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CITY OF GEM LAKE SCHEDULE OF FINDINGS AND RESPONSES (CONTINUED) YEAR ENDED DECEMBER 31, 2014 (38) OTHER ITEM FOR CONSIDERATION – MINNESOTA LEGAL COMPLIANCE 2014-002: Collateral Coverage Condition: Minnesota Statute §118A.03, requires that, to the extent that deposited funds exceed federal deposit insurance, the City must obtain an assignment of pledged collateral in an amount equal to 110 percent of the amount on deposit plus accrued interest. Criteria: At December 31, 2014, the City did not meet the 110% collateralization requirement. $2,141 of deposits were not fully collateralized due to timing of receipts at the end of the year. Effect: The City is not in compliance with Minnesota Statutes. Cause: Unknown Recommendation: We recommend City management be constantly aware of collateral requirements at its depository to ensure compliance with state statutes. Management Response: City management is aware of this requirement and will continue to monitor the collateral requirements for the City’s general checking account. 2014-003: Payment Declaration Condition: Minnesota Statute §471.391, subdivision2, requires each check by which a claim is paid have printed on the reverse side, above the space for endorsement thereof, the following statement: “The undersigned payee, in endorsing this check declares that the same is received in payment of a just and correct claim against the city, and that no part of it has heretofore been paid.” Criteria: During 2014 it was noted checks issued in the second half of the year, the required declaration was not included on checks. Effect: The City is not in compliance with Minnesota Statutes. Cause: Turnover in staffing. Recommendation: We recommend the City implement policies and procedures to ensure the declaration is included as required by state statute. Management Response: City management is aware of this requirement and will ensure the statute is met going forward, including when (if) turnover occurs in the future.