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HomeMy WebLinkAbout2010 FINANCIAL STATEMENTSCITY.OF GEM LAKE, MINNESOTA FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION YEAR ENDED DECEMBER 31,.2010 CITY OF GEM LAKE 4200 OTTER LAKE ROAD GEM LAKE, MINNESOTA 55110 CITY OF GEM LAKE, MINNESOTA. TABLE OF CONTENTS YEAR ENDED DECEMBER 31, 2010 I. FINANCIAL. SECTION INDEPENDENT AUDITORS' REPORT 1 BASIC FINANCIAL STATEMENTS STATEMENT OF NET ASSETS 3 STATEMENT OF ACTIVITIES 4 BALANCE SHEET- GOVERNMENTAL FUNDS 5 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT ❑F NET ASSETS- GOVERNMENTAL ACTIVITIES i STATEMENT OF REVENUES,. EXPENDITURES AND. CHANGES IN FUND BALANCE - GOVERNMENTAL FUNDS 8 RECONCILIATION OF THE GOVERNMENTAL FUNCIS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES - GOVERNMENTAL ACTIVITIES. 10 STATEMENT OF NET ASSETS - PROPRIETARY FUND 11 STATEMENT OF REVENUES, EXPENSES AND CHANGE IN NET ASSETS - PROPRIETARY FUND 12 STATEMENT OF CASH FLOWS- PROPRIETARY FUN❑ 13 NOTES TO BASIC FINANCIAL STATEMENTS 14 REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON INFORMATION SCHEDULE. OF REVENUES, EXPENDITURES AND CHANGE IN FUN❑ BALANCE - BUDGET AND ACTUAL -- GENERAL FUND 27 NOTE TO REQUIRED SUPPLEMENTARY INFORMATION 28 COMBINING: FUND FINANCIAL STATEMENTS NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET 29 COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGE.IN FUND BALANCE 36 CITY OF GEM LAKE,: MINNESOTA TABLE OF CONTENTS (CONTINUED) YEAR ENDED DECEMBER 31, 2010. Il. OTHER REQUIRED REPORTS 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 31 REPORT ON MINNESOTA LEGAL COMPLIANCE 33 SCHEDULE OF FINDINGS AND RESPONSES 34 FINANCIAL SECTION LarsenAlleno LLP CPAs, Consulmars & Advisors wwwlarsonallenxom INDEPENDENT AUDITORS' REPORT Honorable Mayor Members of the City Council and Citizens City of Gem Lake Gem Lake,. Minnesota We have audited the accompanying financial statements of the. governmental activities, the.:bus.iness- type activities; each major fund, and the aggregate remaining fund information of the City of Gem Lake, Minnesota as of and for the year ended December 31, 20M. which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City's management'. Our responsibility is to express opinions on these financial statements based on our audit. The prior year partial. comparative information has been derived from the City's 2009 financial statements and, in our report dated April 19, 2010, we expressed unqualified ❑pinions on the respective financial statements of the governmental activities, the business -type activities, each major fund,. and the aggregate remaining fund information. We conducted our audit in accordance with U.S. generally accepted auditing standards and the standards applicable tp financial audits contained 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 of material misstatement. An audit .includes examining, on a test basis, evidence, supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used .and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that: our audit provides a reasonable basis for our opinions. In our opinion, the .financial statements referred to above 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,.201'0, and the respective changes in -financial position and cash flows, where applicable, thereof for the year then ended in conformity with U.S. generally accepted accounting principles.. In accordance with Government Auditing Standards, we have also issued our report dated June 13,. 2011 on our consideration of the City 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 purpose 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 performed in accordance with Government Auditing Standards and should be considered in assessing the results.of our audit. ( An independentmember of Nexia International INTERNATIDN 14 Honorable .Mayor Members of the City Council and.Citiizen& City of Gem Lake The budgetary comparison information as listed in. the table of contents is. not a required part of the basic financial statements but. is supplementary information. required by U.S.. generally accepted accounting principles. We have applied certain limited procedures, which consisted principally of inquires of management regarding the methods of measurement and presentation of the required supplementary information.. However, we did.not audit the information and express no opinion on it.. The City of Gem Lake has not presented the management's discussion and analysis that U.S. generally accepted accounting principles have determined is necessary to supplement, although not required to be part of, the. basic financial statements. Our audit was conducted for the purpose of farming opinions on the financial statements that collectively comprise the City's basic financial statements. The accompanying combining fund financial statements as listed in the table of contents, are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in our audit of the basic fihancial statements. and, in our opinion,. is fairly stated in all material respects in relation to the basic financial statements taken.as a whole. Minneapolis,. Minnesota June 13,. 2011 1-1—to LarsonAllen LLP (2) BASIC FINANCIAL. STATEMENTS CITY OF GEM LAKE,.MINNESOTA STATEMENT OF NET ASSETS DECEMBER 31, 2010 (WITH COMPARATIVE DATA AS OF DECEMBER 31, 2009) ASSETS Cash and Investments Taxes Receivable Special Assessments Receivable Accounts Receivable Accrued Interest Prepaid Expenses llnamortized Bond Issue Cosfs Capital Assets: Capital Assets Being Depreciated Accumulated Depreciation Total Assets LIABiLi71Es Vouchers and Accounts. Payable Accrued Interest. Payable Unearned Revenue Long -Term Liabiiitles. Amounts Due Within One Year Amounts Due:in More than One Year Total Liabilities NET -ASSETS Invested in Capital Assets, Net of Related Debi Restricted for Debt Service Unrestricted Total Net Assets 201.0 zo09 Business- usiness- Governmenta Type Govemmenta Type I Activities Activities Total I Activities Activities $ 766,185 S 276;826 $ 1.1043,01`1 S. 644,956 S 275;558 39,a59 - .39,059 7,044 - 392,666 5,157 398,023 4851,350 6,425 91949 13,833 23,782 9.,916 13,861 3A14 1.14.10. 4,424 4,192 1,719 1,452. 7,307 8,759 1,273 7,598 29,221 -. 29.,221 32,048 1,624,686 617,539 2,242,225 1,624,686 617,539 [305,925] (74,517). (380,442) {243,515} (62,060) 2;560;507 847,555 3,408;062 2565;950. 86.1,700 37,762 2,220 39,982 11,565 163 23,296 - 23;296 24,770 - 5,800 _ 5,800 - - 98,276 - 98,276 91,179 - 1,239,90B. - 1;239,908 1.,336,411 - 1,405,042 2220 1,407:,262 1,463,925 1.63 {19;423} 543,022. 523,599 {46,41.9} 555479 658,938 - 658,958 938,545 - 515,96a 344313. 818,263 311,899 30.6,058 $ 1,156,465 $: 845,335, $ 21000,800 $ 1,102;025 $ 861,537 See accompanying :Notes to Basic Financial Statements; 0) CITY OF GEM LAKE, MINNESOTA STATEMENT OF ACTIVITIES YEAR. ENDED DEC EMBER 31, 2010. (WITH COMPARATIVE DATA FOR THE YEAR ENDED DECEMBER 31, 20.09) FUNCTIONSIPROGRAMS GOVER KIM ENTAL ACTIVITIES Gerleral'Govern ment Public Safety Public.Works .Conserva8dn and Development Interest and Fiscal Charges Total Governmental Activities 2010 2009 Net (Expense)Revenue;arid Net (Expense)RevenUeAnd _Program Revenues. Changes in%Net Assets Chan es.in Net Assets ota Charges, Operating Capital Grants Business- Total Business - Fines, and Grants and and Govemmenta Type Governmental Type Expenses Other Corl tbukns Contributions t.Acuvtbes Aclivities Total Activities Activities 5 127,231 5 28,336 S 8,635 $ S (90;260) S - 5 (W,260) 5 (97,946) 5 99.160 (99,160] (99,160j (100;786) 92,C06 14442 - - �(67,558) - (670558) (59,938) - 21.4A0 (21,450) (21,450) (36,877.) 61,879 (61479) {61,879) (65,395) 391,720 42.778 8,635 - .(340,307.) - (340,307) (360,W2). - BUSINESS TYPE ACTIVITIES Sewer 63,512 . 42.919 Total Primary Government S. 455;232 5 85,697 . .5 .8.635 . 3 GENERAL REVENUES Taxes: Pro peoy.iaxes; Levied for General Purposes Property Taxes. Levied for Debt Service Grants and Conldbufions Not Restricted far s Particular Purpose Investmeni.E;nrnings .Miscellaneous Transfers Total General Revenues. CHANGE IN NET ASSETS Net Assets.- Beginhing cf.Year NET ASSETS = END OF YEAR See accompanying Notes to Basic Financial Statements. (4) (20.593) (20,593) 111395: [340,307) [2Q,593j (3fi0,9D0] (360.942] 11,395 334AS4 334,484 416,571 50,09v" - 50,1)96 24,807 - 70;127 8,721 4,391 13,112 9;3n 3.883 446. 448 775 (125,Q00) 125.000 393;747 4,391 .398.138 396.655 128.883 53.440 (16,202) 37;238 35,713 .140,278 1.102,025 861,537 1,963,562 1.066.312: 721.259 5 1,155;465 S 845,335 S 2.000;800 S 1.102,025:. S '861.537 G.O. Capital Improvement Scheuneman Other Plan Bonds Road Governmental Series 2007A. Fund Funds 2010 Tota I Governmental. Funds 2009 Totals $ 80,228 $ - $ 62;455 S. 765,185 $ 644.,956 4,060: - - 39,059 71044 - 6505 - 392,866. 485,350 - 9;949 %01.6 296 - 319 3,014 4,192 - - - 71,025 83,191 _- - - 1,452 1.;273 $ .85,484 $ 655805 $ 62,774 $ 1,283,550 $ 1,235;922 $ - $ - $ $ 37,762 $ 11,565 - 71,025 - 71,025. 83,191 1,972 65,805 - 416,083 490,846 1,972: 136,830 - 524,870: 5857602 - 1,452. 1,273 - 410,629 292,791 - 37,571. 37,571 37;022. 83,5.1.2 - - 354;850 293,544. .(71,025) 25,203 L45,822) 25,690 83,512. �71,025) 62,774 7581690 650,320 $ 85,484 $ 65,805 $ 62,774: $ 1,283;550. $ 1,235,922 (6) CITY OF GEM LAKE, MINNESOTA RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS GOVERNMENTAL ACTIVITIES ❑ECEMBER 31, 2010 (WITH COMPARATIVE DATA AS OF DECEMBER 31., 2009) 2010 2009 TOTAL FUND -BALANCES FOR GOVERNMENTAL FUNDS S. 75800 $ 650,320 Total net assets reported for. governmental activities in the :statement of net assets is different because: Capital assets used.in governmental activities are not financial resources and, therefore,.are no reported in the funds_ These capital assets consist of:: Buildings S 898;708 Office Equipment 13;190 Infrastructure 712;788. Accumulated Depreciation (305,925) 1,318,761 1,381,171 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.reparted as deferred revenue in the. governmental funds. 410283 490,846 Bond issue costsare reported as exPen.ditures in the governmental funds and are shown net of accumulated amortization on the statement of net assets.. 29221 32,048 Some liabilities are: not due and payable in the current period and, therefore, are not reportedas fund liabilities. Balances at -year-end are:. General.Qbligation Bonds. Payable (1,353,651) Unamortized Bond Discounts 15,467 Accrued Interest on Long -Term Debt. (28,208) _ (1,36.1,48Q) (1,452,350) TOTAL NET ASSETS' OF GOVERNMENTAL ACTIVITIES $ 1,155,465 $ 11102;025 See': accompanying Notes: to Basic Financial Staternents. (.7 G.0. Capital 2010 Improvement Scheuneman Other Total Plan Bonds Road Govemmental Governmental 2009 Series 2007A Fund Funds Funds Totals $ 50,096 $ - $ - $ 379 286�- $ 446,108 - 13,589 - 87,240�- 137,954 - - - 5;199`- 74,909. - - - 20,066 17,570 - - 1,81 f-- 1,773 - - 4,483 8,672 683 (11353) 1,105 8,721'- 9;$75 - - 18,917 23,194 .50,779 12,23E 1,145 525,723 719,555 - - - 90,76.E 11.5;421 - - - 99,160: 106,786. - - - 46;012 52,949 - _ - 21,450 38.,376 - - 1,043 1,048 141.,705 15,000. - - 91,179 89,156 35,905 _ - 58,753 62,238 50,905 1,043. 417,363 600,631 (126) 12;236 62 1081360 118,924 (152,0$8). - - (125,000) (12G) 12,236 62 .108.360 (6,076) 83,63.8 (83,26.1) 62,712 650,320 6561396 _ $ 83,512 $ 71 025 $ 62.774: $ L758 --,680c $ 650,320 (9) CITY OF GEM LAKE,. MINNESOTA RECONCILIATION OF THE GOVERNMENTAL. FUNDS STATEMENT OF REVENUES, EXPENDITURES AND: CHANGES I FUND BALANCE TO THE STATEMENT 0F.ACTIVITIES GOVERNMENTAL ACTIVITIES YEAR ENDED DECEMBER 31,2010 (WITH. COMPARATIVE DATA FOR THE YEAR ENDE❑ DEGEMBER 311 2009) NET CHANGE IN FUND BALANCES -TOTAL GOVERNMENTAL FUNDS Amounts reported for governmental activities in the statement of activitiesare different because: Governmental funds report capital outlays as expenditures. Hpwever; in the statement of activities, assets are capitalized.and the cost is :allocated over their estimated.useful lives. and reported -as depreciation expense. The loss:on disposal is not recognized at the fund level, but is recorded. as an expenditure inthe statement of activities. This is the arnount by which capital outlays exceeded depreciation in the. current period. Depreciation Expense Delinquent•arid deferred property taxes and.spec!aI assessments. receivable will be collectedsubsequent to year-end, but are not. available soon enough to pay for the.current p6riod's expenditures and, therefore, are deferred in the governmental funds. Deferred ReVenue -.December 31, 2009 $ 490,846 Deferred.Revenue - December 31, 2010 410,283 The. governmerital funds report bond proceeds as -financing sources, while repayment of.bond principal is reported as an expenditure.. In the statement of net:assets, 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 of issuance costs, 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 dua. In tha s.tatellent 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 acid related items is as follows: Repayment of Bond Principal 91,1.79 Change in Accrued I.nterest.Payable 1,474 Amortization of Bond Issue Costs (2,827) Amortization of Bond Discount (1,773) CHANGE IN NET ASSETS OF GOVERN MENTAL. ACTIVITIES See: accompanying Notes to Basic Financial Statements. (10) 2010 2000 $ 108,360 $. (6,07.6) (6241:0) (28,902) (80,563) (.15,307) 88,053 85,998 $ 53,440 .$ 35,713 CITY OF GEM LAKE, MINNESOTA STATEMENT ❑F NET ASSETS PROPRIETARY FUND .DECEMBER 31 2010 (WITH COM PARATIVE. DATA AS OF DEC EMBER 31, 2009) ASSETS Cash and. Cast, Equivalents Customer Accounts Receivable Accrued Interest Special Assessments Receivable Prepaid Expenses Total Current. Assets Cap..ital.Assets: Utility Plant in Service Accumulated Depreciation Net Capital Assets Total Assets Accounts Payable LIABILITIES NET ASSETS Invested in Capital Assets, Net of Related Debt unrestricted. Total Net Assets See.' accompanying Notes to Basic Financial. Statements. (11.) 2010 Sewer 2009 utility Totals $ 2761826 $ 276,558 13,833 1.3,861 1,410 1,779 5,157 6,42:5. 7,307 7,598. 304,533 306,221 517539 6.17,589 (74,517) (62,060) 543 022 555,479 847,555 861,7o0 2,220 163. 5431022 5551479 302,313. 306,058 $ 845,335 $ 861,537 CITY OF GEM LAKE, MINNESOTA STATEMENT OF REVENUES, EXPENSES AND CHANGE IN NET ASSETS PROPRIETARY FUND YEAR ENDED ❑ECEMBER 31, 2010 (WITH COMPARATIVE DATA FOR THE YEAR ENDED DECEMBER.3.1, 2009) OPERATING REVENUES Public Charges for Services OPERATING EXPENSES Operating Expenses :. Depreciation Total Operating Expenses s OPERATINGINCOME (LOSS) NONOPERATING REVENUES Interest Revenue INCOME BEFORE TRANSFERS CAPITAL CONTRIBUTIONS AND TRANSFERS Transfers In CHANGE IN NET ASSETS Net Assets - Beginning of Year NET ASSETS. - END .OF YEAR. See accompanying Notes to Basic Financial Statements. 2010 Sewer 20.09 Utility Totals $ 42,919 $ 4.8,395 51,055 25,498 12,457 11,602. 63.,512 37,OQ0 (20,593.) 11,395 4,391. 3.,883 . (16,202) 15,278 - 125,000 (16,202) 140,278 861;537 721,259 $ 845;335 $ 861,537 (12) CITY OF GEM LAKE; MINNESOTA STATEMENT OF CASH.FLOWS. PROPRIETARY FUND YEAR ENDED DEC EMBER.31, 2010 (WITH COMPARATIVE DATA FOR THE YEAR ENDED DECEMBER 31, 2009) CASH FLOWS FROM OPERATING ACTIVITIES Cash Received from Utility Customers Cash Payments to Suppliers, for:Goods and Services Net Cash Provided (Used)'by Operating Activities CASH FLOWS FROM CAPITAL AND RELATED .FINANCING ACTIVITIES Cash Payments for Capital Assets CASH FLOWS FROM INVESTING ACTIVITIES Interest on Investments CASH.FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers In NET INCREASE IN CASH AND CASH EQUIVALENTS Cash and Cash Equivalents - B.eginning of Year: CASH AND CASH EQUIVALENTS - END OF YEAR RECONCILIATION OF OPERATING INCOME (LOSS) TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES. Operating Income (Loss) .Adj;ustments to Reconcile Operating Income (Loss) to Net. Cash Provided (Used) by Operating Activities: Depreciation Changes in Assets. and Liabilities: Customer.Accounts Receivable Special Assessments: Receivable Prepaid Expenses .Accounts Payable Net.Cash Provided (Us..ed).by Operating Activities See accompanying Notes to Basic Financial Statements. (18) 2010 Sewer utility $ 44,215 (48,7Q7) (4,492) 2009 Totals $ 43,524 (25.,673) 17,851 (46=7.64) 4,760 3,270. - 125,000 268 99,357 276,558 177,201 $ 276,826. $ 276,558 $ (29,593) $ 11.,395 .12,45.7 11.,502. 28 1,072 1,268 (5,943) 291 (234) 2,057 59 $ (4,492) $ 17,851 CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS ©ECEMBER 31, 201.0 NOTE 'I SUMMARY OF SIGNIFICANTACCOUNTING POLICIES The financial statements of the City have. been prepared in conformity 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 byU:S', generally accepted accounting principles, the financial statements of the reporting entity include those of the City of Gern 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 fora component include whether or not the primary government appoints the voting majority of the potential .component unit's .board, is able to impose its will on the potential component unit; is in a relationship of financial benefit or burden with the potential component ,unit,. or is fiscally depended upon by the potential component unit. Based on these criteria, there are no arganizations considered to be component units of the City. B. Basic Financial Statements 1. Government -Wide Statements The government -wide financial statements (i.e., the statement of net assets and the statement of activities) display information 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 dauble=counting of internal activities. Governmental activities, which normally are :supported by taxes and intergovernmental .revenues, are reported separately from business -type activities, which rely to a significant extent on fees and charges to external parties for support. In the. government -wide statement of net assets, both the governmental and. bus€ness-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 assets are reported in three parts: (1) invested in capital assets, net of related debt; (2) restricted net assets; :and (3) unrestricted net assets. The City first utilizes restricted resources. to finance .qualifying activities. (14) CITY OF GEM LAKE, M€NNESOTA. NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2010 NOTE 1 SUMMARY OF SIGNIFICANT -ACC OUNTING.POLIC€ES (CONTINUED) B. Basic Financial Statements (Continued) 1.. Government -Wide Statements (Continued) The statementof 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.. 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 genera[ government; except those required to be accounted for in another fund. G.O. Improvement Bonds Series 2004A — The G.O. Improvement Bonds Series 2004A Fund accounts for all debt service activity related to the 2004A bond. G.O. Improvement Bonds Series 2006A — The G.O. Improvement Bonds Series 2006A Fund accounts for all debt service activity related to the 20.06A bond. 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. Scheuneman Road Fund — The Scheuneman Road Construction Fund accounts for all activity related to the reconstruction. of the Southern portion of Scheuneman Road which was turned .ba'ck to the City from Ramsey County .in- 20o6. (15.) CITY OF GEM LAKE, MINNESOTA. NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2010 NOTE 7. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED] B. Basic Financial Statements. (Continued) 2. Fund Financial Statements (Continued) 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, proprietary fund, and fiduciary 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. Private -sector standards of accounting and financial reporting issued on or before November 30, 1989,. genera[ly are followed in both the goVe rn ment-wid e and proprietary fund financial statements to the extent that those standards do not conflict with or contradict guidance of the Governmental Accounting Standards Board. Governments. also have the option of following subsequent private -sector guidance for their business type. activities and enterprise funds., subject to this same limitation. The City has elected not to follow subsequent private -sector guidance. 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 53 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 fang -term debt and acquisitions under capital leasesare. reported as otherfnancing sources. 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. CITY OF GEAR LAKE,.MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DEC EMBER 31, 2010 NOTE 1 suMMARY CF SIG NIFIC.ANT ACCOUNTING POLICIES. (CONTINUED) D. Budgets Budgets are adopted on a basis consistent with U.S. generally. accepted accounting principles. 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 fund's equity in the cash and investment pool. The City provides temporary advances to funds that have insufficient cash.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 assets presentation. Investments are stated at fain 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 Ahree 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 Expenses 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 reserved. 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. (17) CITY OF GEM LAKE, MINNESOTA NOTES TO BASICF€NANCIAL. STATEMENTS DECEMBER 31, 2010 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) H. Property Tax. Revenue Recognition The. City Council annually adopts' a tax levy and certifies it to the County in December (levy/assessment date) of each year for collection in the following year_ The County is responsible for b!]Iing and collecting ail. 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... Delinquent collections for November and December are received the following January. The City has no ability 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 de.linquerit 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 revenue. because it is not available to finance current expenditures. Deferred revenue 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 commerciallirid ustrial real property to various taxing authorities within the defined metropolitan area. The valuation "shared" is a. portion of commercial/industrial property valuation growth since 1971. Property taxes paid to 'the City through this formula for 2010 totaled $1,072. Receipt df property taxes from this "fiscal disparities pool" does not increase or decrease total tax. revenue. I. 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 term of the related bond. issue. Collection of annual installments (including interest) is handfed 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. (18) CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31 2010 NOTE '1 SUMMARY OF SIGNIFICANT ACCOUNTING. POLICIES (CONTINUED) Special Assessment Revenue Recognition (Continued) 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.fol[owing January) and are also recognized as revenue. for the current year. All remaining delinquent, deferred and special deferred. assessments receiiable in. governmental furiding are completely offset. by deferred revenues. Deferred revenue in governmental activities is susceptible to full accrual on the government -wide statements. Once a special assessment toll is adopted, the amount attri.buted.to each parcel is a.lien upon that property until full payment is made or the amount is determined to be excessive by the City's City Council or court action. If special assessments are allowed to go delinquent, the property is subject to tax forfeit sale acid 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 sale 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. 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. (19) NOTE. 1 CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DE.CEM13ER 31, 2010 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) J. Capital Assets (Continued) Depreciation on exhaustible assets is recorded as am allocated expense in the statement of activities with accumulated depreciation reflected in the statement of net assets. Since surplus assets are sold for an immaterial amount when declared as no longer need ed. 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 Straightm.Line 40 Years Office Equipment straight -Line 5 -10 Years Utility Systems straight -Line 20 - 50 Years Infrastructure Straight -Line '20 - 50 Years K. Lang -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 deferred and amortized over the life of the bonds using the. straight-line method. Band issue costs, if material,. are reported as prepaid items and amortized over the term of the related debt using the straight-line method. In the. 0overnmental fund financial statements; bond premiums. and discounts, as well. as bond issue costs are recognized during the current period. The face amount of 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. L. Fund.Balance In. the governmental fund financial statements, reservations of fund balance represent those portions of fund balance not appropriable for expenditure or legally restricted by outside parties for use for a specific. purpose. Designated fund .balances represent. tentative plans for future use of financial. resources that are subject to change.. CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS ❑ECEMBER 31, 2010 NOTE I SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (CONTINUED) 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 experiditureslexpenses in the reimbursing fund and as reductions of expenditures or expenses in the fund. that is reimbursed. All.other interfund transactions are reported as transfers. All interfund transactions are eliminated activities and business -type activities for net assets and statements of activities. NOTE 2 DEPOSITS AND INVESTMENTS A. Deposits except for activity between governmental presentation in the entity=wide staterents of The City maintains a cash and investment pool that is available for use by all funds. Each fund type's portion of this pool is displayed on the statement of net assets and the balance sheet as "Cash and. Investments." In accordance with .Minnesota Statutes, the City maintains deposits atfinanciai 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 not have a deposit policy for custodial credit risk and follows Minnesota Statutes 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 or corporate surety bonds. Authorized collateral include: U.S. government treasury bills, notes, or bonds; issues of a U.S.. government agency; general obligations of a state or local government rated "A" or better; revenue obligations of a state or local government rated "AX or better; .irrevocable standby letter of credit issued by a Federal Home Loan Sank; and time deposits insured by a federal agency, Minnesota Statutes require securities pledged.. as collateral be held in. safekeeping in a restricted account at the Federal Reserve Bank or in an account at a trust department of a commercial bank or other financial institution not owned or controlled. by the depository. The carrying_ value and bank balance of the City's deposits in banks at December 31,. 2010 were $669,011 and $884,263, respectively, and were entirely covered by federal depository insurance or by surety bonds and collateral in accordance with Minnesota Statutes. (21) CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC .FINANCIAL STATEMENTS DECEMBER 31, 2010 NOTE 2. DEPOSITS AND INVESTMENTS (CONTINUED) B. Investments The City may also invest idle fun ds.as authorized. by Minnesota. Statutes. as follows: • Direct obligations or obligations guaranteed by the United. States or its agencies. ■ Shares 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 thirteen months or less. • General obligations rated. 'A" or better;. revenue obligations rated "AX 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 $1.0,0.00,000,% a primary reporting dealer in U.S. government securities to the Federal Reserve Bank of New York, or certain Minnesota securities broker -dealers. Custodial Credit Risk For an investment, custodial credit risk is the risk that, in the event of failure of the counterparty, the City will not be able to recover the value of its investment or collateral securities that are in the possession of an outside. party. The City's investment policy doesn't specifically address custodial credit risk. Interest Rate Risk Interest rate risk is the risk that changes in interest rates will. adversely affect the. fair value of an investment. Generally, 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: (22) NOTE 2 CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2010 DEPOSITS AND INVESTMENTS (CONTINUED) B. Investments (Continued) 12:M6nths 13 to: N 25 to 50 More than Type. -- Total or Less Months Months R Months' Federal Farm Credit $ 200,Wo s - $ $ S. 200,000 Federal Home. Loan Mortgage 15000 - 15,000: - Federal Home Loan Bank 155:06 - - 155,000 Wells Fargo Prime Investment.Furid 4,000 4,000 - Total 5 374.000 5 4,000. $ - $ 15,000 s 355;00.0 Credit. Risk Generally, credit risk is the risk that an issuer of an investment will not fulfil€ its obligation to the holder of the investment. This. is measured by the assignment of a rating by a nationally recognized statistical rating organization.. The City's investment policy doesn't specifically address credit risk. The following chart. summarizes .year-end. ratings far the. City's investments.as. rated by Moody's Investors Services; Type Government. Money Market. Mutual Funds Federal Farm Credit Federal Home...Loan Mortgage Federal Home Loan Bank Total Concentration. of Credit Risk Credit _Quality Rating Amount N/A $ 4.,000 AAA 200,000 AAA 15, 000 AAA 155,000 $. 374,000. 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°Io of the City's total investments: Credit Type Quality Rating. Amount Percentage Federal Farm Credit AAA $. 200'000 .53.48% Federal Home Loan Bank AAA 1551000 4144.4% (23 ) CITY.OF GEM.LAKE, MINNESOTA NOTES TO BASIC. FINANCIAL STATEMENTS. DEC EMBER 31, 2410 NOTE 3 CAPITAL: ASSETS Capital asset activity for the year ended December 3.1, 2010 was as follows: Governmental Activities: Capital. Assets Being. epreciated: Buildings Office Equipment Infrastructure. Total Capital Assets Being: Depreciated Accumulated Depreciation Buildings Or ffice.Equipment Infrastructure Total. Accumulated .Depreciation Net Capital Assets - Capital Activities Beginning Ending Balance Increases: ❑ec.reases Balance. $ 898,708 $ - $ - $ 898.708 13,190 -. - 13,190 712;788 - - 712,788 1,624,686 - - 1,624.686 (42,127) {22,468} (3002) (1,506) - (4,508) (198:386) 38,436 - (236;822) (243,515) (621410) - (30.5,925 $ 1,381,171 $�62,410j .$ - $ 1,318i761 Depreciation expense was charged to the governmental functions as follows: General Government $ .23,914 Public Works 381436 Total Depreciation - Governmental Activities $ 62�419. Beginning .Ending Balance Increases. . Decreases Balance Sewer Utility Capital Assets Being Depreciated: infrastructure $ 617,539 $ - $ - $ 611,539 Less: Accumulated Depreciation (62,060 (I2j457) - (7.4,517) Net Capital Assets - Sewer Utility 555,479 (12,457) 5.43,0 2 (24) NOTE 4 CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DEC EMBER 31, 2010 CITY INDEBTEDNESS City indebtedness:at December 31., 201.0 is composed of the following: Final Issue Maturity Interest Original Balance Date Date Rate fssue 12/31/10 Governmental Activities: General Obligation Bonds: 2004A Improvement Bonds 11/03/2004 02/0112016 3,70% $ 586,000 $ 348;651 2006A Irnprovement.Bonds: 08/23/2006 02/01/2017 4.30%. 245,000 185,000 2007A Capital Improvement Bands 06/20/2007 02/01/2028 4.00450°/a 850,000 820,000 Total Lcng-Term debt 1;681,000 1,353.6.51 Unarnortized Bond Discount (33,460) 05,467y Total $ 1.647,540 $ 1,338,184 The following is. a schedule of changes.. in City indebtedness for the year ended December 31,201 Q: Balance. Balance Due Within 12131/09 Additions Reductions 12131h.0 One Year Long-TeFm Delft Governmental Activities General Obilgat'ion Bonds $ 1,444;g30 $ - $: 91,179 $ 1,3531651 $ 95,276 Unamortized Band Discount (j7.240) - 1,773 (15,467) . "total Long -Term Debt _$_1,427:590 $ - $ 89;,406 $ 1.338.184 $ 98 278 All long-term bonded indebtedness outstanding at December 31., 2.01 Q is backed by the full faith and credit of the City., including special. assessment bond issues. For the governmental activities, compensated absences are generally liquidated by the. general fund. Minimum annual principal and. interest payments required. to retire long-term .debt are as follows: Year Ending_Decernber.31, Principal Interest Total 2011 $ 98,276 $ 54,539 $ 152,815 20.12. 10Q,452 50,688 151,140 .2013 10217.10 46,755 1.49,465 2014 105.052: 42.,738 147,790 2015 107,481 38,634 146,11.5 2016-2.020 .3.19i68.0. 1:43,031 463,611 .2021-2025 3.05,000 82,310 387,310 2026-2028. 215,00.0 14,702 229,702 Total $ 1,35301 $. 4741297 $ 11827,948 (H) CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2010 NOTE-4 CITY INDEBTEDNESS (CONTINUED) NOTE 5 NOTE S NOTE 7 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. STEWARDSHIP COMPLIANCE AND ACCOUNTABILITY Deficit`.Fund Balances The City has deficit fund balances at December 31,.201 a as follows: Scheunernan Road Fund Fund Balance Deficit $ (71,025) The City intends to fund these .deficits through future tax levies, transfers frorn other funds, and various other sources. INTERFUN❑ RECEIVABLE AND PAYABLE Individual fund. receivable and payable balances at ❑ecember 31, 2010 are as follows: Governmental Activity: General Fund Capital Projects Fund - Scheuneman Road Interfund Receivable $ 71,025 $ 71,025 Interfund Payable 71,025 $ 71,025. Interfund receivable and payable balances represent the elimination of negative cash between funds. 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.. REQUIRE❑ SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON INFORMATION CITY OF GEM LAKE, MINNESOTA SCHEDULE OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCE BUDGET AND. ACTUAL GENERAL FUND YEAR ENDED DECEMBER 31, 201.0 Budgeted Amounts Actual Variance -with Original Final Amounts Final Budget REVENUES Taxes $ 343,228 $ .343,228 $ 329,190 $ (14,03.8) Intergovernmental .5,299 5,299 5,199 (1.00) Licenses and Permits 1 B,330 16,330 20,066 3,736 Fines and. Forfeits 1,700 1,700 1,811 111. Public Charges.for Services 4,00.0 4,000 4,483 483 Miscellaneous: .Interest 4,0.00 4,0.00 4,.739 739 Other 26,530. 25,530 18,917 7,613). Total Revenues 401,087 .401,087 384,405 (16,682) EXPENDITURES General Government 1.92,038 192,038 99 706 92,272. Public Safety 100,296. 100;296 99,1 E0 1,136 Public Works 681703 68,703 46,012 22,691 Conservation and Development. 40,050 40,050 21,450 18,600 Total Expenditures 401,087 401,087 266,388 1.34,699 NET CHANGE IN FUND BALANCE > $ - $ - 1187017 $ 118,017 Fund Balance- Beginning of Year 294,064 FUND BALANCE - END OF YEAR $ 412,081 See.accompanyrng Nate to .Required 5upplem.entary Information. (27) CITY OF GEM LAKE, MINNESOTA NOTE. TO REQUIRED SUPPLEMENTARY INFORMATION DECEMBER 31, 2010 STEWARDSHIP COMPLIANCE AND ACCOUNTABILITY - BUDGET The General :Fund budget is legally adopted on a basis consistent with U.S. generally accepted accounting principles. Actual expenditures did not exceed budgets. during 2.010. 0) COMBINING FUND FINANCIAL STATEMENTS CITY OF GEM LAKE, MINNESOTA COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUND DECEMBER 31, 2010 ASSETS Cash and. Investments Accrued Interest Receivable. Total Assets FUND BALANCES. Unreserved, Undesignated Fund Balance Special Capital Revenue Projects Parks and Hoffman Total Playground Road Nonmajor Fund Fund. Funds $ 37,382 $ 25,673 $ 62,455 189 130 319 $ 37,571 $ 25)203 $ 62,774 $ 37,571 $25,203 $ 62,774. (20). CITY OF GEM LAKE., MINNESOTA COMBINING STATEMENT:OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCE NONMAJOR GOVERNMENTAL FUN❑ YEAR ENDED DECEMBER 31, 2010 REVENUES MisGelianeous: Interest EXPENDITURES Capital Outlay EXCESS ❑F REVENUES OVER (UNDER) EXPENDITURES Fund Balance - Beginning of Year FUND BALANCE - END OF YEAR Special Capital Revenue Projects. Parks and Hoffman Total. Playground Road Nonmajor I=und Fund Funds $. 549 $ 556 $ 1,105 - 1, 043 1,043. 549 (487) E2 37,022 25,690 62,712 $ 371571. $ 25,203 $ iW74. (30) OTHER REQUIRE© REPORTS LarsonAllen* LLP CPAs, Consultants &. Advisors:. www.larsionallen.com REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASE© ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNM.ENTAUDITING STANDARDS Honorable Mayor and Members of the City Council City of Gem Lake,. Minnesota We have audited 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, Minnesota as of and for the year ended December 31, 2D1 g, which collectively comprise the City's basic financial statements and have issued our report thereon dated Jane 13, 2011. We conducted our audit 1n accordance. with 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. Internal Control Over Financial Reportinq In. planning and performing our audit, we considered the City's .internal control over financial reporting. as a basis for designing our auditing procedures. for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control over financial reporting. Accordingly; We do not express an opinion on the effectiveness of the entity's internal control over financial reporting. 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.:s a reasonable possibility that.a material misstatement of the City's financial statements will not be prevented, or detected and corrected on a timely basis.. Our consideration of the internal. control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. However, as described in the accompanying. Schedule of Findings and Responses, we identified a deficiency in internal control that we consider to be a material weakness: (31.) An independent membw of Nexia International INTLRNATIOvnz Honorable Mayor and Members of the City Council City of Gem Lake Compliance and Other Matters As partof 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 Govemment Auditing Sta►adards. The City's responses to the findings identified. in our audit are described in the accompanying schedule of findings .and responses. We did not audit the City's responses and, accordingly, we express no opinion on them. This report is intended solely for `the.info rmation and use of the City Council, management, the Office of the State Auditor, and state and federal awarding agencies and is not intended to be and should. not be. used by anyone other than these specified parties. Minneapolis, Minnesota June 1.3, 2011 L,w4,AAe,, � -P LarsorfAllien LLP (32) LarsonAllen" LLY CPAs, Consultants & Advisors www.larsonal len.com REPORT ON NiINNESOTA LEGAL COMPLIANCE Honorable Mayor, Members oft . he City Council, and Citizens City of Gem Lake, Minnesota We have audited 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, Minnesota, which collectively comprise the City's basic financial statements as of and. for the year ended December 31,..2010, and. have issued our report thereon dated June 13,. 2011. We conducted our audit in accordance with. U.S. generally accepted auditing standards and the provisions of the Minnesota Legal Compliance: Audit Guide for Political Subdivisions, promulgated by the State. Auditor pursuant to Minnesota Statutes §5.65. Accordingly, the audit included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.. The Minnesota Legal Compliance Audit Guide for Political Subdivisions covers seven main categories of compliance to bei tested: contracting and bidding, deposits and investments, conflicts of interest, public indebtedness, claims and disbursements, miscellaneous city provisions, and tax increment financing .districts. Our study included. all of the listed categories except for tax increment financing districts because the City has. no tax increment financing districts, The results of our tests indicate that, with respect to the items tested, the City of Gem Lake, Minnesota complied with the material terms and conditions of applicable legal provisions. This report is intended. solely for the information and use of.managerpent, the City Council, the Office of the. State Auditor, and other state agencies, and is not intended to be and should not be used by anyone other than these specified parties. Minneapolis, Minnesota June 13, 2011 LarsonAllen LLP t (33) An independent inerribder 6f alexia International [NTCRNATfONAL. CITY OF GEM LAKE SCHEDULE OF FINDINGS AND RESPONSES YEAR ENDED DECEMBER 31, 2010 Internal Control Over Financial Reporting 2010-1: 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 entities., we are required to report this issue and tv 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 casts of implementing the necessary controls. outweigh the benefits that would be derived. (34)