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HomeMy WebLinkAbout2013 06-19 CCPCity of Gem Lake, MN City Council Meeting June 18th, 2013 Call To Order of City Council Meeting — By Mayor Uzpen at 7:_P.M. Call of Roll Uzpen Artig-Swomley Lindner Kuny Bosak Others in Attendance: Sign-up Sheet Approval of City Council Minutes and Agenda • City Council Agenda for this meeting (Accept Agenda) • Minutes of the City Council Meeting for May Committee Reports • None Old Business • News Letter Ideas Public Hearing • Public Hearing on Sewer Repairs • Public Hearing on Hoffman Rd Repairs New Business • American Heart Association Certificate Presentation — Katie Tewalt • Presentation from LarsenAllen Accounting on Gem Lake Audit • Resolution 2013 — 05 Hoffman Rd Repairs/Sewer Lining • Resolution to buy back city bonds • Claims for June 2013 • Monthly Financial Reports • Presentations from the public, five minutes maximum presentation • Open Items for the Council Members to bring up. Future Council Meetings • Workshop Meeting, July 8th at 7:00 P.M. • Next City Council Meeting, July 16th at 7:00 P.M. Adjournment • The meeting adjourned at CITY OF GEM LAKE, MN z - 4200 Otter Lake Road Gem Lake, MN 55110-3227 Telephone 651-747-2790 E-mail CitvngemlakeMN.or Minutes of Gem Lake City Council Meeting 21 May 2013 The regular meeting of the City Council of the City of Gem Lake was called to order by Mayor Uzpen on Tuesday, May 21, 2013 at 7:00 pm in the Gem Lake City Hall meeting room. The following members were present: Mayor Robert Uzpen. Councilmembers James Lindner, Gretchen Artig-Swomley, Richard Bosak and Faith Kuny. Members of the public attending per the sign in sheet sent around the room. APPROVAL OF AGENDA AND MEETING MINUTES City Council Agenda: Mayor Uzpen called for additions, deletions and corrections to the agenda. The public hearing for Bryan Hansen will be tabled due to the public notice did not get into the paper on time. There will be a special public meeting at 7:00 p.m. on June 10t" the first half of the Workshop Upon motion by Councilmember Artig-Swomley, and seconded by Councilmember Bosak, the May 21, 2013 agenda was approved. Ayes — 5, Nays — 0. City Council April Meeting Minutes: The April 2013 minutes were presented and corrections were needed. Upon motion by Councilmember Artig-Swomley, and seconded by Councilmember Lindner, the April City Council minutes were accepted. Ayes — 4, Nays — 0, Abstain - 1. OLD BUSINESS Newsletter: Councilmember Artig-Swomley stated some of the topics are: • Maple Syrup • Police Reports in Gem Lake • Not having a National Night Out for 2013 July Issue: • Fire Academy • Notice of Public Hearing on Watershed Report • Ramsey County Fair History Gem Lake City Council Meeting Page 2 of 5 • Project on the Swell on Highway 61 August Issue: • MS4 Report • Ad for Minnesota Pollution Control PUBLIC HEARING Mayor Uzpen explained to the High School students in the audience what the public hearing was about and how the City Council will take action to approve it, amend it, or turn it down. Public Hearing on Amending Ordinance 64E: Mayor Uzpen explained this section was on the sanitation sewer and water Ordinance within the city. Mayor Uzpen asked the City Council if they wanted to discuss this subject before the public hearing. Public Hearing Opened at 7:16 p.m. Paul Emeott noticed on the Table 1, Section 4.10 the wordage should be school or church as there is no church in the City of Gem Lake at present. When this Ordinance was written, there was a church. In addition, if amending this Ordinance, the Ordinance should be 64F. The letter moves up one when the City changes, amends, or revises an Ordinance. Public Hearing Closed at 7:20 p.m. Mayor Uzpen opened up discussion for the City Council. Councilmember Artig- Swomley agreed to change the letter to 64F and take out the wording of church. Upon motion by Councilmember Artig-Swomley and seconded by Councilmember Bosak, motion was made and seconded to approve the Ordinance 64 lettering change to make it 64F. Motion passes. Ayes — 5, Nays — 0. NEW BUSINESS Resolution for Ramsey County for Flood Participation: Year 2011, the City Council created an Ordinance that was a Flood Ordinance for participating in National Flood Insurance. This was done so the residents of Gem Lake could purchase flood insurance for their property. Gem Lake was supplied from Ramsey County all the documents that were needed. Ramsey County did not give all of the documents for this resolution. Upon motion by Councilmember Artig-Swomley and seconded by Councilmember Lindner, Resolution to apply to participate in the National Flood Insurance Program for the City of Gem Lake passes. Ayes — 5, Nays — 0. Look for us on the World Wide Web at gemlakemn.org Gem Lake City Council Meeting Page 3 of 5 Claims for May 2013: The claims for May was discussed and authorized to pay by the City Council. Upon motion by Councilmember Bosak and seconded by Councilmember Lindner, the claims for May 2013 passes. Ayes — 5, Nays — 0. May Monthly Financial Report: The City Council discussed the email Mayor Uzpen sent to the City Council regarding the money at Wells Fargo. Mayor Uzpen would like to pay off the City Road Bonds with the money. The total would be $300,000. PRESENTATIONS FROM THE PUBLIC Resident Paul Emeott stated Scheuneman Road was refinished nine years ago and in 2014, the bonds for that will be paid off. The striping on the road is light and was wondering if the road could be restriped. Mayor Uzpen will call the County Public Works to see if that can be put on their schedule for this year. OPEN ITEMS FROM THE CITY CO`JNCIL Councilmember Artig-Swomley used Animal Control for a lost dog to find its owner. The dog had no nametag, but had a tag for an animal hospital. The Ramsey County Sheriff called the hospital to reunite the dog to the owner. Mayor Uzpen explained why Hill Crest was named in the Animal Control contract. Hill Crest will keep the animal for three days to find the owner. Councilmember Lindner read the following thank -you from Adam Lindner for receiving one the Gem Lake Scholarships: Dear Mayor Uzpen: I would like to thank you and the Council members who granted me the Gem Lake City Scholarship. It will undoubtedly be of aid to me in my post -secondary education. I plan to enroll at Century College in September, before transferring to Minnesota State Mankato to major in Aviation at a later date, and finally receiving formal training from the Federal Aviation Administration to become an Air Traffic Controller. Once more, I thank you for the opportunity your scholarship has given me, and I promise that I will put it to good use. Sincerely, Adam Lindner FUTURE COUNCIL MEETINGS Workshop Meeting: June 10, 2013 Workshop at 7:00 p.m. City Council Meeting: June 18, 2013 at 7:00 p.m. Look for us on the World Wide Web at gemlakemn.org Gem Lake City Council Meeting Page 4 of 5 Councilmember Bosak stated that the Internet Contact Manager Ryan Green is going out of business. He has been trying to find a substitute to find a replacement. He has talked to two different people. One is a small business who also has a host, which Gem Lake has "Go Daddy" for $5 a month. The other person is Kristine Smith who Councilmember Bosak has worked with before and could transfer the host "Go Daddy" to her. City Attorney Pat Kelly suggested the City receive a resume from Kristin Smith along with the proposal. Upon motion by Councilmember Lindner and seconded by Councilmember Artig-Swomley, to pursue a contract with Kristin Smith for Web Service Manager. Ayes — 5, Nays — 0. City Attorney Kelly wanted to clarify for the record to make a motion to pay off the Road Bonds. Upon motion by Councilmember Lindner and seconded by Councilmember Artig-Swomley, motion was made and seconded to use excess funds that the City has to pay off the City Road Bonds. Ayes — 5, Nays — 0. ADJOURN The May 21, 2013 regular meeting of the Gem Lake City Council adjourned at 7:42 p.m. Upon motion by Councilmember Lindner, and seconded by Councilmember Artig- Swomley, the City Council meeting was adjourned. Ayes — 5, Nays — 0. APPROVED: ATTEST: ATTEST: Julie Newkirk Robert Uzpen Recording Secretary Mayor Look for us on the World Wide Web at gemlakemn.org Gem Lake City Council Meeting Page 5 of 5 SIGN UP SHEET: Carrie Tuttle Delaney Laffan Maddie Churchill Christina Davis Brittany Ceroni Brody Johnson Jeannie LaFavor Chris Her Xue Vang Skoryegh Yang Taylor Bjornberg Jasmine Kohler Jam Tusa Bobby Bloom Steve Grimaluskus Paul Emeott City Attorney Pat Kelly Look for us on the World Wide Web at gemlakemn.org RESOLUTION NO. 2013-4 RESOLUTION PROVIDING FOR THE PREPAYMENT AND REDEMPTION OF THE CITY'S OUTSTANDING GENERAL OBLIGATION IMPROVEMENT BONDS, SERIES 2004 AND GENERAL OBLIGATION IMPROVEMENT BOND, SERIES 2006A BE IT RESOLVED By the City Council of the City of Gem Lake, Minnesota (the "City"), as follows: 1. The City previously issued and sold its General Obligation Improvement Bonds, Series 2004 (the "2004 Bonds"), dated November 3, 2004, in the original aggregate principal amount of $586,000.00, of which $198,854.52 in principal amount is currently outstanding. Bonds maturing on or after August 1, 2005, are subject to call for prior redemption on any February 1 or August 1 at a price of par plus accrued interest. Redemption may be in whole or in part, and if in part, at the option of the City and in such order as the City will determine and within a maturity selected by the City Clerk, acting as the Registrar for the Bonds (the "Registrar"). Prepayments will be at a price of par plus accrued interest. 2. It is determined that it is in the best interests of the sound financial management of the City that 2004 Bonds maturing on August 1, 2013, and thereafter, comprising all of the Bonds subject to redemption, be prepaid and redeemed on August 1, 2013 (or on the first date thereafter for which the Registrar can provide proper notice to the holders of the Bonds); and those Bonds are hereby called for redemption on that date in the aggregate principal amount of $198,854.52. 3. The City previously issued and sold its General Obligation Improvement Bond, Series 2006A (the "2006 Bonds"), dated August 23, 2006, in the original aggregate principal amount of $245,000.00, of which $110,000.00 in principal amount is currently outstanding. Bonds maturing on or after February 1, 2011, are subject to call for prior redemption on August 1, 2010, or on any interest date thereafter at a price of par plus accrued interest. Redemption may be in whole or in part, and if in part, at the option of the City and in such order as the City will determine and within a maturity selected by the City Clerk, acting as the Registrar for the Bonds (the "Registrar"). Prepayments will be at a price of par plus accrued interest. 4. It is determined that it is in the best interests of the sound financial management of the City that 2006A Bonds maturing on February 1, 2014, and thereafter, comprising all of the Bonds subject to redemption, be prepaid and redeemed on August 1, 2013 (or on the first date thereafter for which the Registrar can provide proper notice to the holders of the Bonds), and those Bonds are hereby called for redemption on that date in the aggregate principal amount of $110,000.00. 5. The Registrar is authorized and directed to mail notice of call for redemption of the Bonds in the form attached hereto as EXHIBIT A and EXHIBIT B to the registered owners of each Bond to be redeemed at the address shown on the registration books kept by the Registrar. (The remainder of this page is intentionally left blank.) 426031 Q GE 190-6 The motion for the adoption of the foregoing resolution was duly seconded by Member and upon vote being taken thereon, the following voted in favor thereof: and the following voted against: whereupon said resolution was declared duly passed and adopted. 426031v2 GE190-6 Y STATE OF MINNESOTA ) COUNTY OF RAMSEY ) SS. CITY OF GEM LAKE ) I, the undersigned, being the duly qualified City Clerk of the City of Gem Lake, Minnesota (the "City"), do hereby certify that I have carefully compared the attached and foregoing extract of minutes of a regular meeting of the City Council held on Tuesday, June 18, 2013, with the original thereof on file in my office, and the same is a full, true, and complete transcript therefrom insofar as the same relates to the prepayment and redemption of the City's General Obligation Improvement Bonds Series 2004, issued in the original aggregate principal amount of $586,000.00 and the City's General Obligation Improvement Bond Series 2006A, issued in the original aggregate principal amount of $245,000.00. WITNESS My hand as City Clerk and the corporate seal of the City this day of (SEAL) 2013. City Clerk City of Gem Lake, Minnesota 426031Q GE190-6 J EXHIBIT A NOTICE OF CALL FOR REDEMPTION $586,000 CITY OF GEM LAKE, MINNESOTA GENERAL OBLIGATION IMPROVEMENT BONDS SERIES 2004 NOTICE IS HEREBY GIVEN that, by order of the City Council of the City of Gem Lake, Minnesota (the "City"), there have been called for redemption and prepayment on August 1, 2013 all outstanding bonds of the City designated as General Obligation Improvement Bonds, Series 2004, dated November 3, 2004, having the final stated maturity date of February 1 2016, totaling $198,854.52 in principal amount. The bonds are being called at a price of par plus accrued interest to August 1, 2013, on which date all interest on said bonds will cease to accrue. Holders of the bonds hereby called for redemption are requested to present their bonds for payment at the office of City Clerk, 1281 Hammond Road, White Bear Twp, MN 55110, on or before August 1, 2013. Important Notice: In compliance with the Jobs and Growth Tax Relief Reconciliation Act of 2003, federal backup withholding tax will be withheld at the applicable backup withholding rate in effect at the time the payment by the redeeming institutions if they are not provided with your social security number or federal employer identification number, properly certified. This requirement is fulfilled by submitting a W-9 Form, which may be obtained at a bank or other financial institution. Dated: 12013. BY ORDER OF THE CITY COUNCIL OF THE CITY OF GEM LAKE, MINNESOTA 12 City Clerk City of Gem Lake, Minnesota 426031v2 GE190-6 EXIIIBIT B NOTICE OF CALL FOR REDEMPTION $245,000 CITY OF GEM LAKE, MINNESOTA GENERAL OBLIGATION IMPROVEMENT BOND SERIES 2006A NOTICE IS HEREBY GIVEN that, by order of the City Council of the City of Gem Lake, Minnesota (the "City"), there have been called for redemption and prepayment on August 1, 2013 all outstanding bonds of the City designated as General Obligation Improvement Bond, Series 2006A, dated August 23, 2006, having the stated maturity of February 1, 2017, totaling $110,000 in principal amount. The bonds are being called at a price of par plus accrued interest to August 1, 2013, on which date all interest on said bonds will cease to accrue. Holders of the bonds hereby called for redemption are requested to present their bonds for payment at the office of City Clerk, 1281 Hammond Road, White Bear Twp, MN 55110, on or before August 1, 2013. Important Notice: hi compliance with the Jobs and Growth Tax Relief Reconciliation Act of 2003, federal backup withholding tax will be withheld at the applicable backup withholding rate in effect at the time the payment by the redeeming institutions if they are not provided with your social security number or federal employer identification number, properly certified. This requirement is fulfilled by submitting a W-9 Form, which may be obtained at a bank or other financial institution. Dated: .2013. BY ORDER OF THE CITY COUNCIL OF THE CITY OF GEM LAKE, MINNESOTA By City Clerk City of Gem Lake, Minnesota 426031Q GE190-6 NO. 2013-05 COUNCIL OF THE CITY OF GEM LAKE, MINNESOTA HELD ON June 18TH, 2013 Pursuant to due call and notice thereof, the Regular Meeting of the City Council of the City of Gem Lake, Minnesota, was duly held in said City on June 18t 2013, at 7:00 O'clock p.m. The following members were present: Mayor Uzpen, Council Member Artig-Swomley, Council Member Rassmusen, Council Member Lindner, Council Member Bosak. RESOLUTION Authorizing SHORT ELLIOTT HENDRICKSON INC. to provide a supplemental letter of agreement outlining the scope of work, schedule and design fee for the following improvements to Hoffman Rd 1. Lining of existing sanitary sewer. 2. Pavement replacement and extension of curb and gutter to Hoffman Rd The motion of the adoption of the foregoing Resolution was duly introduced by council member XXXXX and seconded by council member XXXXXX, and upon vote being taken the resolution passed Ayes X, Nays X. Whereupon said Resolution was declared duly passed and adopted. STATE OF MINNESOTA COUNTY OF RAMSEY CITY OF GEM LAKE I, the undersigned, being the duly qualified and acting Clerk of the City of Gem Lake, Minnesota, DO HEREBY CERTIFY, that I have carefully compared the attached and foregoing Extract of Minutes of the Regular Meeting of the City Council of said City held on the 18th day of June, 2013. . CITY CLERK CITY OF GEM LAKE, MINNESOTA J Extract of Minutes of Meeting of the City Council of the City of Gem Lake, Ramsey County, Minnesota Pursuant to due call and notice thereof, a regular meeting of the City Council of the City of Gem Lake, Minnesota, was duly held in the City Hall on Tuesday, June 18, 2013, commencing at 7:00 P.M. The following members were present: and the following were absent: Member introduced the following written resolution, the reading of which was dispensed with by unanimous consent, and moved its adoption: 426031 Q GE 190-6 Claims For Payment CITY OF GEM LAKE Period Ending: 6/18/2013 Signatures Approving Claims Date of Approval Robert Uzpen, Mayor Jim Lindner, Council Gretchen Artig-Swomley, Council Faith Kuny, Council Rick Bosak, Council Tom Kelly, Finance Officer Fund Totals 1 1 $ Amount General Fund 11,226.00 Parks & Playgrounds 0.00 2004 Debt Service Fund 0.00 2006 Debt Service Fund 0.00 2007 Debt Service Fund 0.00 City Hall Construction Fund 0.00 Improvement Fund 1,870.80 Scheuneman Road Improvements 0.00 Hoffman Road Improvements 0.00 Sewer Fund 2,185.48 Investment Trust Fund 0.00 Total All Funds 15,282.28 Included above are the pre -paid checks paid onMay 31, 2013 6/13113 at 12:04:00.79 Page: 1 City of Gem Lake Check Register - Prepaid Checks For the Period From May 31, 2013 to May 31, 2013 Filter Criteria includes: Report order is by Check Number. Check # Date Payee Amount 8876 5131/13 CenturyLink 106.96 8877 5/31/13 League of Minnesota Cities 102.00 8878 5/31/13 Julie Newkirk 200.00 8879 5/31/13 Press Publications 29.10 Total 438.06 y C N N c�a N N LO LO O c� rn ti rn rn co m E r r Cl) r Q r LU Q N N I` (V N a) M O LU O � N O M v � ti ti ti C) 0) 1l- � r- r o r 0 C <N--• i1iOD N N [clr fh VI co I I O O �+ L r Cz J N N E o 0 0 E� G1 e- 0 v 0 0 0 CL I Q OO E LLL O n. - o 0 0 0 0 0 0 0 V co co 0 ca co ai ai 0 o OL (� N C\l � 1 N N M Y aQ , r r C�O O q O O O C? O .Q +' co N co O LO co O CD O a) 0 rn M LL 2 Q fir) r a a m• � L T w o � II a u t U m a m ~ m m Ell cu ca m` ru a cn cn cn cn co cn is cn cn `o n E Ln tl% o 3 -:5 v a l rn c a m o M C Ca co cd N d Q � Y J �C r J� N y, _O N L L Q J Q w CO — M L Cl) U °,a? °) moo ° �oNo°° Eom rim U `-•— W 00_° C7 co Co r LL Co (D 00 CD -J OD C0 r ROD CO r ('p U- 6113/13 at 12:05:19.87 City of Gem Lake Check Register For the Period From Jun 18, 2013 to Jun 18, 2013 Filter Criteria includes: Report order is by Check Number. Check # Date Payee Amount 8880 6/18/13 Gretchen Artig-Swomley 190.24 8881 6/18/13 Faith A. Kuny 190.24 8882 6/18113 Robert L. Uzpen Jr 375.60 8883 6/18113 James A. Lindner 190.24 8884 6/18/13 Rick Bosak 190.24 8885 6/18113 FedEx Office 233.37 8886 6/18/13 Kelly & Lemmons, PA 2,180.69 8887 6/18/13 Julie Newkirk 200.00 8888 6/18/13 Press Publications 29.10 8889 6/18/13 Ramsey County 222.65 8890 6/18/13 Waste Management of WI -MN 671.16 8891 6/18/13 City of White Bear Lake 1,441.91 8892 6/18/13 White Bear Township 96.25 8893 6/18/13 White Bear Township 4,892.93 8894 6/18/13 VOID 8895 6/18/13 Xcel Energy 503.32 8896 6/18/13 SEH 1,870.80 8897 6/18/13 Gopher State One Call 24.65 8898 6/18/13 Metropolitan Council 1,340.83 Total 14,844.22 Page: 1 CITY OF GEM LAKE, MINNESOTA FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION YEAR ENDED DECEMBER 31, 2012 CITY OF GEM LAKE 4200 OTTER LAKE ROAD GEM LAKE, MINNESOTA 55110 i J CITY OF GEM LAKE, MINNESOTA TABLE OF CONTENTS YEAR ENDED DECEMBER 31, 2012 I. FINANCIAL SECTION INDEPENDENT AUDITORS' REPORT 1 BASIC FINANCIAL STATEMENTS STATEMENT OF NET POSITION 4 STATEMENT OF ACTIVITIES 5 BALANCE SHEET - GOVERNMENTAL FUNDS 6 RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION - GOVERNMENTAL ACTIVITIES 8 STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE - GOVERNMENTAL FUNDS 9 RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES - GOVERNMENTAL ACTIVITIES 11 STATEMENT OF NET POSITION - PROPRIETARY FUND 12 STATEMENT OF REVENUES, EXPENSES AND CHANGE IN NET POSITION - PROPRIETARY FUND 13 STATEMENT OF CASH FLOWS - PROPRIETARY FUND 14 NOTES TO BASIC FINANCIAL STATEMENTS 15 REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON INFORMATION SCHEDULE OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCE - BUDGET AND ACTUAL - GENERAL FUND 30 NOTE TO REQUIRED SUPPLEMENTARY INFORMATION 31 SUPPLEMENTARY INFORMATION NONMAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEET 32 COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCE 33 CITY OF GEM LAKE, MINNESOTA TABLE OF CONTENTS (CONTINUED) YEAR ENDED DECEMBER 31, 2012 II. OTHER REQUIRED REPORTS INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS 34 INDEPENDENT AUDITOR'S REPORT ON MINNESOTA LEGAL COMPLIANCE 36 SCHEDULE OF FINDINGS AND RESPONSES d 37 I I FINANCIAL SECTION C 10.1 djor Clifton LarsonAllen INDEPENDENT AUDITORS' REPORT Honorable Mayor Members of the City Council and Citizens City of Gem Lake Gem Lake, Minnesota CliftonLarsonAllen LLP www.diftonlarsonallen.00m Report on the Financial Statements 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 (the City), Minnesota as of and for the year ended December 31, 2012, and the related notes to the financial statements, which collectively comprise the City's basic financial statements as listed in the table of contents. The prior year partial comparative information has been derived from the City's 2011 financial statements, and in our report dated June 14, 2012, we expressed unqualified opinions on the respective financial statements of the governmental activities, business -type activities, each major fund, and aggregate remaining fund information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial 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 from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. , max Pa. (� � Honorable Mayor Members of the City Council and Citizens City of Gem Lake Auditors' Responsibility (Continued) We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinion 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, 2012, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America required that the budgetary comparison information as listed in the table of contents, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Management has omitted the management's discussion and analysis that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operations, economic, or historical context. Our opinion on the basic financial statements is not affected by this missing information. Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements. The accompanying combining non -major 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. (2) Honorable Mayor Members of the City Council and Citizens City of Gem Lake Other Matters (Continued Supplementary Information (Continued) The combining non -major fund financial statements are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated June 18, 2013 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. Clifton LarsonAllen LLP Minneapolis, Minnesota June 18, 2013 (3) BASIC FINANCIAL STATEMENTS CITY OF GEM LAKE, MINNESOTA STATEMENT OF NET POSITION DECEMBER 31, 2012 ASSETS Cash and Investments Taxes Receivable Special Assessments Receivable Accounts Receivable Due from Other Governments Accrued Interest Prepaid Expenses Unamortized Bond Issue Costs Capital Assets: Capital Assets Being Depreciated Accumulated Depreciation Total Assets LIABILITIES Vouchers and Accounts Payable Accrued Interest Payable Unearned Revenue Long -Term Liabilities: Amounts Due Within One Year Amounts Due in More than One Year Total Liabilities NET POSITION Net Investment in Capital Assets Restricted for Debt Service Restricted for Park Improvements Unrestricted Total Net Position See accompanying Notes to Basic Financial Statements. Governmental Business -Type Activities Activities Total $ 842,892 $ 334,645 $ 1,177,537 9,396 - 9,396 230,707 6,159 236,866 10,352 19,115 29,467 1,605 - 1,605 6,635 3,046 9,681 1,047 7,267 8,314 23,567 - 23,567 1,628,210 617,539 2,245,749 (430,804) (99,430) (530,234) 2,323,607 888,341 3,211,948 18,532 130 18,662 20,070 - 20,070 102,710 1,040,294 1,181,606 102,710 - 1,040,294 130 1,181,736 54,402 518,109 572,511 483,610 - 483,610 38,688 - 38,688 565.301 370,102 935.403 $ 1,142,001 $ 888,211 $ 2,030,212 (4) 11 j J �j FUNCTIONS/PROGRAMS GOVERNMENTAL ACTIVITIES General Government Public Safety Public Works Conservation and Development Interest and Fiscal Charges Total Governmental Activities BUSINESS -TYPE ACTIVITIES Sewer Total Primary Government CITY OF GEM LAKE, MINNESOTA STATEMENT OF ACTIVITIES YEAR ENDED DECEMBER 31, 2012 Net (Expense) Revenue and Program Revenues Changes in Net Position Fees, Charges, Operating Capital Grants Business - Fines, and Grants and and Governmental Type Expenses Other Contributions Contributions Activities Activities $ 120,277 $ 102,976 69,903 16,781 54.209 _ 364,146 Total 39,633 $ 7,111 $ $ (73,533) $ $ (73,533) - - (102,976) (102,976) 18,481 - 4,482 (46,940) (46,940) _ - (16,781) (16,781) - (54,209) (54,209) 58,114 7,111 4,482 (294,439) - (294,439) 37.463 57,139 $ 401,609 $ 115,253 $ 7,111 $ 4,482 GENERAL REVENUES Taxes: Property Taxes, Levied for General Purposes Property Taxes, Levied for Debt Service Investment Earnings Miscellaneous Total General Revenues CHANGE IN NET POSITION Net Position - Beginning of Year NET POSITION - END OF YEAR See accompanying Notes to Basic Financial Statements. (5) - 19,676 19,676 (294,439) 19,676 (274,763) 195,156 - 195,156 48,988 - 48,988 11,851 5,478 17,329 745 - 745 256,740 5,478 262,218 (37,699) 25,154 (12,545) 1,179,700 863,057 2,042,757 $ 1,142,001 $ 888,211 $ 2,030,212 CITY OF GEM LAKE, MINNESOTA BALANCE SHEET GOVERNMENTAL FUNDS DECEMBER 31, 2012 ASSETS Cash and Investments Taxes Receivable Special Assessments Receivable Accounts Receivable Due from Other Governments Accrued Interest Receivable Due from Other Funds Prepaid Expenses Total Assets LIABILITIES AND FUND BALANCES LIABILITIES Vouchers and Accounts Payable Due to Other Funds Deferred Revenue Total Liabilities FUND BALANCES Nonspendable Restricted: Debt Service Park Improvements Assigned: Capital Improvements Benefiting Individual Property Owners Unassigned Total Fund Balances Total Liabilities and Fund Balances See accompanying Notes to Basic Financial Statements. (6) G.O. G.O. Improvement Improvement General Bonds Bonds Fund Series 2004A Series 2006A $ 338,948 $ 104,373 $ 124,799 8,023 - - 1,038 123,691 66,419 10,352 - - 1,605 - - 2,945 744 1,083 40,848 - - 1,047 - - $ 404,806 $ 228,808 $ 192,301 $ 18,532 $ - $ - 9,061 113,972 66.419 27,593 113,972 66,419 1,047 - 114,836 125,882 376,166 - 377,213 114,836 125,882 $ 404,806 $ 228.808 $ 192,301 G.O. Capital 2012 Improvement Scheuneman Street Other Total Plan Bonds Road Improvements Governmental Governmental 2011 Series 2007A Fund Fund Funds Funds Totals $ 80,666 $ $ 130,077 $ 64,029 $ 842,892 $ 812,292 1,373 - - 9,396 24,685 - 39,559 230,707 326,518 10,352 14,486 - - - - 1,605 532 (487) 1,210 608 6,635 2,968 _ - - 40,848 54,385 $ 82,571 $ 39,072 $ 131,287 $ 64,637 $ 1,143,482 $ 1,236,520 $ $ _ $ $ $ 18,532 $ 20,013 40,848 40,848 54,385 1,372 38.219 - - 229,043 360.328 1,372 79,067 - - 288,423 434,726 - - - 1,047 1,186 81,199 - - - 321,917 325,181 38,688 38,688 38,044 131,287 25,949 157,236 95,553 - (39,995) - - 336,171 341,830 ' 81,199 (39,995) 131,287 64,637 855,059 801,794 $ 82,571 $ 39,072 $ 131,287 $ 64,637 $ 1,143,482 $ 1,236,520 _J i CITY OF GEM LAKE, MINNESOTA RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION GOVERNMENTAL ACTIVITIES DECEMBER 31, 2012 TOTAL FUND BALANCES FOR GOVERNMENTAL FUNDS 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 Office Equipment Infrastructure Accumulated Depreciation Some of the City's property taxes and special assessments will be collected after year-end, but are not available soon enough to pay for the current period's expenditures and, therefore, are reported as 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 position. 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 POSITION OF GOVERNMENTAL ACTIVITIES See accompanying Notes to Basic Financial Statements. (8) $ 902,232 13,190 712,788 (430,804) 855,059 1,197,406 229,043 23,567 (1,154,923) 11,919 (20,070) (1,163,074) $ 1,142,001 CITY OF GEM LAKE, MINNESOTA STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE GOVERNMENTALFUNDS YEAR ENDED DECEMBER 31, 2012 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 Interest and Fiscal Charges Total Expenditures EXCESS OF REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES) Transfers In Transfers Out Total Other Financing Sources (Uses) NET CHANGE IN FUND BALANCES Fund Balances - Beginning of Year FUND BALANCES - END OF YEAR See accompanying Notes to Basic Financial Statements. (9) G.O. G.O. Improvement Improvement General Bonds Bonds Fund Series 2004A Series 2006A $ 214,796 $ - $ - - 77,359 18,009 4,477 - - 31,555 - 3,878 - - 5,404 - 5,168 20,656 285,934 1,238 78,597 1,897 19,906 94,839 - - 102,976 - - 31,526 - - 16,781 - - - 60,452 25,000 - 10,190 6,343 246,122 70,642 31,343 39,812 7,955 (11,437) (60,000) - (60,000) - (20,188) 7,955 (11,437) 397,401 106,881 137,319 $ 377,213 $ 114,836 $ 125,882 -.1 G.O. Capital 2012 Improvement Scheuneman Street Other Total Plan Bonds Road Improvements Governmental Governmental 2011 Series 2007A Fund Fund Funds Funds Totals $ 48,988 $ - $ $ $ 263,784 $ 291,842 - 15,479 - 110,847 90,921 - 4,477 4,471 31,555 22,927 - 3,878 2,903 _ _ _ 5,404 10,278 935 (1,089) 2,625 1,077 11,851 8,969 - _ - 20,656 22,187 49,923 14,390 2,625 1,077 452,452 454,498 - _ - - 94,839 89,442 102,976 100,675 _ - 31,526 33,925 _ _ 16,781 33,977 - - 1,375 1,375 - 15,000 - - - 100,452 98,276 34,705 - - - 51,238 55.089 49.705 - 1,375 - 399,187 411,384 218 14,390 1,250 1,077 53,265 43,114 - - 60,000 - 60,000 70,000 _ _ - (60,000) (70,000) - - 60,000 - - - 218 14,390 61,250 1,077 53,265 43,114 80,981 (54,385) 70.037 63,560 801,794 758,680 $ 81,199 $ (39,995) $ 131,287 $ 64,637 $ 855.059 $ 801,794 CITY OF GEM LAKE, MINNESOTA RECONCILIATION OF THE GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE TO THE STATEMENT OF ACTIVITIES GOVERNMENTAL ACTIVITIES YEAR ENDED DECEMBER 31, 2012 NET CHANGE IN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS $ 53,265 Amounts reported for governmental activities in the statement of activities are different because: Governmental funds report capital outlays as expenditures. However, in the statement of activities, assets are capitalized and the cost is allocated over their estimated useful lives and reported as depreciation expense. Depreciation Expense S (62,440) (62,440) Delinquent and deferred property taxes and special assessments receivable will be collected subsequent to year-end, but are not available soon enough to pay for the current period's expenditures and, therefore, are deferred in the governmental funds. Deferred Revenue - December 31, 2011 355,048 Deferred Revenue - December 31, 2012 229,043 (126,005) 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 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 due. In the statement of activities, however, interest expense is recognized as it accrues, regardless of when it is due. The net effect of these differences in the treatment of general obligation bonds and related items is as follows: Repayment of Bond Principal 100,452 Change in Accrued Interest Payable 1,630 Amortization of Bond Issue Costs (2,827) Amortization of Bond Discount (1,774) 97,481 CHANGE IN NET ASSETS OF GOVERNMENTAL ACTIVITIES $ (37,699) See accompanying Notes to Basic Financial Statements. (11) CITY OF GEM LAKE, MINNESOTA STATEMENT OF NET POSITION PROPRIETARY FUND DECEMBER 31, 2012 ASSETS Cash and Cash Equivalents Customer Accounts Receivable Accrued Interest Receivable Special Assessments Receivable Prepaid Expenses Total Current Assets Capital Assets: Utility Plant in Service Accumulated Depreciation Net Capital Assets Total Assets LIABILITIES Accounts Payable NET POSITION Net Investment in Capital Assets Unrestricted Total Net Position See accompanying Notes to Basic Financial Statements. (12) Sewer Utilitv $ 334,645 19,115 3,046 6,159 7,267 370,232 617,539 (99,430) 518,109 888,341 130 518,109 370,102 $ 888,211 CITY OF GEM LAKE, MINNESOTA STATEMENT OF REVENUES, EXPENSES AND CHANGE IN NET POSITION PROPRIETARY FUND YEAR ENDED DECEMBER 31, 2012 OPERATING REVENUES Public Charges for Services OPERATING EXPENSES Operating Expenses Depreciation Total Operating Expenses OPERATING INCOME NONOPERATING REVENUES Interest Revenue CHANGE IN NET POSITION Net Position - Beginning of Year NET POSITION - END OF YEAR See accompanying Notes to Basic Financial Statements. (13) Sewer Utilitv $ 57,139 25,006 12,457 37,463 19,676 5,478 25,154 863,057 $ 888,211 CITY OF GEM LAKE, MINNESOTA STATEMENT OF CASH FLOWS PROPRIETARY FUND YEAR ENDED DECEMBER 31, 2012 Sewer Utilitv CASH FLOWS FROM OPERATING ACTIVITIES Cash Received from Utility Customers $ 53,004 Cash Payments to Suppliers for Goods and Services (25.258) Net Cash Provided by Operating Activities 27,746 CASH FLOWS FROM INVESTING ACTIVITIES Interest on Investments 3,691 NET INCREASE IN CASH AND CASH EQUIVALENTS 31,437 Cash and Cash Equivalents - Beginning of Year 303,208 CASH AND CASH EQUIVALENTS - END OF YEAR $ 334,645 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating Income Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities: Depreciation Changes in Assets and Liabilities: Customer Accounts Receivable Special Assessments Receivable Prepaid Expenses Accounts Payable Net Cash Provided by Operating Activities See accompanying Notes to Basic Financial Statements. (14) 19,676 12,457 (2,657) (1,478) (238) (14) $ 27,746 CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2012 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of the City of Gem Lake (the City), Minnesota 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 position 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. CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2012 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) B. Basic Financial Statements (Continued) 1. Government -Wide Statements (Continued) In the government -wide statement of net position, both the governmental and business -type activities columns: (a) are presented on a consolidated basis by column; and (b) are reported on a full accrual, economic resource basis, which recognizes all long-term assets and receivables as well as long-term debt and obligations. The City's net position is reported in three parts: (1) net investment in capital assets; (2) restricted net position; and (3) unrestricted net position. The City first utilizes restricted resources to finance qualifying activities. The statement of activities demonstrates the degree to which the direct expenses of each function of the City's governmental activities and different business -type activity are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or activity. Program revenues include: (1) fees, fines, and charges paid by the recipients of goods, services, or privileges provided by a given function or activity; and (2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or activity. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. 2. Fund Financial Statements The fund financial statements provide information about the City's funds. Separate statements for each fund category, governmental and proprietary, are presented. The emphasis of governmental and proprietary fund financial statements is on major individual governmental and enterprise funds, with each displayed as separate columns in the fund financial statements. All remaining governmental and enterprise funds are aggregated and reported as nonmajor funds. I CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2012 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) B. Basic Financial Statements (Continued) 2. Fund Financial Statements (Continued) The City reports the following major governmental funds: General Fund — The General Fund is the City's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. G.O. 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 2006A 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 back to the City from Ramsey County in 2006. Street Improvements Fund — The Street Improvements Fund is used to account for the accumulation of resources that are restricted, committed, or assigned to expenditures for capital outlays, including the acquisition or construction of capital facilities. The City reports the following major proprietary fund: Sewer Fund — The sewer fund accounts for customer sewer service charges that are used to finance sewer operating expenses. C. Measurement Focus and Basis of Accounting The government -wide and proprietary fund financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned, and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2012 NOTE 1 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 they are collected within 60 days after the end of the current period. Property and other taxes, licenses, and interest are all considered to be susceptible to accrual. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, compensated absences, and claims and judgments, which are recognized as expenditures to the extent that they have matured. Proceeds of general long-term debt and acquisitions under capital leases are reported as other financing sources. 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 I operations. The principal operating revenue of the City's enterprise funds are charges to I 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. CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2012 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. Cash and Investments (Continued) 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 position presentation. Investments are stated at fair value as of the balance sheet date. Interest earnings are accrued at the balance sheet date. For purposes of the statement of cash flows the Proprietary Fund considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. All of the cash and investments allocated to the proprietary fund types have original maturities of 90 days or less. Therefore, the entire balance in such fund types is considered cash equivalents. F. Prepaid 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 segregated as nonspendable. 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 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. CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2012 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 both measurable and available to finance expenditures of the current period. In practice, current and delinquent taxes and State credits received by the City in July, December and the following January are recognized as revenue for the current year. Taxes and credits not received at the year-end are classified as delinquent and due from County taxes receivable. The portion of delinquent taxes not collected by the City in January is fully offset by deferred 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 commercial/industrial 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 2012 totaled $6,203. Receipt of 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 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. (20) CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2012 NOTE 1 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 City's 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 City chose to include all such items regardless of their acquisition date or amount. Depreciation on exhaustible assets is recorded as an allocated expense in the statement of activities with accumulated depreciation reflected in the statement of net position. Since surplus assets are sold for an immaterial amount when declared as no longer needed for City purposes, no salvage value is taken into consideration for depreciation purposes. Capital assets not being depreciated include construction in progress. Depreciation Estimated Assets Method Useful Life Buildings Straight -Line 40 Years Office Equipment Straight -Line 5 - 10 Years Utility Systems Straight -Line 20 - 50 Years Infrastructure Straight -Line 20 - 50 Years (21) CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2012 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 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. Net Position/Fund Balance Net position represents the difference between assets and liabilities in the government - wide and proprietary fund financial statements. Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balance of any long-term debt used to build or acquire the capital assets. Net position is reported as restricted when there are limitations imposed on their use through external restrictions imposed by creditors, grantors, or laws or regulations of other governments. In the fund financial statements, governmental funds report fund balances in the classifications that disclose constraints for which amounts in those funds can be spent. These classifications are as follows: Nonspendable - portion of fund balances related to prepaids, inventories, long-term receivables, and corpus on any permanent fund. Restricted - funds are constrained from outside parties (statute, grantors, bond agreements, etc.). Committed - funds are established and modified by a resolution approved by the City Council. Assigned - consists of internally imposed constraints approved by the City Finance Director. -� Unassigned - is the residual classification for the General Fund and also reflects the negative residual amounts in other funds. When an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available, it is the City's policy to use restricted first, then unrestricted fund balance. (22) CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2012 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) L. Net Position/Fund Balance (Continued) When an expenditure is incurred for purposes for which committed, assigned and unassigned amounts are available, it is the City's policy to use committed first, then assigned, and finally unassigned amounts. M. Interfund Transactions Interfund services provided and used are accounted for as revenues, expenditures or expenses. Transactions that constitute reimbursements to a fund for expenditures/ expenses initially made from it that are properly applicable to another fund, are recorded as 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 eliminated except for activity between governmental activities and business -type activities for presentation in the entity -wide statements of net position and statements of activities. 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 position 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 Council. J 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. Jgovernment 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 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. At December 31, 2012 the City's bank balances were fully covered by federal depository insurance or by surety bonds and collateral in accordance with Minnesota Statutes. j(23) CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2012 NOTE 2 DEPOSITS AND INVESTMENTS (CONTINUED) B. Investments The City may also invest idle funds as authorized by Minnesota Statutes as follows: • Direct obligations or obligations guaranteed by the United States or its agencies. • 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 13 months or less. • General obligations rated "A" or better; revenue obligations rated "AA" or better. • General obligations of the Minnesota Housing Finance Agency rate "A" or better. • Bankers' acceptances of United States banks eligible for purchase by the Federal Reserve System. • Commercial paper issued by United States banks corporations or their Canadian subsidiaries, of highest quality category by a least two nationally recognized rating agencies, and maturing in 270 days or less. • Guaranteed investment contracts guaranteed by United States commercial banks or domestic branches of foreign banks or United States insurance companies if similar debt obligations of the issuer or the collateral pledged by the issuer is in the top two rating categories. • repurchase or reverse purchase agreement and securities lending agreements financial institutions qualified as a "depository" by the government entity, with banks that are members of the Federal Reserve System with capitalization exceeding $10,000,000, a primary reporting dealer in U.S. government securities to the Federal Reserve Bank of New York, or certain Minnesota securities _ S 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. JInterest 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 Jprovided by the following table that shows the distribution of the City's investments by maturity: J(24) CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2012 NOTE 2 DEPOSITS AND INVESTMENTS (CONTINUED) r� B. Investments (Continued) Interest Rate Risk (Continued) r 1 12 Months 13 to 24 25 to 60 More than IType Total or Less Months Months 60 Months Build America Bonds - Shoreview $ 171,867 $ $ - $ $ 171,867 Negotiable Certificates of Deposit 525,820 - 140,000 344,512 41,308 Wells Fargo Prime Investment Fund 257,781 257,781 Total $ 955,468 $ 257,781 $ 140,000 $ 484,512 $ 213,175 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 -1 nationally recognized statistical rating organization. The City's investment policy doesn't Jspecifically address credit risk. The following chart summarizes year-end ratings for the City's investments as rated by Moody's Investors Services: 1 Credit J Type Quality Rating Amount Government Money Market Mutual Funds NR $ 257,781 Build America Bonds AAA 171,867 Negotiable Certificates of Deposit: GE Capital Bank CD NR 244,458 Goldman Sachs Bank CD NR 141,362 Safra National Bank CD NR 140,000 Total Negotiable Certificates of Deposits 525.820 i Total $ 955,468 NR = Not Rated Concentration of Credit Risk The City places no limit on the amount that the City may invest in any one issuer. The following is a list of investments which individually comprise more than 5% of the City's total investments: Type Amount Percentage Government Money Market Mutual Funds $257,781 26.98% Build America Bonds - Shoreview 171,867 17.99% Negotiable Certificates of Deposit 525.820 55.03% Total $ 955,468 I (25) J CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2012 NOTE 3 CAPITAL ASSETS Capital asset activity for the year ended December 31, 2012 was as follows: Beginning Balance Increases Decreases Governmental Activities Capital Assets Being Depreciated: Buildings Office Equipment Infrastructure Total Capital Assets Being Depreciated Accumulated Depreciation: $ 902,232 $ $ 13,190 712,788 _ 1,628,210 Ending $ 902,232 13,190 712,788 1,628,210 Buildings (87,092) (22,497) (109,589) Office Equipment (6,014) (1,506) (7,520) Infrastructure (275,258) (38,437) (313,695) Total Accumulated Depreciation (368,364) (62,440) (430,804) Net Capital Assets - Capital Activities $ 1,259,846 $ (62,440) $ - $ 1,197,406 Depreciation expense was charged to the governmental functions as follows: General Government $ 24,003 Public Works 38,437 Total Depreciation - Governmental Activities $ 62,440 Beginning Ending Balance Increases Decreases Balance Sewer Utility Capital Assets Being Depreciated: Infrastructure $ 617.539 $ - $ - $ 617,539 Less: Accumulated Depreciation (86,973) (12,457) - (99,430) Net Capital Assets - Sewer Utility $ 530.566 $ (12,457) $ - $ 518,109 (26) CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS ^ DECEMBER 31, 2012 NOTE 4 CITY INDEBTEDNESS r� City indebtedness at December 31, 2012 is composed of the following: .i Final _-� Issue Maturity Interest Original Balance Date Date Rate Issue 12/31/12 i Governmental Activities: General Obligation Bonds: 2004A Improvement Bonds 11/03/2004 02/01/2016 3.70% $ 586,000 $ 229,923 2006A Improvement Bonds 08/23/2006 02/01/2017 4.30% 245,000 135,000 2007A Capital Improvement Bonds 06/20/2007 02/01/2028 4.00-4.50% 850,000 790,000 Total Long -Term Debt 1,681,000 1,154,923 "j Unamortized Bond Discount (25.111) (11,919) JI Total $ 1,655,889 $ 1,143,004 The following is a schedule of changes in City indebtedness for the year ended December 31, 2012: Balance Balance Due Within - 12/31/11 Additions Reductions 12/31/12 One Year Long -Term Debt Governmental Activities General Obligation Bonds $ 1,255,375 $ $ 100,452 $ 1,154,923 $ 102,710 - Unamortized Bond Discount (13,693) (1,774) (11,919) - _ l Total Long -Term Debt $ 1,241,682 $ $ 98,678 $ 1,143,004 $ 102,710 All long-term bonded indebtedness outstanding at December 31, 2012 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 December 31, Principal Interest Total J 2013 $ 102,710 $ 46,755 $ 149,465 2014 105,052 42,738 147,790 2015 107,481 38,634 146,115 2016 79,680 34,331 114,011 2017 80,000 31,075 111,075 1 2018-2022 2023-2027 275,000 330,000 119,324 54,526 394,324 384,526 JI 2028-2029 75,000 1,688 76,688 Total $ 1,154,923 $ 369,071 $ 1,523,994 J 1 (27) CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2012 NOTE 4 CITY INDEBTEDNESS (CONTINUED) 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. NOTE 5 STEWARDSHIP COMPLIANCE AND ACCOUNTABILITY Deficit Fund Balances The City has deficit fund balances at December 31, 2012 as follows: Scheuneman Road Fund Fund Balance n f;-;+ .P 0.7,.7J..7 The City intends to fund these deficits through future tax levies, transfers from other funds, and various other sources. NOTE 6 INTERFUND BALANCES AND ACTIVITIES Due To/From Other Funds Individual fund receivable and payable balances at December 31, 2012 are as follows: Interfund Interfund Receivable Payable Governmental Activity: General Fund $ 40,848 $ - Capital Projects Fund - Scheuneman Road - 40,848 $ 40,848 $ 40,848 Interfund receivable and payable balances represent the elimination of negative cash between funds. Transfers Transfers to/from other funds for the year ended December 31, 2012 consisted of the follow: Governmental Activity: General Fund Street Improvement Fund (28) Transfer Transfer In Out 60,000 $ 60,000 $ 60,000 $ 60,000 I ] CITY OF GEM LAKE, MINNESOTA NOTES TO BASIC FINANCIAL STATEMENTS DECEMBER 31, 2012 NOTE 7 RISK MANAGEMENT The City is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City carries commercial insurance for all risks of loss, including disability and employee health insurance. There were no significant reductions in insurance from the previous year or settlements in excess of insurance coverage for any of the past three fiscal years. NOTE 8 FUND BALANCES Certain portions of fund balance are restricted to provide for funding on certain long-term liabilities or as required by other outside parties. Restricted, Committed and Assigned fund balances at December 31, 2012, are as follows: A. Restricted for Debt Service — This represents amounts which are restricted for future debt payments. B. Restricted for Park Improvements — Represents amounts which are received through park dedication fees and are restricted for park acquisitions and improvements. C. Assigned for Capital Improvements Benefitting Individual Property Owners — Represents amounts which are assigned by the City to finance future road improvement projects benefitting individual property owners. I J (29) REQUIRED SUPPLEMENTARY INFORMATION BUDGETARY COMPARISON INFORMATION CITY OF GEM LAKE, MINNESOTA SCHEDULE OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCE BUDGET AND ACTUAL GENERALFUND YEAR ENDED DECEMBER 31, 2012 REVENUES Taxes Intergovernmental Licenses and Permits Fines and Forfeits Public Charges for Services Miscellaneous: Interest Other Total Revenues EXPENDITURES General Government Public Safety Public Works Conservation and Development Total Expenditures EXCESS OF REVENUE OVER (UNDER) EXPENDITURES OTHER FINANCING USES Transfers Out NET CHANGE IN FUND BALANCE Fund Balance - Beginning of Year FUND BALANCE - END OF YEAR III 1] Budgeted Amounts Actual Variance with Original Final Amounts Final Budget $ 222,171 $ 222,171 $ 214,796 $ (7,375) 4,430 4,430 4,477 47 15,105 15,105 31,555 16,450 4,060 4,060 3,878 (182) 4,000 4,000 5,404 1,404 4,500 4,500 5,168 668 28,672 28,672 20,656 (8,016) 282,938 282,938 285,934 2,996 155,122 155,122 94,839 60,283 108,500 108,500 102,976 5,524 65,965 65,965 31,526 34,439 29,800 29,800 16,781 13,019 359,387 359,387 246,122 113,265 (76,449) (76,449) 39,812 116,261 (60,000) (60,000) (60,000) $ (136,449) $ (136,449) (20,188) J See accompanying Note to Required Supplementary Information. (30) 397,401 $ 377,213 $ 116,261 CITY OF GEM LAKE, MINNESOTA NOTE TO REQUIRED SUPPLEMENTARY INFORMATION DECEMBER 31, 2012 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 2012. (31) SUPPLEMENTARY INFORMATION CITY OF GEM LAKE, MINNESOTA COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS DECEMBER 31, 2012 ASSETS Cash and Investments Accrued Interest Receivable Total Assets LIABILITIED AND FUND BALANCES Restricted: Park Improvements Assigned: Capital Improvements Benefiting Individual Property Owners Total Liabilities and Fund Balances Special Capital Revenue Projects Parks and Hoffman Total Playground Road Nonmajor Fund Fund Funds $ 38,324 $ 25,705 $ 64,029 364 244 608 $ 38,688 $ 25,949 $ 64,637 $ 38,688 $ - $ 38,688 25,949 25,949 $ 38,688 $ 25,949 $ 64,637 (32) CITY OF GEM LAKE, MINNESOTA COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCE NONMAJOR GOVERNMENTAL FUNDS YEAR ENDED DECEMBER 31, 2012 Special Capital Revenue Projects Parks and Hoffman Total Playground Road Nonmajor Fund Fund Funds REVENUES Interest $ 644 $ 433 $ 1,077 EXPENDITURES Capital Outlay - - - NET CHANGE IN FUND BALANCES 644 433 1,077 Fund Balance - Beginning of Year 38,044 25,516 63,560 FUND BALANCE - END OF YEAR $ 38,688 $ 25,949 $ 64,637 (33) OTHER REQUIRED REPORTS . CliftonLarsonAllen LLP OF www.cliftonlarsonallen.com Clifton LarsonAllen IINDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Honorable Mayor and Members of the City Council City of Gem Lake, Minnesota We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of City of Gem Lake, as of and for the year ended December 31, 2012, and the related notes to the financial statements, which collectively comprise City of Gem Lake's basic financial statements, and have issued our report thereon dated June 18, 2013. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered City of Gem Lake's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we do not express an opinion on the effectiveness of the City's internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. However, as described in the accompanying Schedule of Findings and Responses, we identified a deficiency in internal control that we consider to be material weakness. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. We consider the deficiency finding number 2012-1 described in the accompanying Schedule of Findings and Responses to be a material weakness. �' (34) Honorable Mayor and Members of the City Council City of Gem Lake Compliance and Other Matters As part of obtaining reasonable assurance about whether the City's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. City of Gem Lake's Response to the Finding The City's response to the finding identified in our audit is described in the accompanying schedule of findings and responses. The City's response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the result of that testing, and not to provide an opinion on the effectiveness of the entity's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Clifton LarsonAllen LLP Minneapolis, Minnesota June 18, 2013 J (35) Clifton LarsonAl len op, CliftonLarsonAllen LLP www.d iftonlarsonallen.com INDEPENDENT AUDITORS' REPORT ON MINNESOTA LEGAL COMPLIANCE Honorable Mayor, Members of the City Council, and Citizens City of Gem Lake, Minnesota We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City of Gem Lake, as of and for the year ended December 31, 2012, and the related notes to the financial statements, which collectively comprise the City's basic financial statements, and have issued our report thereon dated June 18, 2013. The Minnesota Legal Compliance Audit Guide for Political Subdivisions covers seven categories of compliance to be tested: contracting and bidding, deposits and investments, conflicts of interest, public indebtedness, claims and disbursements, miscellaneous provisions, and tax increment financing. In connection with our audit, nothing came to our attention that caused us to believe that the City of Gem Lake, failed to comply with the provisions of the Minnesota Legal Compliance Audit Guide for Political Subdivisions. However, our audit was not directed primarily toward obtaining knowledge of such noncompliance. Accordingly, had we performed additional procedures, other matters may have come to our attention regarding the City of Gem Lake's noncompliance with the above -referenced provisions. The purpose of this report is solely to describe the scope of our testing of compliance and the results of that testing, and not to provide an opinion on compliance. Accordingly, this communication is not suitable for any other purpose. Clifton LarsonAl len LLP Minneapolis, Minnesota June 18, 2013 _a .i CITY OF GEM LAKE SCHEDULE OF FINDINGS AND RESPONSES YEAR ENDED DECEMBER 31, 2012 2012-1: Limited Segregation 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 to advise that a concentration of duties and responsibilities in a limited number of individuals is not desirable from an internal control perspective. Criteria: Generally, a system of internal control contemplates separation of duties such that no individual has responsibility to execute a transaction, have physical access to the related assets, and have responsibility or authority to record the transaction. Effect: The City is unable to maintain segregation of incompatible duties. Cause: The condition is due to a limited number of personnel involved in receipt and disbursement processes. Recommendation: Controls should be reviewed periodically and consideration given to improving the segregation of duties. In making this review, it is important to consider the benefit derived as weighed against the cost of the improvements. Manaqement Response: Management has decided, due to the small size of the City's staff, that the additional costs of implementing the necessary controls outweigh the benefits that would be derived. (37)