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HomeMy WebLinkAbout2007 FINANCIAL STATEMENTSCITY OF GEM LAKE, MINNESOTA FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION YEAR ENDED DECEMBER 31, 2007 CITY OF GEM LAKE 4200 OTTER LAKE ROAD WHITE BEAR LAKE, MINNESOTA 55110 CITY OF GEM LAKE, MINNESOTA TABLE OF CONTENTS YEAR ENDED DECEMBER 31,..2007 I. FINANCIAL SECTION INDEPENDENT AUDITORS' REPORT 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 OF NET ASSETS:- GOVERNMENTAL FUNDS 7 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE.- GOVERNMENTAL FUNDS g RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES - GOVERNMENTAL FUNDS l0 STATEMENT OF NET ASSETS - PROPRIETARY FUNDS 17 STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS - PROPRIETARY FUNDS 12 STATEMENT OF CASH FLOWS - PROPRIETARY FUNDS 13 NOTES TO BASIC FINANCIAL STATEMENTS 14 REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON INFORMATION SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE.- BUDGET AND ACTUAL. - GENERAL FUND 27 NOTES TO REQUIRED SUPPLEMENTARY INFORMATION 28 COMBINING FUND FINANCIAL STATEMENTS NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET 29 COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES .IN FUND BALANCES 30 CITY OF GEM LAKE, MINNESOTA TABLE OF CONTENTS (CONTINUED) YEAR ENDED DEC EMBER 31, 2007 II..OTHER REQUIRED REPORTS REPORT ON. MINNESOTA LEGAL COMPLIANCE SCHEDULE OF FINDINGS 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 32. 33 FINANCIAL SECTION LarsenAllen* LL. CPAs, Consultants. &. Advisors www.€arsonalien.com 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 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, 2007, 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. We conducted our audit in accordance with U.S. generally accepted auditing standards and the standards. applicable to financial audits contained in Govemment 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, 2007, 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 a report dated. August 29, 2008 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. I E�.) I;•v - .410 LarsonAlien LLP is. a member of Nexia intemational, s worldwidenetwork ofindependent accounting and. consulting firms. iN'rFsftNATC(]NAI. Honorable Mayor Members of the City Council and Citizens City.of Gem Lake The budgetary comparison. information as listed in the table of contents is not a required part of the -basio financial statements but supplementary information required by U.S. generally accepted acedonting 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-informatiort: 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 the Governmental Accounting. Standards Board has determined is necessaly to supplement, although not 4-equired to be part of, the basic financial statements. Our audit was conducted for the purposeof forming. opinions on the financial statements that -collectively comprise the City's basic financial Statements. The accompanying supplementary information, made up .of the combining fund financial statements. 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 financial statements and, in our *.op.inion, is fairly stated in. all material respects .in gelation to the basic financ'ial.statements taken as a whole. Minneapolis* :Minnesota August 29, ZOOS �i�C a.�yL�iG t 4Lr 1 LarsonAJleri- LLP (2) BASIC FINANCIAL STATEMENTS CITY OF GEM LAKE, MINNESOTA STATEMENT OF NET ASSETS DECEMBER 31, 2007 ASSETS Cash and Investments Taxes Receivable Special Assessments Receivable Accounts Receivable Accrued Interest Prepaid Expenses Internal Balances Unamortized Bond Issue Costs Capital Assets: Capital Assets Not Being Depreciated Capital Assets Being Depreciated Accumulated Depreciation Total Assets LIABILITIES. Vouchers and Accounts Payable Accrued interest Payable Payroll. Taxes and Withholdings Unearned Revenue Long -Term. Liabilities: Amounts Due Within One Year Amounts Due in More than One Year Total Liabilities NET ASSETS Invested in Capital Assets, Net of Related Debt Restricted for Debt Service Unrestricted Total Net Assets Governmental Business -Type. Activities Activities Total $ 610,044 $. 12637.(} $ 736,414 24,788 - 2.4,788 555; 722 1; 723 557,44.5 6,880 16,128 23;.008 5;273. 3.911 9,184 396 1,437 1,833 37,104 - 37,704 814,132 - 814,132 701,032 570,775. 1,271,807 (149, 976) (39,142) (169,118) 2,605,995 681,202 3,287,197 47,077 48 47,125 30.818 303818 72,207 72,207 1,513,200 - 1,613,200 1,663,302 48 1,663,350 (220;21.9) 531,633 311,414 891,602 - 891,602 271,310 149,521 420,831 $ 94208 $ 681,154 $ 1,623,847 See accompanying Notes to Basic Financial Statements. (3) CITY OF GEM LAKE, MINNESOTA STATEMENT OF ACTIVITIES YEAR ENDED DECEMBER 31, 2007 1 Net (Expense) Revenue and Program Revenues in Net Assets.^ ees, _Changes Charges, Operating. Capital Business- Fines.. and Grants and Grants and Governmenta Type FUNCTIONSIPROGRAMS Ecpenses Other Contributions Contributions I Activities Activities Total GOVERNMENTAL ACTIVITIES General Government S. 119,603 ; n4,27 $ 10,95.3 $ - S. (85,223) $ S (85,223) Public Safety 85,932 - - (85,932) (851932) Public Works 104,856 12,473 - 52,269 (4Q,414) (40,414) Conservation and. Development .25,695 = (25,695) {25,685) Interest and Fiscal Charges 53,i65 i _ 53;165 53,165 Total Governmental Activities 389,251 35,600 10.953 52,269 (290.429) (29o.,429). BU5tNESS-TYPE ACTIVITIES Sewer 63.7G4 52,172 - (11:532) 11,532) 'total Primary Government $ 452,955 $. 87.772 $ 1%953. $ 52;269 (290,429) (11,532) (301,961j t GENERAL REVENUES Taxes: Property Taxes, Levied for General Purposes 398724 398.724 tnvestment.Eamings 28,422 7,264 35,fi86 Miscellaneous 324 - .324 Transfers (5,o00) 5000 Total General Revenues 422,470 12,264 434;734 CHANGE IN NET ASSETS 132,041 732. 132,773 Net Assets - Beginning of Year 810,652 680,422 1 A91.074 NET ASSETS - END OF YEAR $ 942.693 $ 681,154 $ 1,623,847 See accompanying Notes to Basic Financial Statements. (4) CITY DF GEM LAKE, MINNESOTA BALANCE. SHEET GOVERNMENTAL FUNDS DECEMBER 31, 2007 G.O. G:O: G.O, .Capital 7 Improvement Improvement Improvement General Bonds Bonds Plan Bonds Fund Series 2004A Series.2006A Series.2007A ASSETS Cash and Investments $ 167074 $ 136,066 $ 131,005 $ 92,245 Taxes Receivable 20,146 - - 4,642 s Special Assessments Receivable. 164 374,625 180,933 Accounts Receivable 6,880 - - _ Accrued Interest Receivable 1,103 1,245 1,659 - Prepaid Expenses 396 _ _ _. Total Assets $ 195,763 $ 511;936 $ 313,597 $ 96,887 i LIABILITIES AND FUND BALANCES LIABILITIES Vouchers and Accounts Payable $ 12,043 $ - $ - $ - Deferred Revenue 9,457 373;932 180,933 1.1.54 1 Total Liabilities 2.1,500 373932 180,933 1,154 FUND BALANCES Reserved for Prepaid Expenses 396 Unreserved, Undesignated Reported In'. General Fund 173,867 Special Revenue Funds - Debt Service Funds - 138,004: 132.664 95,733 Capital Projects Funds - _ - _ Total Fund Balances 174,263 138,004 132,664 95,733 ; Total Liabilities and Fund Balances $ 195,763 $ 5111936 $ 313,597 $ 96,887 � See. accompanying Notes to Basic Financial Statements. (5) i City Hall Other Total Construction Governmental Governmental Fund Funds Funds $ 49,291 $ 34,363 $ 610,044 - - 24,788 - - 555,722 - - 6,880 - 1,266 5,273 - - 396 $ 49,291 $ 35,629 $ 1,203,103 35,.034. $ - $ 47,077 - 565,476 35,034 - 612,553 - 396 173,867 35;629. 35,629 366,4.01 14,257 - 114,257 14,257 35.629 590,550 $ 49,291 $ 35,629 $ 1,203,103- CITY OF GEM LAKE, MINNESOTA REGONCILIATI0N OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET ASSETS GOVERNMENTAL FUNDS DECEMBER 31, 2007 TOTAL FUND BALANCES FOR GOVERNMENTAL. FUNDS Total netassets reported. for governmental activities in the. statement of net assets is different because: Capita[ assets used in governmental activities are not financial resources and,. therefore, are no reported in the funds. These capital assets consist of. Construction in Progress 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 arid, therefore, are reported as deferred revenue in the..governmental funds. Bond issue costs are reported, .as expenditures in the governmental funds and are shown net of accumulated amortization on the statement of net assets. Some liabilities are not due and payable in the current period and, therefore, are not reported as fund liabilities. Balances at year-end are: General Obligation Bonds Payable Unamortized Bond Discounts Accrued Interest on Long -Term Debt TOTAL NET ASSETS OF GOVERNMENTAL. ACTIVITIES $ 814,132. 1,250 699,782 (1.49, 976) $ 590,550 1 365;188 565,476 37,704 0 , 606,193) 20,786 (50,818) (1,616,225) $: 942,693 See accompanying Notes to Basic Financial Statements. (7} CITY OF GEM LAKE; MINNESOTA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE GOVERNMENTAL FUNDS YEAR ENDED DECEMBER 31, 2007 REVENUES Taxes Special Assessments Intergovernmental Licenses and Permits Fines and Forfeits Public Charges for Services Miscellaneous: Interest Other Total Revenues EXPENDITURES Current - General Government Public Safety Public Works Conservation and Development Capital Outlay Debt Service: Principal Interestand Fiscal Charges Total Expenditures EXCESS OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers In Transfers Out issuance of Bonds Bond Discount Total Other Financing Sources (Uses) NET CHANGE IN FUND BALANCES Fund Balances- Beginning of Year FUND BALANCES -,END OF YEAR G.O. G.O. G.O. Capital Improvement Improvement Improvement .General Bonds Bonds Plan Bonds Fund Series 2004A Series 2006A Series 2007A. $. 303,738 $ - $. - $ 95,229 - 74,003: 42,354 - 10;953 - - - 23,108 - - - 2,585 - - - 9, 907 - - - 5,637 4,660 .4,483 504 324 - - 356,252 78,663 46,837 95,733 1.20,634 - - - 85,932 - - - 74,161 - - - 25,E95 - - 501,327 - - - 20,315 9,892 3061422 70,642 9,892 - 49,830 8,021 36,945 95,733 - - 37,480 - - - 37,480 - 49,830 .8,021 74,425 95,733 124A33 129,983 58,239 - $ 174,263 $ 138,004 $ 13204 $ 95,733 See accompanying Notes to Basic Financial.Statements- (8) City Hall Other Total Construction Governmental Governmental Fund Funds Funds $ - $ - $ 398,967 - - 116;357 - - 10,953 - - 23,1.08 - - 2,58$ - - 9,907 10;681 2,.457 28422 - - 324 1.0,681. 2,457 � 590,623 - 120,634 86;932 7.4.;161 - 25,695 814.132 - 814;132 - - 50,327 22,576 - 52,783 836,708 - 1,223,664 (826,027) 2,457 (633,041) - - 37,480 - (42,480) (42,480) 850,000 - 850,000 (9,716) - (9,716) 840,264 (42,480) 835,284 14,257 (40,023) 202,243 - 75,652 388,307 $__ 14,257 $ 35,629 $ 590,550 (9) 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 FUNDS YEAR ENDED DECEMBER 31, 2007 NET CHANGE IN FUND BALANCES. -:TOTAL. GOVERNMENTAL FUNDS $" 202,243 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 capitafized.and the cost. is allocated over their estimated useful lives and reported as depreciation expense:. This is the amount by which capital outlays exceeded depreciation in the current period. Capital Outlays $ 815,382 Depreciation Expense (30,914) 784,468 Delinquent and deferred property takes and special assessments receivablewill be collected. subsequent to year-end, .but are not available soon enough to pay for the current Period's expenditures and, therefore, aredeferred in the governmental funds. Deferred Revenue -December 31, 2006 629,807 Deferred Revenue - December.31, 2007 565,476 (64,331) The governmental 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 riot 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 amorti.ized.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.af general obligation bonds and related items is as follows: Issuance of Bonds Payable (550,000) Discount on Bond Issue 9,716 Bond lssue.Costs 21,900 Repayment of. Bond Principal 50,321 Change in Accrued Interest Payable (18,308} Amortization of Bond Issue Costs: (2;393) Amortization .of Bond Discount (1,581 }. _ (790,339) CHANGE IN NET ASSETS OF GOVERNMENTAL. ACTIVITIES $ 132,041 See accompanying Notes to Basic Financial Statements. (10).. CITY OF GEM LAKE, MINNESOTA STATEMENT OF NET ASSETS PROPRIETARY FUNDS DECEMBER 31, 2007 ASSETS Cash and Investments Customer Accounts. Receivable Accrued Interest Special Assessments Receivable Prepaid Expenses. Capital Assets: Utility Plant:in Service Accumulated Depreciation Total Assets LIABILITIES Accounts Payable NET ASSETS Invested in Capital Assets, Net of Related Debt Unrestricted Total Net Assets Sewer utility $ 126,370 16,128 3;911 1,723 1;437 570,775 [39, 342j .681,202 48 531,633 149,521 $. 681,154 See accompanying Notes to Basic Financial Statements. (11) CITY OF GEM LAKE, MINNESOTA STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS PROPRIETARY FUNDS YEAR ENDED DECEMBER 31., 2007 OPERATING REVENUES Public Charges for Services OPERATING EXPENSES Operating Expenses Depreciation Total Operating Expenses OPERATING LOSS NONOPERATING REVENUES Interest Revenue LOSS BEFORE CONTRIBUTIONS AND TRANSFERS CAPITAL CONTRIBUTIONS AND TRANSFERS Transfers In CHANGE IN NET ASSETS Net Assets - Beginning of Year NET ASSETS - END OF YEAR: Sewer Utility 52,172 52; 288 11,416 63,704 (11,532) 7, 264. (4;268.) 5 000 .732 680,422 681,154 See acc6 mpanying Notes to Basic Financial Statements: (1 z) CITY OF GEM LAKE, MINNESOTA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS YEAR ENDED DECEMBER 31, 2007 CASH FLOWS FROM OPERATING ACTIVITIES Cash Received from Utility Customers Cash Payments to Suppliers for Goods and Services Net Cash. Used by Operating Activities 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 - Beginning of Year CASH AND CASH EQUIVALENTS - END.OF YEAR RECONCILIATION OF OPERATING LOSS TO NET CASH USED BY OPERATING ACTIVITIES Operating Loss Adjustments to Reconcile Operating Loss to Net Cash.Used by Operating Activities: Depreciation Changes in Assets. and Liabilities: Customer Accounts Receivable Special Assessments Receivable Prepaid Expenses. Accounts Payable Net Cash used by Operating Activities Sewer Utility $ 46, 702. (52;992) (61290) 61641 5,000 5,351 121,019 126 370 $ (11,532). 11,416 (3;747) (1,723) (278) (426). $ (6,290] See accompanying Notes to Basic.Financial. Statements. (13) CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2flfl7 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING 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 by U.S.. generally accepted accounting principles; the financial statements of the 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'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 organizations 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 double -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 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 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, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER.31, 2007 NOTE i SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) B. Basic Financial Statements .(Continued) 1. Government -Wide Statements (Continued) 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 finaricial 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. (15) CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2007 NOTE I SUMMARY OF SIGNIFICANT ACCOUNTING POLICJES' (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. lmprovement 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 20.06A. The G.O. Improvement Bonds_ Series 2006A Fund accounts for all debt service activity related to the 2006A bond. G.O. Capital Improvement 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. City Hall Construction Fund -- The I City Hall Construction Fund accounts for. all activity related to the construction of the City's new city hall.. 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 k 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 flaws. Property taxes are. r 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, generally are followed. in both the government -wide 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.. CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEM13ER 31,.2007 NOTE 'I SUMMARY OF SIGNIFICANT ACCOUNTING: POLICIES (CONTINUED) C. Measurement Focus and Basis of Accounting (Continued) 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 #hey 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. Proprietary funds distinguish operating revenues and expenses from nonoperating item. Operating revenues :and expenses generally result from providing services and producing and delivering goods in connections 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 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. (17) CITY DF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2QD7 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (,CONTINUED) E. Cash and Investments. (Continued) The Gity 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 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 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. 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 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 1.5 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. 0 s) CITY OFF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER, 31, 2007 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) H. Property Tax Revenue Recognition (Continued) Within the governmental fund financial statements, the City recognizes property tax.. revenue when it becomes bath. 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 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 47.3F. This statute provides. a means of spreading a portion of the taxable valuation of commercial/industrial 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 2007 totaled $7,281. Receipt of property taxes€rom this "fiscal'disparities pool" does not increase or decrease total tax revenue. 1, 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. 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 revenues. Deferred revenue in governmental activities is susceptible to full accrual on. the government -wide .statements. (1:9) NOTE 1 CITY OF:GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2007 SUMMARY OF.SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) I. Special Assessment Revenue. Recognition (Continued) 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 the. Citys City Council or court action. If 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 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 government 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 Assets. 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. Assets Offrce,Equipment Infrastructure Capitalization Depreciation Estimated Threshold Method Useful Life. ]i 1.00 Straight -Line 5 Years 2,500 Straight -Line 20 - 50 Years (20) CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2007 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 deferred and amortized over the life of the. bonds using the straight-line method. Bond 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 governmental fund financial statements,, bond premiums and discounts, as well as bond issue costs are recognized during the current period. The face amount of thedebt 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. M. lnterfund 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 expenditures/expenses 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 eliminate d CITY.DF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2007 NOTE 2 DEPOSITS AND INVESTMENTS A. Deposits 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 at financial institutions which are authorized by the City's City Council. Custodial Credit Risk-- Custodial.credit risk for de posits 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 "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 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, 2007 js $671.,340 and $683,369, respectively, and were entirely covered by federal depository insurance or by surety bonds and collateral in accordance with Minnesota Statutes. 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. • 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 "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. t22J CITY OF GEM LAKE, MINNESOTA NOTES TO BASK FINANCIAL STATEMENTS DECEMBER 31, 2007 NOTE 2 DEPOSITS AND INVESTMENTS (CONTINUED) B. Investments (Continued) 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 $10,00.0,000, a primary reporting dealer in U.S. government securities to the Federal Reserve Bank of New York, or certain Minnesota securities broker -dealers. At December 31,. 2007, the City's investment balance consisted of $65,074 held in a Wells Fargo Advantage Prime Investment Mot iey Market Mutual Fund. 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. The Wells Fargo Advantage. Prime Investment Money Market Mutual Fund does not have a maturity date. Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill 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 Wells Fargo Advantage Prime. Investment Money Market Mutual Fund is not rated. Concentration of Credit Risk The City places no limit:on the amount that the City may invest in any one issuer. (23) CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL. STATEMENTS DECEMBER 31, 2007 NOTE 3 CAPITAL ASSETS. Capital asset activity for the year ended December 31., 2007 was as follows: Govemmental Activities: Capital Assets Not.Beirig Depreciated: Construction in Progress Capital Assets Being Depreciated: Office Equipment Infrastructure Total Capital Assets.Being Depreciated Total Capital Assets Accumulated Depreciation; Beginning Ending Balance Increases Decreases Balance $ - $ . 814,132 $ - $ 814,152 1.,250 - 11250 699,782. - - 699,782 699,782 1,250 - 701,032 699,782 815.882 - 1.515,164 Office Equipment - (219) - (210) Infrastructure (119,062) (30,695) - (149,757) Total Accumulated Depreciation (1.19,062�_ (30,914) - (149,976) Net Capital Assets - Capital Activities $ 580,720 $ 784.468. $ - $1.365.188 Depreciation expense was. charged. to the governmental functions as follows: General Government $ 219 Public Works 301695 Total Depreciation - Govemmental Activities $ 30,914 Beginning Ending Balance Increases Decreases Balance Sewer Utility Capital Assets Being Depreciated; Infrastructure $ 510,175 $ - $ - $ 570,775 Less: Accumulated Oepreclation (27,726). [11.416) - (39,1.42) Net Capital Assets - Sewer Utility $ 543,049 $ (11,416] $ - $ 531.,.6.33 (24) CITY OF GEM LAKE, MINNESOTA NOTES. TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2007 NOTE 4 CITY. INDEBTEDNESS City indebtedness at December 31, 2007 is composed. of'the following: Final . issue Maturity Interest original Balance Date Date Rate. Issue 12/31/07 Governmental Activities: 1 General Obligation Bonds 2004A Improvement Bonds 1110312004 02/01/2016 3:70% $ 586,000 5 511,193 2006A Improvement. Bonds 08123/2006. 021011201.7 430% 245:000 245,000 2007A Capital. Improvement Bonds 06/20/2007 02/0112028 4.004.500A 850,000 850000 j Total Long -Term Debt 1.,681,000 1,606;1193 #( Unamortized.Bond Discount (33,460) [20;786) Total. S. 1,647.640 $ 1,585;407. The following is a schedule of changes in City indebtedness for the year ended December 31, 2007: Balance Balance Due Within 12/31106 Additions Reductions 1231107 One Year Long -Term Debt Governmental Activities General Obligation Bonds S 806.520 5. 850,000 $ 50.327 S 1,605,193 $ 72,207 Unamortized Bond Discount (12,651) (9,716) 1 581 (20,786) Total Long -Term Debt 793 869 $ 840,284. 48.746 $__ 1,585,407 $ 72.207 All long-term bonded indebtedness outstanding at December 31, 2007 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 f fund: Minimum annual principal and interest payments required to retire long-term debt are as follows: Year Ending December:31. 2008 2009 2010 2011. 2012 2013-201.7 2018-2022 2023-2027 2028. Total Principal Interest Total $ 72,207 $ 68,924 $ 14.1,131 89156 61.,686 150,842 91,179 58,203 140,382 98;276 54,539 1521815 100, 452 50.,688 151,140 4.74,923 193,533 668,456 27.5,000 1192324 394,324 330,000 54;526 384;526 75,000 1.,688 76,688 $ 1,606,193 $ 663,111 $ 2,269,304 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. (25) CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2007 NOTE 5 STEWARDSHIP COMPLIANCE AND ACCOUNTABILITY Excess of Expenditures. Over Appropriations Actual expenditures. exceeded budgets during 2007 as follows: General Fund: Public Works Final Budget Actual Excess $ 70,340 $ 74.,:161 $ (3,821) These excess expenditures were funded by available fund balance in the General Fund. NOTE 6 COMMITMENTS AND CONTINGENCIES The City. has an active construction project as of December 31, 2007. The project relates to the city half construction. At year-end, the City's commitment with contractors was $59,800. NOTE 7 INTERFUND TRANSFERS Individual fund transfers for fiscal year 2007 are as follows: Transfer In Governmental Activity: GO Improvement Bonds 2006A $ 37,480 Other Governmental Funds Business -Type Activity, Sewer Fund .5,000 $ 42.,480 Transfer Out 42,480 $ 42,480 During 2007, the City made interfund transfers from the street improvement fund to fund debt service payments related to the improvement bonds as well as finance> sewer operations. NOTE 8 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.. (26) REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON INFORMATION CITY OF GEM LAKE, MINNESOTA SCHEDULE OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL GENERAL FUND YEAR ENDED DECEMBER 31, 20,07 Budgeted Amounts Actual Variance With Original Final Amounts - Final Budget REVENUES Taxes $ 811,197 $ 311.,197 $ 303,738 $: (7;45.$} Intergovernmental 3,608 3,608 10,953 7,345 Licenses and Permits 10 30D 10,300 23,108 12.808 Fines and.Forfeits 3,.000 3,000 2,585 (41.5) Public Charges for Services 2,500 2,500 9,907 7,407 Miscellaneous; Interest 1.,500 1;500 5,637 4137 Other 500. 500 324 (176) Total Revenues 332,605 332;605 356,252 23;647 EXPENDITURES General Government 121,920 121,920 120,634 11286 Public Safety .89,540 891540 85,932 3,608 Public Works. 70,340 70,340. 74,161 (3;821) Conservation and Development 50,805 50,805 25,695 25;110 Total Expenditures 332,605 332,605 306422 .26,183 NET CHANGE IN FUND BALANCE $ - $ - 49,83.0 $ 49,830 Fund Balance- Beginning of Year 1.24,433 FUND BALANCE - END OF YEAR $ 174,263 (27) CITY OF GEM LAKE, MINNESOTA NOTES TOREQUIRED SUPPLEMENTARY INFORMATI0N DECEMBER 3'1, 2007 STEWARDSHIP COMPLIANCE AND ACCOUNTABILITY - BUDGET The General Fund. budget is legally adapted on a basis consistent with U.S. generally accepted accounting principles. Actual expenditures exceeded budgets during 2007 as follows: Final Budget Actual Excess General. Fund: Public Sharks $ 70;340 $ 74, i�1 $ (3,821) (28) COMBINING FUND FINANCIAL STATEMENTS CITY OF GEM LAKE, MINNESDTA COMBINING. BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS DECEMBER 31, 2007 ASSETS. Cash and investments Accrued interest Receivable. Total.Ass.ets FUND BALANCES Unreserved, Undesignated Fund.Balance Special Capital. Revenue P*cts Parks and Street Playground Improvements Fund Fund Total Nonmajor Funds $ 34,363 $ - $ 34,363 1,266. - 1,266 $ 35,629 $. - $ 35;629 $. .35,629 .$ - $ 35,629 (29.) CITY OF GEM LAKE, MINNESOTA COMBINING STATEMENT OF REVENUES,, EXPENDITURES AND CHANGES IN FUND BALANCE NONMAJOR GOVERNMENTAL FUNDS YEAR ENDED DECEMBER 31, 2007 REVENUES Miscellaneous: Interest OTHER FINANCING SOURCES (USES) Transfers Out NET CHANGE IN FUND BALANCES Fund Balance - Beginning of Year FUND BALANCE - END OF YEAR Special Capital Revenue Pro'ects Parks and Street Total Playground Improvements Nonmajor Fund Fund Funds $ 1.,738 $ .719 $. 2,457 - _ (42,480j (42,480} 1,738 (.41,761) (40;023) 33;891 41..76.1 75,652 $ 35;629 $ - $ 35,629 (30). OTHER REQUIRED REPORTS �j LarsenAfleg C1"As, Consultant$ &.Advis.ors www:EamonaI Ien:com REPORT ON. MINNESOTA LEGAL. COMPLIANCE Honorable Mayor, Members -of- the 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 Ge.m Lake, Minnesota,. which collectively comprise the. Cityks basic financial statements .as of .and for the year ended December 31., •2007,..aind have issued our repW thereon dated •August•29, 200.8.. We conducted pwr audit in accordance with UIS. generally accepted auditing standards and the provisions of the. Minnesota Ldgal ComplianCe.Audit Guide for Local Government, *Prom ulgated.•by the State Auditor pursuant to Minn. Stat. §6.65. Accordingly, the audit included• such tests of the accounting recor..ds and -such other auditing procedures. as we considered .necessary. in -the circumstances. The. Minnesota Legal Compliance.Audit Guide for Local Government covers seven main. categories of compliance to be 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 as it is not applicable. to the City_ The results of our tests in&S161hat, with respect to the items tested,.the City of Gem Lake, Minnesota complied with the material terms and conditions .of applicable legal* provisions, except as noted in the schedule of findings. This report is intended solely for the information and use of management, the. City Council, the Office -of the State Auditor, and other state agencies, `and is not intended to be and should not be u"sed -by ariyone other than these specified parties. LarsonAllen LLP Minneapolis, Minnesota August 29, 2008. (3,1) I.arsmANrn.111 is a.metnbL of -national, �ndeonsuhintriimu. > CITY OF GEM LAKE, MINNESOTA SCHEDULE OFFINDINGS YEAR ENDED DECEMBER 31, 2007 Minnesota Legal Compliance Finding-, 2007-01 Broker Certifications Finding: Minnesota Statute 118A.04, Subdivision 9 requires that the City obtain and retain acknowledgement of a written statement of investment restrictions from each broker annually before completing the first investment transaction each year; Corrective Action Plan: The City has obtained. the appropriate broker certification during 2008. (3zj LarsenAflen LLP CPAs, Consultants & Advisors ; www.larsonalian:com REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AU ©IT 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 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, 2007, which collectively comprise the City's basic financial 1 statements and have issued our report thereon dated August 29, 2008. We conducted our audit in accordance with U.S. generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, j Internal Control Over Financial Reporting 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 opinions on the financial statements and not to provide an opinion on the internal control over financial. reporting.. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over financial reporting. A control deficiency 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 misstatements on a. timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies., that adversely affects the City's ability to initiate, authorize,. record, process; or report financial data reliably in accordance with U.S. generally accepted accounting principles such that there is more: than a remote likelihood that a misstatement of the City's financial statements that is more than inconsequential will not be prevented or detected by the City's internal control over financial reporting. A material weakness is a significant deficiency, or combination of significant deficiencies; that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the City's internal control. Our consideration of internal control was for the limited purpose described in the first paragraph and would not necessarily identify all deficiencies in internal control that might be. significant deficiencies or material weaknesses. However, as discussed below, we identified the following deficiencies in internal .control that we consider to be material weaknesses. (33} LarsonAllen LLP is a member ofNexia Intemational, a woridwide network orindependent accounting and consulting firms. rVTFRNATt[)NM1r. .. . Honorable Mayor and Members of the City Council City of Gem Lake Limited Segregation of Duties Condition:. true. 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 atlequate internal accounting control. While we realize .this scenario is cpmmon *for small .entiiies,. 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 perspecbVe. 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-authotity 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, i Disbursements Supporting Documentation Condition: A sample of 25 general disbursement -transactions are. tested as part. of -the audit. Tile City did not retain supporting documentation -for 3 of these transactions: The absence of a complete Control procedure or process in this area is considered a material weakness because the potential exists that a material. misstatement of.the financial statements could occur and not be prevented or detected by the j Cliy's internal control processes. # Criteria: The Eity should hove: controls in place to ansure supporting documentation is retained for all cash disbursements. Effect: No effect on the -financial statements. Cause: The City has rtof established'corittois to*Ansure that all records are properly retained. Recommendation: We recommend the City review. their procedures for processing disbursements t and develop a filing system to retain all suppottr-ig documentation. 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 coinlpliant;e 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 opinig(n: The i'esulfs of .our -tests disclosed no instances of noncompliance or other matters that are required*to be -reported under-:G.overnment Auditing Standards. This report is intended solely for: the information and. use of the City Council, management, the Office of the State Auditor, -and* state and federal awarding. agencies and is not intended tc -be *aryd should not be used. by anyone other than these. specified parties: Minneapolis, Minnesota August 2.9, 2008. L� LarsonAllen LLP (34)