2014 Management Letter - Laserfiche WebLink

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2014-002 Financing plan Condition: During our audit, it was noted that a payment was made to the City of Lino Lakes for the City’s share of a joint project totaling $310,961. The project included a street, sewer and water component but the entire project was paid from the water fund. Typically, project costs should be funded by the benefitted fund. Furthermore, when reviewing support for this payment it appeared that a documented financing plan was not in place. Upon further review, a draft special assessment agreement was found in the project file. However, it was not signed or approved by City Council. Criteria: Without a signed agreement or other supporting documentation, the City cannot establish evidence that a commitment for payment from the benefitted party has been agreed to. Cause: It appears that the City did not have proper follow up or documentation to document evidence of the special assessment agreement. Effect: The effect of this condition is two-fold. First, it appears that the Water fund had the most cash and as a result was used to pay for the project. While this may be acceptable, we did not see evidence that the Council considered other options. The long term effect of this practice is that the water fund rates end up being higher than necessary in order to fund projects that could be financed by general tax levy or specific benefitted properties. Second, without the proper signed agreement in place there is no signed evidence of the benefitted parties commitment to pay for the project. Recommendation: We recommend City procedures should include proper approval from City Council and any other required parties for the financing plan, which also identifies the components of the project and what resources the City uses to fund them. This will give council better tools to evaluate the project and understand the true costs. Management response: The City has located the signed assessment agreement and will be presenting it to the City Council for official approval as soon as possible. The agreement will be revised to include updated costs and new financing terms. Compliance and Other Matters As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we performed tests of compliance with certain provisions of Minnesota statutes. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. While our audit provides a reasonable basis for our opinion, it does not provide a legal determination on the City’s compliance with those requirements. We noted no instances of noncompliance with Minnesota statues except as noted below. 2014-001 Public purpose expenditure Condition: Our audit procedures include certain tests of the City’s compliance with specific statutes and rules. During our tests we noted that the City Council approved a purchase for a painting costing $296 and presented it as a gift to the retiring City Administrator. Criteria: According to Minnesota statutes section 15.46, in order for an expenditure of public funds to be lawful it should meet two standards: 1.) There must be a public purpose for the expenditure and 2.) There must be specific or implied authority for the expenditure in statute or in the City’s charter. Minnesota statutes do not provide the authority for employee recognition. Cause: It appears the City Council did not adequately consider the lawful purpose statutes. Effect: While the amount may be considered relatively minor, the expenditure does not meet the criteria for a valid public expenditure and as a result the City is out of compliance with statutes. Recommendation: We recommend the City Council review the public purpose guidelines to ensure expenditures meet the above requirements. Management response: The Mayor and City Council members have, subsequently, reimbursed the City for the entire cost of the painting. -2-