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HomeMy WebLinkAbout2016 Financial StatementsCITY OF GEM LAKE, MINNESOTA FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION YEAR ENDED.DECEMBER 31, 2016 CITY OF GEM LAKE 4200 OTTER LAKE. ROAD GEM LAKE, MINNESOTA 55110 CITY OF GEM LAKE, MINNESOTA TABLE OF CONTENTS YEAR ENDED DECEMBER 31, 2016 I. FINANCIAL SECTION INDEPENDENT AUDITORS' REPORT 1 BASIC FINANCIAL STATEMENTS STATEMENT OF NET POSITION 4 STATEMENT OF ACTIVITIES 5 BALANCE SHEET - GOVERNMENTAL FUNDS 6 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION - GOVERNMENTAL ACTIVITIES 7 STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - GOVERNMENTAL FUNDS 8 RECONCILIATION .OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND .BALANCE TO THE STATEMENT OF ACTIVITIES - GOVERNMENTAL ACTIVITIES 9 STATEMENT OF NET POSITION -- PROPRIETARY FUND: 10 STATE MENT 0F REVENUES, EXPENSES, AND CHANGE IN NET POSITION -PROPRIETARY FUND 11 STATEMENT OF CASH FLOWS - PROPRIETARY FUND 12 NOTES TO BASIC FINANCIAL STATEMENTS 1.3 REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON INFORMATION SCHEDULE OF REVENUES, EXPENDITURES; AND CHANGE.IN FUND BALANCE - BUDGET AND ACTUAL -- GENERAL FUND 29 NOTE TO REQUIRED SUPPLEMENTARY INFORMATION 30 SUPPLEMENTARY INFORMATION NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE.SHEET 31 COMBINING STATEMENT OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCES 32 II. OTHER REQUIRED REPORTS INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS .BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS 33 INDEPENDENT AUDITOR'S REPORT ON MINNESOTA. LEGAL. COMPLIANCE 35 SCHEDULE OF FINDINGS AND RESPONSES 36 FINANCIAL, SECTION Cli€tonLarsonAllen LLP } CLAconnect.eom CliftonLars®nAllen INDEPENDENT AUDITORS' REPORT Honorable Mayor Members of the City Council and Citizens City of Gem.. Lake. Gem Lake, Minnesota Report on the Financial Statements We have audited the accompanying financial. statements. of the governmental activities, the business- type.activities,-each-major fund, arid- the. agg reg ate remaining fund information of the City of Gem Lake (the City};'Minnesota as of --and for the year ended December 31, 2016, and the related notes to the financial statements, which collectively comprise the City's basic financial statements as listed in the table of -contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these. financial statements in .accordance with accounting principles generally accepted in the United States of America; this includes the. design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express opinions on these -financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial.oudits 4:�dntained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit'involves performing -procedures :to obtain audit evidence about the amounts. and disclosures in the financial statements.. The procedures selected depend on the auditors', judgment,, including ifie assessment of the j'isks of rtiaterial misstatement of the financial statements, whether.due to fraud or error. in making #hose risk assessments, thp. auditor considers internal control relevant to the 6WA preparation and fair presentation* of-thefinancial statements in order to design audit procedures -that are appropriate. -in the *circumstances, but not*fbr-tFie putpOse of expressing .an opinion on the effectiveness of the City'�s internal control. Accordingly, we express no such opinioli. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our -audit opinions. c muer of Nexia {1} Honorable Mayor - Members of .the City Council and Citizens bity *of Gem Lake, Mihnesota Opinions In our opinion, the financial statements referred to aboye present fairly,. in all material respects, the financial position of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City of Gem Lake, Minnesota as of December .31, 2010, .and the respective changes in financial positloil-6rid.cash flows, where applicable, thereof for the -*year then ended in conformity with accounting principles generally accepted in the United States of America. Report on Summarized Comparative 1n1ormbAp# We have previously audited the City of Gem Lake's 2015 financial statements of the governmental activities, the business -type activities, each mafor furkd, and the aggregate remaining fund information, and we-ekpressed unmodified -audit opinions on those financial statements in our report dated May 10, 201E.In bur opinion, the summarized comparative information :presented herein as of and for the year ended December 31,.20'l5 is Consistent, in all material respects, With the audited financial statements from which it has been derived. .Mer-Matters Required Supplementary Information Accounting - principles generally -.accepted in the United Slates of America required that the budgetary .comparison information as listed in the table of contents; be presented to supplement the .basic financial statements. -Such inforration, although not a part of the. basic -financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part -of financial reporting for placing the: basic financial statements in an appropriate operational,. economlo,.*or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United. States of America,. which consisted of inquiries of management about the. methods of preparing the. inforration 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 do not: express an opinion or provide any assurance on --the information because the limited procedures do not provide us with sufficient evidence to express -an opinion or provide any assurance. Management has. omitted the management's. discussion arid. analysis that accounting principles generally-aocopted in the United States of America. require to .he presented to supplement the basic financial statements. Such missing information,* although not. a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it -to be an essential part of financial reporting for placing the basic financlafstatements in an appropriate-opefations, economic, or historical context. Our opinion on the basic financial. statements is not affected by this missing information. Supplementary Information Our audit was conducted for the purpose- of .forming opinions on `the financial statements that collectively comprise the City's- basic financial statements. The accompanying combining nonmajor fund financial statements; ds listed in the: ble of -contents, are presented for purposes of additional analysis and are not a required part of the basic financial statements. M Honorable Mayor Members -.of the City Council and Citizens City of Gem Lake, Minnesota Other Matters (Continued) Supplementary Information {Contlnuecf)* The combining nonmajor fund financial statements are the responsibility of management and were derived from and. relate directly *to the underlying accounting and other records used to prepare the financial statements, The information has been subjected to thei auditing procedures applied 1h. the audit of the basic 'financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other -records. used to prepare the financial .statements or, to the financial statements themselves, and other additional procedures in accordance -with auditing standards generaiiy accepted in the United States ofArhedca. In our opinion, the supplerhentary information is fairly stated in Nall material respects in relation to the basic financial statements taken as a.whole. Other Reporting Required by Government Audit1nq Standards In accordance with Governmpnt .Auditing Standards, vue have also issued our: report dated on our consideration of the. Gity-of Gem Lake, Minnesota's internal control over financial reporting and. on our tests of its compliance with certain provisions of laws, regulations, contracts; grant agreements, and other matters. The purpo$e.of that report is to describe the scope of our testing.of internal control over financial reporting and compliance and the, results of -that testing and not to provide. -an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit per€ormed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. CliftonLarsonAlien. LLP Minneapolis, Minnesota June 20, 2017 (3) BASIC F[NANCIAL.STATEMENTS CITY OF GEM LAKE, MINNESOTA STATEMENT OF NET POSITION DECEMBER 31, 2016 ASSETS Cash and Investments Taxes Receivable Special Assessments Receivable Accounts Receivable. Due from Other Governments Accrued Interest. Prepaid Items Internal Balances Capital Assets: Capital Assets Being Depreciated Accumulated Depreciation Total Assets LIABILITIES Vouchers and Accounts Payable Accrued Interest Payable Due to Other Governments Payroll Taxes.and. Withholdings Unearned. Revenue, Long -Terri Liabilities: Amounts Due Within One Year Amounts Due in More -than One Year Total Liabilities NET POSITION Net Investment in Capital Assets Restricted for Debt Service Restricted for Paris Improvements Restricted for Street Projects Unrestricted Total Net Position Governmental Business -Type Activities Activities Total $ 565,337 $ 39,256 $ 604,593 21,317 - 21,317 49.1,601 3,253 494,854 6,828. 15,970 22,.798 856 - 856 498.. 1,207 1,705 926 21526 3,452 (397,252) 397,252 - 2,046,271 .61.7,539. 2,66318.10 (682,481) (149,257) (831,73) 2,053,901 927,746 2,981,647 . 8,954 - 8,954 7;033 - 7,033 3,065 - 3,065 484 - 484 11;300 - 11,300 60,000 - 60,0010 715,000 - 715;000. 805,836 - 805,836 5931,813 468,282 1,062,095 181,786 - 181,785. 39,872 - 39,8.72 3.,194 - 3,1.94 429,401 459,464 888,865 $ 1,248.,065 $ 927,746 $ 2,175,811 .See accompanying Notes to Basic Financial Statements. (4) CITY OF GEM LAKE, MINNESOTA STATEMENT OF ACTIVITIES YEAR ENDED DECEMBER 31, 2016 Net (Expense) Revenue and Progam Revenues Changes in Net Position Files, 'Charges.. Operating Capital Business - .Fines; and Grants and Grants and Governmental Type FUNCTIONSIPROGRAMS Expenses. Other Contributions Contributions Aeppitibii Activities. Total. GOVERNMENTAL ACTIVITIES General Government $ i81;613 $ 39.305 S 8:572 5 799 b {109;197) 5 - S. (109,137) Public Safety 119,7a - - (.119,793) - (119,793) Public Works 719,M 2.0,778. - 25,48D. (33,432) -. (MA32) Conservation and. Development A1,1.22 - - (51.122) - :(51,122) Interest and Fiscal Charges 34,ti42 . - - (34,842) (34,842) Total Governmental Activities 443;2W 60,083 8A72 26,279 (348,326) - (348,326) BUSINESS -TYPE. ACTIVITIES. Sewer 42,720 45,117 - 2,391 2c3W Total Primary.Govemment 5 4851980 S 105,200 S 8,572 S 26,279 (348,326) 21397 (345,929) GENERAL REVENUES Taxes. Property Takes, Levied for General Purposes 224,896 - 224,896 Property Taxes, Levied for Debt Service 69.2.61 - 69,261 Investment Earnings (Loss) (377) 4;211 3,834 Miscellaneous. 1,248 - 1,248 Total. General Revenues: 295,028 4,211 299,239 CHANGE IN NET POSITIO14 (53,298) 61608 (46,6%) Net Position - Beginning of Year 1.301,363 921,138 2,222,501 NET POSITION - END. OF YEAR $ 1,248;065 $ 927.746 $ 2.1.75,811 See. accompanying Notes to Basic Financial Statements: (5) CITY OF GEM••L.AKE, MINNESOTA BALANCE SHEET GOVERNMENTALFUNDS DECEMBER 31, 2016 (WITH SUMMARIZED FINANCIAL INFORMATION AS --OF DECEMBER 31, 20'15.) ASSETS Cash and Investments Cash with Fiscal Agent Taxes Receivable Special Assessments Receivable Accounts Receivable Due from Other Governments Accrued Interest ReCeivable Due from Other Funds. Prepaid Items Tolal Assets LIABILITIES,DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES LIABILITIES Vouchers and Accounts Payable Payroll beductions. Due to Other Governments Unearned Revenue Due to Other Funds Total Llabilities DEFERREDINFLOWS OF RESOURCES Unavollable Resources FUND SALANCES Nonspendable Restricted: Debt Service Park Improvements Street Projects Assigned: Individual Property Owners Unassigned Total Fund Balances Total Liabila,es, Deferred Inflows of Resources. and Fund Balances G O Capita! 2016 Improvement Hoffman Street Other .Total General Plan Bonds Road Improvements Governmental Governmental 2015 Fund Series:2007A Fund Fund Funds Funds Totals 5 220,555 S 118,646 S $ 132;932 5 93,004 $ 585;337 S 462,297 - - - 740503 16,541 A776 - - 21,317 .14,282 475,351 - 16,240 491.601 .541,856 6,8213 - - - - 6,820 5,972 656 856 1,153 .565 243 (943) 393 240 498 2,474 1,464 - - - 1,464 126.506 926 926. 633 S 247,736 S 123;864 S 474;418 5 .133,325 S 109.A84 S 1,088,627 $ 1;895,676 484 - 3065 .11:300 - 397;252 _ 23.803 .397,252 S. $ 8,iaM 5 20.233 484 387 3;065: 14,035 11.300 11,300 1,464 398,716 126,506 1,464 422,519 172,461 16.348 2.B49 46B,851 15.751 407,799 550•SB2 926 633 50A67 171,682 567210 - 39.872 39,872 39,462 • - 3,194 3.194 3.161 -• 133.326. 133,325 132.336 212.659 (391.6m) (IA64) (180.490) 129.551 213,585 121,015 (391.685) 133.325 927269 168.509 1.172:353 S 247,736 S 123.864 S 474.418 S 133325 . S 109,484 S 1.088.827 S 1.895.676 Har( See accompanying Notes to Basic Financial Statements. (6) CITY OF GEM LAKE, MINNESOTA RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO, THE STATEMENT OF NET POSITION GOVERNMENTAL ACTIVITIES DECEMBER 31, 2016 TOTAL FUND BALANCES FOR GOVERNMENTAL FUNDS Total net position reported for .governmental activities .in. the statement of net position is different. because: Capital assets used in governmental activities .are not financial resources and, therefore,. are not reported in the funds, These capital assets consist of: Buildings Office Equipment Infrastructure Accumulated Depreciation Some of the City's property taxes and special. assessments. will be collected after year-end, but are not available soon enough to pay for the current period's expenditures and, therefore, are reported as unavailable resources in the governmental funds:. Some liabilities are not due and payable in the current period and; therefore, are not reported as fund liabilities. Balances at yearend are: General. ONigation Bonds Payable. Accrued Interest on Long -Term Debt TOTAL NET POSITION OF GOVERNMENTAL ACTIVITIES $ 902,282 12,895 1,131;144 (682,481) $ 168,509 1,363,790 497,799 (.775,0.00) (7,033) (782,033) See. accompanying Notes to Basic Financial Statements.. (7) CITY OF GEM LAKE, MINNESOTA STATEMENT OPREVENUES; EXPENDITURES, AND CHANGES:IN FUND BALANCES GOVERNMENTAL FUNDS YEAR ENDED DECEMBER 31, 2016 (WITH SUMMARIZED FINANCIAL INFORMATION FOR YEAR ENDED DECEMBER 31, 2015) G.Q. Capital 2016 Improvement Hoffman Street Other Total General Plan Bonds Road Improvements Governmental Governmental 2016 Fund Series 2007A Fund Fund Funds Funds Totak. REVENUES Taxes S 223.118 .5 69;261 S S - $ 5 292.379 $ 281,341 Special Assessments 799 65,938. - 14.383 81120 42,427 Intergovernmental. 9,796. - 9'796 Licenses and Permits 34jo8 34,108 391= Fines and Forfeits 3,210 - 3,210 2,182 Public Charges for Services 5,705 - - - Ojos 12,927 Miscellaneous: Earnings (Loss) on Investments 1,761 943 (5,024) 989 1.0.14 (377)% 8,350• Other .17,084 17;084 53.989 Total Revenues 295.621 70,204 60,914 989 15,397 443,025 418,768 EXPENDITURES Current: General Government 134;037 - 134,037 124,999 Public Safety 119.793 - 119.793 115.115 Public Works $7,508 - - 37,508 102,226 Conservation and Development 51,122 - 51,122 44,647 Capital Outlay - 323988 - 323,96..8 118.856 Debt Service: Principal 745,000. 745,000 15,000 Interest and Fiscal Charges 35.421 - 35.Q1 32i904 Debt Issuance Costs - 29;985 Total Expenditures 342.460 780.421 323.988 1.446,869 553.734 NET CHANGE IN FUND BALANCES (46.939). (710,217) (263,074) 989 15,397 (1,003,844) 610,032 Fund-Elalances- Beginning of Year 260,524 M.232 (128,611) 132.336 . 76;872 1,172;353 562.321 . FUND -BALANCES.- END OF YEAR $ 213,MS $ 121,015 $ (391,685) S 133.325 S 92,269 $ 168,509 S 1,1721353 See accompanying Notes to Basic Financial Statements. (8) CITY OF GEM LAKE, MINNESOTA RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES GOVERNMENTAL ACTIVITIES YEAR ENDED DECEMBER 31, 2016 NET CHANGE IN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS .$ (1,003,844) Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as. expenditures. However, in the statement of activities, assets are capitalized and the cost is allocated over their estimated useful lives and reported as depreciation expense. Capital outlays $ .323,989 Depreciation Expense. (65,959) 258,030 Delinquent and deferred property taxes and special assessments receivable will be collected. subsequent to year-end, but are not available soon enough to pay for the current period's expenditures and, therefore., are unavailable resources in the governmental funds. Unavailable Resources - December.3:1, 2015 650,862, Unavailable Resources - December 31., 201.6. 49.7,799 (53;063) The governmental funds report: bond proceeds as financing sources, while repayment of bond principal is reported as an expenditure. In the statement of net position, however, issuing debt increases long-term liabilities and does not affect the statement of activities and repayment of principal reduces the liability. Also., governmental funds report the effect premiums and discounts when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities. Interest is recognized as an expenditure in the governmental funds when it is due. In the: statement of activities, however,. interest expense is recognized as it accrues, regardless of when it is due. The net effect of these differences in the treatment of general obligation bonds and related items is as follows: Repayment of Bond Principal 745,000 Change in Accrued Interest Payable 6,323 Amortization of Bond Discount (5,744) 745,579 CHANGE. IN NET POSITION OF GOVERNMENTAL ACTIVITIES $ (53,298) See accompanying Notes to Basic Financial Statements. (9) CITY OF GEM LAKE, MINNESOTA STATEMENT OF NET POSITION PROPRIETARY FUN❑ DECEMBER 31, 2016 ASSETS Cash and .Cash% Equivalents Customer Accounts Receivable Accrued Interest Receivable Special Assessments. Receivable Due .From Other Funds Prepaid Items. Total CurrentAssets Capital Assets: Utility Plant in Service Accumulated Depreciation Net Capital Assets Total .Assets. LIABILITIES Accounts Payable NET POSITION Net.lnvestment in Capital Assets Unrestricted Total Net Position See accompanying. Notes to Basic Financial Statements. (10) Sewer Utility $ 39,256 15,970 1,20.7 3,253 39.7,252 2,526 459,464 617,539 (149,267) 468,282 . 927,74.6 468,282 459,464 $ 927,746 CITY OF GEM LAKE, MINNESOTA STATEMENT OF REVENUES, EXPENSES, AN❑ CHANGE IN NET POSITION PROPRIETARY FUND YEAR ENDED DECEMBER 31, 2016 OPERATING REVENUES Public Charges for Services OPERATING EXPENSES Operating Expenses Depreciation Total Operating Expenses OPERATING INCOME NONOPERATING REVENUES Interest Revenue. CHANGE IN NET POSITION Net Position _ Beginning of Year NET POSITION -.END OF YEAR Sewer Utility $ 45,117 30;263 12,457 42,720 2,397 4,211 6,608 921,.1.38 $ 9.27,746 See :accompanying Notes to Basic Financial Statements. (11). CITY OF GEM LAKE, MINNESaTA STATEMENT OF CASH FLOWS PROPRIETARY FUND YEAR ENDE❑ ❑ECEMBER 31, 2016 Sewer Utility CASH FLOWS FROM OPERA€ING ACTIVITIES Cash Received from Utility Customers $ 51,685 Cash Payments to Suppliers for Goods and Services (32,922) Net Cash Provided by Operating Activities 18,763 CASH FLOWS. FROM NON CAPITAL FINANCING ACTIVITIES Interfund Loans (397,252) CASH FLOWS FROM INVESTING ACTIVITIES Interest on Investments 510.12 NET DECREASE IN CASH AND CASH EQUIVALENTS (373,477) Cash and Cash Equivalents - Beginning of Year 412733 CASH AND CASH EQUIVALENTS - END OF YEAR $ 39;256 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating Income $ 2,397 Adjustments to Reconcile Operating Income to. Net Cash Provided by Operating Activities: Depreciation 12,457 Changes :in Assets and Liabilities: Accounts Receivable 6,286 Special Assessments Receivable 312 Prepaid Items (184) Accounts Payable (15) Due to Other Governments. (2,460) Net Cash Provided.. by Operating Activities $ 1.$,763 See accompanying Notes to Basic Financial Statements. (12) CITY OF GEM LAKE, MINNESOTA NOTES -TO BASIC FINANCIAL STATEMENTS DECEMBER.3.1, 2016. NOTE1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements oftlie tit y of Gem Lake (the City), Minnesota have been prepared WcotifQrmity with U.S. generally accepted accounting principles as applied to governmental units. by the Governmental Accounting Standards Board (GASB). The following is a summary of the significant accounting -policies. A. Financial Reporting Entity As required by U..S. generally- accepted *accounting principles, the financial statements of then reporting entity include those of the City of Gem Lake and its component units. A component unit. is. a legally separate ,entity for. which the primary government is financially accountable, or for which the exclusion of the component unit would render the financial statements of the primary government misleading, The criteria used to determine if the primary government is*financially accountable for a component include whether or not. the: primary government appoints the voting majority of the potential component unit'. board, is able -to: impose its: will on the potential component unit, is in a relationship of financial benefit.de burden with the potential component unit, or is fiscally depended upon by the potential%component unit. Based.on.th.ese criteria, there are no organizations considered to be component units of the. City. B. Basic Financial Statements 1. Government -Wide Statements The government -wide financial statements (1,6 , the Statement of net position and the statement of activities) .display informatiori about the primary government and its component units. These statements include.the financial activities of the overall City government. Eliminations have been made to minimize the double -counting of internal activities. Governmental activities, which normally are supported 'by. taxes and intergovernmental revenues, -are reportgd. separately from buglness-type activities, which rely -to -a significant extent on fee.s:and charges -to -external parties for support.. (13) CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 1 SUMMARY OF SIGNIFICANT. ACCOUNTING P4!_ICIEIS (CONTINUED) B. Basic Financial Statements (Continued) 1. Government -Wide Statements (Continued) In the government -wide statement of net position, both the governmental and business -type activities columns: .(a) are presented on a consolidated basis by column;. and (b) are reported on a full accrual, economic resource basis, which recognizes all long-term assets and receivables as well as long-term debt and. obligations. The City's net position is reported in three parts: (1) net investment in capital assets; (2) restricted net position; and (3) unrestricted net position. The City first utilizes restricted resources to finance qualifying activities. The statement of activities demonstrates the degree to which. the direct.expenses of each function of the City's governmental activities and different business -type activity are offset by program. revenues. Direct expenses are those that are clearly identifiable with a specific function or activity. Program revenues include: (1) fees, fines, and. charges paid. by the recipients of .goods, services,. or privileges provided by a given function. or activity; and (2) grants and contributions. that are restricted to. meeting the operational or capital requirements of a particular function or activity. Revenues that are not. classified as program revenues, including all taxes, are presented as general revenues. 2. Fund Financial Statements The fund financial statements. provide information about the City's funds.. Separate statements for each fund category, governmental and proprietary, are presented. The emphasis of governmental and proprietary fund financial statements is on major individual governmental and enterprise funds, with each displayed as separate columns in the fund financial statements. All remaining governmental and enterprise funds are aggregated and reported as nonmajor funds. (14) NOTE 1 CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL :STATEMENTS DECEMBER 31, 2016 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) B. Basic Financial Statements (Continued) 2. Fund Financial Statements (Continued) The City reports the following major governmental funds: General Fund -- The General. Fund is the City's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund:. G.O. Capital Improvements Plan Bonds Series 2007A — The G.O. Capital Improvement. Plan Bonds Series. 2007A Fund accounts for all debt. service activity related to the 2007A bond, Hoffman Road Fund The Hoffman Road Construction Fund accounts. for all. activity related to the reconstruction activities of Hoffman Road. Street Improvements Fund — The Street Improvements Fund is used to account for the accumulation of resources that are restricted, committed, or assigned. to expenditures for capital outlays, including the acquisition or construction of capital facilities. The City reports the following major proprietary fund:. Sewer Fund — The sewer fund accounts for customer sewer service charges. that are used to finance sewer operating expenses. C. Measurement Focus and Basis of Accounting The government -wide and proprietary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned, and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied.. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Governmental fund. financial statements are reported using the current financial .resources measurement focus and the modified accrual basis of accounting. Revenues .are recognized as soon as they are both measurable and available. The City considers all revenues to be available if they are collected within 60 days after the end of the current period. Property and other taxes, licenses, and. interest are all considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, compensated absences, and claims and judgments, which are recognized as expenditures to the extent that they have matured.. Proceeds of general long-term debt and acquisitions under capital leases are reported. as other financing: sources. CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL. STATEMENTS DECEMBER 31, 2016 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. Measurement Focus and Basis of Accounting (Continued.) Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and: expenses generally result from providing services and producing and delivering goods in connection .with a proprietary fund's principal ongoing operations. The principal operating revenue of the City's. enterprise funds are charges. to customers for sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as. nonoperating revenues and expenses. D. Budgets Budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America. An annual appropriated. budget is adopted for the General Fund. Budgeted expenditure appropriations lapse at year-end. E. Cash and Investments Cash and investment balances from all funds: are pooled and invested to the extent available in investments authorized by Minnesota Statutes. Earnings from investments are allocated to individual funds on the basis of the €und's equity in the cash and. investment pool. The City provides temporary advances to funds that have insufficient Gash balances by means of an advance from another fund shown as interfund receivables in the advancing fund in the governmental fund financial statements, and an interfund. payable in the fund with the deficit,. until adequate. resources are received. These interfund payables are -eliminated for statement of net position presentation.. Investments are stated at fair value. as of the balance sheet date.. Interest earnings are accrued at the balance sheet date. For purposes of the statement of cash flows the Proprietary Fund considers all highly liquid investments with .a maturity of three months or less. when purchased to be cash equivalents. All of the. cash and investments allocated to. the proprietary fund types have original maturities: of 90 days or less. Therefore, the entire balance in such fund types is considered cash equivalents. F. Prepaid Items Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepayments. Prepaid items are reported using the consumption method and recorded as an expense or expenditure. at the time of consumption. That portion. of the. relevant funds' balances equal to material prepaid items has been segregated as nonspendable. (16) CITY OF GEM LAKE, MINNESOTA NOTES: TO BASIC FINANCIAL STATEMENTS DECEMBER 31., 2016 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) G. Property Tax Credits Property taxes on homestead: property (as defined by state statutes) are partially reduced by property tax credits. These credits are paid to the City by the state. in lieu of taxes levied against homestead property. The state remits these credits through installments.each .year. These credits are recognized as revenue by the City at the time of collection. H. Property Tax Reveriue Recognition The City Council annually adopts a tax levy and certifies it to the County in December (levylassessment date)of each year for collection in the following year. The County is responsible for Billing and collecting all. property taxes for itself, the City, the local. School District and other taxing authorities. Such taxes become. a lien on January 1 and are recorded as receivables by the City at that date, Real property taxes are payable (by property owners) on May 15 and October 15 of each calendar year. Personal property taxes are payable by taxpayers on February 28 and June 30 of each year. These. taxes :are collected by the County and remitted to the City on or before July 15 and December 15 of the same year. Del.inguent collections for November and December are received the following January. The City has: no agility to enforce payment of property taxes by property.owners. The County possesses this authority. Within the governmental fund financial statements, the City recognizes property tax revenue. when it becomes both measurable and available to finance expenditures of the current period. In practice, current and delinquent taxes and State credits received :by the City in July, December and the following January are recognized .as revenue for the current year. Taxes and credits not received at the year-end are classified as delinquent and due from County taxes receivable. The portion of delinquent taxes not collected by the City in January is fully offset by deferred inflows of resources because it is not available to finance current expenditures. Deferred inflows of resources in governmental activities is susceptible to full accrual on the government -wide statements. The City's property tax revenue includes payments from the Metropolitan Revenue Distribution (Fiscal Disparities Formula) per Minnesota Statute 473F. This statute .provides a means of spreading a portion of the taxable valuation of commerciallindustrial real property to various taxing authorities within the defined metropolitan area. The valuation "shared" is a portion of commerciallindustrial property valuation growth since 1971. Property taxes paid to the City through this formula for 2016 totaled $5,10D. Receipt of property taxes from this "fiscal disparities pool"°does not increase or decrease total. tax revenue: (17) CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31,.201.6 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING.POLICIES (CONTINUED) Special Assessment Revenue Recognition Special assessments are levied against benefited properties for the cost or a portion of the cost of special assessment improvement projects in. accordance with state statutes. These assessments are collectible by the City over a term of years usually consistent With the terrii. of the related bond issue. Collection of annual installments (ineludirig interest) is handled by the County Auditor in the same manner as property taxes, Property owners are allowed to. (and often. do)'prepay future installments without interest. or prepayment penalties_ Within. the fund financial statements, the revenue from special assessments is recognized by the City when it becomes measurable and available. to finance expenditures of the `current fiscal period. In practice, current and delinquent special assessments received by the City are. recognized as revenue for the current year. Special assessments are collected by the. County and remitted. by December 31 (remitted to the City the following January) and are also. recognized as revenue for the: current year. All remaining delinquent, deferred and special deferred assessments receivable in governmental funding are completely offset by deferred inflows of resources. Deferred inflows of resources in governmental activities is susceptible to full accrual on the government -wide statements. Once.a special assessment roll is adopted, the amount attributed to each parcel is a lien upon that property until full payment is. made or the amount is determined to be excessive by City's City Council o.r court action..lf special assessments are allowed. to go delinquent, the property is subject to tax forfeit sale and the first.. proceeds. of that sale (after costs, penalties, and expenses of sale) are remitted to the City in payment of delinquent special assessments, Generally, the City will collect the full amount of its special assessments not adjusted by the City's City Council or court action. Pursuant to State Statutes, a property shall be subject to a tax forfeit safe after three years unless it is homesteaded, agricultural, or seasonal recreational land in which event the property is. subject to such sale after five. years. (t 8) NOTE 1 CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC: FINANCIAL STATEMENTS DECEMBER 31, 2016 SUMMARY 0F SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) J. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets (e,.g„ roads, sidewalks, street lights, and similar items.) are reported in the applicable governmental or business type activities columns in the government -wide financial statements; Capital assets are. recorded at historical cost or estimated Historical cost if purchased. or constructed. The cost of normal maintenance and. repairs that do not add to the value of the asset or materially extend asset lives are. not capitalized. Major outlays for capital assets.:and improvements are capitalized as projects are constructed. The government reports. infrastructure assets on a network and subsystem basis. In the case of the initial capitalization of general infrastructure assets (i.e,, those. reported by governmental. activities) the City chose to include all such items regardless. of their acquisition date. or. amount. Depreciation on exhaustible .assets is. recorded as an allocated expense in the statement of activities with accumulated depreciation reflected in the statement of net position. Since surplus assets are sold for an immaterial amount when declared as no longer needed for City purposes, no salvage value is taken into consideration for depreciation purposes.. Capital assets not being depreciated include construction in progress.. Depreciation Estimated Assets Method Useful Life Buildings Straight -Line 40 Years Office Equipment Straight -Line. 5 - 10 Years Utility Systems Straight -Line 20 - 50 Years Infrastructure Straight -Line 20 - 50 Years K. Long -Term Obligations In the entity -wide financial statements, long-term debt :and other long-term obligations are reported as liabilities in the applicable governmental activities. Bond premiums and discounts are amortized over the life of the bonds using the straight-line method.. Bond issue. costs are expensed as a current period cost. In the governmental fund financial statements, bond premiums and dis.counts,. as well as. bond issue costs are recognized during the current period. The face amountof the debt issue is reported as on. other financing source. Premiums received on debt. issuances are. reported as..other financing sources while discounts are reported as other financing uses. Issue costs are reported as debt service expenditures. (19) li S111=1111i CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS ❑ECEMBER 31, 2016 SUMMARY OF sIGNIFICANT ACCOUNTING POLICIES (CONTINUED) L. Net Position/Fund Balance Net position represents the difference between assets and liabilities in the government - wide and proprietary fund financial statements. Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balance of any long-term debt used to build or acquire the capital assets. Net position is reported. as restricted when there are limitations imposed on their use through external restrictions. imposed by creditors, grantors, or laws. or regulations of other governments. In the fund financial. statements, governmental. funds report fund balances in the classifications that disclose constraints for which amounts in those funds can be spent. These classifications are as follows: Nonspendable portion of fund balances .related to prepaid items; inventories, long- term receivables, and corp us any permanent fund. Restricted. — funds are constrained from outside parties (statute, grantors, bond agreements, etc.).. Committed. -- funds are established and modified by a resolution approved by the City Council.. Assigned — consists of internally imposed constraints approved by the City Finance Director. .Unassigned — is the residual classification for the General Fund and also reflects the negative residual amounts in other funds. When an expenditure is incurred for purposes for which both restricted and unrestricted. fund balance is available, it is the City's policy to use restricted first, then unrestricted fund balance. When an expenditure is incurred for purposes for which committed, assigned and unassigned amounts are available, it is the City's policy to use committed first, then assigned, and.finally unassigned amounts. M. Interfund. Transactions Interfund services provided and used are accounted for as 'revenues, expenditures or expenses. Transactions that constitute reimbursements to a fund for expenditures/ expenses initially made from it that are properly applicable to another fund, are recorded as expend itureslexpenses in. the reimbursing fund and as reductions of expenditures or expenses in the fund that is reimbursed. All other inter fund transactions are reported as transfers.. All iriterFund transactions. are eliminated except for activity between governmental activities and business -type activities for presentation in the entity -wide statements of net position and statements of activities. CITY Ol= GEM LAKE, MINNESOTA NOTES -TO BASIC FINANCIAL STATEMENTS DE.CEMBER 31., 20*10 NOTE 2 DEPOSITS AND INVESTMENTS F A. Deposits The City .maintains a. cash and investment. pobl that is available for use by WI funds. .Each fund type's portion of this pool is displayed on the statement of net position and the balance sheet as -".Cash and Investments." In ac pordance with Minnesota. Statutes, the City maintains deposits at financial institutions which are authorized by the City Council.. Custodial Credit Risk — Custodial credit risk for deposits is the risk that in the event of a bank failure, the City's deposits may not be *returned to it. The City does h6t have --a deposit policy for custodial credit risk and follows Minnesota-Stafr96. for deposits, Minnesota Statutes require that all deposits. be protected. by insurance, surety, bond, or collateral. The market value.*of collateral pledged must equal 110% of the deposits not covered by insurance ot- borporate surety bonds. Authorized collateral include: U.S. government treasury bills, notes, or bonds; issues of a U.S. government.agency; general obli,gallons. of a state or local government rated 'W or better; revenue obligations of a state or local government rated "AA or better; irrevocable standby letter of credit issued by a Federal . Home Loan Bank; and time deposits insured. by a federal agency. Minnesota Statutes require securities pledged as. collateral be. held to safekeeping in- a restricted. account at the Federal Reserve Bank or in an account at a trust department of a commercial heirik .ot other financial institution not owned or controlled by the depository. At December 31, 2016, the carrying amount of the City's deposits was $251,772, the entire amount of which was insured or collateralized. (21) NOTE 2 CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS. DECEMBER 31, 2016 DEPOSITS AND JNVESTMENTS (CONTINUED) .B. Investments The City.may also invest idle funds as.authorized by Minnesota Statutes as follows;. • Direct obligations or obligations guaranteed by the United States or its agencies. ■ `Sha.res of investment companies registered under the Federal Investment Company.Act of 1940 and received .the highest credit rating, are rated in one of the two. highest rating categories . by a statistical rating agency and all of the investments have a finial maturity of 13 months or less. • General obligations rated "A" or better; revenue obligations rated 'AA" or better. ■ General obligations. of the Minnesota Housing Finance Agency rate "A" or better.. • Bankers' acceptances of United States. banks eligible for purchase by the. Federal Reserve System. • Commercial paper issued by United .States banks corporations or their Canadian subsidiaries, of highest quality category by a least two nationally recognized rating agencies, :and maturing in 270 days or less. • Guaranteed investment contracts guaranteed by United States commercial banks or domestic branches of foreign banks or United States insurance companies if similar debt. obligations of the issuer or the collateral pledged by the issuer is in the top two rating categories. Repurchase or reverse purchase agreement and. securities lending agreements financial institutions qualified as. a "depository" by the. government entity, with banks that are members of the Federal Reserve System with capitalization exceeding $10,000,0.00, a primary reporting dealer in U.S..government securities to the Federal Reserve Bank of New York, or certain Minnesota securities broker=dealers. Any security which is an obligation of a. school district with an original maturity not exceeding 13 months and (i) rated in. the highest category by a national bond rating service (ii) enrolled in athe cedit enhancement program pursuant to Minnesota Statute .§ 126C.55 Custodial Credit Risk For an investment, custodial credit risk is the risk that, counterparty, the City will not. be able to recover the value securities that are in the possession of an outside party. doesn't specifically address custodial credit risk, in the event of failure of the of its investment or collateral The City's investment policy (22) NOTE 2 CITY OF GEM LAKE, MINNESOTA NOTES: TO BASIC. FINANCIAL STATEMENTS ©ECEMBER 31, 2016 DEPOSITS AND INVESTMENTS (CONTINUE©) B. Investments (Continued) Interest Rate Risk Interest rate risk is the risk that changes in. interest rates will adversely affect the fair value of an investment. Gen era IIy;.`the: longer the maturity of an: investment, the greater the sensitivity of its fair value to changes in market interest rates The City's investment policy doesn't specifically address interest rate risk. Information about the sensitivty of the fair values of the. City's. investments to market interest: rate risk fluctuations is provided by the following table that shows the distribution. of the. City's investments by maturity: Maturity Duration to Years. Investment Type Total Less Than 1 1 t0.2 2 to 5 5 to:10 Rating Negotiable Certificates of deposit $ 354;000 100,000 $ 214,000 5 40,000 $ - Not Rated Money Markets 3,087 .3,087 - _ - Aaa/AAA $ 357,087 $ 103,087 $ 214,000 $ 40,600 $ Credit Risk Generally, credit risk is the risk that an issuer Of an investment will not ful€ill its obligation. to the bolder of the investment. This is measured by the assignment. of a rating by a nationally recognized statistical rating organization. The City s investment policy does. not specifically address credit risk. (23) CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 2 DEPOSITS. AND. INVESTMENTS (CONTINUED) B. Investments (Continued) Concentration of Credit Risk The City places no. Limit on the amount that the City may invest in any one issuer. The following is a list of investments which individually comprise more than 5% of the City's total ihvestments: Investment Type Negotiable Certificates of Deposit: Goldman Sachs Bank CD Capital One Bank. CD Amount Percentage. 140;000 39:21 % 214,000 69.03% Fair Value Measurements The City .uses fair value measurements. to record fair value adjustments to certain asset and liabilities and to determine fair value disclosures. The City follows an accounting standard which defines fair value, establishes framework for measuring fair value; establishes a fair .value hierarchy based on the quality of inputs used to measure fair value, and requires expanded disclosures about fair value measurements. In. accordance with this standard, the City has categorized its investments, based on the priority of inputs to the valuation technique, into a three -level fair value hierarchy. The fair value hierarchy gives the highest priority to quotes and prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3.). If the inputs used to measure`the financial instruments fall within different levels. of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. Financial. assets and liabilities recorded on the combined` statements of financial position are categorized based on the inputs to the valuation techniques as follows: Level 1. Financial assets and liabilities are valued using inputs that are unadjusted quoted prices. in active markets accessible at the measurement date of identical financial assets and liabilities. Level 2 — Financial assets and liabilities .are valued based on quoted prices for similar assets or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable ma..rket.data. Level 3 -- Financial assets and liabilities are valued using pricing inputs which are unobservable for the asset, inputs that. reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset. (24) CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL'STATEMENTS DECEMBER31,2016 NOTE 2 DEPOSITS AND INVESTMENTS (CONTINUED.) B. Investments (Continued) Fair Value Measurements (Continued) The levels of investments at December 3f, 2016 areas follows: lnvestment.Type Level Levell 2 Level 3 Total Negotiable Certificates of Deposit with Maturities at Purchase of Greater Than 1 Year $ - $ 354,000 $ S 354,000 $ - $ 354,000 $ - 354.000 lnvestments:Measured at.Amortized Cost 3,087 $ 357,087 NOTE 3 CAPITAL ASSETS Capital asset activity for the year ended December 31, 2016 was as1billlows:. Governmental Activities Capital Assets Not Being Depreciated: Construction in Progress Capital Assets Being` Depreciated: Buildings Office Equipment Infrastructure Total Capital Assets Being Depre.caled Accumulated Depreciation: Buildings Office Equipment Infrastructure Total Accumulated.Depredatlon. Net Capital Assets - Capital Actlyities Beginning Ending Balance Increases Decreases Oalance $ 94,367 $ .323',9$8 � (410455) 1 - '902,232' - - 902,232 12;895 - - 12,895 712,786 418,356 - 1.,131,144 1,627,915 418,356 - 2..,046;2.71 (177,530) .(22,047) - (199,577) (9,.986) (1;243) - (11,229) (429,006) (4209) - (471,675) (616;522) (65.959) - (682,481) '1*J6.5,760 $$�:. $ .418;35 . $ 1,3* 3,7.90 Depreciation expense was charged to the goverrin1ental*fun6tlons asJolCows; General Government $ 23,290 Public Works 42,669 Total Depreciation - Governmental Activities $ :65,959 Beginrling- Ending Balance Increases Decreases Balance Sewer Utility Capital Assets Being Depreciated: Infrastructure $ 617,639: $ $: - $ 617,539 Less.- Accumulated Depreciation (136,800.) ;457 - (149,257) Net Capital Assets - Sewer Utility 480,739 (12;457) $ - $ 468,282 .(25) CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 MOTE 4 CITY INDEBTEDNESS City indebtedness at December 31, 2016 is composed of the following: Governmental. Activities General Obligation Bonds: 2007A Capital Improvement Bonds. 20.15A Refunding Bonds Total Final issue Maturity Interest Date Date Rate 06/20/2007 02101/2.0.28 4.0(?-4.50°/o. 06/17/2015 0210112028 1.25-2.90% Original Balance Issue. 12/31 /16 $ 850,000. S. - 775,000 775;000 $ 1,6251000 $ 775,000 The following is a . 'schedule of changes in City indebtedness for the year ended December 31, 2.016` Balance Balance Due Within 12/31115 Additions. Reductions 12/31116 One Year Long Term Debt Governmental Activities: General Obligation Bonds: MOM capltal improvement Bonds $ 7451000 $ - $ 745,000 $. - $ - N15A Refunding Bonds 776,000 - - M,000 60;000 2007A Unamortized Bond Discount (5,744) - (5;744) - Total. Long -Term Debt $ 1,514;256 $ - $ 739;256 $ 775,000 $ .60,000 All long-term bonded indebtedness outstanding .at December 31, 2.016 is backed :by the full faith and credit of the City, including special assessment bond. issues. Minimum annual principal and interest payments required to retire long-term debt are as follows: Year Endina December 31. 2017 z01s 2019 2020 2021 2022-2026 2027-2028 Total Principal Interest Total $ 601000 $ 16,505 $ 76,505 60,000 15,755 75,755 65,000 14;828 79,828 609000 13;7.65 73,765 60,Oo.0 12,640 72,640 330,000 41,452 371,452 140,ODo 4,060 144,060 $ 775,000 $ 119,005 $ 894,005 (26) CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS ❑ECEMBER 31, 2016 NOTE 4 CITY INDEBTEDNESS (CONTINUE©) .Description and Restrictions of Long -Term Debt General. Obligation Bonds — The bonds were issued for improvements or projects which benefited the City as a whole and are, therefore, repaid from ad valorem levies. General Obligation Refunding. Bonds — In 2015,. the City issued General Obligation Crossover Refunding Bonds to refund the 2007A General Obligation Bonds. The City was. responsible for the February 2016 payment and after, the crossover occurred and the escrow will be responsible for the remaining principal and interest payments of the 2007A bond, resulting. in a defeasance of the bond. The refunding resulted in a net present value cash savings of $41,908, NOTE 5 STEWARDSHIP COMPLIANCE AND ACCOUNTABILITY Deficit Fund Balances The City has a deficit fund. balance at ❑ecember 31, 2016 as follows: Fund Balance S nfll i;F Hoffman Road Fund $ (391,685) G.O. Improvement Bonds.2004A (1,464) The City intends to fund these deficits' through future tax levies, transfers from other funds; and various other sources. NOTE 6 INTERFUND BALANCES AND ACTIVITIES Due To/From Other Funds Individual fund. receivable and: payable balances at December 31, 2016 are as follows: Governmental. Activity: General. Fund Hoffman Road Fund Other Governmental Funds Business -Type Activity: Sewer Fund lnterfund Interfund Receivable Payable $ 1;464 $ - - 397,252 1,464 397;252 - $ 39.8,716 $ 39.8,716 Interfund receivable and payable balances represent the elimination of negative cash between funds. R.7). CITY OF OEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2016 NOTE 7 RISK MANAGEMENT The City is exposed to various risks. of loss related to torts; `theft of, damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City carries commercial insurance for all risks of loss, including. disability and employee health insurance. There were no significant reductions in insurance from the previous year or settlements. in excess of insurance coverage for any of the past three fiscal years. NOTE 8 FUND BALANCES Certain portions of fund balance are restricted to provide for funding on certain long-term liabilities or as required by other outside parties. Restricted, Committed, and Assigned fund balances at December 31, 2016 are as follows: A. Restricted for Debt Service — This represents amounts which are restricted for future debt payments. B. Restricted for Park improvements — Represents amounts which are received. through park dedication fees and are restricted for park acquisitions and improvements, C. Restricted for Street Projects — Represents amounts which are received from special assessments and are. restricted for street projects. D. Assigned for Capital Improvements Benefitting Individual Property Owners -- Represents amounts which are assigned by the City to finance future road improvement.projects benefitting individual property owners. �2a1 REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON 'INFORMATION CITY OF GEM LAKE, MINNESOTA SCHEDULE OF REVENUES, EXPENDITURES, AND CHANGE IN FUND BALANCE BUDGET AND ACTUAL GENERALFUND YEAR ENDED DECEMBER 31, 2016 Budgeted Amounts �^ Actual Variance with Original Final. Amounts: Final Budget REVENUES Taxes $ 225,026 $ 2251026 $ 223,11B $. (1,908) Special Assessment - - 799. 799 Intergovernmental 10,950 10,950 9,796 (1,154) Licenses and. Permits 26,525 26;525 34,108. 7,583 Fines and Forfeits 3,000 3,000 3;210 210 Public Charges for Services. 5;71.9 51719 5,705 (14) Miscellaneous: Interest 1,950 1,950 1,701 (249) Other 700. 700 171084 16,384 Total Revenues 273,870 273,870 2951521 21,851 EXPENDITURES General Government 1-29,300 129,300 134,037 (4,73.7) Public Safety 122,270 122,270 119,793 2,477 Public Works 60,200 60,200 37,508 22,692 Conservation. and. Development 42,100 42,100. 51.1.22 (9,b22) Total Expenditures 353,870 353,870 342,460 11,410 NET CHANGE 1N FUND BALANCE $ (K000) $ (80,000) (46,939) $ 33,061 Fund Balance - Beginning of Year 260,524 FUND BALANCE - END OF YEAR $ 213,585 See. accompanying. Note to Required Supplementary Information: (29) CITY OF GEM LAKE, MINNESOTA ` NOTE TO REQUIRED SUPPLEMENTARY INFORMATION DEC EMBER 31, 2016 STEWARDSHIP COMPLIANCE AND ACCOUNTABILITY - BUDGET The General Fund budget is legally adopted on a basis consistent with accounting principles generally accepted..in the United States of America. (30) SUPPLEMENTARY INFORMATION CITY OF GEM LAKE,, MINNESOTA COMBINING BALANCE SHEET NQNMAJOR 00VERNMENTAL FUNDS DECEMBER 31, 201-6 Cash and Investments Special Assessments Receivable Accrued Interest Receivable Total Assets LIABILITIES, DEFERRED INFLOWS OF RESOURCES, AND FUND BALANCES LIABILITIES Due to Other Funds DEFERRED INFLOWS OF RESOURCES Unavailable Resources FUND BALANCES Restricted: Park Improvements strw Projects Debt Service Unassigned Total Fund. Balances Total Liabilities, Deferred Inflows of Resouces, and Fund Balances Special Capital Revenue Pfojeds Debt Service Funds G,O: G.O.Parks and sc hauneman Improvement Improvement Total Playground Road! Bonds Bonds Nortmiefor Fund Fund Series 2004A Series 2006A Funds $ 39,754 $ .3,186 $ - $ 501064 $ 93,00.4 - - 8,835 7,405 16,240 1.18. 8 - 114 240 $ 39,872 $ $,1194 $ 8,835 $ 57,583 $ 109,484 - $ 1,464 $ - $ 1,464 8,835 6,916 15,751 39,8.72 - - - 39,872 3,194 - - 3,194 - 50,657 50,667 (1.464) - (1,464) 39.872 31104 (1,464) 50,667 92,269 $. 39;872 $ 3.194 $ 8,835 $ 57,583 $ 109,484 (31) CITY OF GEM LAKE, MINNESOTA I COMBINING STATEMENT OF REVENUES, EXPENDITURES, .AND CHANGE IN FUND BALANCES NGNMAJOR GOVERNMENTAL FUNDS YEAR ENDED DECEMBER 31, 2016 REVENUES 5pe6fal Assessments Earnings (Loss) on Investments Total Revenues EXPENDITURES Capital Outlay Total Expenditures EXCESS OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING. SOURCES Transfers In NET CHANGE IN FUND BALANCES Fund Balance - Beginning afYear FUND BALANCE - END OF YEAR special Capital Revenue Projects Debt Service Funds G:O: G.O. Parks and: Scheuneman improvement Improvement Total Playground Road Bands, Bonds Nonmajor Fund Fund Series 2004A Series 2006A Funds $ - $ $ 162 $ 14,221 $ 14,383 41.0 33 163 468. 1,014 41.0 $3. 265 14,689 15,397 �.,.. 410 33 265 1089 151397 0 - - 410 33 .265 14,689 15,307 39,462 . 3,1.61 (1,7291 35,978 76,872 $ 39,872 $ 3,194 $ (1,464) $ 50,667 .5 92,269 (32) OTHER REQUIRED REPORTS CliftonLarsonAllen LLP CLAconnect.com Clifton LarsonAllen INDEPENDENT AUDITORS' REPORT aN INTERNAL CONTROL OVER.FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL.STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Honorable Mayor and. Members of the City Council City of Gem Lake, Minnesota We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the. governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of City of Gem Lake, as of and for the year ended December 31, 2016,. and the related notes to the financial statements, which collectively comprise City of Gem Lake's basic financial statements, arid. have issued: our report thereon dated June 20, 201.7. Internal Control Over Financial Reporting In planning. and performing our audit of the financial statements, we considered City of Gem Lake's internal control over financial reporting (internal control) to determine the audit procedures .that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements., but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly:, we do not express an opinion on the effectiveness of the City's internal control. A deficiency in internal control exists when the design or operation of a control does not %allow management or employees; in the normal course.of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to .merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might. be. material weaknesses or significant deficiencies and, therefore, material weaknesses or significant deficiencies may exist that were not identified. We did identify certain. deficiencies in internal control, described in the accompanying schedule of findings and. responses as items 201.6=001 and .201.6-002, that we consider to be material weaknesses. AA `member of Nexla (33) international Honorable Mayor and Members of the City Council City of Gem Lake, Minnesota Compliance and Other Matters As part of obtaining reasonable assurance about whether the City's financial statements .are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts: 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. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. City of Gem L.ake's Response to the Finding The City's responses to the findings identified in our audit are described in the accompanying schedule of findings and responses. The City's. responses were not subjected to the auditing procedures. applied in the audit of the financial statements and, accordingly, we express no opinion on them, Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the result of that testing, and not to provide an opinion on the effectiveness of the City's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the. City's internal control and compli.ance..Accordingly, this communication. is not suitable for any other purpose. zz-?� CliftonLarsonAllen LLP Minneapolis, Minnesota June 20, 2017 (34) v; s CliftonLa=nAlien LLP CLAconnect.ccm liftonLarsonAllen INDEPENDENT AuD]TbRS' REPORT ON MINNESOTA LEGAL COMPLIANCE Honorable Mayor, Members of the City Council; and Citizens City of Gem Lake, Minnesota. We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards.applicable to financial audits contained in Government.Auditing Standards issued by the Comptroller General of the. United States, the.financial statements of the governmental .activities, the business -type activities, each major fund, and: the aggregate: remaining fund information of the City of Gem Lake, as. of and for the year ended. December 31, 2016, and. the related notes to the financial statements, which collectively comprise the City's basic financial statements, and have.issued our report thereon dated June 20, 2017. The Minnesota Legal. Compliance. Audit Guide for Cities promulgated by the State Auditor .pursuant to Minn. Stat. §6.65, . contains seven categories of compliance to be tested: contracting and bidding, deposits and investments, conflicts of interest, public indebtedness, claims and disbursements, miscellaneous. provisions., and tax. increment. financing. Dur audit. con sidered all of the listed categories, except that we did not test for compliance with tax increment financing because the City did not have any tax increment financing. In connection with our audit, nothing came to our attention that caused us to believe that the City of Gem Lake, failed to comply with the provisions of the Minnesota Legal Compliance. Audit Guide for Cities, except as described in the schedule. of findings and recommendations as items 2016-003, 2016- 004, and 2016-005. However, our audit was not directed primarily toward obtaining knowledge of such noncompliance. Accordingly., had we performed additional procedures, other matters: may have come to our attention regarding the City of Gem Lake's noncompliance. with the above -referenced provisions. The City's responses to the findings identified in our audit are described in the accompanying schedu€e of findings and responses. The City's responses were not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly., we express no opinion on them. The purpose of this report is solely to describe the scope of our testing of compliance and the results of that testing, and not. to provide an opinion on compliance. Accordingly, this communication is not suitable for any other purpose. e �!, �a 4, � � � zz� CliftonLarsonAllen LLP Minneapolis, Minnesota June 20, 2017 AmamBerof �E (40§Nexoa (35) IntErnationai CITY OF GEM LAKE, MINNESOTA SCHEDULE OF FINDINGS AND RESPONSES, YEAR ENDED DECEMBER 31, 2016 MATERIAL WEAKNESS 2016-001: Limited .Se re ation of Duties Condition: Due to the: small size of the City's staff, there is by definition a lack of segregation of the accounting functions that is necessary to ensure adequate internal accounting control. While we realize this scenario is: common for small entitles, we are required to report this issue and to advise that a concentration of duties and responsibilities in a limited number of individuals is not desirable from an internal control perspective. Criteria: Generally, a system of internal control contemplates separation of duties such that no individual has responsibility to execute a transaction, have .physical access. to the related assets, and have responsibility or authority to record the. transaction. Effect: The City is unable to maintain segregation of incompatible duties. Cause: The condition is due to a Limited number of personnel involved in receipt and disbursement. processes.. Recommendation: Controls should be reviewed periodically and consideration given to improving the. segregation of duties. In making this review, it is important to consider the benefit derived as weighed against the. cost of the improvements. Management Response: Management has decided, due to the small size of the City's staff, that the additional costs of .implementing.the necessary controls outweigh the benefits that would be derived. (38) CITY OF GEM LAKE, MINNESOTA SCHEDULE OF FINDINGS AND RESPONSES (CONTINUED) YEAR ENDED DECEMBER 31, 2016 MATERIAL WEAKNESS (CONTINUED) 2016-002: No Utility Billing Reconciliation Performed. Condition.: As the City transitions more responsibility to others, it was noted a formal reconciliation of utility billings. and :collections are not being performed to account for total billings and receipts into the City's general ledger system. Criteria: Management is responsible for having adequate. controls and processes in place to ensure all activity that is 'not created and/or generated by the general ,ledger system is sufficiently reconciled to subsidiary systems. These could be accomplished: through periodic review of billing registers, receipts, and system activity. This process should also include a reconciliation process in which all ofhe activity in the subsidiary system is entered into the general. ledger and key account balances and totals. are traced to the supporting reports/schedules of the subsidiary system. Effect: The City may find unexplained variances. in utility revenue and receivables. Cause: The City is working through.. identifying and establishing controls and processes as some duties are separated out. among different. individuals. Recommendation: We recommend City management establish a process to reconcile the utility system to the general ledger at least quarterly to coincide with the utility billing process which occurs on a quarterly basis. Management Response: Management is exploring ways to .provide a. reconciliation between systems. (37). CITY OF GEM LAKE, MINNESOTA 4 SCHEDULE OF FINDINGS: AND RESPONSES (CONTINUED) YEAR ENDED DECEMBER.31, 2016 OTHER. ITEM FOR CONSIDERATION -- MINNESOTA LEGAL COMPLIANCE 2016-003: Prompt Payment of Local Government Bills Criteria: Minnesota Statute §471.425 Subd. 2., requires Cities. to pay each vendor obligation according to terms of the contractor, if no contract terms apply, within the standard. payment period unless the municipality in good faith disputes the obligation. For municipalities who have governing boards which have regularly scheduled meetings at .least once a ninth, the standard payment period. is defined. as with in. 35 days of the date of receipt. Condition: The City paid one invoice outside of the 35 days as defined by the Minnesota Statue. The invoice was paid .approximately 3 months after it was dated. Effect:. The City is not in compliance with the Minnesota Statute requiring prompt payment of local government bills. Cause: The Citypayed jhvoice outside of the 35 days as defined by the Minnesota Statue. Recommendation: We recommend City management. closely monitor payment of invoice to ensure. that they. are paid: in a timely manner.. Management Response:. City management is aware of this requirement and will continue to monitor the requirement to ensure. that payment continue to be made as required. 2016-64.4:.Annual Report of Outstanding Obligations Criteria: Minnesota Statute §471.70, on or before February 1st each year, it shall. be the duty of the principal. accounting officer of each municipality to report to the auditor of each county in which such municipality is situate, the total amount of outstanding obligations, and the purpose for which issued as. of December 31 of the preceding year, Condition: The City did not. submit to Ramsey County the Outstanding Obligations as of February 1 2017.. It was submitted on February 9, 2017: Effect: The City is: not in compliance with the Minnesota Statute requiring the submittal of the Outstanding Obligations as of February 1 of each year. Cause: The City has provided the Outstanding Obligations report in the past but did not submit report by the deadline for 2016. Recommendation: We recommend City management implement a process to trigger the submission of -the Outstanding Obligations report prior to the February 1 deadline each year. Management Response: City management is aware of this requirement and will continue to monitor the requirement to ensure the. Outstanding Obligations report is submitted prior to the deadline. (38) CITY OF GEM LAKE, MINNESOTA SCHEDULE OF FINDINGS AND RESPONSES (CONTINUED) YEAR ENDED DECEMBER 31, 2016 OTHER ITEM FOR CONSIDERATION — MINNESOTA.LEGAL COMPLIANCE (CONTINUED) 2016-005: Out of State Travel Policy Criteria: Minnesota Statute §471.661, requires the governing body of each statutory or home rule charter city., county, :school district, regional agency, or other political subdivision, except a town, must have .on record a policy that controls travel outside the state of Minnesota for the applicable elected officials of the relevant unit of government. Condition: The City does not have a travel policy. Effect: The City is not in compliance with the Minnesota ,Statute requiring a. travel policy, Cause: The City has not developed a travel policy. Recommendation: We recommend the Citydevelop a travel policy. Management. Response: City management is aware of this. requirement. and will work toward developing a travel policy. (30)