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Home My WebLink About2011 AML CITY OF COLUMBIA HEIGHTS, MINNESOTA AUDIT MANAGEMENT LETTER December 31, 2011 - This page intentionally left blank - City of Columbia Heights, Minnesota Audit Management Letter Report Summary RS EPORTUMMARY Several reports are issued in conjunction with the audit. A very brief summary is as follows: Report Name Elements of Report Overview Required Reports Comprehensive Annual Financial Financial statements Unqualified (“clean”) Report (CAFR) opinion on the Basic Footnotes Financial Statements Supplemental information Report on Internal Control over Results of testing One deficiencies in internal Financial Reporting and on Internal controls over financial control Compliance and Other Matters reporting Compliance with laws, regulations, contracts and grants State Legal Compliance Report Results of testing certain No reported findings provisions of Minnesota Statutes 2 City of Columbia Heights, Minnesota Audit Management Letter Government-Wide Financial Statements ABA CCOUNTALANCENALYSIS OF THE G-WFS OVERNMENTIDEINANCIALTATEMENTS The basic financial statements of the City of Columbia Heights are presented in Statements 1 through Statement 9 of the 2011 Comprehensive Annual Financial Report. The following comments relate to these Financial Statements. Summary of Financial Activity A summary of financial activity for 2011 is as follows: Revenue ExpendituresInterfundIncrease inFund Balance/Cash FundCAFRand Otherand OtherTransfersFund Balance/Net AssetsBalance FundNo.pg no.SourcesUses(Net)Net Assets12/31/1112/31/11 1General10136$9,982,010$9,592,901$137,707$526,816$5,869,055$5,850,939 Special Revenue: 2 3Community Development Fund20198225,792243,790(13,110)(31,108)214,543219,438 4Cable Television22598184,16856,789(66,668)60,711394,605359,661 5Police Forfeiture265988,4288,024 - 40414,60856,587 6Library24098789,284748,802(32,469)8,013147,546168,694 7Police Community Programs27098 - - - - - - 8Special Projects22698111,012 - - 111,012343,440371,594 9After-School Programs2619871,27154,181 - 17,090160,052156,759 10Police Grants - Other 2729811,30314,085 - (2,782)(2,782) - 11Recreation Contributed Projects8819830,53418,423 - 12,111128,718130,416 12Contributed Projects8839817,23527,9985,200(5,563)225,452224,852 13Anoka County Comm. Dev. Programs202986,0008,439 - (2,439)156,2987,910 14Housing and Redevelopment Authority: 15 Parkview Villa North203114540,483502,544 - 37,939998,3501,000,165 16 Parkview Villa South213114335,705221,840 - 113,865693,448732,170 17EDA: 18Economic Development Authority Admin20498394,429259,761(103,110)31,558222,624167,446 Debt Service: 19 20G.O. Improvement 1999A387120 - - - - - - 21G.O. Improvement/Revenue 2003A388120 - 753,706269,651(484,055) - - 22G.O. Improvement/Revenue 2006A34012012,400473,060330,281(130,379)722,294720,994 23G.O. Street Rehabilitation Bonds 2007341120128,654124,601 - 4,053113,037112,000 24G.O. Housing Improvement Area Bonds 2008A31536108,71297,295 - 11,417175,155174,855 25G.O. Public Safety Center Bonds 2008B343120476,097626,968238,49087,619498,333494,361 26G.O. Public Facilities Bonds 2009A344120214,963291,416179,169102,716407,952405,868 27EDA: 28 Sheffield TIF Redevelopment37712078,0395,678 - 72,36113,14341,978 29 Tax Increment Bonds3761208,7009,099 - (399)912,157279,723 30 Multi-Use Redevelopment Plan38512033,10124,894 - 8,20745,22474,584 31 TIF Transition Block38912035,80333,638 - 2,16544,37460,864 32 TIF 4747 Central Avenue371120135,95837,266 - 98,692916,477383,321 33 EDA TIF Revenue 20073731204,200197,539194,4001,061245,358247,558 34 TIF Huset Park Area Fund372120333,975131,861(194,400)7,714177,885206,901 3 City of Columbia Heights, Minnesota Audit Management Letter Government-Wide Financial Statements Revenue ExpendituresInterfundIncrease inFund Balance/Cash FundCAFRand Otherand OtherTransfersFund Balance/Net AssetsBalance FundNo.pg no.SourcesUses(Net)Net Assets12/31/1112/31/11 Capital Project: 35 36MSA State Aid Street 21236724,416802,627(123,000)(201,211)88,380170,723 37EDA Housing Maintenance Fund408126 - - - - 393,473 - 38Capital Improvements General Government Buildings4113682,705236,036(165,736)(319,067)1,274,5621,290,340 39Capital Equipment Replacement General Government43136118,100242,30398,592(25,611)4,479,8963,968,596 40Capital Improvements PIR Fund41536702,656604,844(551,400)(453,588)782,346846,105 41Public Safety Center Capital Building417362,50015,207(329,507)(342,214) - - 42Capital Improvement Development4203656,923122,32090,00024,6032,132,2621,980,346 43Capital Improvement Parks41212698,396415,53050,000(267,134)2,5454,700 44Infrastructure Replacement43012624,90025050,00074,650946,008943,408 45Capital Equipment Fire4391264,80011,117 - (6,317)175,946175,446 46Capital Equipment Cable TV4401262,200147,951 - (145,751)68,00067,800 47Capital Building Library450126 - - - - 255,504255,504 Enterprise: 48 49Water601422,506,0732,268,270(133,020)104,7834,272,297559,410 50Sewer 602421,581,1841,662,711(138,905)(220,432)4,840,5671,759,137 51Refuse 603421,767,9621,503,152(117,859)146,951989,745789,747 52Storm Sewer60442343,073288,0548,75063,7691,095,66336,111 53Liquor609428,259,3157,873,542(98,955)286,8183,476,484277,781 Internal Service: 54 55Central Garage701149646,600563,360151,772235,0121,831,942632,227 56Information Systems72014917,400364,892320,000(27,492)647,627620,542 57Insurance884149539,886390,895(16,343)132,648947,477897,571 58Compensated Absences890149 - 89,146 - (89,146)(1,413)907,116 59 Total$31,757,345$32,166,805$39,530($369,930)$42,536,657$28,832,248 Property Taxes Receivable Delinquent taxes receivable related to the general property tax levy increased from $413,000 at December 31, 2010 to $361,000 at December 31, 2011. Tax collections were 97.46% of the 2011 levy. In other words, $218,000 of the 2011 levy was not collected during 2011. A history of tax collections is presented in Table 8 of the Comprehensive Annual Financial Report. 4 City of Columbia Heights, Minnesota Audit Management Letter Government-Wide Financial Statements Tax Levies, Tax Rates and Tax Capacity A comparison of values for taxes payable 2009 through 2012 is as follows: 2009201020112012 Market value$1,416,581,900$1,303,072,900$1,185,782,600$1,134,720 (1) Tax capacity values: Real estate$15,556,739$14,300,369$13,000,755$11,117,396 Personal property99,33498,125108,685111,410 Subtotal15,656,07314,398,49413,109,44011,228,806 Fiscal disparity contribution(551,683)(624,231)(796,058)(758,812) Fiscal disparity distribution3,175,7123,579,4163,811,8564,275,116 Total$18,280,102$17,353,679$16,125,238$14,745,110 Tax capacity rates: Operating44.580 50.620 56.179 60.767 Debt service2.850 6.258 5.066 4.911 Total47.430 56.878 61.245 65.678 Tax levy: Operating$7,214,117$8,052,142$8,567,142$8,440,135 Debt service488,2461,023,283859,618561,574 Total$7,702,363$9,075,425$9,426,760$9,001,709 (1) Amounts presented before reduction for tax increment districts 5 City of Columbia Heights, Minnesota Audit Management Letter Government-Wide Financial Statements Special Assessments Receivable Special assessments receivable consisted of the following amounts at December 31, 2011 and 2010: December 31,Increase Description20102011(Decrease) Delinquent$123,503$50,641($72,862) Deferred2,993,2303,012,84019,610 Unremitted60,0375,985(54,052) Totals $3,176,770$3,069,466($107,304) Delinquent special assessments receivable consist of amounts which have been spread for collection in 2011 and prior years but have not been collected at December 31, 2011. The City collected approximately 99% of the current assessments due in 2011. Deferred assessments receivable consist of the remaining balance of council adopted assessment rolls. These assessments are collectible at various terms and interest rates. Balance at January 1, 2011$2,993,238 Less 2011 principal levy(432,942) Plus new assessment rolls797,411 Less prepayments(273,315) Adjustments(71,552) Balance at December 31, 2011$3,012,840 6 City of Columbia Heights, Minnesota Audit Management Letter Government-Wide Financial Statements Interfund Receivables A schedule of activity of long term interfund loans is as follows: BalanceNewPaymentsBalance Fund with Payable12/31/10LoansPrincipalInterest12/31/11 Sheffield TIF - 377$111,289$ - $82,454$4,332$28,835 TIF Multi-use Redevelopment Plan - 38521,737 - 1,840 - 19,897 Water Utility Fund - 631 - 398,000 - - 398,000 Storm Sewer Utility Fund - 634 - 101,000 - - 101,000 Totals$133,026$499,000$84,294$4,332$547,732 The Sheffield TIF loan is authorized by Resolution 2003-5. The TIF Multi-Use Redevelopment Plan loans were authorized by Resolution 2002-05. 7 City of Columbia Heights, Minnesota Audit Management Letter General Fund GF ENERALUND The General Fund of the City is maintained to account for the current operating and capital outlay expenditures common to all cities. These basic services include (but are not limited to) public safety, public works, culture and recreation, and general government. State aids and property taxes account for approximately 90% of the total revenue of the General Fund. A history of General Fund revenue is as follows: General Fund - Sources of Revenue State AidProperty TaxesAll OtherTotal YearAmountPercentAmountPercentAmountPercentAmountPercent 20023,362,902 41%3,534,854 44%1,225,889 15%8,123,645 100% 20032,811,870 38%3,646,155 49%967,382 13%7,425,407 100% 20042,413,850 30%4,336,802 53%1,398,786 17%8,149,438 100% 20051,808,144 23%4,960,668 62%1,175,628 15%7,944,440 100% 20061,737,869 22%5,202,826 66%944,379 12%7,885,074 100% 20071,988,013 23%5,483,751 64%1,056,223 13%8,527,987 100% 20081,663,650 20%5,808,662 69%922,938 11%8,395,250 100% 20091,913,614 20%6,590,306 70%930,731 10%9,434,651 100% 20101,556,843 16%6,770,957 72%1,139,568 12%9,467,368 100% 20111,671,165 17%7,263,658 73%1,047,187 10%9,982,010 100% 8 City of Columbia Heights, Minnesota Audit Management Letter General Fund Intergovernmental revenue for the General Fund have consisted of the following amounts for the last two years: Increase Description20102011(Decrease) Local government aid$895,180$895,180$0 MVHC171,455172,8101,355 Police aid202,207215,45513,248 Fire aid68,79573,5544,759 All other319,643314,166(5,477) Totals$1,657,280$1,671,165$13,885 A graph of General Fund revenue by source is as follows: $8,000,000 General Fund Revenue By $7,000,000 Source $6,000,000 $5,000,000 State Aid $4,000,000 Property Taxes All Other $3,000,000 $2,000,000 $1,000,000 $0 2002200320042005200620072008200920102011 9 City of Columbia Heights, Minnesota Audit Management Letter General Fund A chart of 2011 revenue by source is as follows: General Fund 2011 Revenue by Source All other Intergovernmental 10% 17% General property taxes 73% A chart of 2011 expenditures by function is as follows: General Fund 2011 Expenditures by Function Transfers out Parks and recreation 3% General government 15% 18% Public works 14% Public safety 50% 10 City of Columbia Heights, Minnesota Audit Management Letter General Fund The fund balance of the General Fund at December 31, 2011 was $5,869,055. During 2011, the fund balance of the General Fund increased by $526,816 as follows: Favorable Budget(Unfavorable) OriginalAmendmentsFinalActualVariance Revenues and transfers in: Property taxes$7,724,711$649,796$7,074,915$7,263,658$188,743 Licenses and permits193,200 - 193,200158,385(34,815) Intergovernmental1,087,303(685,139)1,772,4421,671,165(101,277) Charges for services598,050(37,401)635,451589,915(45,536) Fines and forfeitures131,000 - 131,000146,14015,140 Investment income89,994 - 89,994146,59156,597 Other10,500 - 10,5006,156(4,344) Transfers in364,559(9,000)373,559371,397(2,162) Sale of capital assets1,000 - 1,000 - (1,000) Total10,200,317(81,744)10,282,06110,353,40771,346 Expenditures and transfers out: General government1,846,718(17,000)1,863,7181,785,58478,134 Public safety4,981,779(91,744)5,073,5234,940,100133,423 Public works1,513,130 - 1,513,1301,392,941120,189 Parks and recreation1,635,154(106,844)1,741,9981,452,062289,936 Contingencies50,000 - 50,00022,21427,786 Transfers out217,536 - 217,536233,690(16,154) Total 10,244,317(215,588)10,459,9059,826,591633,314 Net change in fund balance($44,000)$133,844($177,844)$526,816$704,660 11 City of Columbia Heights, Minnesota Audit Management Letter General Fund The City's General Fund balance has been as follows for the past several years: Year EndedIncrease December 31,Fund Balance(Decrease) 20023,515,6063,515,606 20033,423,232(92,374) 20044,140,110716,878 20053,350,128(789,982) 20063,595,848245,720 20073,979,146383,298 20083,755,957(223,189) 20094,796,1511,040,194 20105,342,239546,088 20115,869,055526,816 $6,500,000 General Fund Balance $6,000,000 City received excess TIF totaling $482,000 Transfers to Capital $5,500,000 Improvement Development Transferred to Capital ($180,000) and Sheffield Dev. Improvement Development Fund ($700,000) $5,000,000 ($700,000) and General Gov. Bldg. Cap. Imp ($1,400,000) $4,500,000 $4,000,000 $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $0 2002200320042005200620072008200920102011 12 City of Columbia Heights, Minnesota Audit Management Letter General Fund Property taxes and state aids account for approximately 90% of the revenue of the General Fund. Property taxes and state aids are not received until July and December of each year (i.e., the second half of the year). As a result, the City is required to have sufficient reserves at the beginning of the year to fund operations of the first half of the year. As such, the City adopted resolution 95-40 establishing a General Fund cash flow reserve. This reserve is an amount equal to forty-five percent of the ensuing year’s budgeted expenditures. A summary of General Fund designations is as follows: Fund Balance Component20102011 Reserved for prepayments$77,204$80,767 Committed - police community programs36,37020,134 Committed - downtown parking maintenance135,276112,461 Unassigned - working capital4,609,9434,692,919 Unassigned483,446962,774 Total fund balance - December 31$5,342,239$5,869,055 The amount of General Fund balance at December 31, 2011 was sufficient to fulfill the City’s reserve goal. The reserve requirement is calculated as follows: 2012 budgeted expenditures$10,428,709 Reserve requirement percentagex 45% Reserve requirement4,692,919 Balance available5,655,693 Amount of fund balance (over) under reserve requirement($962,774) 13 City of Columbia Heights, Minnesota Audit Management Letter Special Revenue Funds SRF PECIALEVENUEUNDS The financial statements of the Special Revenue Funds are presented in Statements 14 through 31 of the 2011 Comprehensive Annual Financial Report. Special Revenue Funds are a classification of funds to account for revenues (and expenditures related thereto) segregated by City policy or Federal or State statutes for specific purposes. The City maintained the following Special Revenue Funds during 2011: Revenue ExpendituresInterfundIncrease inFund Balance/Cash FundCAFRand Otherand OtherTransfersFund Balance/Net AssetsBalance FundNo.pg no.SourcesUses(Net)Net Assets12/31/1112/31/11 1 Special Revenue: 2Community Development Fund20198225,792243,790(13,110)(31,108)214,543219,438 3Cable Television22598184,16856,789(66,668)60,711394,605359,661 4Police Forfeiture265988,4288,024 - 40414,60856,587 5Library24098789,284748,802(32,469)8,013147,546168,694 6Special Projects22698111,012 - - 111,012343,440371,594 7After-School Programs2619871,27154,181 - 17,090160,052156,759 8Police Grants - Other 2729811,30314,085 - (2,782)(2,782) - 9Recreation Contributed Projects8819830,53418,423 - 12,111128,718130,416 10Contributed Projects8839817,23527,9985,200(5,563)225,452224,852 11Anoka County Comm. Dev. Programs202986,0008,439 - (2,439)156,2987,910 12Housing and Redevelopment Authority: 13 Parkview Villa North203114540,483502,544 - 37,939998,3501,000,165 14 Parkview Villa South213114335,705221,840 - 113,865693,448732,170 15EDA: 16Economic Development Authority Admin20498394,429259,761(103,110)31,558222,624167,446 4 Total$2,725,644$2,164,676($210,157)$350,811$3,696,902$3,595,692 14 City of Columbia Heights, Minnesota Audit Management Letter Special Revenue Funds Library Fund (240) The primary revenue source of this fund is property taxes which are not received until the second-half of the year (July and December). Resolution 95-40 established a reserve for cash flow in an amount equal to forty-five percent of the ensuing year’s budgeted expenditures. A summary of fund balance is as follows: December 31, 20102011 Commited for working capital$136,487$144,500 Reserved for prepayments3,0463,046 Total$139,533$147,546 The fund balance at December 31, 2011 was sufficient to fulfill the established reserve. A comparison of the required reserve and the fund balance available is as follows: $798,3752012 budgeted expenditures x 45%Reserve requirement percentage 359,269Reserve requirement 255,504Balance available in Capital Building Library Fund 144,500Balance available in Library Fund ($40,735)Amount of fund balance (over) reserve requirement 15 City of Columbia Heights, Minnesota Audit Management Letter Special Revenue Funds Community Development (201) This fund was established in 1996 to account for the financial activity related to building inspections and community development administration. For 2011 the community development administration activity is accounted for in the EDA Administration Fund (204). A summary of the financial activity of this fund is as follows: 200920102011 Revenues and transfers in: Investment income$1,900$3,000$5,800 Licenses and permits256,032299,265219,992 Transfer from EDA Administration Fund347,573 - - Total605,505302,265225,792 Expenditures and transfers out: Expenditures465,535206,315243,790 Transfer to Capital Improvement Development24,387 - - Transfer to General Fund (administrative charge) - 12,66613,110 Total489,922218,981256,900 Net change in fund balance115,58383,284(31,108) Fund balance - January 146,784162,367245,651 Fund balance - December 31$162,367$245,651$214,543 EDA Comments and analysis of the EDA Funds are presented in a separate report addressed to the EDA. 16 City of Columbia Heights, Minnesota Audit Management Letter Special Revenue Funds Parkview Villa North (PVVN) (203) The financial activity of this fund for 2009 through 2011 is as follows: 200920102011 Revenues: Federal grant: Operating subsidy$206,621$201,542$166,895 Capital grant68,381291,3989,855 Rents316,869341,456351,037 Investment income 12,60012,5002,789 Other8,9029,5409,907 Total revenues613,373856,436540,483 Expenditures: Personal services23,76025,38025,500 Supplies24,28931,56121,187 Other services and charges387,951420,046446,002 Capital outlay63,819280,7309,855 Total expenditures499,819757,717502,544 Revenues over expenditures113,55498,71937,939 Fund balance - January 1748,138861,692960,411 Fund balance - December 31$861,692 $960,411 $998,350 17 City of Columbia Heights, Minnesota Audit Management Letter Special Revenue Funds Parkview Villa South (PVVS) (213) The financial activity of this fund for 2009 through 2011 is as follows: 200920102011 Revenues: Rents$296,727$302,408$313,549 Investment income 7,5008,40016,000 Other3,9626,1106,156 Total revenues308,189316,918335,705 Expenditures: Personal services12,02011,40211,500 Supplies7,2489,33710,536 Other services and charges187,067197,303199,804 Capital outlay32,242 - - Total expenditures238,577218,042221,840 Revenues over expenditures69,61298,876113,865 Fund balance - January 1411,095480,707579,583 Fund balance - December 31$480,707 $579,583 $693,448 18 City of Columbia Heights, Minnesota Audit Management Letter Debt Service Funds DSF EBTERVICEUNDS Debt Service Funds are a type of governmental fund to account for the accumulation of resources for the payment of interest and principal on debt (other than Proprietary Fund debt). A summary of bonded debt at December 31, 2011 is as follows: FundDebt Balance atPayable atSource of Bond Issue12/31/1112/31/11Repayment Tax Increment Bonds: Tax Increment Revenue Bonds of 2007 (373)$245,338$2,790,000Tax increment Taxable Tax Increment Bonds of 2009B (371)916,477580,000Tax increment Improvement Bonds: G.O. Improvement Bonds of 2006A (340)722,2941,345,730Special assessments Taxable G.O. Housing Improvement Area Series 2008A (315)175,155890,000Special assessments (receivable was $870,735 at 12/31/11) General Obligation Bonds: G.O. Street Rehabilitation Series 2007A (341)113,037760,000Property taxes G.O. Public Safety Center Bonds of 2008B (343)498,3339,810,000Property taxes G.O. Public Facilities Bonds of 2009A (344)407,9523,415,000Property taxes and special assessments Total$3,078,586$19,590,730 19 City of Columbia Heights, Minnesota Audit Management Letter Capital Project Funds CPF APITALROJECTUNDS The fund balances of the Capital Project Funds were as follows at December 31, 2011 and 2010: Revenue ExpendituresInterfundIncrease inFund Balance/Cash FundCAFRand Otherand OtherTransfersFund Balance/Net AssetsBalance FundNo.pg no.SourcesUses(Net)Net Assets12/31/1112/31/11 1 Capital Project: 2MSA State Aid Street 21236724,416802,627(123,000)(201,211)88,380170,723 3EDA Housing Maintenance Fund408126 - - - - 393,473 - 4Capital Improvements General Government Buildings4113682,705236,036(165,736)(319,067)1,274,5621,290,340 5Capital Equipment Replacement General Government43136118,100242,30398,592(25,611)4,479,8963,968,596 6Capital Improvements PIR Fund41536702,656604,844(551,400)(453,588)782,346846,105 7Public Safety Center Capital Building417362,50015,207(329,507)(342,214) - - 8Capital Improvement Development4203656,923122,32090,00024,6032,132,2621,980,346 9Capital Improvement Parks41212698,396415,53050,000(267,134)2,5454,700 10Infrastructure Replacement43012624,90025050,00074,650946,008943,408 11Capital Equipment Fire4391264,80011,117 - (6,317)175,946175,446 12Capital Equipment Cable TV4401262,200147,951 - (145,751)68,00067,800 13Capital Building Library450126 - - - - 255,504255,504 14 Total$1,817,596$2,598,185($881,051)($1,661,640)$10,598,922$9,702,968 20 City of Columbia Heights, Minnesota Audit Management Letter Capital Project Funds Municipal State Aid (212/402) This fund was established to account for MSA maintenance and construction allotments. For the past three years, the fund balance of this fund consisted of the following: December 31, Account200920102011 Maintenance$137,844$132,199$166,061 Construction278,391157,392(77,681) Total$416,235$289,591$88,380 21 City of Columbia Heights, Minnesota Audit Management Letter Capital Project Funds A summary of 2011 activity is as follows: 212402 MaintenanceConstructionTotal Revenue: MSA$154,598$428,965$583,563 Federal grants - 134,795134,795 Charges for services968 - 968 Other905,0005,090 Total revenue155,656568,760724,416 Expenditures: Personal services84,690 - 84,690 Supplies1,808 - 1,808 Other services and charges35,296 - 35,296 Projects: Pedestrian bridge - 680,833680,833 Transfers out: Fund 1011,0001,000 Fund 340 - 2006A Bonds - 122,000122,000 Fund 430 - - - Total expenditures121,794803,833925,627 Net change in fund balance33,862(235,073)(201,211) Fund balance - January 1132,199157,392289,591 Fund balance - December 31$166,061($77,681)$88,380 22 City of Columbia Heights, Minnesota Audit Management Letter Capital Project Funds Capital Improvement General Government Buildings (411) A summary of financial activity is as follows: 200920102011 Revenue: Intergovernmental$ - $ - $38,399 Investment income38,30025,40041,200 Other income - - 3,106 Bonds issued - 2009A955,000 - - Sale of capital assets62,576 - - Transfers from: Fund 70136,25036,250 - Capital improvements PVVS (414) - 30,955 - General Fund (101) - 22,78622,536 Community Center Capital Building (418) - 636,019 - Total revenue1,092,126751,410105,241 Expenditures: Project costs: Murzyn Hall renovation355,8462,77421,241 Other83,67665,237214,795 Transfers out: Bonds of 2009A (344)19,364 - - Garage Fund (701) - - 188,272 EDA housing maintenance (408) - 600,000 - Capital building library (450) - 12,262 - Total expenditures458,886680,273424,308 Net change in fund balance633,24071,137(319,067) Fund balance - January 1889,2521,522,4921,593,629 Fund balance - December 31$1,522,492$1,593,629$1,274,562 During 2001, the City adopted Resolution 2001-84 which authorized the transfer of $1,400,000 from the General Fund to this fund. Pursuant to the resolution, these funds are “dedicated to future improvements to general government buildings.” Also, the resolution requires a four-fifths vote to expend any unbudgeted, undesignated fund balance. 23 City of Columbia Heights, Minnesota Audit Management Letter Capital Project Funds Capital Improvements PIR (415) A summary of the activity of this fund is as follows: 200920102011 Financial sources: Special assessments$775,899$914,746$623,715 Charges for services35,97144,19042,264 Investment income26,89327,30033,700 Other revenues1,7009221,507 Issuance of bonds - 2009A605,000 - - Transfer from Sewer Fund - 2,482 - Transfer from Fund 401 - 150,000 - Transfer from Fund 387 - 209,798 - Transfers from General Fund - - 16,154 Transfers from Municipal State Aid Fund - - - Total financial sources1,445,4631,349,438717,340 Financial uses: Transfer to Water Fund24,224 - - Transfer to Debt Service Fund457,436 - - Transfer to Fund 340 (2006A Bonds) - 501,180208,280 Transfer to Fund 344 (2009A Bonds) - 142,53888,152 Transfer to Fund 388 (2003A Bonds) - 630,789269,652 Project expenditures: - - - Street rehabiliation248,500590,823604,844 Sealcoating62,406 - - Other73,9213,094 - Total financial uses866,4871,868,4241,170,928 Net change in fund balance578,976(518,986)(453,588) Fund balance - January 11,175,9441,754,9201,235,934 Fund balance - December 31$1,754,920$1,235,934$782,346 24 City of Columbia Heights, Minnesota Audit Management Letter Capital Project Funds The projects accounted for in this fund are financed by the following sources: Capital Equipment Replacement Fund Water Capital Construction Fund Sewer Capital Construction Fund General Fund Special assessments The financing provided by other City funds is basically a cash transfer from those funds. The financing provided by special assessments is not an immediate repayment. Special assessments are extended out over a period of up to fifteen years. The Capital Improvement Projects Fund is therefore required to finance the special assessment receivables until they are collected. The amount of special assessments receivable at December 31, 2011 was $2,198,731. 25 City of Columbia Heights, Minnesota Audit Management Letter Capital Project Funds Public Safety Center Capital Building Fund (417) A summary of the activity of this fund for 2011 and prior years is as follows: Prior Years2011Total Revenue and other sources: Bonds issued$12,050,000$ - $12,050,000 Transfers in: EDA Housing Maintenance (408)600,000 - 600,000 Anoka County CDBG (202)365,583 - 365,583 Capital Improvement (390)581,963 - 581,963 Capital Improvement Development (420)23,878 - 23,878 Investment income222,8192,500225,319 Other1,400 - 1,400 Total revenue and other sources13,845,6432,50013,848,143 Expenditures and other uses: Project costs12,389,34815,20712,404,555 Bond issuance costs149,660 - 149,660 Transfers out: 2008B Bonds Debt Service314,194238,490552,684 2009A Bonds Debt Service50,22791,017141,244 Capital Improvement General Gov't Bldgs.600,000 - 600,000 Total expenditures and other uses13,503,429344,71413,848,143 Net change in fund balance$342,214($342,214) Fund balance - December 31$0 26 City of Columbia Heights, Minnesota Audit Management Letter Enterprise Funds EF NTERPRISEUNDS Water Fund Operating Account 601 A graph of the water operations is presented below: $2,700,000 $2,700,000 $2,600,000 $2,600,000 $2,500,000 $2,500,000 Water Utility Fund $2,400,000 $2,400,000 Revenue and $2,300,000 $2,300,000 Expenses $2,200,000 $2,200,000 $2,100,000 $2,100,000 $2,000,000 $2,000,000 $1,900,000 $1,900,000 $1,800,000 $1,800,000 $1,700,000 $1,700,000 $1,600,000 $1,600,000 $1,500,000 $1,500,000 Transfers Out $1,400,000 $1,400,000 Water Purchases $1,300,000 $1,300,000 Other Operating Expenses $1,200,000 $1,200,000 Operating Revenue $1,100,000 $1,100,000 $1,000,000 $1,000,000 $900,000 $900,000 $800,000 $800,000 $700,000 $700,000 $600,000 $600,000 $500,000 $500,000 $400,000 $400,000 $300,000 $300,000 $200,000 $200,000 $100,000 $100,000 $0$0 20072008200920102011 In 2010, the City passed a resolution to adjust water rates based on the information the City was provided from a rate study. 27 City of Columbia Heights, Minnesota Audit Management Letter Enterprise Funds Sewer Fund Operating Account 602 A graph of sewer operations is presented below. $2,000,000 $2,000,000 $1,900,000 $1,900,000 Sewer Utility Fund $1,800,000 $1,800,000 Revenue and Expenses $1,700,000 $1,700,000 $1,600,000 $1,600,000 $1,500,000 $1,500,000 $1,400,000 $1,400,000 $1,300,000 $1,300,000 $1,200,000 $1,200,000 $1,100,000 $1,100,000 Transfers Out MCES $1,000,000 $1,000,000 Other Operating Expenses $900,000 $900,000 Operating Revenue $800,000 $800,000 $700,000 $700,000 $600,000 $600,000 $500,000 $500,000 $400,000 $400,000 $300,000 $300,000 $200,000 $200,000 $100,000 $100,000 $0$0 20072008200920102011 28 City of Columbia Heights, Minnesota Audit Management Letter Enterprise Funds Storm Sewer Fund 604 A graph of operations is presented below: $550,000 $550,000 Storm Sewer $500,000 $500,000 $450,000 $450,000 $400,000 $400,000 Transfers Out $350,000 $350,000 Operating Expenses $300,000 $300,000 Operating Revenue $250,000 $250,000 $200,000 $200,000 $150,000 $150,000 $100,000 $100,000 $50,000 $50,000 $0 $0 20072008200920102011 This fund is responsible for a portion of the debt service on the 2006A bond issue. The outstanding liability on the bond was $1,345,730 at December 31, 2011. 29 City of Columbia Heights, Minnesota Audit Management Letter Enterprise Funds Refuse Fund 603 A graph of refuse operations is presented below: $1,800,000 $1,800,000 $1,700,000 $1,700,000 $1,600,000 $1,600,000 $1,500,000 $1,500,000 Refuse Utility $1,400,000 $1,400,000 $1,300,000 $1,300,000 $1,200,000 $1,200,000 $1,100,000 $1,100,000 Operating Expenses / Transfers Out $1,000,000 $1,000,000 $900,000 $900,000 Operating Revenue $800,000 $800,000 $700,000 $700,000 $600,000 $600,000 $500,000 $500,000 $400,000 $400,000 $300,000 $300,000 $200,000 $200,000 $100,000 $100,000 $0 $0 20072008200920102011 30 City of Columbia Heights, Minnesota Audit Management Letter Enterprise Funds Municipal Liquor Fund 609 An analysis of 2011 activity is as follows: Top ValuTop Valu IIHeights Liquor2011 Total2010 Total AmountPercentAmountPercentAmountPercentAmountPercentAmountPercent Operating revenues$3,764,257100.00% $3,491,928100.00% $1,238,777100.00% $8,494,962100.00% $8,158,259100.00% Cost of goods sold2,831,29575.22% 2,638,29575.55% 944,29676.23% 6,413,88675.50% 6,220,51176.25% Gross margin932,96224.78% 853,63324.45% 294,48123.77% 2,081,07624.50% 1,937,74823.75% Other operating expenses705,03818.73% 567,57316.25% 187,04515.10% 1,459,65617.18% 1,396,17517.11% Net income from operations$227,9246.05% $286,0608.19% $107,4368.67% $621,4207.32% $541,5736.64% The following comments relate to the above table: Sales increased by approximately $336,703 or 4%. Gross margin percent increased from 23.75%to 24.50%. Operating expenses increased by $63,481. Net income from operations increased approximately $79,847 from 2010 to 2011. 31 City of Columbia Heights, Minnesota Audit Management Letter Enterprise Funds Income from operations as a percent of total sales for the past twenty-three years is scheduled below: Net Income From Operations% of TopTopHeightsTotal YearValuValu IILiquorTotalSales 1989---------------Site Information----------------$228,8576.2% 1990----------------Not Available-----------------261,5096.2% 1991$297,378$ - $97,341394,7198.2% 1992246,739 - 100,907347,6467.2% 1993148,150(62,608)103,476189,0183.6% 1994146,3505,902101,483253,7354.6% 1995141,23537,749115,595294,5795.2% 1996124,47180,885150,649356,0055.9% 199768,00292,250151,023311,2755.1% 1998151,974123,436181,752457,1627.2% 1999146,576130,763226,116503,4557.5% 2000152,630105,749128,389386,7686.0% 2001183,202108,788167,587459,5776.7% 2002159,242161,358175,799496,3997.2% 200330,672165,891135,709332,2724.8% 2004168,475144,81286,440399,7275.7% 200514,52698,33487,211200,0713.0% 200662,10093,54046,512202,1523.1% 2007115,219104,44948,896268,5644.0% 20088,464193,345105,650307,4594.1% 2009233,019250,63878,037561,6947.0% 2010160,340279,647101,586541,5737.0% 2011227,924286,060107,436621,4207.3% As shown above, liquor operations have been an important revenue source for the City. 32 City of Columbia Heights, Minnesota Audit Management Letter Enterprise Funds Comparison With Other Municipal Liquor Stores The Office of the State Auditor (OSA) annually publishes “An Analysis of Minnesota Municipal Liquor Store Operations.” The most recent report available is for 2009. The following analysis compares Columbia Heights’ liquor operations with those reported in the OSA report. It should be noted that the following comparisons are strictly a comparison of amounts reported. There are a number of factors that affect operating results that are not included in this comparison. These factors include the mix of product sold and philosophy regarding sales techniques such as high volume/lower margin. There are seventeen cities in the metropolitan area that operate off-sale only operations. The following table shows the top 10 ranked cities in terms of gross sales for the most recent 5 years available: 20062007200820092010 1LakevilleLakevilleLakevilleLakevilleLakeville 2EdinaEdinaEdinaEdinaEdina 3RichfieldRichfieldRichfieldEden PrairieEden Prairie 4Eden PrairieEden PrairieEden PrairieRichfieldRichfield 5Apple ValleyApple ValleyColumbia HeightsApple ValleyApple Valley 6Columbia HeightsColumbia HeightsApple ValleyColumbia HeightsColumbia Heights 7Elk RiverSt. AnthonySt. AnthonySt. AnthonySt. Anthony 8SavageSavageSavageElk RiverElk River 9St. AnthonyElk RiverElk RiverBrooklyn CenterBrooklyn Center 10Brooklyn CenterBrooklyn CenterBrooklyn CenterSavageFergus Falls As shown above, the City’s ranking remained the same. 33 City of Columbia Heights, Minnesota Audit Management Letter Enterprise Funds Gross Margin Analysis Gross margin measures the sales less the direct cost of products sold. A comparison to state averages for Minnesota municipal off-sale operations is as follows: CostGross MarginState (1) Average Salesof SalesAmountPercent 1996$6,011,907$4,774,908$1,236,99920.6% 23.1% 19976,135,1664,878,7121,256,45420.5% 22.7% 19986,367,6895,009,9231,357,76621.3% 23.2% 19996,669,3765,238,0231,431,35321.5% 23.6% 20006,425,0215,051,5751,373,44621.4% 23.8% 20016,796,3845,267,3981,528,98622.4% 24.0% 20026,857,3075,254,5981,602,70923.3% 24.4% 20036,934,5725,366,1371,568,43522.6% 23.9% 20046,946,0585,318,3311,627,72723.4% 24.1% 20056,713,9325,210,8611,503,07122.4% 24.6% 20066,546,4915,039,3181,507,17323.0% 24.4% 20076,722,3905,144,8821,577,50823.5% 25.1% 20087,490,9425,783,5451,707,39722.8% 24.8% 20097,962,8846,085,5461,877,33823.6% 25.1% 20108,158,2596,220,5111,937,74823.8% 25.2% 20118,494,9626,413,8862,081,07624.5% Not Available (1) Source: Minnesota Office of the State Auditor - Metropolitan Area Off-Sale Operations 34 City of Columbia Heights, Minnesota Audit Management Letter Enterprise Funds Operating Expenses Operating expenses for the past several years have been as follows: Percent of Sales YearAmountCityState Avg. 1994$788,42414.3% 16.0% 1995830,81714.6% 16.8% 1996880,99414.7% 16.3% 1997945,17915.4% 16.5% 1998900,60414.1% 16.1% 1999927,89813.9% 16.2% 2000986,67815.4% 16.5% 20011,069,40915.7% 16.6% 20021,106,31016.1% 16.2% 20031,236,16317.8% 17.8% 20041,256,93418.1% 17.9% 20051,303,00019.4% 17.0% 20061,305,02119.9% 17.9% 20071,308,94419.5% 17.9% 20081,399,93818.7% 17.2% 20091,315,64418.7% 17.0% 20101,396,17515.3% 17.1% 20111,459,65617.1% N/A 35 City of Columbia Heights, Minnesota Audit Management Letter Enterprise Funds Net Income from Operations Net income for the past several years is as follows: Percent of Sales CityState YearAmountCityAverage 1994$253,7354.6%7.2% 1995294,5795.2%6.8% 1996356,0055.9%7.5% 1997311,2755.1%6.9% 1998457,1627.2%7.5% 1999503,4557.5%7.5% 2000386,7686.0%7.2% 2001459,5776.7%7.3% 2002496,3997.2%8.1% 2003332,2724.8%6.1% 2004370,7935.3%6.6% 2005200,0713.0%7.8% 2006202,1523.1%7.0% 2007268,5644.0%8.5% 2008307,4594.1%7.6% 2009561,6947.0%8.1% 2010541,5736.6%8.0% 2011621,4207.3%Not Available 36 City of Columbia Heights, Minnesota Audit Management Letter Internal Service Funds ISF NTERNALERVICEUNDS Internal Service Funds are used to account for the financing on a cost reimbursement basis of goods or services provided by one department to another department within the City. During 2011, the City maintained the following Internal Service Funds: CentralInformationCompensated Totals GarageSystemsInsuranceAbsences20112010 Assets: Cash$632,227$620,542$897,571$907,116$3,057,456$2,836,767 Other current assets60,2691,80051,906 - 113,97596,592 Capital assets1,321,81348,662 - - 1,370,4751,158,324 Total assets$2,014,309$671,004$949,477$907,116$4,541,906$4,091,683 Liabilities and Net Assets Liabilities: Current liabilities$146,206$11,795$2,000$ - $160,001$152,916 Compensated absences payable36,16111,582 - 908,529956,272764,156 Total liabilities182,36723,3772,000908,5291,116,273917,072 Net assets1,831,942647,627947,477(1,413)3,425,6333,174,611 Total liabilities and net assets$2,014,309$671,004$949,477$907,116$4,541,906$4,091,683 37 City of Columbia Heights, Minnesota Audit Management Letter Certificate of Achievement CAF ERTIFICATE OF CHIEVEMENTOR EFR XCELLENCE IN INANCIALEPORTING The City submits the Comprehensive Annual Financial Report to the Government Finance Officers Association of the United States and Canada (GFOA) for a review. The program is a review of all facets of financial reporting for disclosure, clarity and consistency with national reporting standards. The City received the award for each year since 1990. We commend the City for this achievement. 38 City of Columbia Heights, Minnesota Audit Management Letter Accounting Standards AS CCOUNTINGTANDARDS Governmental Accounting Standards Board (GASB) statements that are required to be implemented in future years that may affect the City are as follows: City Implementation Upcoming GASB Statements Required By Statement No. 60 Accounting and Financial Reporting for Service Concession 2012 Arrangements. The provisions of this Statement are effective for financial statements for periods beginning after December 15, 2011. Statement No. 61 The Financial Reporting Entity Omnibus – An Amendment of 2013 GASB No. 14 and No. 34. The provisions of this Statement are effective for financial statements for periods beginning after June 15, 2012. Statement No. 62 Codification of Accounting and Financial Reporting Guidance 2012 Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. The provisions of this Statement are effective for financial statements for periods beginning after June 15, 2011. Statement No. 63 Financial Reporting of Deferred Outflows of Resources, 2012 Deferred Inflows of Resources and Net Position.The provisions of this Statement are effective for financial statements for periods beginning after December 15, 2011. Statement No. 65 Items Previously Reported as Assets and Liabilities.The 2013 provisions of this Statement are effective for financial statements for periods beginning after December 15, 2012. Statement No. 66 Technical Corrections – 2012. The provisions of this Statement 2013 are effective for financial statements for periods beginning after December 15, 2012. The effect these standards may have on future financial statements is not determinable at this time. 39 City of Columbia Heights, Minnesota Audit Management Letter Communication With Those Charged With Communication CWTCWG OMMUNICATIONITHHOSEHARGEDITHOVERNANCE 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 Columbia Heights, Minnesota (the City) for the year ended December 31, 2011, and have issued our report thereon dated June 28, 2012. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards and Government Auditing Standards and OMB Circular A-133, as well as certain information related to the planning scope and timing of our audit. We have communicated such information in our engagement letter and during the planning stage of our audit. Professional standards also require that we communicate to you the following information related to our audit. 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. For fiscal year 2011, the City was required to implement GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. The most significant effect of this standard is that fund balance is now classified into the five following categories: nonspendable, restricted, committed, assigned and unassigned. These categories are based on the constraint imposed on the use of resources. 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. Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are 40 City of Columbia Heights, Minnesota Audit Management Letter Communication With Those Charged With Communication 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 estimate affecting the financial statements was management’s estimate of the net OPEB obligation which is based on the OPEB actuarial study. We evaluated the key factors and assumptions used to develop the estimate for the net OPEB obligation in determining that it is reasonable in relation to the financial statements taken as a whole. 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. We identified two known items that have not been recorded in the 2011 financial statements: Bond issuance costs are not amortized over the life of the bond but instead recorded as an expense in the year in which the bond was sold. As a result, assets and net assets of the governmental activities is understated by $270,264 at December 31, 2011. This accounting treatment is consistent with prior years. Sample counts of liquor inventory, performed during the audit, resulted in differences between the City’s and the Auditor’s counts. The projected misstatement of net assets, arrived by extrapolating the variances detected during audit sampling, over the entire inventory population resulted in an understatement of net assets of $25,037 at December 31, 2011. 41 City of Columbia Heights, Minnesota Audit Management Letter Communication With Those Charged With Communication 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 28, 2012. 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 City’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. 42 City of Columbia Heights, Minnesota Audit Management Letter Communication With Those Charged With Communication With respect to the supplementary information accompanying the financial statements, 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. 43 City of Columbia Heights, Minnesota Audit Management Letter Other Matters OM THERATTERS During our audit for the year ended December 31, 2011, we noted the following matter: Status of Prior Year’s findings: The following is the status of internal control comments identified during the 2010 audit: Comment Status 2010-1 Recreational Revenue Documentation. In 2011, receipts continue to be entered on a regular basis. The limitations of the software system resulted in this being a finding again for 2011. 2010-2 Adopting Resolutions.During 2011, the City had four resolutions adopting assessment rolls. All of the resolutions included the total amount of the assessment roll as an attachment to resolution. We believe that the City has met the minimum control requirements. However, we recommend the City consider strengthening their controls by including the total amount of each assessment roll in the body of the resolution in order to further prevent errors or fraud. 44 City of Columbia Heights, Minnesota Audit Management Letter Other Matters Closing This information is intended solely for the information and use of management, members of the City Council and others within the City of Columbia Heights, Minnesota and is not intended to be, and should not be, used by anyone other than these specified parties. 45