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HomeMy WebLinkAbout[05b] 2009 Management LetterCITY OF ST. JOSEPH Stearns County, Minnesota Management Letter For the Fiscal Year Ended December 31, 2009 CITY OF ST. JOSEPH Stearns County, Minnesota TABLE OF CONTENTS REPORT ON MATTERS IDENTIFIED AS A RESULT OF THE AUDIT OF THE FINANCIAL STATEMENTS .................... ............................... 1 MATERIALWEAKNESS ................................................................... ............................... 3 DEFICIENCY....................................................................................... ............................... 5 LEGAL COMPLIANCE FINDING ................................................... ............................... 6 RECOMMENDATIONS FOR MANAGEMENT .................................. ..............................7 REQUIRED COMMUNICATION ..................................................... ............................... 9 FINANCIALANALYSIS .................................................................... ............................... 12 KD*V Expert advice. When you need it.s" April 23, 2010 Honorable Mayor and Members of the City Council City of St. Joseph St. Joseph, Minnesota In planning and performing our audit of the financial statements of City of St. Joseph, Minnesota, as of and for the year ended December 31, 2009, in accordance with U.S. generally accepted auditing standards, we considered the City's internal control over financial reporting (internal control) as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. 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 would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses and, therefore, there can be no assurance that all deficiencies, significant deficiencies or material weaknesses have been identified. Material weaknesses and significant deficiencies identified, if any, are stated within this letter. 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 combination of deficiencies in internal control, such that there is a reasonable possibility that a material misstatement of the City's financial statements will not be prevented or detected and corrected on a timely basis. A significant deficiency is a deficiency, or combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Y***,D*V The accompanying memorandum includes financial analysis and recommendations for improvement of accounting procedures and internal control measures that came to our attention as a result of our audit of the financial statements of the City for the year ended December 31, 2009. The matters discussed herein were considered by us during our audit and they do not modify the opinion expressed in our Independent Auditor's Report dated April 23, 2010, on such statements. This communication is intended solely for the information and use of management, the City Council, others within the City and state oversight agencies and is not intended to be and should not be used by anyone other than these specified parties. /,6�, be W-u.A VA A,*, /- Z 1) KERN, DEWENTER, VIERE, LTD. St. Cloud, Minnesota 2 CITY OF ST. JOSEPH Stearns County, Minnesota MATERIAL WEAKNESS December 31, 2009 IMPROVE SEGREGATION OF ACCOUNTING DUTIES Adequate segregation of accounting duties is in place when the four areas of a transaction have been separated: authorization, custody, recording and reconciliation. As part of this year's audit, we reviewed the City's documentation of its internal control over significant areas including: cash receipts, cash disbursements, capital assets, payroll and utility billing. Some of the areas in which we noticed a lack of segregation or an overlap in duties are as follows: Cash Receipts The Office Specialist enters cash and checks into the point of sale system, reconciles the entries and prepares the deposit. The Utility Billing Clerk creates invoices for miscellaneous billings, but does not retain the information used to create invoices. There was no evidence of the Finance Director's review of deposits. The Finance Director takes deposits to the bank. Cash Disbursements The Finance Director enters invoices into the system, generates checks and the check register. The Finance Director is an authorized signer and approves some invoices for payment. The City Administrator has access to generate checks and is also an authorized signer. At year -end, the Finance Director reconciles and records accounts and contracts payable. Capital Assets The Finance Director records, processes, reconciles and posts journal entries related to capital assets. Payroll The Finance Director enters employees' time, processes and posts payroll, generates a payroll report, distributes paystubs to employees and posts the journal entries related to payroll. In addition, this same employee reconciles payroll accruals, time off balances and compensated absences. CITY OF ST. JOSEPH Stearns County, Minnesota MATERIAL WEAKNESS December 31, 2009 IMPROVE SEGREGATION OF ACCOUNTING DUTIES Utility Billing The Utility Billing Clerk enters new accounts into the utility billing system and uploads meter readings via interfacing with electronic readers. The Utility Billing Clerk enters any rate changes to the system. The Utility Billing Clerk also can enter manual adjustments, calculates and enters final bills, prints and mails utility bills, reconciles receipts to billed amounts and enters receipts batches. Cash Reconciliation and Access The Finance Director performs the above noted responsibilities, while also reconciling cash and generating manual journal entries. The Finance Director also has the ability to wire money either for payments or investment transactions. We recommend management and the City Council review the above deficiencies and improve segregation of accounting duties where possible to build upon the control environment. We also recommend the City closely follow its internal control plan and follow through with the control activities that have been designed. 4 CITY OF ST. JOSEPH Stearns County, Minnesota DEFICIENCY December 31, 2009 POLICE DEPARTMENT DEPOSIT RECONCILTION During our testing of police daily deposits, it was noted no one reconciles the Police Department's daily receipts to records maintained by the Police Department. This could lead to unrecorded collections that the City's Finance Department is not aware of We recommend an additional person other than the Police Secretary reconciles the daily deposit to records maintained by the Police Department. CITY OF ST. JOSEPH Stearns County, Minnesota LEGAL COMPLIANCE FINDING December 31, 2009 UPDATE COLLATERAL ASSIGNMENT AGREEMENT Minnesota Statutes 118A.03, subd. 4 requires that the written assignment shall recite that upon default, the financial institution shall release to the government entity on demand, free of exchange or any other charges, the collateral pledged. During our legal compliance audit, it was noted the City's collateral assignment agreement with First State Bank did not require the release of collateral upon default. We recommend the City update its assignment agreement in order to be in compliance with Minnesota Statutes. 0 CITY OF ST. JOSEPH Stearns County, Minnesota RECOMMENDATIONS FOR MANAGEMENT December 31, 2009 CONSIDER THE IMPLICATIONS OF GOVERNMENTAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 51, ACCOUNTING AND FINANCIAL REPORTING FOR INTANGIBLE ASSETS Governments possess many different types of assets that may be considered intangible assets, including easements, land rights, patents, trademarks and computer software. Currently, there is an absence of sufficiently specific authoritative guidance that addresses questions regarding whether and when intangible assets should be considered capital assets for reporting purposes, resulting in inconsistencies in the accounting and financial reporting of intangible assets among state and local governments, particularly in the areas of recognition, initial measurement and amortization. Governmental Accounting Standards Board (GASB) Statement No. 51 establishes accounting and financial reporting requirements for intangible assets to reduce these inconsistencies, thereby enhancing the comparability of the accounting and financial reporting of such assets among state and local governments. This Statement requires that all intangible assets not specifically excluded by its scope provisions be classified as capital assets. The Statement identifies an intangible asset as having the following three characteristics: • It lacks physical substance. • It is nonfinancial in nature. • Its useful life extends beyond a single reporting period. The requirements of this Statement are effective for the year ending December 31, 2010. The provisions of this statement generally are required to be applied retroactively. For governments that were classified as phase 1 or phase 2 governments for the purpose of implementing GASB Statement No. 34, retroactive reporting is required for intangible assets acquired in fiscal years ending after June 30, 1980, except for those considered to have indefinite useful lives as of the effective date of this Statement and those that would be considered internally generated. Retroactive reporting of intangible assets by phase 3 governments is encouraged but not required. CONSIDER THE IMPLICATIONS OF GASB STATEMENT NO. 54, FUND BALANCE REPORTING AND GO VERNMENTAL FUND TYPE DEFINITIONS GASB Statement No. 54 was enacted to enhance the usefulness of fund balance information by providing clearer fund balance classifications that can be more consistently applied and by clarifying the existing governmental fund type definitions. The initial distinction that is made in reporting fund balance information is identifying amounts that are considered nonspendable, such as fund balance associated with inventories or prepaid expenses. This Statement also provides for additional classification as restricted, committed, assigned and unassigned based on the relative strength of the constraints that control how specific amounts can be spent. 7 CITY OF ST. JOSEPH Stearns County, Minnesota RECOMMENDATIONS FOR MANAGEMENT December 31, 2009 CONSIDER THE IMPLICATIONS OF GASB STATEMENT NO. 54, FUND BALANCE REPORTING AND GOVERNMENTAL FUND TYPE DEFINITIONS The restricted fund balance category includes amounts that can be spent only for the specific purposes stipulated by constitution, external resource providers or through enabling legislation. The committed fund balance classification includes amounts that can be used only for the specific purposes determined by a formal action of the government's highest level of decision - making authority. Amounts in the assigned fund balance classification are intended to be used by the government for specific purposes but do not meet the criteria to be classified as restricted or committed. In governmental funds other than the general fund, assigned fund balance represents the remaining amount that is not restricted or committed, unless that is a negative balance. Unassigned fund balance is the residual classification for the government's general fund and includes all spendable amounts not contained in the other classifications. In other funds, the unassigned classification should be used only to report a deficit balance resulting from overspending for specific purposes for which amounts have been restricted, committed or assigned. Governments are allowed to have stabilization amounts which are formally set aside for use in emergency situations or when revenue shortages or budgetary imbalances arise. These funds must be restricted or committed for a specific purpose and cannot occur routinely. Governments are required to have a fund balance policy which addresses a reasonable minimum level of unrestricted fund balance to be maintained, how the unrestricted fund balance can be used or spent down and how that fund balance will be replenished if it falls below the minimum level. Elimination of the reserved component of fund balance in favor of a restricted classification will enhance the consistency between information reported in the government -wide statements and information in the government fund financial statements and avoid confusion about the relationship between the reserved fund balance and restricted net assets. The Statement is also designed to enhance the usefulness of fund balance information by clarifying the definitions of governmental fund types. For example, special revenue funds are created only to report a revenue source that is restricted or committed to a specified purpose, and that revenue source should constitute a substantial portion of the resources reported in the fund. In addition, the definition of the capital project fund type has been clarified to focus on the broader, more consistent understanding of capital outlays and capital activities in today's environment. This Statement is effective for the year ending December 31, 2011; however, early implementation is encouraged. Fund balance reclassifications made to conform to the provisions of this Statement should be applied retroactively by restating fund balance for all prior periods presented. E:3 CITY OF ST. JOSEPH Stearns County, Minnesota REQUIRED COMMUNICATION December 31, 2009 We have audited the financial statements of the City for the year ended December 31, 2009, and have issued our report dated April 23, 2010. Professional standards require that we provide you with the following information related to our audit. OUR RESPONSIBILITY UNDER U.S. GENERALLY ACCEPTED AUDITING STANDARDS AND GOVERNMENT AUDITING STANDARDS As stated in our engagement letter, our responsibility, as described by professional standards, is to express an opinion about whether the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles. Our audit of the financial statements does not relieve you or management of your responsibilities. Our responsibility is to plan and perform our audit to obtain reasonable, but not absolute, assurance that the financial statements are free of material misstatement. As part of our audit, we considered the internal control of the City. Such considerations were solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. We are responsible for communicating significant matters related to the audit that are, in our professional judgment, relevant to your responsibilities in overseeing the financial reporting process. However, we are not required to design procedures specifically to identify such 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. PLANNED SCOPE AND TIMING OF THE AUDIT We performed the audit according to the planned scope and timing previously communicated to you. QUALITATIVE ASPECTS OF ACCOUNTING PRACTICES Management is responsible for the selection and use of appropriate accounting policies. In accordance with the terms of our engagement letter, we will advise management about the appropriateness of accounting policies and their application. The significant accounting policies used by the City are described in Note 1 to the financial statements. During fiscal year 2009, the City implemented Governmental Accounting Standards Board (GASB) Statement No. 45, Accounting and Financial Reporting for Employers for Post Employment Benefits Other than Pensions. We noted no transactions entered into during the year for which there is a lack of authoritative guidance or consensus. There are no significant transactions that have been recognized in the financial statements in a different period than when the transaction occurred. D CITY OF ST. JOSEPH Stearns County, Minnesota REQUIRED COMMUNICATION December 31, 2009 QUALITATIVE ASPECTS OF ACCOUNTING PRACTICES Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the financial statements were: Depreciation — The City is currently depreciating its capital assets over their estimated useful lives, as determined by management, using the straight -line method. Expense Allocation — Certain expenses are allocated to functions based on an estimate of the benefit to that particular function. Examples include salaries, benefits, insurance and supplies. Net Other Post Employment Benefits (OPEB) Obligation — This liability is based on an actuarial study using the estimates of future obligations of the City for post employment benefits. We evaluated the key factors and assumptions used to develop the above estimates in determining they are reasonable in relation to the financial statements taken as a whole. The disclosures in the financial statements are neutral, consistent and clear. DIFFICULTIES ENCOUNTERED IN PERFORMING THE AUDIT We encountered no difficulties in dealing with management in performing and completing our audit. CORRECTED AND UNCORRECTED MISSTATEMENTS Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. Management did not identify and we did not notify them of any uncorrected financial statement misstatements. DISAGREEMENTS WITH MANAGEMENT For purposes of this letter, professional standards define a disagreement with management as a financial accounting, reporting or auditing matter, whether or not resolved to our satisfaction that could be significant to the financial statements or the auditor's report. We are pleased to report that no such disagreements arose during the course of our audit. 10 CITY OF ST. JOSEPH Stearns County, Minnesota REQUIRED COMMUNICATION December 31, 2009 MANAGEMENT REPRESENTATIONS We requested certain representations from management which were provided to us in the management representation letter. MANAGEMENT CONSULTATIONS WITH OTHER INDEPENDENT ACCOUNTANTS In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the City's financial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine the consultant has all the relevant facts. We are not aware of any consultations by the City's management with other accountants during the course of our audit. OTHER ISSUES We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the City's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. OTHER INFORMATION IN DOCUMENTS CONTAINING AUDITED FINANCIAL STATEMENTS We have not reviewed, and it is our understanding, that no other published documents exist that contain audited financial statement information, for which we are currently auditing. As stated in our engagement letter, if you publish or reproduce the financial statements or make reference to our Firm name in relation to such documents, you agree to provide us with a copy of the final reproduced material for our approval before it is distributed. 11 CITY OF ST. JOSEPH Stearns County, Minnesota FINANCIAL ANALYSIS December 31, 2009 The following pages provide graphic representation of select data pertaining to the financial position and operations of the City for the past five years. Our analysis of each graph is presented to provide a basis for discussion of past performance and how implementing certain changes may enhance future performance. We suggest you view each graph and document if our analysis is consistent with yours. A subsequent discussion of this information should be useful for planning purposes. D VD11111wp1u For the year ended December 31, 2009, General Fund revenues exceeded expenditures by $ 398,462. After net other financing uses of $ 199,347, the General Fund balance increased $ 597,809, from $ 1,061,756 at December 31, 2008 to $ 1,659,565 at December 31, 2009. Of the City's General Fund balance at December 31, 2009, $ 1,376,592 is designated for specific expenditures, such as working capital, capital expenditures and debt service. The unreserved, undesignated portion of the fund balance plus the designated balance for working capital combined represents almost six months of 2009 expenditures. The graph below and on the following page show the City's General Fund balance and the General Fund revenues and expenditures for the last five years. $1,800,000 $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 General Fund 2005 2006 2007 2008 2009 f0 Designated © Undesignated 12 GENERAL FUND $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 CITY OF ST. JOSEPH Stearns County, Minnesota FINANCIAL ANALYSIS December 31, 2009 General Fund ■Total Revenues $1,988,857 $2,341,535 $2,617,778 $2,539,365 $2,795,896 ■ Total Expenditures $2,035,451 $2,230,088 $2,309,118 $2,444,593 $2,397,434 ■ Fund Balance 1,442,577 1,207,322 1,149,552 1,061,756 1,659,565 During the year ended December 31, 2009, the City's General Fund revenues increased $ 256,631, or 10.1 % from 2008, while expenditures decreased by $ 47,159, or 1.9 %. Over the five years presented, revenues have increased $ 807,039, or 40.6 %, while expenditures have increased less significantly, totaling $ 361,983, or 17.8 %. 13 CITY OF ST. JOSEPH Stearns County, Minnesota FINANCIAL ANALYSIS December 31, 2009 GENERAL FUND REVENUES Total Revenues $ 1,988,857 $ 2,341,535 $ 2,617,778 $ 2,539,365 $ 2,795,896 * Prior to 2007, franchise fees were included with licenses and permits The most significant change in the years presented occurred in property tax revenue collected. Tax revenue increased $ 658,213 from 2005 to 2009. Tax revenue increased by 5.6% in 2009 due to an increase in the property tax levy. Licenses and permits increased $ 72,147, or 63.3% from 2008. The increase was due to the issuance of building permits for the Graceview Apartments, Coborn's and the Credit Union. Intergovernmental revenues increased $ 88,245 in 2009 from 2008. The majority of this increase was an increase in Local Government Aid (LGA) received. All other revenue categories remained relatively consistent with 2008. The pie charts on the following page show the General Fund sources of revenue for 2009 and 2008 as a percentage of total revenues. The allocation of sources of revenue fluctuates minimally from year -to -year. Taxes account for the largest component of General Fund revenues, making up 39% of the total. Intergovernmental revenue accounts for 35% of the total. The total of these two categories accounts for approximately 76% of General Fund revenues in 2009. 14 2005 2006 2007 2008 2009 Taxes $ 446,402 $ 693,590 $ 811,108 $ 1,046,124 $ 1,104,615 Special Assessments 266 1,067 966 2,802 4,735 Franchise Fees * * 105,311 104,768 107,120 Licenses and Permits 362,521 335,576 267,305 113,911 186,058 Intergovernmental 825,611 951,826 1,025,725 894,320 982,565 Charges for Services 235,316 205,792 222,510 205,431 234,991 Fines and Forfeitures 55,333 69,686 79,837 68,125 68,059 Miscellaneous 63,408 83,998 105,016 103,884 107,753 Total Revenues $ 1,988,857 $ 2,341,535 $ 2,617,778 $ 2,539,365 $ 2,795,896 * Prior to 2007, franchise fees were included with licenses and permits The most significant change in the years presented occurred in property tax revenue collected. Tax revenue increased $ 658,213 from 2005 to 2009. Tax revenue increased by 5.6% in 2009 due to an increase in the property tax levy. Licenses and permits increased $ 72,147, or 63.3% from 2008. The increase was due to the issuance of building permits for the Graceview Apartments, Coborn's and the Credit Union. Intergovernmental revenues increased $ 88,245 in 2009 from 2008. The majority of this increase was an increase in Local Government Aid (LGA) received. All other revenue categories remained relatively consistent with 2008. The pie charts on the following page show the General Fund sources of revenue for 2009 and 2008 as a percentage of total revenues. The allocation of sources of revenue fluctuates minimally from year -to -year. Taxes account for the largest component of General Fund revenues, making up 39% of the total. Intergovernmental revenue accounts for 35% of the total. The total of these two categories accounts for approximately 76% of General Fund revenues in 2009. 14 CITY OF ST. JOSEPH Stearns County, Minnesota FINANCIAL ANALYSIS December 31, 2009 GENERAL FUND REVENUES 2009 General Fund Revenues] Licenses and Permits 7% Franchise 4% Special Assessments Less than 1% Taxe: 39% Intersovemmental Franct e Special Assessments Less than 1% Taxes 41% Miscellaneous 4% 2008 General Fund Revenues Licenses and Permits 4% Miscellaneous 4% Charges for Services 8% nd Forfeitures 3% Charges for Services 8% feitures �.a 15 CITY OF ST. JOSEPH Stearns County, Minnesota FINANCIAL ANALYSIS December 31, 2009 GENERAL FUND REVENUES [General Fund Revenues Budget and Actual $1,400,000 $1,200,000 t - - - - - - $1,000,000 +--1 I I -- $800,000 $600,000 $400,000 i--] I I I I I $200,000 f-"1 I I I- I I 1 1-1 $_ x T Taxes Special Franchise Fees Lr Inter vemmental $O Chages for Fines and Miscellaneous Assessments Permrtand Services Forfeitures IN Budget $1,179,676 $1,500 $102,200 $169,700 1 $965,745 $222,100 1 $73,500 j $74,950 EN Actual 1,104,615 4,735 -_ 107,120 186,058 1 982,565 234,991 1 68,059 1 107,753 The graph above illustrates revenue of the General Fund for 2009 compared to budgeted amounts by source. Total revenues were over budget by $ 6,525, or 0.2 %. Intergovernmental revenues were over the budget by $ 16,820; of this difference, $ 83,994 was related to the Market Value Credit aid. This aid reduces the City's local property tax burden, replacing it with a credit from the State of Minnesota that is not typically budgeted by cities as intergovernmental revenue. This occurrence also attributes to the property tax revenue being $ 75,061 less than budgeted. In light of this observation, the offsetting intergovernmental variance was in LGA. Actual LGA received was $ 88,571 under budget as a result of the state cutting a portion of the City's initial allotment. Licenses and permits revenues were over budget due to the additional building permits issued. Charges for services revenues were over budget due to income for land rental and miscellaneous revenues were over budget because of additional investment income and reimbursements. 16 CITY OF ST. JOSEPH Stearns County, Minnesota FINANCIAL ANALYSIS December 31, 2009 GENERAL FUND EXPENDITURES Total Expenditures $ 2,035,451 $ 2,230,088 $ 2,309,118 $ 2,444,593 $ 2,397,434 From 2005 to 2009, expenditures have increased by $ 361,983, with the most significant increase occurring in the greatest portion of the City's General Fund expenditures, public safety. General Fund expenditures decreased 1.9 %, from $ 2,444,593 in 2008 to $ 2,397,434 in 2009. The decrease in expenditures occurred in general government, public safety and public works expenditures. General government expenditures decreased by $ 101,791, or 17.0 %, from 2008, primarily as a result of decreased personnel costs as the City opted not to fill a vacancy in the administrative and finance office. Public works expenditures decreased mainly due to decreased personnel costs. These decreases were partially offset by an increase in capital outlay of $ 58,650 due to ongoing City projects. 17 2005 2006 2007 2008 2009 General Government $ 420,644 $ 455,850 $ 579,533 $ 598,890 $ 497,099 Public Safety 991,822 1,136,871 1,221,600 1,267,601 1,266,332 Public Works 472,445 477,784 343,321 391,712 365,649 Culture and Recreation 119,588 122,642 138,646 172,288 195,602 Capital Outlay 30,952 36,941 26,018 14,102 72,752 Total Expenditures $ 2,035,451 $ 2,230,088 $ 2,309,118 $ 2,444,593 $ 2,397,434 From 2005 to 2009, expenditures have increased by $ 361,983, with the most significant increase occurring in the greatest portion of the City's General Fund expenditures, public safety. General Fund expenditures decreased 1.9 %, from $ 2,444,593 in 2008 to $ 2,397,434 in 2009. The decrease in expenditures occurred in general government, public safety and public works expenditures. General government expenditures decreased by $ 101,791, or 17.0 %, from 2008, primarily as a result of decreased personnel costs as the City opted not to fill a vacancy in the administrative and finance office. Public works expenditures decreased mainly due to decreased personnel costs. These decreases were partially offset by an increase in capital outlay of $ 58,650 due to ongoing City projects. 17 CITY OF ST. JOSEPH Stearns County, Minnesota FINANCIAL ANALYSIS December 31, 2009 GENERAL FUND EXPENDITURES The pie charts below show the General Fund expenditures by function for 2009 and 2008 as a percentage of total expenditures. The allocation of expenditures by function was fairly consistent from 2008 to 2009. Public safety remains the largest component of General Fund expenditures, increasing slightly from 52% to 53% during 2009. General government decreased 3 %, from 24% to 21 %. General Govern , 21% General Governm 24% 2009 General Fund Expenditures Public Safety Capital Outlay 8% 3% 12008 General Fund Expenditures Public Safety 52% Capital Outlay 7% 1% Public Works 15% cation Public Works 16% 18 CITY OF ST. JOSEPH Stearns County, Minnesota FINANCIAL ANALYSIS December 31, 2009 GENERAL FUND EXPENDITURES The chart below illustrates expenditures of the General Fund for 2009 compared to budgeted amounts by function. Total expenditures of $ 2,387,837 were under the total budgeted expenditures of $ 2,781,776 by $ 393,939, or 14.2 %. General Fund Expenditures Budget and Actual $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 -- $200,000 -. --- - - -- General Government Public Safety Public Works Culture and Recreation Capital Outlay 0 Budget $681,255 $1,337,280 $357,535 $194,986 $210,720 ■Actual 497,099 1,266,332 365,649 195,602 72,752 General government actual expenditures were $ 184,156 under budget due to not filling the vacancy in the administrative and finance office mentioned previously as well as budgeting for an employee in zoning and planning, which was never filled. Public safety expenditures were $ 70,948 under budget; the variances were spread over all current expenditures. The greatest variance occurred in building inspections professional services, expenditures were $ 12,129 under budget. These expenditures are difficult to budget as activity varies from year -to -year. Capital outlay expenditures were $ 137,968 below budget, which was a result of the City Council electing to put a freeze on capital spending during 2009. 19 CITY OF ST. JOSEPH Stearns County, Minnesota FINANCIAL ANALYSIS December 31, 2009 ENTERPRISE FUNDS Enterprise funds are used to account for operations financed and operated in a manner, similar to private business enterprises, where the City intends the cost of providing goods or services to the public be financed or recovered primarily through user charges. The City's Enterprise Funds include the Refuse, Water, Sewer and Storm Water Funds. The City's Enterprise Funds have shown consistent performance over the past several years. Refuse Fund The following graph displays selected financial data for the Refuse Fund for the current and previous four years. The Fund consistently showed an operating loss from 2006 through 2009. Operating expenses increased $ 38,303, or 14.1 %, from 2008 to 2009, $ 3 3,3 62 of the increase was related to an increase in refuse disposal contracted fees. Operating revenues increased $ 31,395, or 12.2 %, from 2008 to 2009, the increase was a result of an increase in users, as well as a $ 2 per month increase in rates charged. We recommend the City evaluate its fees charged for refuse service, as this was the first increase to rates in four years and the Fund's operations have produced operating losses from 2006 to 2009. $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $- - $(50,000) 2005 ■ Operating Revenues $220,537 • Operating Expe nses 170,865 • Operating Income (Loss) 49,672 Refuse Fund 2006 2007 1 2008 1 2009 6261,239 $257,484 $252,836 $284,231 278,768 270,880 1 255,678 293,981 20 CITY OF ST. JOSEPH Stearns County, Minnesota FINANCIAL ANALYSIS December 31, 2009 ENTERPRISE FUNDS Water Fund The Water Fund has shown operating losses for the last five years. Operating expenses decreased $ 385,943, or 78.0 %, from 2008 to 2009, due to costs relating to equipment purchased to switch the City water meters from a manual reading system to an electronic radio reading system. Operating revenues were consistent with the prior year, decreasing only by $ 4,386, or 1.0 %. Operations produced an operating loss; however, with the exclusion of $ 387,607 in depreciation expense, the Fund experienced operating income of $ 71,466. However, depreciation should be considered as a true expense in operations, being that most equipment and facilities will eventually need upgrades or replacement. We recommend the City continue to monitor rates as well as operating expenses to ensure the Fund's profitability in the future and ensure that other funds do not have to cover the Water Fund's operations with transfers. Water Fund $1,200,000 — -- — — $950,000 $700,000 $450,000 $200,000 f-jF-1 F1 $(50,000) $(300,000) $(550,000) $(800,000) 2005 2006 2007 2008 2009 ■ Operating Revenues $328,295 5418,788 5436,324 $433,017 $428,631 ■ Operating Expenses 365,507 420,426 494,900 1,130,735 744,792 ■ Operating Loss with Depteciation (37,212) (1,638) (58,576) (697,718) (316,161) ❑ Operating Income (Loss) without Depreciation 123,796 159,370 121,100 (329,234) 71,446 21 CITY OF ST. JOSEPH Stearns County, Minnesota FINANCIAL ANALYSIS December 31, 2009 ENTERPRISE FUNDS Sanitary Sewer Fund Operating revenues decreased 12.5 %, from 2008 to 2009, while operating expenses decreased 47.5 %, resulting in less of an operating loss in 2009 as presented below. The decrease in revenue was mainly due to the credit given to the College of St. Benedict. The expense decrease was attributed to additional billings paid to the City of St. Cloud, Minnesota, for design costs allocated to the City for the future renovation and expansion of the City of St. Cloud's wastewater treatment plant. The Sewer Fund has shown operating losses for each of the past five years. Due to the nature and cost of the Sewer Fund's assets, it is difficult to establish sewer rates sufficient to cover replacement of the assets represented by depreciation expense. Ideally, sewer revenues should cover all operating expenses, including depreciation. However, depreciation of Sewer Fund assets is a difficult cost to recover from system users since there are relatively few users in relation to the cost of asset replacement. The graph below indicates the Sewer Fund did have operating income in prior years when depreciation expense is not considered (indicated by the yellow bar), thereby covering a portion, but not all of annual depreciation expense. We recommend the City Council and administration continually evaluate the performance of this Fund to ensure the Fund is at a minimum, covering operating expenses. Sanitary Sewer Fund $900,000 $700,000 $500,000 S300 000 $100,000 $(100,000) $(300,000) $(500,000) 2005 2006 2007 2008 1 2009 ■ Operating Revenues $408,985 $478,501 $333,963 $515,242 $473,356 ■ Operating Expenses 501,149 500,100 564,702 1 919,775 1 651,748 Loss with Depreciation Income (Loss) without 22 CITY OF ST. JOSEPH Stearns County, Minnesota FINANCIAL ANALYSIS December 31, 2009 ENTERPRISE FUNDS Storm Water Fund The Storm Water Fund has shown operating income in two of the years presented and an operating loss in 2005, 2008 and 2009. Operating revenues increased slightly by $ 3,646, or 1.4 %, from 2008 to 2009. In 2009, operating expenses increased $ 34,573, or 44.3 %, due to increases in both wages and current year depreciation expense. The Storm Water Fund produced operating loss of $ 56,580 prior to depreciation expense. We recommend the City continue to monitor rates as well as operating expenses to ensure the Fund's profitability in the future. Storm Water Fund $270,000 - -- - - -- -- $220,000 $170,000 $120,000 $70,000 $20,000 $(30,000) 2005 2006 2007 2008 2009 ■ Operating Revenues $49,852 $95,979 $262,367 $108,959 $112,605 ■Operating Expenses 67,967 82,435 78,091 134,612 169,185 ■Operating Income (Loss) with Depreciation (18,115) 13,544 184,276 (25,653) (56,580) E3 Operating Income (Loss) without Depreciation 49,356 81,015 258,751 55,801 41,215 0*1