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HomeMy WebLinkAbout2016 AML CITY OF COLUMBIA HEIGHTS, MINNESOTA AUDIT MANAGEMENT LETTER December 31, 2016 - This page intentionally left blank - To the Honorable Mayor and Members of the City Council City of Columbia Heights, Minnesota We have completed the 2016 audit of the financial statements of the City of Columbia Heights, Minnesota and have issued our report thereon. Our Independent Auditor’s Report is included in the City’s Comprehensive Annual Financial Report (CAFR). Other reports included in the CAFR are: Report on Compliance with Minnesota Legal Compliance Audit Guide for Political Subdivisions Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Governmental Auditing Standards This Management Letter provides the City an independent review and analysis of City finances. We also issue a separate Management Letter for the Economic Development Authority. REDPATH AND COMPANY, LTD. St. Paul, Minnesota June 1, 2017 5921!Xijuf!Cfbs!Qbslxbz-!Tu/!Qbvm-!NO-!66221!!!!!!762/537/8111!!!!!!xxx/sfeqbuidqbt/dpn - 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 brief summary of each report is as follows: Report Name Elements of Report Overview Required Reports Comprehensive Annual Financial Financial statements Unmodified (“clean”) Report (CAFR) opinion on the Basic Footnotes Financial Statements Supplemental information Report on Internal Control over Results of testing No reported findings Financial Reporting and on Internal controls over financial 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 Summary of Financial Activity SFA UMMARY OF INANCIALCTIVITY The financial statement document is very complex and individual fund information is presented in several different sections of the document. The schedule below is a financial summary of all governmental funds. Increase Interfund(Decrease) inFund TransfersFundBalance Fund TypeRevenues Expenditures(Net)Balance12/31/2016 General Fund$10,741,000$10,628,000$320,000$433,000$7,444,000 Special Revenue Funds2,661,0001,722,000(73,000)866,0004,401,000 Debt Service Funds4,868,0004,880,000422,000410,0003,712,000 Capital Project Funds3,865,0008,660,000(322,000)(5,117,000)10,681,000 Total governmental funds$22,135,000$25,890,000$347,000($3,408,000)$26,238,000 3 City of Columbia Heights, Minnesota Audit Management Letter General Fund The components of tax capacity by class of property for 2016 and nine years ago are as follows: 4 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 85% of the total revenue of the General Fund. A history of General Fund revenue is as follows: General Fund - Sources of Revenue LGA & MVHCProperty TaxesAll OtherTotal YearAmountPercentAmountPercentAmountPercentAmountPercent 2007$1,561,70518%$5,483,75164%$1,482,53118%$8,527,987100% 20081,222,792 15%5,808,662 69%1,363,796 16%8,395,250 100% 20091,452,382 15%6,590,306 70%1,391,963 15%9,434,651 100% 20101,066,635 11%6,770,957 72%1,629,746 17%9,467,338 100% 20111,067,990 11%7,263,658 73%1,650,362 17%9,982,010 100% 2012898,730 9%7,626,258 75%1,584,537 16%10,109,525 100% 2013895,180 9%8,142,980 79%1,240,267 12%10,278,427 100% 20141,104,176 10%8,551,642 75%1,744,197 15%11,400,015 100% 20151,191,541 10%8,781,533 77%1,505,143 13%11,478,217 100% 2016475,000 4%8,751,484 82%1,514,087 14%10,740,571 101% In 2016, the internal allocation of LGA revenue was changed. For 2016, $742,000 of LGA was allocated to funds other than the General Fund. The reduced revenue of the General Fund was offset by a reduction in transfers out to other funds. 5 City of Columbia Heights, Minnesota Audit Management Letter General Fund A graph of General Fund revenue by source is as follows: $10,000,000 General Fund $9,000,000 Revenue By Source $8,000,000 $7,000,000 $6,000,000 LGA & MVHC Property Taxes $5,000,000 All Other $4,000,000 $3,000,000 $2,000,000 $1,000,000 $0 2007200820092010201120122013201420152016 6 City of Columbia Heights, Minnesota Audit Management Letter General Fund A chart of 2016 revenue by source is as follows: General Fund 2016Revenue by Source Intergovernmental All other 4% 14% General property taxes 82% 7 City of Columbia Heights, Minnesota Audit Management Letter General Fund A chart of 2016 expenditures by function is as follows: General Fund 2016 Expenditures by Function General government 18% Transfers out Parks and recreation 0% 15% Public works 16% Public safety 51% 8 City of Columbia Heights, Minnesota Audit Management Letter General Fund The fund balance of the General Fund at December 31, 2016 was $7,533,144. During 2016, the fund balance of the General Fund increased by $521,000 as follows: BudgetBudget OriginalAmendmentsFinalActualVariance Revenues and transfers in: Property taxes$8,641,000$ - $8,641,000$8,751,000$110,000 Licenses and permits222,000- 222,000241,00019,000 Intergovernmental905,00030,000 935,000986,00051,000 Charges for services556,00020,000 576,000580,0004,000 Fines and forfeitures125,000- 125,00092,000(33,000) Investment income75,000- 75,00072,000(3,000) Other13,0004,000 17,00018,0001,000 Transfers in441,000- 441,000446,0005,000 Total10,978,00054,00011,032,00011,186,000154,000 Expenditures and transfers out: General government2,017,000- 2,017,0001,926,00091,000 Public safety5,641,00054,000 5,695,0005,403,000292,000 Public works1,681,000- 1,681,0001,661,00020,000 Parks and recreation1,624,000- 1,624,0001,621,0003,000 Capital outlay36,000- 36,00017,00019,000 Transfers out23,000- 23,000126,000(103,000) Total 11,022,00054,00011,076,00010,754,000322,000 Net change in fund balance($44,000)$0($44,000)$432,000$476,000 9 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) 2007$3,979,146$383,298 20083,755,957(223,189) 20094,796,1511,040,194 20105,342,239546,088 20115,869,055526,816 20126,076,909207,854 20136,397,277320,368 20147,373,820976,543 20157,011,902(361,918) 20167,444,227432,325 City transferred $500,000 to Capital Equipment, $8,000,000 $175,000 to Library Capital Bldg. and $236,000 City received excess TIF totaling $254,000. to pay off 2007 Bonds early. Investment income exceeded budget by $248,000. General Fund Balance $7,500,000 City received excess $7,000,000 TIF totaling $482,000. $6,500,000 Transfers to Capital Improvement Development ($180,000) and $6,000,000 Sheffield Dev. Fund ($700,000). $5,500,000 $5,000,000 $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 2007200820092010201120122013201420152016 10 City of Columbia Heights, Minnesota Audit Management Letter General Fund Property taxes and state aids account for approximately 85% 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 working capital goal. This goal is an amount equal to forty-five percent of the ensuing year’s budgeted expenditures. A summary of components of General Fund balance is as follows: Fund Balance Component20152016 Nonspendable - prepayments$94,848$109,841 Assigned - ensuing year appropriation44,000105,000 Unassigned - working capital5,101,2535,125,445 Unassigned1,771,8012,103,941 Total fund balance - December 31$7,011,902$7,444,227 The amount of General Fund balance at December 31, 2016 was sufficient to fulfill the City’s working capital goal. The working capital is calculated as follows: 2017 budgeted expenditures$11,389,877 Working capital goal percentagex 45% Working capital goal5,125,445 Balance available7,423,303 Amount of fund balance over (under) (1) working capital goal $2,297,858 (1) Under the City's five-year financial plan, this fund balance will be reduced annually, decreasing to 45% of the budget by 2018. 11 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 19 through 30 of the 2016 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 2016: Revenue ExpendituresInterfundIncrease inFund Balance/ and Otherand OtherTransfersFund Balance/Net Position FundSourcesUses(Net)Net Position12/31/16Comments Special Revenue: 1 2Planning and Inspections Fund$438,370$359,527$38,288$117,131$443,870Revenues exceeded budget by $118,000 3Cable Television271,601120,632(29,183)121,786645,4362016 budget anticipated an increase of $72,000 4Police Forfeiture - - - - 46,631 5Library842,301769,832(13,979)58,490565,377 6Special Projects482,91717,232 - 465,685665,254 7After-School Programs20,63053,917 - (33,287)138,4762016 budget anticipated a decrease of $44,000 8Public Safety Grants 145,848145,848 - - - 9Recreation Contributed Projects19,05014,820 - 4,230153,494 10Contributed Projects25,41823,884 - 1,534201,621 11Anoka County Comm. Dev. Programs101,60022,444 - 79,15655,054 12Housing and Redevelopment Authority: 13 Parkview Villa North and South13,2274,777 - 8,4501,028,701 14Economic Development Authority Admin300,490188,988(68,615)42,887456,918 15 Total$2,661,452$1,721,901($73,489)$866,062$4,400,832 12 City of Columbia Heights, Minnesota Audit Management Letter Debt Service Funds DSF EBTERVICEUNDS Debt Service Funds are a type of governmental fund used 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, 2016 is as follows: FundDebt Balance atPayable atSource of Bond Issue12/31/1612/31/16Repayment Tax Increment Bonds: Tax Increment Refunding Bonds of 2016A (372/373)$724,485$2,435,000Tax increment Taxable Tax Increment Bonds of 2009B (371)524,056350,000Tax increment Improvement Bonds: Taxable G.O. Housing Improvement Area Series 2008A (315)214,063620,000Special assessments (receivable was $581,588 at 12/31/16) G.O. Improvement / Revenue Bonds 2013A (345)590,896332,635Special assessments General Obligation Bonds: G.O. Street Rehabilitation Series 2007A (341)13,262 - Property taxes G.O. Public Safety Center Bonds of 2008B (343)446,8748,740,000Property taxes G.O. Public Facilities Bonds of 2009A (344)271,5692,570,000Property taxes and special assessments G.O. Library Bonds of 2015A (346)370,8346,875,000Property taxes Total$3,156,039$21,922,635 13 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, 2016: Revenue ExpendituresInterfundIncrease inFund Balance/ and Otherand OtherTransfersFund Balance/Net Position FundSourcesUses(Net)Net Position12/31/16Comments 1 Capital Project: Expenditures include Stinson street reconstruction, street 2MSA State Aid Street $1,229,697$804,332($477,525)($52,160)$1,037,627lighting 47-51st 3EDA Housing Maintenance Fund - - - - 21,113 4Capital Improvements General Government Buildings316,38577,22623,000262,1591,431,137 5Capital Equipment Replacement General Government277,117188,93113,332101,5184,255,694 Expenditures include Stinson street reconstruction, mill 6Capital Improvements PIR Fund959,2441,006,673(121,693)(169,122)392,392and overlay 7Capital Improvement Development51,973223,485 - (171,512)1,396,155 8Capital Improvement Parks261,04943,32013,859231,588331,525 9Infrastructure Replacement58,600119,173227,525166,9521,087,919 10Capital Equipment Fire10017,886 - (17,786) - 11Capital Equipment Cable TV600 - - 60071,600 12Capital Building Library710,4376,195,499 - (5,485,062)555,772 13 Total$3,865,202$8,676,525($321,502)($5,132,825)$10,580,934 14 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: 201420152016 Financial sources: Special assessments$357,855$1,006,079$943,630 Charges for services82,33526,1883,954 Investment income43,5004,6009,312 Other revenues - (5,347)2,348 Issuance of bonds - - - Transfers from MSA Fund - - 300,000 Transfers from General Fund - 1,131 - Total financial sources483,6901,032,6511,259,244 Financial uses: Transfer to Fund 340 (2006A Bonds) - - - Transfer to Fund 344 (2009A Bonds)77,35168,03457,590 Transfer to General Fund19,593 - - Transfer to Fund 345 (2013A Bonds)128,215378,950364,103 Transfer to MSA Fund (402) - 300,000 - Project expenditures: Street rehabilitation - 704,025505,843 Sealcoating - - 141,615 Mill & overlay130,408 - 310,680 Other28,549154,21048,535 Total financial uses384,1161,605,2191,428,366 Net change in fund balance99,574(572,568)(169,122) Fund balance - January 11,034,5081,134,082561,514 Fund balance - December 31$1,134,082$561,514$392,392 15 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, 2016 was $1,636,188. 16 City of Columbia Heights, Minnesota Audit Management Letter Enterprise Funds EF NTERPRISEUNDS Cash Flows The financial statements include a schedule of Enterprise Funds cash flows. The cash flow schedule discloses cash generated by operating activities and the use of those cash flows for debt service and capital asset acquisition. Below is a summary of Enterprise Fund cash flows: Storm WaterSewerRefuseSewerLiquorTotal Cash flows from operating activities$681,141$262,852($120,412)$25,209$830,958$1,679,748 Cash flows from noncapital financing activities(90,396) (19,750) 21,356 (4,658) (158,818) (252,266) Cash flows from capital activities: Debt service(192,954)(40,623)- (248,671)(380,608)(862,856) Capital contribution- - - - - - Proceeds from borrowings- 132,288 - - - 132,288 Purchase of capital assets(1,007,907)(459,965)- 11,839 - (1,456,033) Cash flows from investing activities: Investment income8,5188,37312,7005,54629135,428 Net change in cash and investments($601,598)($116,825)($86,356)($210,735)$291,823($723,691) Cash and investments - December 31$350,028$948,242$1,418,481$498,627$731,092$4,670,163 17 City of Columbia Heights, Minnesota Audit Management Letter Enterprise Funds Water Fund A graph of the water operations is presented below: $3,000,000$3,200,000 $3,000,000 $2,800,000 $2,800,000 $2,600,000 $2,600,000 $2,400,000 $2,400,000Water Utility Fund $2,200,000 Revenue and Expenses $2,200,000 $2,000,000 $2,000,000 $1,800,000 Transfers Out $1,800,000 Water Purchases $1,600,000 $1,600,000 Other Operating Expenses $1,400,000 Operating Revenue $1,400,000 $1,200,000 $1,200,000 $1,000,000 $1,000,000 $800,000 $800,000 $600,000 $600,000 $400,000 $400,000 $200,000 $200,000 $0$0 20122013201420152016 In 2015, the City passed a resolution to set utility rates (water, sewer, storm and refuse). Resolution 2015-98 established rates for 2016 through 2019. 18 City of Columbia Heights, Minnesota Audit Management Letter Enterprise Funds Sewer Fund A graph of sewer operations is presented below: $2,000,000$2,000,000 $1,900,000$1,900,000 $1,800,000$1,800,000 $1,700,000$1,700,000 Sewer Utility Fund Revenue and Expenses $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 Transfers Out $1,100,000$1,100,000 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 20122013201420152016 19 City of Columbia Heights, Minnesota Audit Management Letter Enterprise Funds Storm Sewer Fund A graph of operations is presented below: This fund is responsible for a portion of the debt service on the 2013A bond issue. The outstanding liability on the bond was $519,323 at December 31, 2016. 20 City of Columbia Heights, Minnesota Audit Management Letter Enterprise Funds Refuse Fund 603 A graph of refuse operations is presented below: 21 City of Columbia Heights, Minnesota Audit Management Letter Enterprise Funds Municipal Liquor Fund 609 An analysis of 2016 activity is as follows: The following comments relate to the above table: Sales increased by approximately $68,000 or 0.8%. Gross margin percent decreased slightly from 24.54% to 24.52%. Operating expenses increased by $152,000, primarily due to: Annual costs for information systems of $45,000 were reported as operating o expenses in 2016. In prior years, these costs were reported in the non- operating category. A change in the investment assumptions used by PERA (the state-run pension o plan) in 2016 increased non-cash charges for estimated future years' pension payments by $50,000 over the prior year. Insurance costs increased by $23,000 due to an increase in workers o compensation rates and additional health insurance coverage mandated by the federal Affordable Care Act for 2016. Labor agreements adopted by the City Council provided for a 2.5% cost-of- o living increase in wages and fringe for all City employees in 2016. Net income from operations decreased approximately $136,000 from 2015 to 2016. 22 City of Columbia Heights, Minnesota Audit Management Letter Enterprise Funds Income from operations as a percent of total sales for the past seven years is scheduled below: Net Income From Operations% of TopTopHeightsTotal YearValuValu IILiquorTotalSales 2009$233,019$250,638$78,037$561,6947.0% 2010160,340279,647101,586541,5737.0% 2011227,924286,060107,436621,4207.3% 2012274,762334,41774,714683,8937.8% 2013237,428366,48575,261679,1747.8% 2014228,720186,189119,817534,7266.4% 2015228,721185,130112,498526,3496.3% 2016163,411127,17298,912389,4954.6% As shown above, liquor operations have been an important revenue source for the City. 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 2015. 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. 23 City of Columbia Heights, Minnesota Audit Management Letter Enterprise Funds 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 6 years available: 201020112012201320142015 1LakevilleLakevilleLakevilleLakevilleLakevilleLakeville 2EdinaEdinaEdinaEdinaEdinaEdina 3Eden PrairieEden PrairieEden PrairieEden PrairieEden PrairieEden Prairie 4RichfieldRichfieldRichfieldRichfieldRichfieldRichfield 5Apple ValleyApple ValleyApple ValleyApple ValleyApple ValleyApple Valley 6Columbia HeightsColumbia HeightsColumbia HeightsColumbia HeightsColumbia HeightsColumbia Heights 7St. AnthonySt. AnthonySt. AnthonySt. AnthonyElk RiverBrooklyn Center 8Elk RiverElk RiverElk RiverElk RiverSaint AnthonySaint Anthony 9Brooklyn CenterBrooklyn CenterBrooklyn CenterBrooklyn CenterBrooklyn CenterFridley 10Fergus FallsFergus FallsFergus FallsFergus FallsDetroit LakesFarmington 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 MarginMetro Average Salesof SalesAmounPercent t(1) 2011$8,494,962$6,413,886$2,081,07624.5% 25.4% 20128,804,2336,654,6572,149,57624.4% 25.8% 20138,747,0846,577,6312,169,45324.8% 26.1% 20148,415,3716,343,6632,071,70824.6% 25.9% 20158,399,9436,338,8912,061,05224.5% 25.3% 20168,468,0986,392,0902,076,00824.5% Not Available (1) Source: Minnesota Office of the State Auditor - Metropolitan Area Off-Sale Operations 24 City of Columbia Heights, Minnesota Audit Management Letter Enterprise Funds Operating Expenses Operating expenses for the past five years have been as follows: Percent of Sales YearAmountCityMetro Avg. 2011$1,459,65617.1% 17.8% 20121,465,68316.6% 16.5% 20131,490,27917.0% 16.8% 20141,536,98218.3% 18.6% 20151,534,70318.3% 19.4% 20161,686,51319.9% N/A Net Income from Operations Net income for the past five years is as follows: Percent of Sales CityMetro YearAmountCityAverage 2011$621,4207.3%7.6% 2012683,8937.8%8.5% 2013679,1747.7%8.8% 2014534,7266.1%7.3% 2015526,349 6.3%5.9% 2016389,495 4.6%Not Available 25 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 2016, the City maintained the following Internal Service Funds: Municipal ServiceInformationCompensatedTotals CenterSystemsInsuranceAbsences20152014 Assets: Cash$829,446$728,326$1,162,338$1,033,906$3,754,016$3,545,898 Other current assets46,9675,55568,280 - 120,802185,838 Capital assets1,146,73223,845 - - 1,170,5771,256,147 Deferred outflows related to pensions131,729108,819 - - 240,548 - Total assets$2,154,874$866,545$1,230,618$1,033,906$5,285,943$4,987,883 Liabilities and Net Position Liabilities: Current liabilities$54,535$19,814$2,000$73,407$149,756$134,763 Compensated absences payable46,82422,117 - 960,4991,029,4401,009,987 Net pension liability/deferred inflows356,033294,112 - - 650,145332,126 Total liabilities457,392336,0432,0001,033,9061,829,3411,476,876 Net position1,697,482530,5021,228,618 - 3,456,6023,511,007 Total liabilities and net position$2,154,874$866,545$1,230,618$1,033,906$5,285,943$4,987,883 26 City of Columbia Heights, Minnesota Audit Management Letter Communication With Those Charged With Governance 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. 27 City of Columbia Heights, Minnesota Audit Management Letter Communication With Those Charged With Governance CWTCWG OMMUNICATIONITHHOSEHARGEDITHOVERNANCE We have audited the financial statements of the governmental activities, the business- type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Columbia Heights, Minnesota (the City) for the year ended December 31, 2016. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards and Government Auditing Standards, as well as certain information related to the planning scope and timing of our audit. We have communicated such information in our letter to you dated November 28, 2016 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. No new accounting policies were adopted and the application of existing policies was not changed during 2016. However, the City implemented the following accounting standards during 2016: GASB Statement No. 72, Fair Value Measurements and Application. This standard enhanced disclosures regarding investments. GASB Statement No. 79, Certain External Investment Pools and Pool Participants. This standard enhanced disclosures regarding investments. GASB Statement No. 77, Tax Abatement Disclosures. This standard enhanced disclosures regarding pay-as-you-go tax increment agreements. 28 City of Columbia Heights, Minnesota Audit Management Letter Communication With Those Charged With Governance We noted no transactions entered into by the City of Columbia Heights, Minnesota (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 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 City’s financial statements was management’s estimates of the net OPEB obligation, the net pension liability and the pension related deferred inflows and outflows of resources. Estimates related to these items are based on actuarial studies. We evaluated the key factors and assumptions used to develop the estimates in determining that it is reasonable in relation to the financial statements taken as a whole. Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. Determining sensitivity is subjective, however, we believe the disclosure most likely to be considered sensitive is Note 10– Defined Benefit Pension Plans. The disclosures in the financial statements are neutral, consistent and clear. Difficulties Encountered in Performing the Audit We encountered no difficulties in dealing with management in performing and completing our audit. 29 City of Columbia Heights, Minnesota Audit Management Letter Communication With Those Charged With Governance 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. There were no uncorrected misstatements that have an effect on our opinion on the financial statements. 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 ____, 2017. 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. 30 City of Columbia Heights, Minnesota Audit Management Letter Communication With Those Charged With Governance 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 budgetary comparison schedules, schedule of proportionate share of net pension liability and schedule of pension contributions, which are required supplementary information (RSI) 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 management’s 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 financial information section, which accompanies the financial statements but is 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. 31 City of Columbia Heights, Minnesota Audit Management Letter Communication With Those Charged With Governance We were not engaged to report on the introductory and the other information sections, which accompany 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 it. Other Reports Various reports on compliance and internal controls are contained in the Other Required Reports section of the audited financial statements document. Restriction on Use 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. 32