The URL can be used to link to this page

Home My WebLink About2015 AML CITY OF COLUMBIA HEIGHTS, MINNESOTA AUDIT MANAGEMENT LETTER December 31, 2015 - This page intentionally left blank - To the Honorable Mayor and Members of the City Council City of Columbia Heights, Minnesota We have completed the 2015 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 13, 2016 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)Balance12/31/2015 General Fund$11,478,000$10,549,000($1,291,000)($362,000)$7,012,000 Special Revenue Funds3,235,0003,218,000(1,481,000)(1,464,000)3,535,000 Debt Service Funds1,597,0002,202,000867,000262,0003,302,000 Capital Project Funds9,779,0007,566,0002,214,0004,427,00015,797,000 Total governmental funds$26,089,000$23,535,000$309,000$2,863,000$29,646,000 3 City of Columbia Heights, Minnesota Audit Management Letter Government-Wide Financial Statements Property Tax Levies and Net Tax Capacity A comparison of values for taxes payable 2008 through 2016 is as follows: ﺨوﯿ a╜▄▄╜◘■ℓ ﺨوي⁭ﯿﻮ ﺨوي⁭ﻲﻲ ﺨوﻲ ﺨوﻰ⁭ﻰﮭ ﺨوﻰ ﺨوى⁭وو ﺨوﻮ ﺨوو⁭وىوو⁭وﻮ ﺨوﮭ⁭ﻲﻵ ﺨﻵ⁭ﻲﻰ ﺨﻵ⁭ﻰﮭ ﺨوﮭ ﺨوﮭ⁭ﻰﮭ ÇĂŝ/Ă♫Ăľ╜ĊŦ▓╜▄▄╜◘■ℓ ﺨﻵ⁭ﻰﻮ ﺨﻵ⁭ﻮو ﺨﻵ⁭ﮭﯾ ﺨﯿﺨﻵ⁭ﮭﮭﺨﻵ⁭ﮭﮭﺨﻵ⁭ﮭﮭ ÇĂŝ[śōŦ ▓╜▄▄╜◘■ℓ ﺨﯾ⁭ﯾﮭ ﺨﯾ⁭ﮭﻰ ﺨﻲ ﺨﻰ ﺨﻮ ﺨﮭ ﻮﮭﮭﯿﻮﮭﮭﻵﻮﮭوﮭﻮﮭووﻮﮭوﻮﻮﮭوىﻮﮭوﻰﻮﮭويﻮﮭوﻲ 4 City of Columbia Heights, Minnesota Audit Management Letter Government-Wide Financial Statements The components of tax capacity by class of property for 2016 and nine years ago are as follows: Tax Capacity 20072016 Classamountpercentamountpercent Residential Homestead$10,401,97970.1%6,638,158$ 59.7% Commercial/Industrial1,820,27312.3%1,661,283 14.9% Residential Non-Homestead2,499,15016.9%2,697,075 24.3% Personal Property106,8550.7%127,490 1.1% Total$14,828,257100.0%11,124,006$ 100.0% 5 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 2006$1,395,74718%$5,202,82666%$1,286,50116%$7,885,074100% 20071,561,705 18%5,483,751 64%1,482,531 18%8,527,987 100% 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% 6 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 2006200720082009201020112012201320142015 7 City of Columbia Heights, Minnesota Audit Management Letter General Fund A chart of 2015 revenue by source is as follows: General Fund 2015Revenue by Source All otherIntergovernmental 13%10% General property taxes 77% 8 City of Columbia Heights, Minnesota Audit Management Letter General Fund A chart of 2015 expenditures by function is as follows: General Fund 2015 Expenditures by Function General government 15% Transfers out 14% Parks and recreation 12% Public works 13% Public safety 46% 9 City of Columbia Heights, Minnesota Audit Management Letter General Fund The fund balance of the General Fund at December 31, 2015 was $7,011,902. During 2015, the fund balance of the General Fund decreased by $362,000 as follows: BudgetBudget OriginalAmendmentsFinalActualVariance Revenues and transfers in: Property taxes$8,673,000$ - $8,673,000$8,782,000$109,000 Licenses and permits199,000 199,000213,00014,000- Intergovernmental1,620,00024,000 1,644,0001,667,00023,000 Charges for services600,00026,000 626,000593,000(33,000) Fines and forfeitures126,000 126,00097,000(29,000)- Investment income70,000 70,000103,00033,000- Other13,000 9,00022,00024,0002,000 Transfers in417,000 417,000417,000 - - Total11,718,00059,00011,777,00011,896,000119,000 Expenditures and transfers out: General government1,910,000 1,910,0001,842,00068,000- Public safety5,527,00060,000 5,587,0005,494,00093,000 Public works1,648,000 1,648,0001,535,000113,000- Parks and recreation1,639,000 1,639,0001,483,000156,000- Contingencies55,000 55,00040,00015,000- Capital outlay56,000 56,000156,000(100,000)- Transfers out796,000910,000 1,706,0001,708,000(2,000) Total 11,631,000970,00012,601,00012,258,000343,000 Net change in fund balance$87,000($911,000)($824,000)($362,000)$462,000 10 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) 2006$3,595,848($786,982) 20073,979,146383,298 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) City transferred City received excess TIF totaling $254,000. $500,000 to Capital $8,000,000 Investment income exceeded budget by $248,000.Equipment,$175,000 to Library Capital General Fund Balance $7,500,000 Bldg. and $236,000 to pay off 2007 Bonds early. 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 2006200720082009201020112012201320142015 11 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: The amount of General Fund balance at December 31, 2015 was sufficient to fulfill the City’s working capital goal. The working capital is calculated as follows: 2016 budgeted expenditures$11,336,117 Working capital goal percentagex 45% Working capital goal5,101,253 Balance available6,917,054 Amount of fund balance over (under) (1) working capital goal $1,815,801 (1) Under the City's five-year financial plan, this fund balance will be reduced annually, decreasing to 45% of the budget by 2018. 12 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 2015 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 2015: Revenue ExpendituresInterfundIncrease inFund Balance/ and Otherand OtherTransfersFund Balance/Net Position FundSourcesUses(Net)Net Position12/31/15Comments Special Revenue: 1 2Planning and Inspections Fund$417,023$278,846($13,756)$124,421$326,739 3Cable Television232,05745,636(367,614)(181,193)523,650$300K transfered to Library Construction 4Police Forfeiture14,3981,344 - 13,05446,631 5Library832,217704,409(34,881)92,927506,887 6Special Projects99,19519,347(500,000)(420,152)199,569$500K transfered to Library Construction 7After-School Programs21,61150,391 - (28,780)171,763 8Public Safety Grants 49,94549,945 - - - 9Recreation Contributed Projects20,31517,791 - 2,524149,264 10Contributed Projects3,10712,093 - (8,986)200,087 11Anoka County Comm. Dev. Programs604,544349,601(551,317)(296,374)(24,102)$551K transfered to Library Construction 12Housing and Redevelopment Authority: 13 Parkview Villa North and South676,5971,498,400 - (821,803)1,020,251properties sold, $927K payable to HUD 14Economic Development Authority Admin264,367190,340(13,756)60,271414,031 15 Total$3,235,376$3,218,143($1,481,324)($1,464,091)$3,534,770 13 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, 2015 is as follows: FundDebt Balance atPayable atSource of Bond Issue12/31/1512/31/15Repayment Tax Increment Bonds: Tax Increment Revenue Bonds of 2007 (373)$268,288$2,549,000Tax increment Taxable Tax Increment Bonds of 2009B (371)613,467410,000Tax increment Improvement Bonds: Taxable G.O. Housing Improvement Area Series 2008A (315)207,383680,000Special assessments (receivable was $646,175 at 12/31/15) G.O. Improvement / Revenue Bonds 2013A (345)346,985449,305Special assessments General Obligation Bonds: G.O. Street Rehabilitation Series 2007A (341)125,313110,000Property taxes G.O. Public Safety Center Bonds of 2008B (343)466,3388,970,000Property taxes G.O. Public Facilities Bonds of 2009A (344)259,908250,000Property taxes and special assessments G.O. Library Bonds of 2015A (346)100,8426,875,000Property taxes Total$2,388,524$20,293,305 14 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, 2015: Revenue ExpendituresInterfundIncrease inFund Balance/ and Otherand OtherTransfersFund Balance/Net Position FundSourcesUses(Net)Net Position12/31/15Comments Capital Project: 1 received $300k from PIR. Expenditures include right-turn lane 49th & Central 2MSA State Aid Street $1,047,238$678,950$300,000$668,288$1,089,787 3EDA Housing Maintenance Fund - - (336,365)(336,365)21,113$336K transfered to Library construction 4Capital Improvements General Government B16,60022,71522,50016,3851,168,978 5Capital Equipment Replacement General Gov76,915188,931550,000437,9844,237,895received $500k from General fund expenditures include Zone 1 street recon ($440K) 6Capital Improvements PIR Fund1,031,520858,235(745,853)(572,568)561,514 7Capital Improvement Development121,40048,132(425,717)(352,449)1,567,667$375K transfered to Library construction expenditures include Labelle park ($325K) and Huset Park ($400K) 8Capital Improvement Parks257,646724,999250,000(217,353)99,937 9Infrastructure Replacement16,300301,340100,000(185,040)920,967 10Capital Equipment Fire40036,277 - (35,877)17,786 11Capital Equipment Cable TV1,000 - - 1,00071,000 12Capital Building Library7,209,7014,151,8422,499,6095,557,4686,040,834bond proceeds of $6.875M 13 Total$9,778,720$7,011,421$2,214,174$4,981,473$15,797,478 15 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: 201320142015 Revenue: Investment income($37,100)$56,000$16,600 Other income7,691 - - Transfers from: General Fund (101)22,50022,50022,500 Total revenue(6,909)78,50039,100 Expenditures: Other17,518 - 22,715 Total expenditures17,518022,715 Net change in fund balance(24,427)78,50016,385 Fund balance - January 11,098,5201,074,0931,152,593 Fund balance - December 31$1,074,093$1,152,593$1,168,978 This fund was created with a transfer from the General Fund in 2001, Resolution 2001- 84. The resolution requires a simple majority vote for the budget adoption and a four-fifths vote for a budget amendment. In 2010, Resolution 2010-138 was passed, which designated this fund as committed to future improvements to general government buildings. 16 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: 201320142015 Financial sources: Special assessments$559,506$357,855$1,006,079 Charges for services178,57282,33526,188 Investment income(28,800)43,5004,600 Other revenues326 - (5,347) Issuance of bonds235,000 - - Transfers from General Fund27,677 - 1,131 Total financial sources972,281483,6901,032,651 Financial uses: Transfer to Fund 340 (2006A Bonds)84,091 - - Transfer to Fund 344 (2009A Bonds)77,11077,35168,034 Transfer to General Fund - 19,593 Transfer to Fund 345 (2013A Bonds)63,180128,215378,950 Transfer to MSA Fund (402)300,000 Project expenditures: Street rehabilitation564,749 - 704,025 Sealcoating15,314 - - Mill & overlay - Stinson Blvd. - 130,408 - Other - 28,549154,210 Total financial uses804,444384,1161,605,219 Net change in fund balance167,83799,574(572,568) Fund balance - January 1866,6711,034,5081,134,082 Fund balance - December 31$1,034,508$1,134,082$561,514 17 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, 2015 was $1,800,180. 18 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$711,274$228,655$345,250($24,446)$511,454$1,772,187 Cash flows from noncapital financing activities(185,388) (131,016) (22,759) (16,000) (202,789) (557,952) Cash flows from capital activities: Debt service(203,704)(40,737)- (118,272)(383,818)(746,531) Capital contribution- - - 747,334 - 747,334 Purchase of capital assets(474,047)(114,250)- (1,138,093)(23,178)(1,749,568) Cash flows from investing activities: Investment income12,84013,97018,9004,3204150,071 Net change in cash and investments($139,025)($43,378)$341,391($545,157)($98,290)($484,459) Cash and investments - December 31$951,626$1,065,067$1,504,837$709,362$439,271$4,670,163 19 City of Columbia Heights, Minnesota Audit Management Letter Enterprise Funds Water Fund Operating Account 601 A graph of the water operations is presented below: $3,000,000$3,000,000 $2,800,000$2,800,000 $2,600,000$2,600,000 $2,400,000$2,400,000 Water Utility Fund $2,200,000$2,200,000 Revenue and Expenses $2,000,000$2,000,000 $1,800,000$1,800,000 Transfers Out Water Purchases $1,600,000$1,600,000 Other Operating Expenses $1,400,000$1,400,000 Operating Revenue $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 200720082009201020112012201320142015 In 2010, the City passed a resolution to set utility rates (water, sewer, storm and refuse). Resolution 2010-15 established rates for 2010 through 2015. 20 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 $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 200720082009201020112012201320142015 21 City of Columbia Heights, Minnesota Audit Management Letter Enterprise Funds Storm Sewer Operating Account 604 A graph of operations is presented below: ﺨييﮭ⁪ﮭﮭﮭ ﺨيﮭﮭ⁪ﮭﮭﮭ {Ċ◘ŉ▓{śŎśŉ ﺨﻰيﮭ⁪ﮭﮭﮭ ﺨﻰﮭﮭ⁪ﮭﮭﮭ ﺨىيﮭ⁪ﮭﮭﮭ ﺨىﮭﮭ⁪ﮭﮭﮭ ÇŉĂ■ℓźśŉℓhĵĊ h♫śŉĂĊ╜■┼9ŝ♫ś■ℓśℓ ﺨﻮيﮭ⁪ﮭﮭﮭ h♫śŉĂĊ╜■┼wśōś■ĵś ﺨﻮﮭﮭ⁪ﮭﮭﮭ ﺨويﮭ⁪ﮭﮭﮭ ﺨوﮭﮭ⁪ﮭﮭﮭ ﺨيﮭ⁪ﮭﮭﮭ ﺨﮭ ﻮﮭﮭﯾﻮﮭﮭﯿﻮﮭﮭﻵﻮﮭوﮭﻮﮭووﻮﮭوﻮﻮﮭوىﻮﮭوﻰﻮﮭوي This fund is responsible for a portion of the debt service on the 2013A bond issue. The outstanding liability on the bond was $754,899 at December 31, 2015. 22 City of Columbia Heights, Minnesota Audit Management Letter Enterprise Funds Refuse Fund 603 A graph of refuse operations is presented below: ﺨﻮ⁪ﮭﮭﮭ⁪ﮭﮭﮭ wśźĵℓśÜĊ╜▄╜ĊŦ ﺨو⁪ﯿﮭﮭ⁪ﮭﮭﮭ ﺨو⁪ﻲﮭﮭ⁪ﮭﮭﮭ ﺨو⁪ﻰﮭﮭ⁪ﮭﮭﮭ ﺨو⁪ﻮﮭﮭ⁪ﮭﮭﮭ h♫śŉĂĊ╜■┼9ŝ♫ś■ℓśℓÇŉĂ■ℓźśŉℓhĵĊ ﺨو⁪ﮭﮭﮭ⁪ﮭﮭﮭ h♫śŉĂĊ╜■┼wśōś■ĵś ﺨﯿﮭﮭ⁪ﮭﮭﮭ ﺨﻲﮭﮭ⁪ﮭﮭﮭ ﺨﻰﮭﮭ⁪ﮭﮭﮭ ﺨﻮﮭﮭ⁪ﮭﮭﮭ ﺨﮭ ﻮﮭﮭﯾﻮﮭﮭﯿﻮﮭﮭﻵﻮﮭوﮭﻮﮭووﻮﮭوﻮﻮﮭوىﻮﮭوﻰﻮﮭوي 23 City of Columbia Heights, Minnesota Audit Management Letter Enterprise Funds Municipal Liquor Fund 609 An analysis of 2015 activity is as follows: Top ValuTop Valu IIHeights Liquor2015 Total2014 Total AmountPercentAmountPercentAmountPercentAmountPercentAmountPercent Operating revenues$3,947,254100.00% $3,135,331100.00% $1,317,358100.00% $8,399,943100.00% $8,415,371100.00% Cost of goods sold2,963,71575.08% 2,360,38675.28% 1,014,79077.03% 6,338,89175.46% 6,343,66375.38% Gross margin983,53924.92% 774,94524.72% 302,56822.97% 2,061,05224.54% 2,071,70824.62% Other operating expenses754,81819.12% 589,81518.81% 190,07014.43% 1,534,70318.27% 1,536,98218.26% Net income from operations$228,7215.79% $185,1305.90% $112,4988.54% $526,3496.27% $534,7266.35% The following comments relate to the above table: Sales decreased by approximately $15,000 or 0.1%. Gross margin percent decreased from 24.62% to 24.54%. Operating expenses decreased by $2,000. Net income from operations decreased approximately $9,000 from 2014 to 2015. 24 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% As shown above, liquor operations have been an important revenue source for the City. 25 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 2014. 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 6 years available: 200920102011201220132014 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. AnthonySt. AnthonyElk River 8Elk RiverElk RiverElk RiverElk RiverElk RiverSaint Anthony 9Brooklyn CenterBrooklyn CenterBrooklyn CenterBrooklyn CenterBrooklyn CenterBrooklyn Center 10SavageFergus FallsFergus FallsFergus FallsFergus FallsDetroit Lakes 26 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 MarginMetro (1) Average Salesof SalesAmountPercent 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% Not Available (1) Source: Minnesota Office of the State Auditor - Metropolitan Area Off-Sale Operations 27 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% N/A 28 City of Columbia Heights, Minnesota Audit Management Letter Enterprise Funds 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%Not Available 29 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 2015, the City maintained the following Internal Service Funds: CentralInformationCompensatedTotals GarageSystemsInsuranceAbsences20152014 Assets: Cash$693,216$715,855$1,116,122$1,020,705$3,545,898$3,347,145 Other current assets83,37836,07666,384 - 185,838134,438 Capital assets1,216,41539,732 - - 1,256,1471,339,925 Total assets$1,993,009$791,663$1,182,506$1,020,705$4,987,883$4,821,508 Liabilities and Net Position Liabilities: Current liabilities$36,081$21,017$1,112$76,553$134,763$82,212 Compensated absences payable44,43521,400 - 944,1521,009,987979,150 Net pension liability/deferred inflows140,857191,269 - - 332,126 - Total liabilities221,373233,6861,1121,020,7051,476,8761,061,362 Net position1,771,636557,9771,181,394 - 3,511,0073,760,146 Total liabilities and net position$1,993,009$791,663$1,182,506$1,020,705$4,987,883$4,821,508 30 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. 31 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, 2015. 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 December 9, 2015 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. As described in Notes 10 and 16 to the financial statements, the City implemented GASB Statement No. 68, Accounting and Financial Reporting for Pensions – an Amendment of GASB Statement No. 27 for the year ended December 31, 2015. The most significant effect of this standard is that it required the City to record its proportionate share of the net pension liability of defined benefit pension plans, as well as related deferred inflows and outflows of resources. These items are only reported on full-accrual financial statements. The liability was initially recorded by restating beginning net position. It should be noted that the City’s contribution requirements to pension plans have not changed as a result of this standard. We noted no transactions entered into by the City of Columbia Heights, Minnesota (the City) during the year which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. 32 City of Columbia Heights, Minnesota Audit Management Letter Communication With Those Charged With Governance 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 disclosures most likely to be considered sensitive are Note 10– Retirement Plans and Note 16 – Change in Accounting Principle. 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. 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 33 City of Columbia Heights, Minnesota Audit Management Letter Communication With Those Charged With Governance effect on our opinion on the financial statements. There was one adjustment identified during the audit relating to a year-end accrual. 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 13, 2016. 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. 34 City of Columbia Heights, Minnesota Audit Management Letter Communication With Those Charged With Governance 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. 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. 35 City of Columbia Heights, Minnesota Audit Management Letter Communication With Those Charged With Governance 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. 36