share of ownership
interest in a jointly owned tangible capital asset in which no joint owner has a majority ownership, and a nongovernmental
joint owner that has operational responsibility for the jointly owned tangible capital asset reports the associated ARO in
accordance with the guidance of another recognized accounting standards setter. In both situations, the government's
minority share of an ARO should be reported using the measurement produced by the nongovernmental majority owner or
the nongovernmental minority owner that has operational responsibility, without adjustment to conform to the liability
measurement and recognition requirements of this Statement.
In some cases, governments are legally required to provide funding or other financial assurance for their performance of
asset retirement activities. This Statement requires disclosure of how those funding and assurance requirements are
being met by a government, as well as the amount of any assets restricted for payment of the governmenYs AROs, if not
separately displayed in the financial statements.
This Statement also requires disclosure of information about the nature of a government's AROs, the methods and
assumptions used for the estimates of the liabilities, and the estimated remaining useful life of the associated tangible
capital assets. If an ARO (or portions thereo� has been incurred by a government but is not yet
recognized because it is not reasonably estimable, the government is required to disclose that fact and
the reasons therefor. This Statement requires similar disclosures for a government's minority shares of ��t�()�)�l'
AROs. �(�I'�►�'t'��
(,��itt�;
�i���iHlt�ii�.�
6 �tlltl�)1'I'�
Future Accounting Standard Changes (Continued)
Effective Date
The requirements of this Statement are effective for reporting periods beginning after June 15, 2018. Earlier application is
encouraged.
How the Changes in This Statement Will Improve Financial Reporting
This Statement will enhance comparability of financial statements among governments by establishing uniform criteria for
governments to recognize and measure certain AROs, including obligations that may not have been previously reported.
This Statement also will enhance the decision-usefulness of the information provided to financial statement users by
requiring disclosures related to those AROs.
GASB Statement No. 84-Fiduciary Activities
Summary
The objective of this Statement is to improve guidance regarding the identification of fiduciary activities for accounting and
financial reporting purposes and how those activities should be reported.
This Statement establishes criteria for identifying fiduciary activities of all state and local governments. The focus of the
criteria generally is on (1)whether a government is controlling the assets of the fiduciary activity and (2)the beneficiaries
with whom a fiduciary relationship exists. Separate criteria are included to identify fiduciary component units and
postemployment benefit arrangements that are fiduciary activities.
An activity meeting the criteria should be reported in a fiduciary fund in the basic financial statements. Governments with
activities meeting the criteria should present a statement of fiduciary net position and a statement of changes in fiduciary
net position. An exception to that requirement is provided for a business-type activity that normally expects to hold
custodial assets for three months or less.
This Statement describes four fiduciary funds that should be reported, if applicable: (1) pension (and other employee
benefit)trust funds, (2) investment trust funds, (3) private-purpose trust funds, and (4) custodial funds. Custodial funds
generally should report fiduciary activities that are not held in a trust or equivalent arrangement that meets specific criteria.
A fiduciary component unit, when reported in the fiduciary fund financial statements of a primary government, should
combine its information with its component units that are fiduciary component units and aggregate that combined
information with the primary governmenYs fiduciary funds.
This Statement also provides for recognition of a liability to the beneficiaries in a fiduciary fund when an event has
occurred that compels the government to disburse fiduciary resources. Events that compel a government to disburse
fiduciary resources occur when a demand for the resources has been made or when no further action, approval, or
condition is required to be taken or met by the beneficiary to release the assets.
Effective Date
The requirements of this Statement are effective for reporting periods beginning after December 15, 2018. Earlier
application is encouraged.
How the Changes in This Statement Will Improve Financial Reporting
The requirements of this Statement will enhance consistency and comparability by(1) establishing specific criteria for
identifying activities that should be reported as fiduciary activities and (2) clarifying whether and how business-type
activities should report their fiduciary activities. Greater consistency and comparability enhances the value provided by the
information reported in financial statements for assessing government accountability and stewardship.
I't�c���l��
+ I'i•c►c x�;�
(,�iiit�
�it'�1�I 1(�u�,
7 �lltllf/1'I':
Future Accounting Standard Changes (Continued)
GASB Statement No. 87-Leases
Summary
The objective of this Statement is to better meet the information needs of financial statement users by improving
accounting and financial reporting for leases by governments. This Statement increases the usefulness of governments'
financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were classified
as operating leases and recognized as inflows of resources or outFlows of resources based on the payment provisions of
the contract. It establishes a single model for lease accounting based on the foundational principle that leases are
financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability
and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow
of resources, thereby enhancing the relevance and consistency of information about governments' leasing activities.
Effective Date and Transition
The requirements of this Statement are effective for reporting periods beginning after December 15, 2019. Earlier
application is encouraged.
Leases should be recognized and measured using the facts and circumstances that exist at the beginning of the period of
implementation (or, if applied to earlier periods,the beginning of the earliest period restated). However, lessors should not
restate the assets underlying their existing sales-type or direct financing leases. Any residual assets for those leases
become the carrying values of the underlying assets.
How the Changes in This Statement Will Improve Accounting and Financial Reporting
This Statement will increase the usefulness of governments'financial statements by requiring reporting of certain lease
liabilities that currently are not reported. It will enhance comparability of financial statements among governments by
requiring lessees and lessors to report leases under a single model. This Statement also will enhance the decision-
usefulness of the information provided to financial statement users by requiring notes to financial statements related to the
timing, significance, and purpose of a governmenYs leasing arrangements.
GASB Statement No. 88- Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements
Summary
The primary objective of this Statement is to improve the information that is disclosed in notes to government financial
statements related to debt, including direct borrowings and direct placements. It also clarifies which liabilities governments
should include when disclosing information related to debt.
This Statement defines debt for purposes of disclosure in notes to financial statements as a liability that arises from a
contractual obligation to pay cash (or other assets that may be used in lieu of cash) in one or more payments to settle an
amount that is fixed at the date the contractual obligation is established.
This Statement requires that additional essential information related to debt be disclosed in notes to financial statements,
including unused lines of credit; assets pledged as collateral for the debt; and terms specified in debt agreements related
to significant events of default with finance-related consequences, significant termination events with finance-related
consequences, and significant subjective acceleration clauses.
For notes to financial statements related to debt, this Statement also requires that existing and additional information be
provided for direct borrowings and direct placements of debt separately from other debt.
Effective Date and Transition
The requirements of this Statement are effective for reporting periods beginning after June 15, 2018. Earlier application is
encouraged.
��t'()))�('
+ (�1'()('('titi
�,ulil�,;
�i('�1111(�il���
8 �U i 1 I{)1'I'�
Future Accounting Standard Changes(Continued)
How the Changes in This Statement Will Improve Accounting and Financial Reporting
The requirements of this Statement will improve financial reporting by providing users of financial statements with
essential information that currently is not consistently provided. In addition, information about resources to liquidate debt
and the risks associated with changes in terms associated with debt will be disclosed. As a result, users will have better
information to understand the effects of debt on a governmenYs future resource flows.
GASB Statement No. 89-Accounting for Interest Cost Incurred before the End of a Construction Period
Summary
The objectives of this Statement are (1)to enhance the relevance and comparability of information about capital assets
and the cost of borrowing for a reporting period and (2)to simplify accounting for interest cost incurred before the end of a
construction period.
This Statement establishes accounting requirements for interest cost incurred before the end of a construction period.
Such interest cost includes all interest that previously was accounted for in accordance with the requirements of
paragraphs 5-22 of Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-
November 30, 1989 FASB and AICPA Pronouncements,which are superseded by this Statement. This Statement
requires that interest cost incurred before the end of a construction period be recognized as an expense in the period in
which the cost is incurred for financial statements prepared using the economic resources measurement focus.As a
result, interest cost incurred before the end of a construction period will not be included in the historical cost of a capital
asset reported in a business-type activity or enterprise fund.
This Statement also reiterates that in financial statements prepared using the current financial resources measurement
focus, interest cost incurred before the end of a construction period should be recognized as an expenditure on a basis
consistent with governmental fund accounting principles.
Effective Date and Transition
The requirements of this Statement are effective for reporting periods beginning after December 15, 2019. Earlier
application is encouraged. The requirements of this Statement should be applied prospectively.
How the Changes in This Statement Will Improve Accounting and Financial Reporting
The requirements of this Statement will improve financial reporting by providing users of financial statements with more
relevant information about capital assets and the cost of borrowing for a reporting period. The resulting information also
will enhance the comparability of information about capital assets and the cost of borrowing for a reporting period for both
governmental activities and business-type activities.
GASB Statement No. 90-Majority Equity Interests
Summary
The primary objectives of this Statement are to improve the consistency and comparability of reporting a governmenYs
majority equity interest in a legally separate organization and to improve the relevance of financial statement information
for certain component units. It defines a majority equity interest and specifies that a majority equity interest in a legally
separate organization should be reported as an investment if a governmenYs holding of the equity interest meets the
definition of an investment. A majority equity interest that meets the definition of an investment should be measured using
the equity method, unless it is held by a special-purpose government engaged only in fiduciary activities, a fiduciary fund,
or an endowment(including permanent and term endowments)or permanent fund. Those governments and funds should
measure the majority equity interest at fair value.
For all other holdings of a majority equity interest in a legally separate organization, a government should report the
legally separate organization as a component unit, and the government or fund that holds the equity
interest should report an asset related to the majority equity interest using the equity method.This
Statement establishes that ownership of a majority equity interest in a legally separate organization ��t�t)�)�t'
results in the government being financially accountable for the legally separate organization and, �-���'���'����
therefore, the government should report that organization as a component unit. � ���i���,.
f�����`����I��,�
s \uiiil���i••
Future Accounting Standard Changes (Continued)
This Statement also requires that a component unit in which a government has a 100 percent equity interest account for
its assets, deferred outflows of resources, liabilities, and deferred inflows of resources at acquisition value at the date the
government acquired a 100 percent equity interest in the component unit. Transactions presented in flows statements of
the component unit in that circumstance should include only transactions that occurred subsequent to the acquisition.
Effective Date and Transition
The requirements of this Statement are effective for reporting periods beginning after December 15, 2018. Earlier
application is encouraged. The requirements should be applied retroactively, except for the provisions related to (1)
reporting a majority equity interest in a component unit and (2) reporting a component unit if the government acquires a
100 percent equity interest. Those provisions should be applied on a prospective basis.
How the Changes in This Statement Will Improve Accounting and Financial Reporting
The requirements of this Statement will improve financial reporting by providing users of financial statements with
essential information related to presentation of majority equity interests in legally separate organizations that previously
was reported inconsistently. In addition, requiring reporting of information about component units if the government
acquires a 100 percent equity interest provides information about the cost of services to be provided by the component
unit in relation to the consideration provided to acquire the component unit.
���Note. From GASB Pronouncements Summaries. Copyright 2018 by the Financial Accounting Foundation, 401 Merritt 7,
Norwalk, CT 06856, USA, and is reproduced with permission.
****
Restriction on Use
This purpose of this communication is solely for the information and use of the City Council and management of the City
and is not intended to be, and should not be used by anyone other than those specified parties.
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. The comments and recommendations in the report are purely constructive in nature,
and should be read in this context.
If you have any questions or wish to discuss any of the items contained in this letter, please feel free to contact us at your
convenience.We wish to thank you for the continued opportunity to be of service and for the courtesy and cooperation
extended to us by your staff.
' � I.L�°
��� �
r���1
ABDO, EICK&MEYERS, LLP
Minneapolis, Minnesota
June 17, 2019
I't��,�,1��
—�— �'i•c►�•��;;
(;c�in�,
�;�•��`����I�����
10 \�,riil,�•i•�