HomeMy WebLinkAbout2009-08-26 Handouts @ Mtg.
CITY OF CENTERVILLE
08/26/09 1 :53 PM
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E<ltlbilslied'.lli5,~
*Check Summary Register@
tervi{{e
UPDATE
Name
Check Date
AUGUST 2009
Check Ami
10100 MAIN STREET BANK
Paid Chk# 024700 BURNETT TITLE
Paid Chk# 024701 COMCAST
Paid Chk# 024702 DARION & SUSAN LOVE
Paid Chk# 024703 DAVE KICHLER INSPECTIONS,
Paid Chk# 024704 HORTICULTURE SERVICES LLC.
Paid Chk# 024705 LINCOLN MUTUAL LIFE &
Paid Chk# 024706 MICHAEL J & SUSAN M
Paid Chk# 024707 MINN. DEPT. OF HEALTH
Paid Chk# 024708 MN DEPT OF LABOR &
Paid Chk# 024709 PETERSON, TEDD
Paid Chk# 024710 QWEST
Paid Chk# 024711 THE CITIZEN
Paid Chk# 024716 STEPHAN, KIM
Paid Chk# BI-WEEKL Y ACH
Paid Chk# BI-WEEKL Y ACH
Paid Chk# BI-WEEKL Y ACH
8/26/2009
8/26/2009
8/26/2009
8/26/2009
8/26/2009
8/26/2009
8/2612009
8/26/2009
8/26/2009
8/2612009
8/26/2009
8/26/2009
8/26/2009
8/6/2009
8/11/2009
8/20/2009
Total Checks
Voided checks #24712 through 24715 - duplication of checks
$6.38 OVER PYMT 1862 -73RD ST - 09 S
$66.64 INTERNET/CABLE
$1,910.00 PERMANENT EASEMENT & TEMP. EAS
$1,533.60 ELECTRICAL INSPECTIONS
$634.84 ROUGH MOW - EMPTY LOTS ON DUPR
$180.78 SHORT TERM DISABILITY INS. - S
$3,450.00 PERMANENT EASEMENT & TEMP. EAS
$1,604.00 QUARTERLY WATER TESTING
$327.93 BUILDING PERMIT SURCHARGES 2ND
$142.45 MILEAGE REIMBURSEMENT - WATER
$425.80 651-429-3232 - PHONE SERV THR
$1,174.50 SUMMARY FINANCIAL REPORT
$200.06 MEDICAL EXP. REIMBURSEMENT
$21,204.81 PAY PERIOD 16
$242.08 PAY PERIOD 16.1
$21,282.94 PAYPERIOD 17
$54,386.81
CITY OF CENTERVILLE, MINNESOTA
January 1,2005, through December 31, 2008
Petition Engagement
Audit Practice Division
Office of the State Auditor
State of Minnesota
STATE OF MINNESOTA
OFFICE OF THE STATE AUDITOR
REBECCA OTTO
STATE AUDITOR
SUITE 500
525 PARK STREET
SAINT PAUL, MN 55103-2139
(651) 296-2551 (Voice)
(651) 296-4755 (Fax)
state.auditor@state.mn.us (E-Mail)
1-800-627-3529 (Relay Service)
Petitioners
Members of the City Council
City of Centerville
Anoka County
INTRODUCTION AND BACKGROUND
Eligible voters from the City of Centerville petitioned the Office of the State Auditor (OSA) to
examine the books, records, accounts, and affairs of the City in accordance with Minn. Stat.
S 6.54 for the period January I, 2005, through December 31, 2008.
The City is a public corporation and part of the State of Minnesota's general and uniform system
of cities. The elected City Council is responsible for the care, management, and control of the
City. A City Administrator is employed by the Council and is responsible for administrative
duties. The City's financial statements are audited annually by an independent audit firm.
The OSA has completed its examination into the concerns identified by the petitioners of the
City. The objectives of the engagement were to address the concerns of, and to answer the
questions raised by, the petitioners. Where applicable and appropriate, we make
recommendations to the City in this report.
Minn. Stat. S 6.54 allows the OSA, in the public interest, to confme the scope of the examination
to less than that requested by the petition. Communications with the Chief Petitioner assisted us
in developing an understanding of the petitioners' areas of interest or concern. We established
that some of the issues raised were not within the scope of this review.
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An Equal Opportunity Employer
Conflicts of Interest
Petitioner~ ~Nere concerned that a conflict of interest existed between the City Finance Director
and the City of Centerville. They were concerned that the Finance Director had outside
employment that may have presented a conflict of interest with the City of Centerville.
Furthermore, the petitioners were concerned that the Finance Director was working on business
not involving the City of Centerville during the hours he was paid by the City of Centerville.
We reviewed the City of Centerville's Personnel Policies, its Code of Ethics Policy, the City's
Internal Control Procedures, Disclosure of Financial Interest statements filed at City Hall, and
timesheets submitted by the Finance Director for calendar year 2007 . We also discussed the
petitioners' concerns with the City of Centerville's City Administrator and reviewed mileage
reimbursement request forms submitted by the Finance Director and payments made by the City
of Centerville for cell phone usage. The following items were noted.
1. Section 5 of the City of Centerville's Code of Ethics Policy requires each public official,
as defined therein, to file, as public record, in the office of the City Administrator, a
statement regarding financial interests that the official may have concerning the City of
Centerville. The City has developed a "Disclosure of Financial Interests" form to
document the required disclosures by the public official. A "Disclosure of Financial
Interests" statement signed and dated by the Finance Director on January 16, 2008, was
filed with the City Administrator.
The form requires the form preparer to provide "a list naming aU business enterprises
known by me to be licensed by or to be doing business with the city, which I or any
member of my immediate family is connected as a (an) employee, officer, owner,
investor, creditor of, director, trustee, partner, advisor, or consultant" and "a list of my
interests, or the interests of my immediate family, in real property located in the city, or
which may be competing with the interests of the city located elsewhere, other than
property occupied as a personal residence." In both instances, the Finance Director wrote
"none" in response to the requests.
2. Section 6.7 of the City of Centerville's Personnel Policies states that "Employees must
devote all work time to City business. Work time describes the entire workday as
scheduled. No work relating to outside employment or other non-City business may be
performed during work time. Outside employment may not present a conflict of interest
or in any way jeopardize the welfare of the City. No Employee shall accept payor
compensation from anyone for work done during time reimbursed by the City."
Section II of the City qf Centerville's Internal Control Procedures requires timesheets to
document hours that the employee worked and that the timesheets be signed by the
employee's immediate supervisor and the City Administrator authorizing payment for the
work.
Page 2
All of the Finance Director's timesheets for calendar year 2007 were signed as reviewed
by the City Administrator.
3. We provided the City Administrator with copies of websites that referred to projects with
which the Finance Director had been involved, including projects with the City of
Centerville. The City Administrator provided a letter to us in response to the information
we provided. He stated, "I have looked in more depth at the material and have provided
the information to our City Attorney, Kurt Glaser. Neither Kurt nor I found any evidence
that the employee has done anything illegal, improper or unethical."
4. We reviewed supporting documentation for a sample of disbursements made by the City
of Centerville related to cell phone usage starting with calendar year 2005 through
November 2008. Each invoice we reviewed supporting the City's disbursement indicated
that the services provided were for five specific cell phone numbers. Four of the phone
numbers were assigned to public works personnel, with the other assigned to the City
Administrator. We also reviewed supporting documentation for a sample of
disbursements paid by the City of Centerville to the Finance Director for possible
reimbursements for use of his personal cell phone. No such reimbursements were noted
during the period of January 1,2005, through November 30, 2008.
Based on the review of the Disclosure of Financial Interests statement submitted by the City of
CenterviIle's Finance Director, the timesheets submitted by the City's Finance Director and
reviewed by the City Administrator, the disbursements made to the City's Finance Director that
were reviewed and approved by the City, and the City of Centerville Attorney's opinion
regarding the website information provided to him, we found no evidence to support that a
conflict of interest between the City's Finance Director and the City of CenterviIle had, in fact,
occurred or that the Finance Director worked on business not involving the City of Centerville
during the hours he was paid by the City.
Ene:ineer Costs
The petitioners were concerned with the amount of engineering fees paid to Bonestroo, Rosene,
AnderIik & Associates, Inc., (Bonestroo) and whether a conflict of interest existed between an
employee of the firm and the City ofCenterville.
We reviewed City Council meeting minutes, the contractual agreement between Bonestroo and
the City ofCenterviIle, and invoices received from Bonestroo and paid by the City ofCenterviIle
for calendar years 2005 through 2008. The following items were noted.
I. The City of Centerville does not employ a City Engineer; thus, the City has a professional
services contract for engineering services. The engineer is not an employee of the City of
Centerville and, therefore, a conflict of interest does not exist between the engineer and
the City of Centerville.
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2. On August 27,1998, the City ofCenterville entered into an agreement with Bonestroo for
professional engineering services, as well as for professional services in the planning,
design, and construction of public works and special projects. Pursuant to the agreement,
the City may also direct the engineer to provide services not related to a construction
project, such as: traffic studies, transportation studies, feasibility investigations, studies
and reports; sanitary sewer, water, and stormwater system master plans; environmental
assessments, worksheets or impact statements; and rate studies; as well as various other
services. The agreement provides for rates to be adjusted annually by Bonestroo at the
fIrst of the year. The agreement continues until either party cancels.
3. Regarding the City's monitoring and oversight of the services Bonestroo provided, the
City Administrator stated, "Bonestroo provides a breakdown of hours of each person that
works on any of the City's projects. As for monitoring, the City knows what projects
Bonestroo is working on, and budgets are preauthorized for each. They are a professional
services company, and we trust that they are submitting honest bills for the hours they
work on our project. The City checks the computations and watches to make sure that
Bonestroo does not exceed the allotted budget in their billings."
4. We reviewed a sample of disbursements paid by the City to Bonestroo during calendar
years 2005 through 2008 and noted that all invoices sent to the City of Centerville were
accompanied with supporting documentation from Bonestroo.
5. We examined the detail of a 2008 invoice from Bonestroo and compared the rates
charged on the invoice to a 2008 rate schedule provided by Bonestroo and approved by
the City. The rates charged on the invoice agreed with the approved rate schedule
without exception.
In light of the amount of engineering fees paid by the City of Centerville to Bonestroo, we
recommend that the City consider developing a Request for Proposal (RFP). The responses to
this "official" statement to vendors about the services the City of Centerville requires would
provide a comparison of what other vendors can provide as professional engineering services to
the City and at what cost. RFPs have several benefIts:
. they inform vendors that the City is looking to procure professional services and encourages
vendors to make their best effort,
. they require the City to specifY what it proposes to purchase,
. they alert vendors that the selection process is competitive, and
. they allow for a wide distribution and response.
Page 4
Ensuing agreements or contracts could be for a specified term in years with options to extend for
additional terms. By following a structured evaluation and selection procedure, the City can
demonstrate impartiality. The City of Centerville should, on a regular basis, be knowledgeable
about the marketplace to ensure that the most cost-effective services are being provided.
We recommend that the City Council document its decision to develop or not develop an RFP in
its minutes.
We recommend there be an updated, written agreement between the City and Bonestroo since
the agreement in place is currently over ten years old.
Development Al!:reement
The petitioners were concerned that a conflict of interest existed between Centerville Mainstreet,
LLC, and the City of Centerville, and that all zoning codes now refer to the redevelopment plan
under Centerville Mainstreet, LLC.
We reviewed the agreement entered into between Centerville Mainstreet, LLC, and the City of
Centerville; information obtained from the Minnesota Secretary of State; and the City's Check
Summary Registers covering the time period of July 1,2007, through November 30, 2008. We
noted the following items.
1. On July 11, 2007, the City of Centerville entered into an agreement with Centerville
Mainstreet, LLC, for Centerville Mainstreet, LLC, to be the developer for the City's
downtown redevelopment project. Centerville Mainstreet, LLC, is an operating entity of
The Beard Group, Inc.
2. We gathered information from the Minnesota Secretary of State's Office which stated
that the manager of Centerville Mainstreet, LLC, is William Beard. According to The
Beard Group, Inc.'s, website, William Beard chartered the company and is the current
President/CEO. The City of Centerville is aware that there is a relationship between The
Beard Group, Inc., and Centerville Mainstreet, LLC.
3. No disbursements were directly made by the City to the Centerville Mainstreet, LLC, for
the period July 2007 through November 2008.
Based on our review, the City seems to refer to Centerville Mainstreet, LLC, and The Beard
Group, Inc., interchangeably, and this may be causing confusion to those referring to the City's
zoning codes. We are not aware of any conflict of interest or legal concerns regarding the
creation of Centerville Mainstreet, LLC, by The Beard Group, Inc.
Page 5
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Missinl! Checks
The petitioners noticed gaps ranging in number from 3 to 23 in the sequence of checks from
January 2008 through October 2008 from each Check Summary Register listing posted on the
City of Centerville's website as a part of the City Council agenda packets. The petitioners were
concerned that these checks were missing.
We discussed with City personnel the process of preparing Check Summary Register listings for
the purpose of including them in City Council agenda packets and reviewed the Check Summary
Register listings provided to us by the City for January through October 2008. The following
items were noted.
1. There are two Check Summary Register listings prepared for every City of Centerville
Council meeting. The first listing is provided to City Council members and the Mayor in
their agenda packets approximately one week before the City Council meeting to allow
Council members and the Mayor time to review the proposed disbursements before the
Council meeting takes place. A second Check Summary Register listing is then prepared
as of the day of the Council meeting, which includes additional checks to be issued that
were identified after the first listing was prepared.
2. The Check Summary Register listings provided to us for the time period of January 1
through October 31, 2008, included all checks in numerical order, except for one. That
one check was indicated on the Check Summary Register listing as "void." We viewed
that original check, which corroborated the Check Summary Register listing as "void."
Based on this review, all checks issued by the City of Centerville were included on the Check
Summary Register listings for the time period of January I through October 31, 2008.
Special Assessments
The petitioners were concerned that the City's special assessments for local improvements were
spread City-wide instead ofto only those directly affected.
Special assessments for local improvements can generally be spread to benefitted parcels of
property. The special assessment process allows individual property owners to raise objections
to the assessment at a public special assessment hearing according to Minn. Stat. ch.429. The
law provides that, "[a]ll objections to the assessment not received at the assessment hearing . . .
are waived" unless due to a reasonable cause. Minn. Stat. S 429.061, subd. 2. We reviewed
whether proper notice was given by the City prior to assessing property owners.
Page 6
1. Under Minn. Stat. 1i 429.061, an assessment hearing generally must be held. According
to the statute, a city must publish a notice in the newspaper at least once, not less than
two weeks prior to the assessment hearing. A city must also mail a notice to each
affected property owner at least two weeks prior to the assessment hearing.
2. If a property owner attends the public hearing, objects to the special assessment to be
certified on his or her property, and the special assessment is spread anyway, the property
owner may appeal to the district court with the knowledge that failure might mean paying
court costs. Per Minn. Stat. 1i 429.061, subd. 2, if the property owners fail to object at the
public hearing, they waive their right to appeal.
We reviewed affidavits of publication and mailing for notice of hearings for the City of
Centerville's "429 projects" for the period January 2005 through November 2008. Based on this
review, we have concluded that proper notice of the public hearings was given when required, in
accordance with Minn. Stat. ch. 429. The decision to use special assessments for all or part of
the costs of an improvement is a matter of discretion for the City Council.
Tax Increment Financinl! ITIF)
The petitioners were concerned about the establishment of a specific tax increment financing
district relating to Northern Forest Products, LLC. Specific concerns included whether the
TIF district has ended or was it extended, and whether taxes captured were used appropriately,
and were any of the tax increments received used to fund private developers' costs.
We reviewed the adopted TIF plan, Anoka County property tax records, and reports filed by the
City of Centerville with the TIF Division of the OSA. The following items were noted.
1. The City Council adopted a TIF District 1-5 plan on December 22, 1997.
2. Anoka County tax records indicate the parcel ID included in TIF District 1-5 identified
Northern Forest Products, LLC, as the owner of the parcel.
3. TIF reports for TIF District 1-5, completed by the City of Centerville and filed with the
TIF Division of the OSA, indicate only a small amount of tax increment revenue was
ever received, and TIF District 1-5 was decertified in 2002.
Since TIF District 1-5 was decertified in 2002 and there was a minimal amount of tax increments
received, we did not address the use of these tax increment funds.
Page 7
Use of Eminent Domain
The petitioners were concerned that the City of Centerville purchased houses through the use of
eminent domain procedures, but the land purchased was not being used by the City.
We met with City personnel; reviewed City Council meeting minutes; reviewed a development
agreement between the City of Centerville and Centerville Mainstreet, LLC; and reviewed
Minnesota statutes. The following items were noted.
I. One property has been taken under eminent domain from Sheehy Construction for the
"Backage Road Project," but no homes were taken under the eminent domain laws.
2. The development agreement between the City of Centerville and Centerville Mainstreet,
LLC, (Developer) for the Downtown Redevelopment Project indicates that the Developer
is to attempt to obtain the acquisition properties on a voluntary basis; otherwise, the City
of Centerville has the authority, under eminent domain laws, to obtain the properties on
an involuntary basis. The agreement also states that Phase I was to begin on or before
September 30, 2007.
3. The City Administrator told us that no phases of the Downtown Redevelopment Project
have been started yet due to the current housing market. In the development agreement,
there is an attachment (Schedule A-I) listing the properties to be acquired. We asked the
City Administrator if the listing was still current. He said that they were in the early
stages of this project, and the property acquisition stage was not yet underway and would
not be for a while.
Based on our review, we are not aware of any houses that have been taken by eminent domain
during the period January 2005 through December 2008. Furthermore, the development
agreement for the City of Centerville' s Downtown Redevelopment Project states that the City is
acting under a valid public purpose, which is required for use of eminent domain. The City
intends to attempt to negotiate with property owners prior to commencing eminent domain
proceedings. This is in accordance with the development agreement and Minn. Stat. S 117.036,
subd. 3, which requires a good faith attempt to negotiate with the owner of the property. Minn.
Stat. S 117.036 also states that, "Before commencing an eminent domain proceeding under this
chapter, the acquiring authority must obtain at least one appraisal for the property proposed to be
acquired." The property owner may also obtain an appraisal. The procedures required in
eminent domain proceedings are set forth in Minnesota law. Ultimately, property owners may
appeal to the district court.
Backae:e Road
The petitioners were concerned that property was condemned and that costs were incurred by the
City of Centerville to construct a "backage road" for a company whose building was located in
Centerville.
Page 8
We reviewed City Council meeting minutes and a sununary of revenues and expenditures
prepared by the City related to this project. The following is a summary of our findings
regarding the property.
1. City Council Resolution #06-020, dated February 22, 2006, authorized the condemnation
of private property for public utility and drainage easements (21st Avenue/Backage Road
Improvements): The City Attorney was authorized to commence eminent domain
proceedings pursuant to Minn. Stat. ch. 117 to acquire the real property interests. The
City Council Resolution also stated that the City Council had determined that it was
"necessary and for a public use and purpose to acquire easements over the property . . .
for public utility and drainage easements and temporary construction purposes with
21st Avenue/Backage Road Improvements." Furthermore, the City of Centerville
determined that the costs involved would not outweigh the benefit the affected citizens of
Centerville would receive.
2. The City of Centerville incurred legal expenditures for this project related to the
acquisition of property from Sheehy Construction, who had objected to the eminent
domain proceedings.
3. In 2006, per City Council Resolution #06-038, the City of Centerville issued $2,700,000
in General Obligation Bonds, Series 2006A, to provide the majority of the funding for the
Backage Road Proj ect as well as the Hunters Crossing III project.
Use of Bond Proceeds
The petitioners were concerned how proceeds from a bond issue to [mance the reconstruction of
County Road 14 were used. There was a concern that the proceeds may have been used to assist
private developers.
We reviewed City Council meeting minutes, a bond indebtedness report prepared by the City,
and expenditures funded with the bond proceeds. The following items were noted.
1. City Council Resolution #07-045 accepted the proposal on the sale of $2,600,000 General
Obligation Improvements Bonds, Series 2007 A, which were issued to finance the
Fairview Street Improvements project, the Old Mill Road Improvement project, and the
CSAH 14 Improvements project. According to City personnel, the Old Mill Road and
Hanzal Development represent the same project. 'This project was a petition by the
property owner as a street and utility project (curb and gutter) that the City of Centerville
accepted.
2. According to the Indebtedness Report at December 31, 2008, prepared by the City, the
City of Centerville's scheduled principal and interest payments on these bonds were
$2,600,000 and $910,428, respectively. The debt payments are scheduled to be fmanced
with $2,499,000 of tax levies and $1,011,428 of certified special assessments.
Page 9
3. The $2,600,000 General Obligation Improvements Bonds, Series 2007A, bond budget
prepared by the City indicated $718,256 of the bond proceeds were to fund the Old Mill
RoadIHanzal Development and Fairview Street Improvements projects, with the
remaining $1,881,744 of bond proceeds funding the CSAH 14 Improvements project.
4. A review of the expenditures incurred through December 2008 determined that the bond
proceeds funded only the three projects mentioned above and did not fund any other
projects or private developments.
Since the City Council accepted the projects, which included the Old Mill RoadIHanzal
Development project, to be fmanced with the issuance of the $2,600,000 General Obligation
Improvements Bonds, Series 2007 A, the proceeds were used for their intended purpose.
Trail Grant
The petitioners were concerned that a grant awarded to the City to be spent on a trail system was
used towards constructing sidewalks and that the City's participation in the trail project will not
be completely financed by the grant.
The petitioners provided us with an article published August 19,2008, in the Quad Community
Press, which mentioned the discussion of the trail grant and that the cost of the 26 trails is
expected to be more than $1.7 million. Our review of the City Council meeting minutes did not
note any mention of the $1.7 million figure as indicated in the newspaper article.
We reviewed the City's application for federal Transportation Enhancement funds, the approved
grant agreement provided to the City of Centerville, City Council meeting minutes, and had a
discussion with City personnel. The following items were noted in this review.
I. During 2007, the City of Centerville applied for a federal Transportation Enhancement
grant, which was awarded March 3, 2008, for the purpose of tying all neighborhood trails
to the Regional Trail. The City has until the end of 2010 to spend the grant funds.
According to our discussion with City personnel, the City of Centerville has expended
funds for this project only on engineering costs, which are not eligible to be reimbursed
by the grant. Thus, no reimbursement for expenditures had been made as of December
2008.
2. The $706,500 federal grant required a $235,500 local match and is on a reimbursement
basis; therefore, the City of Centerville will expend costs first and then request
reimbursement of the costs. The City anticipates that the local match funds will be
provided through park dedication fees.
3. The scope of the grant project includes the construction of a pedestrian/bicycle trail
linkage.
Page 10
Based on our review, funding related to the federal Transportation Enhancement grant is required
to be spent on qualified activities, which may include sidewalks that were part of the project
description submitted on the federal Transportation Enhancement fund application. The City of
Centerville is required to provide $235,500 of its own funds for this project as well. As of
December 2008, the City had not incurred any costs that would result in reimbursement of grant
funds from the federal government.
Public Works Buildinl!:
The petitioners were concerned that money from the Water and Sewer Funds was used to help
purchase the City's new public works building.
We reviewed City Council meeting minutes; the City's audited annual financial reports for the
years ended December 31, 2005 through 2008; and the management letters (required
communications letters) issued by the City's independent auditors for each of the annual audits.
The following items were noted.
1. City Council Resolution #007-027, adopted July 11,2007, authorized the purchase of the
land and building at 2085 Cedar Street for a cost of $1,400,000, which the City Council
determined to be in the best interest of the City. Funding was authorized as follows:
$800,000 from the General Fund, of which $413,000 would be provided from the General
Fund capital reserve; $200,000 from the Water Fund; and $400,000 from the Sewer Fund.
Included in the City resolution was authorization for a short-term loan to the General
Fund from the Sewer Fund in the amount of $400,000 to be repaid upon sale of the
existing public works site. The loan is to be repaid on or about September 1, 2009, with
interest at six percent from the date funds are transferred to the date repaid.
2. Staff operating out of the public works building include those maintaining streets, parks,
water utilities, and sewer utilities.
3. The independent auditor's schedules of findings for the City of Centerville contained in
the above-mentioned audited annual financial reports did not include any written
comments related to transfers or sufficiency of unrestricted net assets of the Water Fund
and Sewer Fund.
4. The independent auditor's management letters advise the City of the importance of
completing water and sewer rate analyses to ensure sufficient revenue to cover operating
costs. The cash and investment balances in the Water and Sewer Funds, after adjusting
for cash advances, have increased each year from 2005 to 2007.
Page 11
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5. During 2008, the Water Fund and the Sewer Fund disbursed the $200,000 and $400,000,
respectively, previously authorized for the public works building. The Water and Sewer
Funds had sufficient cash reserves so the cash and investment balances, again after
adjusting for cash advances, decreased by only $55,184 and $223,791, respectively.
Based on this information, transactions for the purchase of the public works building
appear reasonable and appropriate. The fact that some money from the Water and Sewer
Funds was used for the purchase should not have a bearing on special assessments, as
only properties benefitting can be specially assessed. Centerville's hook-up fees are
classified as nonoperating revenue to provide funding for expansion. Water and sewer
rates charged for services are based on the City's operating costs.
Mileae:e and Uniform Reimbursements
The petitioners were concerned that mileage and uniform reimbursements were not in
accordance with City policies or were not properly approved. Specifically, they were concerned
that the City Administrator and the Finance Director were allowed to submit mileage
reimbursement requests without the same level of support as other employees and that a
$50 annual uniform allowance was given to public works staff without proper City Council
approval.
We discussed the adopted City policy and procedure regarding employee mileage reimbursement
with the City Administrator, reviewed a sample of claims submitted by the City Administrator
and the City Finance Director for reimbursement of mileage, and reviewed City Council meeting
minutes. We noted the following.
1. The City of Centerville does not require any type of support (such as Mapquest@ or
odometer readings) to be submitted with mileage reimbursement requests. The City of
Centerville's procedure is to have the accounts payable/payroll clerk review employee
mileage reimbursement requests; however, this review is not evidenced on the actual
reimbursement forms.
2. The City Administrator and the City Finance Director were not allowed to provide any
less or different support for their mileage reimbursement requests than that required of
other employees, and they were prepared according to City policy.
3. The November 30, 2005, City Council meeting minutes indicate that the City Council
approved City employees who are union members and already receiving a $350 per year
clothing allowance will continue to receive that amount, and the non-union City
employees will receive reimbursement for clothing up to $50 per year in 2005 and
$60 per year beginning in 2006. All clothing will have the City logo on it.
4. Expense reimbursement forms are not consistently signed by either the employee or a
supervisor.
Page 12
We recommend that all employees sign their own expense reimbursement request forms and that
support for mileage claims (such as MapquestiIJ or odometer readings) be included with
employee expense reimbursement request forms. The expense reimbursement form should have
written evidence that it was reviewed by a responsible party. We also recommend that the City
of Centerville strengthen its current policies and procedures to include the recommendations
outlined. The City Council is charged with auditing claims, and the procedures mentioned would
allow them to do so more effectively.
The annual uniform allowance being given to staff was properly approved by the City Council.
Public Services Billinl!
The petitioners were concerned that the increase in the cost of public services (building
inspections, water utility, sewer service, and road work) was inflated based on the City of
Centerville allocating all City employees' salary and fringe benefits on these services.
We reviewed the time allotment and related salary and fringe benefit expense allocation prepared
by the City of Centerville and compared this with the actual wages and salaries expenditures
charged to various accounts for the period January 2005 through December 2008 to determine if
the time allocation was consistently applied. We noted the following upon our review.
I. A time study had been performed by the City of Centerville many years ago, but could
not be supported as to how the breakout was calculated.
2. Employees' wages and salaries expenditures were allocated to various functions:
administration, building inspection, city hall, public works, cultural and recreation,
recycling, storm water, water, sewer, and cable television. The variances between the
planned expense allocation and the actual expenses allocated for the period January 2005
through December 2008 were minimal, with the highest variance being five percent in a
gIVen year.
3. When comparing the actual wages and salaries expenditures charged to the accounts for
the period January 2005 through December 2008 as a percentage of the employees' total
salary to the time allotment percentages provided by the City, the variances were
minimal, with the highest variance being seven percent in a given year.
Based on the City-prepared time allotment, wages and salaries expenditures were allocated on a
consistent basis and have not changed over time. Since the time study was performed a number
of years ago, we recommend that the City of Centerville prepare an updated time study to ensure
that it reflects current time actually being worked in the respective areas.
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Allocation of Expenses
The petitioners were concerned about the allocation of salary expense for the City Administrator
and the City Finance Director.
We reviewed the time allotment and related salary and fringe benefit expense allocation prepared
by the City of Centerville. We noted the following.
1. The City Administrator's salary and fringe benefit expense was allocated to the General
Fund as follows: 90 percent to administration and 10 percent to inspection.
2. The City Finance Director's salary and fringe benefit expense was allocated as follows:
75 percent to administration and 5 percent to inspection (both in the General Fund),
10 percent to the Water Fund, and 10 percent to the Sewer Fund.
The allocation of the salary and fringe benefit expenses does not seem unreasonable; however,
we recommend that the City continue to monitor the time being spent by these positions to allow
for future allocation revisions if deemed necessary.
Investment Accounts
The petitioners were concerned that the City of Centerville had numerous investment accounts
and possibly many transfers were made between these accounts.
We reviewed the monthly investment statements received by the City from Smith Barney for the
period January I, 2005, through November 30, 2008, and compared the amounts at
December 31,2005,2006, and 2007, included in the City's audited annual financial reports to
verifY that all investments were included. We noted the following.
1. All investments (money market account and direct obligations or obligations guaranteed
by the United States or its agencies) were held with Smith Barney in one account for the
period January I, 2005, through November 30, 2008.
2. All cash withdrawals made during the period January I, 2005, through November 30,
2008, from the Smith Barney account were traced to deposits on bank statements from
Mainstreet Bank.
3. In each of the aforementioned audited annual financial reports for the City of Centerville,
the independent auditor included a schedule of findings. In the report for the calendar
year 2007, the auditor commented that the City was found to have limited segregation of
duties in the transaction cycle relating to investments because the City Finance Director
had responsibilities over all duties of authorization, custody, record keeping, and
reconciliation. The auditor recommended review of investment statements prior to the
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City Finance Director recelvmg them. In response to the auditor's finding, City
management stated, "Management has initiated changes in the investment procedures to
ensure that there is separation between initiation and authorization and that the Finance
Director only has authority to move funds between existing accounts."
Based on this information, the City of Centerville's investments were held in one account with
Smith Barney, and all cash withdrawals were accounted for during calendar years 2005 through
2007. An audit by us of the City's response to the independent auditor's finding is not within the
scope of this review, though typically the City's independent auditors perform follow-up on
auditee corrective actions or plans during the succeeding audit. In the audited financial report for
the City of Centerville for 2008, the independent auditor repeated its finding because the City
Finance Director continued to have responsibility over all previously mentioned duties relative to
the investment transaction cycle, though the auditor commented "... but there is some review of
the statements by the City Administrator." The City's management repeated its response to this
finding.
Minutes
The petitioners were concerned that the official meeting minutes from the Parks and Recreation
committee meetings for calendar years 2006 and 2007 were no longer available on the City of
Centerville's website (www.Centerville.mn.us).
We met with City personnel and reviewed Minnesota statutes. We noted the following.
1. When the hyperlink related to the minutes for the Parks and Recreation committee
meeting minutes was selected, it displayed 'image not available' and 'text not available.'
In order to view the minutes, the 'download electronic file' hyperlink must be selected.
We tried this various times and were able to view all of the Parks and Recreation
committee meeting minutes for calendar years 2006 and 2007.
2. The Parks and Recreation committee meeting minutes are available on the City of
Centerville's website only. Furthermore, it was determined that the approved City
Council meeting minutes are available on the City's website and are also burned onto
DVDs, which are unalterable and kept at a separate location.
Minn. Stat. S 13D.Ol, subd. 4, states that, "(a) The votes of the members of the state
agency, board, commission, or department; or of the governing body, committee,
subcommittee, board, department, or commission on an action taken in a meeting
required by this section to be open to the public must be recorded in a journal kept for
that purpose."
Minn. Stat. S 13D.ol, subd. 5, states that, "The journal must be open to the public during
all normal business hours where records of the public body are kept."
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It is our conclusion that providing meeting minutes on the City of Centerville's website alone
does not fulfill the requirements of the Open Meeting Law, Minn. Stat. ch. I3D. In order to
comply, we recommend the City ofCenterville keep meeting minutes open to the public at City
Hall (where the records are kept) during all normal business hours.
Hidden Surin2s Park
The petitioners were concerned with the funding of the purchase of land which became Hidden
Springs Park. The petitioners were also concerned with the choice of engineer for this project.
We met with City personnel and reviewed City Council meeting minutes, a cost analysis
prepared by the City related to the purchase of the land and ensuing project costs, and a grant
agreement between the Minnesota Department of Natural Resources and the City of Centerville.
The following is a summary of our fmdings for the purchase of the Hidden Springs Park land.
I. The grant agreement and authorization for closing on the land purchase from the St. Paul
Regional Water Services was approved in the September 21,2006, City Council meeting
minutes. The purchase price was $536,000.
2. A project breakdown of the revenues and expenditures for the Hidden Springs Park
project indicated that the land purchase was funded in part by a $150,000 grant from the
Minnesota Department of Natural Resources. The remaining portion of the purchase is
being financed from park dedication fees. Since all of the anticipated park dedication
fees had not been received, an interfund loan to the Park Capital Projects Fund from the
Sewer Fund was made.
3. Engineering services were provided by Bonestroo.
2009 Street and Utilitv Imurovement Proiect
The petitioners were concerned with the scope of the 2009 Street and Utility Improvement
Project.
We met with City personnel and reviewed City Council meeting minutes, a
Revenue/Expenditure Audit Summary report for calendar years 2007 and 2008 that was prepared
by the City, and the costs incurred through 2008 which are only "soft costs" (engineering and
administrative costs). The following items were noted.
1. City personnel stated that planning for the 2009 Street and Utility Improvement Project
began in 2007 with a project estimate of $7.0 to $7.5 million. In mid-summer of 2008,
the project estimate was reduced to approximately $3.5 million.
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2. By Resolution #08-015, the City Council ordered the street improvements with the work
to be designed, bid, and a construction contract awarded by December 31, 2010.
Bonestroo was designated as the project engineer.
3. City Council Resolution #08-016 stated that the Council authorized Bonestroo to prepare
plans and specifications for the making of the improvements.
The project was properly approved by the City Council. It is outside of our scope to re-assess
the scope of this City project. It is up to the City ofCenterville's management (City Council and
Mayor as representatives of the citizens ofCenterville) to decide where the City's funds are best
spent to benefit its citizens. We cannot make such a judgment on behalf of the City of
Centerville. We trust the City ofCenterville is mindful of the current state of the economy and is
cognizant of the current and future financial health of the City when deciding on whether to
move forward with current projects or to implement future projects.
City Indebtedness
The petitioners were concerned about the amount of debt that the City had outstanding at
December 31,2008.
We reviewed an Indebtedness Report as of December 31, 2008, and City Council meeting
minutes. We noted the following.
1. The City's total debt principal outstanding, conslstmg of four bond issues, was
$7,851,896 at December 31, 2008. The scheduled interest to be paid related to this
balance is an additional $2,495,123. All bond issuances noted above were properly
approved through City Council resolutions. The repayment of this debt is expected to be
from $4,426,075 of tax levies and $5,920,944 of certified special assessments levied on
property owners who specifically benefited from the improvements.
Minn. Stat. S 475.53, subd. 1, states, "except as otherwise provided in sections 475.51 to
475.74, no municipality, except a school district or a city of the first class, shall incur or
be subject to a net debt in excess of three percent of the market value of taxable property
in the municipality." The City of Centerville is not a city of the first class because it has
less than 100,000 inhabitants.
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2. Pursuant to Minn. Stat. S 475.51, subd. 4, net debt is defined to include "the amount
remaining after deducting from its gross debt the amount of current revenues which are
applicable within the current fiscal year to the payment of any debt and the aggregate of
the principal of the following: (1) Obligations issued for improvements which are
payable wholly or partly from the proceeds of special assessments levied upon property
specially benefited thereby, including those which are general obligations of the
municipality issuing them, if the municipality is entitled to reimbursement in whole or in
part from the proceeds of the special assessments . . . ." Several types of debt are
deducted from gross debt in the calculation of net debt. The result is that, with only few
exceptions, the only obligations subject to the debt limit are general obligation bonds
payable solely from ad valorem property taxes.
Most debt obligations for which some other source or revenue is pledged as security are
excluded from the legal debt limit. Improvement assessment bonds, tax increment bonds,
utility revenue bonds, pure revenue bonds, capital improvement bonds under an approved
capital improvement plan, judgment bonds, and similar bonds may be issued without
regard to the statutory debt limit. See the League of Minnesota Cities' Handbook for
Minnesota Cities, chapter 24.
Of the City's total debt principal outstanding, three of the four bond issues are supported
by special assessments, leaving only $701,896 subject to the legal debt limit.
3. The 2008 total market value of taxable property for the City of Centerville, according to
information provided by the Anoka County Department of Property Records & Taxation,
was $372,405,100. The net debt limit for the City is then $11,172,153 (three percent of
the $372,405,100).
The City of Centerville was within the statutory legal debt limit; however, we again remind the
City, especially with the current state of the economy, to understand the impact on its current aod
future financial health when deciding to move forward with current projects or to implement
future projects. The legal debt limit is separate from the practical debt limit of the City, which is
the debt burden beyond which the credit-worthiness of the City is put into question.
Insurance
The petitioners were concerned about the process the City of Centerville may have followed in
securing an insurance agent of record.
We spoke with City personnel, reviewed proposals received by the City of Centerville relating to
the hiring of an insurance agent of record, and reviewed the City of Centerville's Check
Summary Register listings for the period January 1, 2005, through December 16, 2008. The
following items were noted.
Page 18
1. The City of Centerville purchases all of its insurance through the League of Minnesota
Cities Trust. As suggested by the League of Minnesota Cities Trust, the City of
Centerville requested proposals for and hired an insurance agent of record to represent
the City for a three-year period. An agent of record's duty is to process claims on the
City's behalf as well as to assist with the insurance application.
2. The City received three bids for an insurance agent of record. The City Council accepted
the proposal received from Paul Steffel, dated February 2, 2006, that stated that services
would be provided for a flat rate of $700 per year. Proposals were not required to include
offers of discounts on insurance to City of Centerville officials or employees. None of
the proposals included any such offers or discounts. Disbursements made by the City to
Paul Steffel for the period February 2006 through December 2008 were in accordance
with the proposed rate.
Based on our review, the process the City of Centerville followed to secure an insurance agent of
record was appropriate.
CONCLUSION
We were not engaged to and did not perform an audit, the objective of which would be the
expression of an opinion on specified elements, accounts, or items relating to the petitioners'
concerns as identified in this report. Accordingly, we do not express such an opinion. Had we
performed additional procedures, other matters may have come to our attention that we would
have reported to you.
This report has been prepared for the information of the petitioners of the City of Centerville, the
Mayor and City Council, and the management of the City, but is a matter of public record, and
its distribution is not limited.
~
A~Y~
GREG lllERLINGER. CPA - . -
DEPUTY STATE AUDITOR
REBECCA OTTO
STATE AUDITOR
April 14, 2009
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