2013 Comprehensive Annual Financial ReportCITY OF HOPKINS
MEMORANDUM
Date: June 17, 2014
To: Mayor & City Council
From: Christine Harkess, Finance Director
FINANCE DEPARTMENT
Subject: 2013 Comprehensive Annual Financial Report (CAFR)
Staff has prepared a presentation of a consolidated version of the 2013 Comprehensive Annual
Financial Report (CAFR). Dennis Hoogeveen, Principal of the audit firm CliftonLarsonAllen,
LLC will be present to review the results of the 2013 audit to the City Council and public.
Supporting Information
0 Power Point Presentation
0 2013 Executive Audit Summary
0 2013 Comprehensive Annual Financial Report (separate attachment due to size)
An Overview of the
2013 Comprehensive Annual Financial Report
The City of Hopkins presents
its Comprehensive Annual
Financial Report
This presentation provides a
broad overview of our
financial performance and
position.
Economic Conditions
Major initiatives
Revenue by fund type
Expenditures by fund type
Statement of Net Assets
All information is public. Statement of Activities
Economic Condition
• Valuation of new non-residential construction was
$36.6 million in 2013.
• The economic development and redevelopment
market within the City of Hopkins is very active.
• An additional $149 million of construction is
projected over the next several years.
Significant Projects in 2013
• Marketplace & Main Townhomes
$ 2.5 million
• Mayon Plastics site redevelopment
$ 3.0 million
• BP Gas Station site redevelopment
$ 4.0 million
• Gallery Flats Apartments
$24.0 million
Future Projects
• Hopkins Cold Storage site redevelopment $62 million
• Fifth Avenue Flats $40 million
• Johnson Building redevelopment $30 million
• EBCO site redevelopment $10 million
• Oxford Green Apartments $ 7 million
Major Municipal Initiatives
• Street repair and improvements $2,050,000
• Utility improvement projects
$1,512,000
• City park improvements
$
120,158
— Burnes & Oak Parks along with others
• Cottageville Park improvements
$
119,400
• Activity Center kitchen upgrade
$
28,500
• Building controls upgrade
$
24,725
Financial Highlights
• Assets exceeded liabilities by approximately $69.3 million
— About 68% is capital assets ($47.2 million)
— $12.4 million can be used for ongoing obligations
• Governmental Funds fund balances totaled $16.5 million
a decrease of $2.1 million from 2012.
— Due to payment on refunded bonds
• Unreserved fund balance of the General Fund totaled
$4.8 million or 45% of expenditures.
• Debt decreased by $150,000
— Net difference of refunded bond and new debt issued
Financial Highlights — cont.
• Governmental Activities
— Revenues increased by $2 million over 2012
• Building permit and review fees
• Program grants
— Expenditures increased by $2.4 million over 2012
• Street projects
— Overall Governmental Net Position increased by $1.8 million
• Business Type Activities
— Both revenues and expenditures were tracking similar to 2012
— Overall Business Type Net Position increased by $568,000
Revenues and Other Financing Sources by
Fund Type
Internal Service,
43�,1�5
iWwN Enterprise,
Expenditures and Other Financing Uses
by Fund Type
58 Inte—I 5erwke,
584,346
kni Etl CedpPlie,
S,G'98,8b'9
"C aid Geu,'I,
1CP,RfJ9;453
WA Capital proyect,
6,911,565 ,1
+d%
mi Special
Wm Debt Service, Reven'iwe,
6,565,285 3,854,2'03
a
Statement of Net Assets
(in thousands)
2013
2012
Assets
Cash and investments
$ 21,560
$ 23,557
Taxes & special assessments receivable
5,025
5,396
Other receivables
2,264
1,013
Other assets
74,241
69,528
Deferred outflows
350
387
Total Assets
$103,440
$ 99,881
Liabilities
Accounts payable
$ 1,005
$ 1,514
Accrued compensation
413
405
Other liabilities
2,337
462
Long term liabilities
30,339
30,402
Total Liabilities
$ 34,094
$ 32,783
Total Net Position
$ 69,346
$ 67,098
2111MIEN
Statement of Activities
Governmental Fund Types, (in thousands)
2013
2012
Revenues
Property taxes and assessments
$ 12,568
$ 12,687
Charges for service
1,146
1,021
Operating grants & contributions
5,273
3,499
Capital grants & contributions
1,776
1,350
Grants & contributions not restricted
21
21
Other revenues
155
290
Total Revenues
$ 20,939
$ 18,868
Expenditures
General government
$ 2,108
$ 2,057
Public safety
6,358
6,382
Health & welfare
166
136
Highways & streets
5,845
3,227
Urban redevelopment & housing
2,001
2,362
Culture & recreation
1,858
1,727
Interest on long-term debt
778
812
Total Expenditures
$ 19,114
$ 16,703
Chan a in Net Position
$ 11825
$ 2,165
Statement of Activities
Proprietary Fund Types, (in thousands)
2013
2012
Revenues
Charges for service
$ 5,521
$ 5,572
Operating grants & contributions
561
699
Capital grants & contributions
144
207
Other revenues
18
17
Total Revenues
$ 6,244
$ 6,495
Expenses
Water
$ 1,384
$ 1,365
Sewer
1,991
1,816
Storm Sewer
440
452
Refuse
820
862
Pavilion/Ice Arena
426
430
Housing & Redevelopment Authority
615
564
Transfers
145
145
Total Expenses
$ 5,821
$ 5,634
Chan a in Net Position
$ 423
$ 861
Fund Type
General Fund
Special Revenue Funds
Debt Service Funds
Capital Project Funds
Enterprise Funds
Internal Service Funds
Fund Equity
Fund Balance/
Equity
$ 5,481,517
$ 4,088,409
$ 3,470,747
$ 3,452,652
$ 3,452,652
$ 4,247,113
Incr/(Decr)
$ 287,374
$ 170,463
$ (1,147,391)
$ (1,415,946)
$ 422,864
$ 260,693
CAFR Changes in Reporting
3MISK3
— There were no reporting changes for this year
3MISM
— Implementation of GASB 68 "Accounting & Financial
Reporting for Pensions
— Employers participating in cost-sharing multiple -employer
plan must recognize their proportionate share of the net
pension liability as a whole.
— Net liability = total pension liability less the fiduciary net
position (assets)
CITY OF HOPKINS
EXECUTIVE AUDIT SUMMARY (EAS)
DECEMBER 31, 2013
CITY OF HOPKINS
TABLE OF CONTENTS
DECEMBER 31, 2013
AUDIT REPORT SUMMARY
FINANCIAL RESULTS
GOVERNMENT -WIDE FINANCIAL STATEMENTS
GENERALFUND
ENTERPRISE FUNDS
APPENDIX A
FORMAL REQUIRED COMMUNICATIONS
2
4
5
6
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 9
INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH REQUIREMENTS
THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR
FEDERAL PROGRAM, ON INTERNAL CONTROL OVER COMPLIANCE, AND ON
THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS IN ACCORDANCE
WITH OMB CIRCULAR A-133 11
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
14
NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS 15
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
APPENDIX C
16
INDEPENDENT AUDITORS' REPORT ON LEGAL COMPLIANCE 22
0
Clifton onLairsonAllen
AUDIT REPORT SUMMARY
CfuftonLarsonAlllen LLP
CLAconnecitcorn
We prepared this Executive Audit Summary and Management Report in conjunction with our audit of
the City's financial records for the year ended December 31, 2013. The following is a summary of
reports we have issued:
Audit Opinion
The financial statements are fairly stated in accordance with generally accepted accounting principles.
We issued an "unmodified" audit opinion.
Yellow Book Opinion
Our report on internal control over financial reporting noted one material weakness.
Single Audit Compliance
A compliance audit over federal grant expenditures was required in 2013. We noted one material
weakness and three significant deficiencies in internal control over compliance.
Legal Compliance
No compliance issues were reported with respect to Minnesota Statutes.
♦ An independent me—, McAalntemationd 0
INTERN 4TItJN aL l
FINANCIAL RESULTS
GOVERNMENT -WIDE FINANCIAL STATEMENTS
Statement of Net Position
The Statement of Net Position reflects what the City owns and owes at a given point in time, the last
day of the fiscal year. Theoretically, net position represents the resources the City has left over to use
for providing services after its debts are settled. However, those resources are not always in
expendable form, or there may be restrictions on how some of those resources can be used. For
instance, net investment in capital assets is the largest classification and reflects the balance of
infrastructure (streets, storm water, sidewalks, etc.) and other assets net of the debt incurred to finance
them and therefore, not cash available for use. In order to address this, the statement divides the net
position into three components: net investment in capital assets, restricted net position, and
unrestricted net position.
The following is a condensed version of the Statement of Net Position at December 31, 2013:
Assets:
Current Assets
Capital Assets
Total Assets
Deferred Outflows of Resources:
Deferred Charge on Refunding
Liabilities:
Current Liabilities
Long -Term Liabilities
Total Liabilities
Net Position:
Net Investment in
Capital Assets
Restricted
Unrestricted
Total Net Position
Governmental
Activities
$ 26,492,632
Business -Type
Activities
3,655,687
Total
$ 30,148,319
50,841,438
22,101,134
72,942,572
77,334,070
25,756,821
103,090,891
349,800
-
349,800
3,349,715
406,259
3,755,974
24,078,397
6,259,967
30,338,364
27,428,112
6,666,226
34,094,338
30,666,268
10,014,203
9,575,287
$ 50,255,758
16,223,858
2,866,737
$ 19,090,595
46,890,126
10,014,203
12,442,024
$ 69,346,353
A significant portion of the City's net position translate into restricted net position by virtue of external
restrictions (statutory reserves) or by the nature of the fund they are in (e.g. equity in a debt service
fund typically can only be spent on future repayment of debt).
(2)
Statement of Activities
The Statement of Activities tracks the City's yearly revenues and expenses, as well as any other
transactions that increase or reduce total net position. These amounts represent the full cost of
providing services. This statement provides a more comprehensive measure than just the amount of
cash that changed hands, as reflected in the fund -based financial statements. This statement includes
the cost of supplies used, depreciation of long-lived capital assets, and other accrual -based expenses.
The following is a condensed version of the Statement of Activities for the year ended December 31,
2013:
Functions/Programs
Governmental Activities:
General Government
Public Safety
Health and Welfare
Highways and Streets
Urban Redevelopment and Housing
Culture and Recreation
Interest on Long -Term Debt
Total Governmental Activities
Business -Type Activities:
Water
Sewer
Storm Sewer
Refuse
Pavilion/Ice Arena
Housing and Redevelopment Authority
Total Business -Type Activities
Total Governmental and
Business -Type Activities
General Revenues:
Property Taxes
Tax Increments
Expenses Program Revenue
$ 2,108,141
6,357,722
165,649
5,845,437
2,000,868
1,857,743
778,294
19,113,854
1,384,116
1,991,274
440,459
819,715
425,813
615,043
5,676,420
2,054,973
1,494,561
164,555
3,387,165
45,056
1,049,017
8,195,327
1,483,283
1,999,483
799,603
938,387
405,185
600,149
6,226,090
$ 24,790,274 $ 14,421,417
Grants and Contributions, Not Restricted
Unrestricted Investment Earnings
Net Increase (Decrease) in Fair Value of Investments
Gain on Disposal of Capital Assets
Total General Revenues, Special Items, and Transfers
Change in Net Position
(3)
Difference
$ (53,168)
(4,863,161)
(1,094)
(2,458,272)
(1,955,812)
(808,726)
(778,294)
(10,918,527)
99,167
8,209
359,144
118,672
(20,628)
(14,894)
549,670
(10,368,857)
10,565,115
2,002,607
21,152
124,001
(152,419)
56,506
12,616,962
$ 2,248,105
GENERALFUND
The following table presents the City's General Fund revenue sources for each of the past five years.
The most significant component is property taxes which amounted to $8,785,784 for 2013. It is
important that the City operate governmental and enterprise funds effectively so that there is not a need
to be subsidized by the General Fund.
The following table presents the City's General Fund expenditures for each of the past five years. The
most significant component is public safety which amounted to $5,955,884 for 2013.
$6,000,000
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
$0
General Fund Expenditures by Function
Years Ended December 31,
2009 2010 2011 2012 2013
General Governmental mm Public Safety ❑ Health & Welfare
❑ Highways & Streets 0 Culture & Recreation 0 Capital Outlay
111111 Urban redevelopment and housing
(4)
GENERAL FUND (CONTINUED)
Fund Balance — Total fund balance of the City's General Fund increased by $287,374 during fiscal
2013, from $5,194,143 to $5,481,517 at December 31, 2013. A City's fund balance in the General Fund
is an important aspect in considering the City's financial well being since a healthy fund balance
represents things such as the availability of general cash flows, as a cushion against unanticipated
expenditures, funding deficiencies and similar problems. At December 31, 2013, the unassigned fund
balance as a percentage of annual expenditures is 44.8% or approximately 23 weeks of expenditures.
This compares to 44.1% and approximately 23 weeks of expenditures as of December 31, 2012. In
order to properly analyze fund balance levels you must review all categories of fund balance
(nonspendable, restricted, committed, and assigned) as well as growth indicators of the City. The
percentage above is average for established communities such as the City of Hopkins.
Budget to Actual — Total revenues in the General Fund were $516,498 (approx 5%) higher than the
budgeted amount while total expenditures were $229,124 (approx 2%) higher than had been budgeted.
After considering operating transfers, the net effect was an increase to total fund balance that was
$287,374 more than had been reflected in the City's budget. As part of any budget update initiated for
fiscal 2014, the Council will want to take this and other budget variances into consideration in order to
limit future budget differences to every extent possible.
ENTERPRISE FUNDS
The enterprise funds (Water Utility, Sewer Utility, Storm Sewer Utility, Refuse Utility, Pavilion/Ice Arena
and Housing Authority Funds) have a healthy combined net position balance in the amount of
$19,090,595 as of December 31, 2013. The largest portion of this being an investment in infrastructure
and other capital assets net of related debt in the amount of $16,223,858.
(5)
cfi.n�
01
Clifton orsLairsonAllen
APPENDIXA
FORMAL REQUIRED COMMUNICATIONS
Honorable Mayor and
Members of the City Council
City of Hopkins, Minnesota
ClufionLarsonAlllen LLP
CLAconnecf.corn
We have audited the financial statements of the governmental activities, the business -type activities,
each major fund, and the aggregate remaining fund information of the City of Hopkins (the City) for the
year ended December 31, 2013, and have issued our report thereon dated June 10, 2014. We have
previously communicated to you information about our responsibilities under auditing standards
generally accepted in the United States of America and Government Auditing Standards, as well as
certain information related to the planned scope and timing of our audit. Professional standards also
require that we communicate to you the following information related to our audit.
Significant audit findings
Qualitative aspects of accounting practices
Accounting policies
Management is responsible for the selection and use of appropriate accounting policies. The significant
accounting policies used by the City are described in Note 1 to the financial statements.
No new accounting policies were adopted and the application of existing policies was not changed
during 2013.
We noted no transactions entered into by the entity during the year for which there is a lack of
authoritative guidance or consensus. All significant transactions have been recognized in the financial
statements in the proper period.
Accounting estimates
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:
• Management's estimate of the useful lives of capital assets is based on authoritative guidance and
past experience.
• Management's estimate of the investments at fair value is based on published market values at
December 31, 2013.
• Management's estimate of the amount of the year-end compensated absences payable balance to
be taken by employees within one year of December 31, 2013 is based on historical trends and
anticipated leave time activity.
We evaluated the key factors and assumptions used to develop the above estimates in determining that
it is reasonable in relation to the financial statements taken as a whole.
♦ An independent me—, McAalntemationd (6)
INTERNATIONAL
Honorable Mayor and
Members of the City Council
City of Hopkins, Minnesota
Qualitative aspects of accounting practices (continued)
Financial statement disclosures
Certain financial statement disclosures are particularly sensitive because of their significance to
financial statement users. There were no particularly sensitive financial statement disclosures. The
financial statement disclosures are neutral, consistent, and clear.
Difficulties encountered in performing the audit
We encountered no significant difficulties in dealing with management in performing and completing our
audit.
Uncorrected misstatements
Professional standards require us to accumulate all misstatements identified during the audit, other
than those that are clearly 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.
Corrected misstatements
Management did not identify and we did not notify them of any financial statement misstatements
detected as a result of audit procedures.
Disagreements with management
For purposes of this letter, a disagreement with management is a financial accounting, reporting, or
auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial
statements or the auditors' report. No such disagreements arose during our audit.
Management representations
We have requested certain representations from management that are included in the management
representation letter dated June 10, 2014.
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 auditors' opinion that may be expressed on those statements, our professional standards
require the consulting accountant to check with us to determine that the consultant has all the relevant
facts. To our knowledge, there were no such consultations with other accountants.
Significant issues discussed with management prior to engagement
We generally discuss a variety of matters, including the application of accounting principles and
auditing standards, with management each year prior to engagement 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 engagement.
Other audit findings or issues
We have provided a separate letter to you dated June 10, 2014 at Appendix B, communicating internal
control related matters identified during the audit.
(7)
Honorable Mayor and
Members of the City Council
City of Hopkins
Audits of group financial statements
We noted no matters related to the group audit that we consider to be significant to the responsibilities
of those charged with governance of the group.
Other information in documents containing audited financial statements
With respect to the required supplementary information (RSI) accompanying the financial statements,
we made certain inquiries of management about the methods of preparing the RSI, including whether
the RSI has been measured and presented in accordance with prescribed guidelines, whether the
methods of measurement and preparation have been changed from the prior period and the reasons
for any such changes, and whether there were any significant assumptions or interpretations underlying
the measurement or presentation of the RSI. We compared the RSI for consistency with management's
responses to the foregoing inquiries, the basic financial statements, and other knowledge obtained
during the audit of the basic financial statements. Because these limited procedures do not provide
sufficient evidence, we did not express an opinion or provide any assurance on the RSI.
With respect to the combining and individual nonmajor fund statements and schedules (collectively, the
supplementary information) accompanying the financial statements, on which we were engaged to
report in relation to the financial statements as a whole, we made certain inquiries of management and
evaluated the form, content, and methods of preparing the information to determine that the information
complies with accounting principles generally accepted in the United States of America, the method of
preparing it has not changed from the prior period or the reasons for such changes, and the information
is appropriate and complete in relation to our audit of the financial statements. We compared and
reconciled the supplementary information to the underlying accounting records used to prepare the
financial statements or to the financial statements themselves. We have issued our report thereon
dated June 10, 2014.
The introductory section and statistical section accompanying the financial statements, which is the
responsibility of management, was prepared for purposes of additional analysis and is not a required
part of the financial statements. Such information was not subjected to the auditing procedures applied
in the audit of the financial statements and, accordingly, we did not express an opinion or provide any
assurance on it.
This communication is intended solely for the information and use of the Members of the City Council
and management of the City, and is not intended to be, and should not be, used by anyone other than
these specified parties.
zz->z,>CliftonLarsonAllen LLP
Minneapolis, Minnesota
June 10, 2014
a
0
Clifton onLairsonAllen
APPENDIX B
CfuftonLarsonAlllen LLP
CLAconnecitcorn
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
Honorable Mayor and
Members of the City Council
City of Hopkins, 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 Hopkins (the City), as of and for the year ended December 31, 2013, 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 10, 2014.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the City'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 questioned
costs, we identified a certain deficiency in internal control that we consider to be a 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 described in the accompanying schedule of findings and
responses as finding 2013-001 to be a material weakness.
♦ AnindendenNnn.—,.1N.Aalntemationd (9)
ININTERNATIONALpe
Honorable Mayor and
Members of the City Council
City of Hopkins
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City's financial statements are free from
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 Hopkins's Responses to Findings
City of Hopkins's responses to the findings identified in our audit are described in the accompanying
schedule of findings and responses. The City's responses were not subjected to the auditing
procedures applied in the audit of the financial statements and, accordingly, we express no opinion on
them.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and
compliance and the result of that testing, and not to provide an opinion on the effectiveness of the City's
internal control or on compliance. This report is an integral part of an audit performed in accordance
with Government Auditing Standards in considering the City's internal control and compliance.
Accordingly, this communication is not suitable for any other purpose.
zz->z,>CliftonLarsonAllen LLP
Minneapolis, Minnesota
June 10, 2014
(10)
Clifton onLairsonAllen
0
CfuftonLarsonAlllen LLP
CLAconnecitcorn
INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH REQUIREMENTS
THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH
MAJOR FEDERAL PROGRAM, ON INTERNAL CONTROL OVER COMPLIANCE,
AND ON THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS IN
ACCORDANCE WITH OMB CIRCULAR A-133
Honorable Mayor and
Members of the City Council
City of Hopkins, Minnesota
Report on Compliance for Each Major Federal Program
We have audited the City of Hopkins's (the City) compliance with the types of compliance requirements
described in the OMB Circular A-133 Compliance Supplement that could have a direct and material
effect on each of the City's major federal programs for the year ended December 31, 2013. The City's
major federal programs are identified in the summary of auditors' results section of the accompanying
schedule of findings and questioned costs.
Management's Responsibility
Management is responsible for compliance with the requirements of laws, regulations, contracts, and
grants applicable to its federal programs.
Auditors' Responsibility
Our responsibility is to express an opinion on compliance for each of the City's major federal programs
based on our audit of the types of compliance requirements referred to above. We conducted our audit
of compliance in accordance with auditing standards generally accepted in the United States of
America; the standards applicable to financial audits contained in Government Auditing Standards,
issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States,
Local Governments, and Non -Profit Organizations. Those standards and OMB Circular A-133 require
that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with
the types of compliance requirements referred to above that could have a direct and material effect on
a major federal program occurred. An audit includes examining, on a test basis, evidence about the
City's compliance with those requirements and performing such other procedures as we considered
necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion on compliance for each major
federal program. However, our audit does not provide a legal determination of the City's compliance.
Opinion on Each Major Federal Program
In our opinion, the City complied, in all material respects, with the types of compliance requirements
referred to above that could have a direct and material effect on each of its major federal programs for
the year ended December 31, 2013.
♦ Anmd._e d.Mm.—,. .AalM.matwd (11)
INTERNATIONAL
Honorable Mayor and
Members of the City Council
City of Hopkins
Report on Internal Control Over Compliance
Management of the City is responsible for establishing and maintaining effective internal control over
compliance with the types of compliance requirements referred to above. In planning and performing
our audit of compliance, we considered the City's internal control over compliance with the types of
requirements that could have a direct and material effect on each major federal program to determine
the auditing procedures that are appropriate in the circumstances for the purpose of expressing an
opinion on compliance for each major federal program and to test and report on internal control over
compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion
on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on
the effectiveness of the City's internal control over compliance.
Our consideration of internal control over compliance was for the limited purpose described in the
preceding paragraph and was not designed to identify all deficiencies in internal control over
compliance that might be material weaknesses or significant deficiencies and therefore, material
weaknesses or significant deficiencies may exist that were not identified. However, as discussed below,
we identified certain deficiencies in internal control over compliance that we consider to be material
weaknesses and significant deficiencies.
A deficiency in internal control over compliance exists when the design or operation of a control over
compliance does not allow management or employees, in the normal course of performing their
assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance
requirement of a federal program on a timely basis. A material weakness in internal control over
compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that
there is a reasonable possibility that material noncompliance with a type of compliance requirement of a
federal program will not be prevented, or detected and corrected, on a timely basis. We consider the
deficiency in internal control over compliance described in the accompanying schedule of findings and
questioned costs as item 2013-002 to be a material weakness.
A significant deficiency in internal control over compliance is a deficiency, or a combination of
deficiencies, in internal control over compliance with a type of compliance requirement of a federal
program that is less severe than a material weakness in internal control over compliance, yet important
enough to merit attention by those charged with governance. We consider the deficiencies in internal
control over compliance described in the accompanying schedule of findings and questioned costs as
items 2013-003, 2013-004 and 2013-005 to be significant deficiencies.
The City's responses to the internal control over compliance findings identified in our audit are
described in the accompanying schedule of findings and questioned costs. The City's responses were
not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we
express no opinion on the responses.
The purpose of this report on internal control over compliance is solely to describe the scope of our
testing of internal control over compliance and the result of that testing based on the requirements of
OMB Circular A-133. Accordingly, this report is not suitable for any other purpose.
(12)
Honorable Mayor and
Members of the City Council
City of Hopkins
Report on Schedule of Expenditures of Federal Awards Required by OMB Circular A-133
We have audited the financial statements of the governmental activities, the business -type activities,
each major fund, and the aggregate remaining fund information of the City as of and for the year ended
December 31, 2013, and the related notes to the financial statements, which collectively comprise the
City's basic financial statements. We issued our report thereon dated June 10, 2014, which contained
unmodified opinions on those financial statements. Our audit was conducted for the purpose of forming
opinions on the financial statements that collectively comprise the basic financial statements. The
accompanying schedule of expenditures of federal awards is presented for purposes of additional
analysis as required by OMB Circular A-133 and is not a required part of the basic financial statements.
Such information is the responsibility of management and was derived from and relates directly to the
underlying accounting and other records used to prepare the basic financial statements. The
information has been subjected to the auditing procedures applied in the audit of the financial
statements and certain additional procedures, including comparing and reconciling such information
directly to the underlying accounting and other records used to prepare the basic financial statements
or to the basic financial statements themselves, and other additional procedures in accordance with
auditing standards generally accepted in the United States of America. In our opinion, the schedule of
expenditure of federal awards is fairly stated in all material respects in relation to the basic financial
statements as a whole.
zz_>7,>CliftonLarsonAllen LLP
Minneapolis, Minnesota
June 10, 2014
(13)
CITY OF HOPKINS, MINNESOTA
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
YEAR ENDED DECEMBER 31, 2013
Federal Grantor/ Grant Name
U.S. Department of Housing and Urban Development
Pass-through
Grantor
Federal
CFDA Federal
Number Expenditures
Public and Indian Housing Operating Fund
Direct
14.850
$ 105,631
Public Housing Capital Fund
Direct
14.872
128,007
Public Housing Family Self -Sufficiency under
Resident Opportunity and Supportive Services
Direct
14.877
78,333
U.S. Department of Justice:
COPS Hiring Program
Direct
16.710
80,076
U.S. Department of Transportation:
COPS Hiring Program
Direct
20.600
30,212
U.S. Department of Homeland Security
Fire Prevention & Safety Grant
Direct
97.044
164,290
Homeland Security Grant Program
Minnesota Department
97.067
39,367
of Public Safety
$ 625,916
(14)
CITY OF HOPKINS, MINNESOTA
NOTE TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
DECEMBER 31, 2013
NOTE A BASIS OF PRESENTATION
The accompanying Schedule of Expenditures of Federal Awards includes the federal grant
activity of the City of Hopkins, Minnesota (the City) and is prepared on the modified accrual
basis of accounting. The information presented in this schedule is presented in accordance
with the requirements of the U.S. Office of Management and Budget Circular A-133, Audits
of States, Local Governments, and Non -Profit Organizations. Therefore, some amounts
presented in this schedule may differ from amounts presented in, or used in the preparation
of the City's financial statements.
(15)
CITY OF HOPKINS, MINNESOTA
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
YEAR ENDED DECEMBER 31, 2013
A. SUMMARY OF AUDIT RESULTS
1. The auditors' report expresses an unmodified opinion on the financial statements of the City of
Hopkins.
2. One material weakness was disclosed during the audit of the financial statements of the City
of Hopkins.
3. No instances of material noncompliance were disclosed during the audit of the financial
statements of the City of Hopkins.
4. One material weakness and three significant deficiencies were identified during the audit of
the major federal award programs for the City of Hopkins.
5. The auditors' report on compliance for the major federal award program for the City of
Hopkins expresses an unmodified opinion.
6. Our audit disclosed no findings relating to major programs that are required to be reported
under section 510(a) of OMB Circular A-133.
7. The programs tested as major programs include:
Program
Public Housing Capital Fund
COPS Hiring Program
Fire Prevention & Safety Grant
CFDA #
14.872
16.710
97.044
8. The threshold for distinguishing type A and B programs was $300,000.
9. The City of Hopkins does not qualify as a low-risk auditee.
(16)
CITY OF HOPKINS, MINNESOTA
SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED)
YEAR ENDED DECEMBER 31, 2013
B. FINDINGS — FINANCIAL STATEMENTS AUDIT
2013-001: MATERIAL WEAKNESS — SEGREGATION OF DUTIES OVER PAYROLL
Condition: The City's Senior Finance Clerk enters and processes payroll and also has access to
entering pay rate changes and adding employees. In addition, there is no formal, independent
review process over payroll changes that entails a detailed review for proper payroll changes each
pay period.
Criteria: Management is responsible for establishing and maintaining internal controls over the
processing and review of payroll transactions. They are responsible for monitoring the activity and
to ensure that only authorized payments are made.
Effect: The Senior Finance Clerk could process a payment to a fictitious employee or for an
unauthorized rate without detection.
Cause: The Senior Finance Clerk has been entrusted with access to make changes and to process
payroll appropriately. The City has relied upon budgetary spending reviews to detect any improper
spending through payroll, as opposed to implementing a formal, independent review process.
Recommendation: To segregate the duties over payroll, no employee should have access to both
process payroll and also make employee changes (pay rate, add employees). We recommend that
access to make employee changes be restricted to employees in Human Resources (HR) who do
not have access to processing payroll. If this segregation of duties (restricting the Senior Finance
Clerk's access to these two function areas) is not considered practical by the City, we recommend
that a knowledgeable employee independent of payroll processing review the processed payroll
registers each pay period and compare them to the approved Personnel Action Forms (PAFs) for
the period.
CORRECTIVE ACTION PLAN (CAP)
Explanation of Disagreement with Audit Finding:
There is no disagreement with the audit finding.
Actions Planned in Response to Finding:
The City is looking into the payroll process and the available personnel to determine how we can
mitigate this risk and improve internal controls over payroll. We will likely follow the second part of
your recommendation and determine that the best way to mitigate this risk is to have an
appropriate employee run a payroll change report each pay period and review it for properly
approved changes to employees and wages. We will formalize these procedures when they are
approved.
Official Responsible for Ensuring CAP:
The Finance Director will ensure that internal controls over reporting are put into place.
(17)
CITY OF HOPKINS, MINNESOTA
SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED)
YEAR ENDED DECEMBER 31, 2013
C. FINDINGS AND QUESTIONED COSTS — MAJOR FEDERAL AWARD PROGRAMS AUDIT
CURRENT YEAR
DEPARTMENT OF HOMELAND SECURITY
FIRE PREVENTION & SAFETY GRANT (CFDA 97.044), AWARD NUMBERS: EMW-2010-FP-
00145, EMW-201 1 -FP-00076 & EMW-2012-FP-00211 AWARD YEARS: 2010, 2011 & 2012
2013-002: EQUIPMENT AND REAL PROPERTY MANAGEMENT
Condition: We noted a piece of equipment acquired with federal grant funds was not included in
the Fire Department's inventory system.
Criteria: For equipment acquired under federal awards, equipment records should be maintained
and a physical inventory of equipment should be taken a least once every two years and reconciled
to the equipment records. Equipment records should contain the following information about the
equipment: description (including serial number or other identification number), source, who holds
title, acquisition date and cost, percentage of federal participation in the cost, location, condition and
any ultimate disposition data including the date of disposal and sales price or method used to
determine current fair market value.
Context: Tested 1 of 1 pieces of equipment > $5,000 acquired with grant funds during the year.
Effect: The City was not in compliance with federal requirements over equipment management.
Cause: The Fire Department is in the process of upgrading their inventory system so that it can be
expanded to track all equipment, including that which was acquired with federal funds.
Recommendation: We recommend the City ensure that equipment is tracked in accordance with
federal requirements as they upgrade and expand this system.
CORRECTIVE ACTION PLAN (CAP)
Explanation of Disagreement with Audit Finding:
There is no disagreement with the audit finding.
Actions Planned in Response to Finding:
During fiscal year 2014, the City will ensure that equipment purchased with federal funds is
included in the upgraded system.
Official Responsible for Ensuring CAP:
The City's Fire Chief will ensure that federal requirements are met as the new system is
implemented.
(18)
CITY OF HOPKINS, MINNESOTA
SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED)
YEAR ENDED DECEMBER 31, 2013
C. FINDINGS AND QUESTIONED COSTS — MAJOR FEDERAL AWARD PROGRAMS AUDIT
(CONTINUED)
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
PUBLIC HOUSING CAPITAL FUND GRANTS (CFDA 14.872), AWARD NUMBERS:
MN46P07850111, MN46P07850112 AWARD YEARS: 2011, 2012
2013-003: REPORTING
Condition: We noted that the HRA had no formal internal control procedures over reviewing or
approving and the tracking submission of required reports.
Criteria: The Capital Fund Grants requires submission of various financial and performance
reports. The HRA should have internal controls in place to ensure the accurate and timely
submission of required reports.
Context: We noted that while these reports were properly submitted, the HRA had no formal
internal control procedures over three of the four required annual reports to ensure that these
reports were prepared correctly and submitted in a timely manner.
Effect: There was a weakness in the HRA's internal controls over compliance.
Cause: Segregation of duties in the HRA is limited due to staff size. Mitigating controls utilizing
additional City personnel have not been implemented.
Recommendation: We recommend that the City establish internal control procedures whereby all
required reports are reviewed and approved to ensure proper preparation and submission in a
timely manner.
CORRECTIVE ACTION PLAN (CAP)
Explanation of Disagreement with Audit Finding:
There is no disagreement with the audit finding.
Actions Planned in Response to Finding:
During fiscal year 2014, the City will implement procedures for review and submission of required
reports.
Official Responsible for Ensuring CAP:
The Finance Director will ensure that internal controls over reporting are put into place.
(19)
CITY OF HOPKINS, MINNESOTA
SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED)
YEAR ENDED DECEMBER 31, 2013
C. FINDINGS AND QUESTIONED COSTS — MAJOR FEDERAL AWARD PROGRAMS AUDIT
(CONTINUED)
2013-004: CASH MANAGEMENT
Condition: We noted that the HRA had no formal internal control procedures for reviewing or
approving Capital Fund Grant draw requests.
Criteria: Internal controls over compliance should be in place to ensure that draw requests are
submitted accurately, and that costs for which reimbursement was requested were paid prior to the
date of the reimbursement request.
Context: There was no formal review or approval process in place for the six draw requests
submitted for the Capital Fund Grant during 2013.
Effect: There was a weakness in the HRA's internal controls over compliance.
Cause: Segregation of duties in the HRA is limited due to staff size. Mitigating controls utilizing
additional City personnel have not been implemented.
Recommendation: We recommend that the City establish a formal review procedure whereby all
draw requests can be reviewed prior to submission.
CORRECTIVE ACTION PLAN (CAP)
Explanation of Disagreement with Audit Finding:
There is no disagreement with the audit finding.
Actions Planned in Response to Finding:
During fiscal year 2014, the City will implement procedures for review and approval of draw
requests.
Official Responsible for Ensuring CAP:
The Finance Director will ensure that internal controls over reporting are put into place.
(20)
CITY OF HOPKINS, MINNESOTA
SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED)
YEAR ENDED DECEMBER 31, 2013
C. FINDINGS AND QUESTIONED COSTS — MAJOR FEDERAL AWARD PROGRAMS AUDIT
(CONTINUED)
2013-005: SUSPENSION AND DEBARMENT
Condition: We noted that the HRA had not verified that one of its contractors was not suspended
or debarred
Criteria: The entity should have procedures in place to ensure that it verifies that an entity with
which it places to enter into a covered transaction and any of its principals is not debarred,
suspended, or otherwise excluded.
Context: Verification procedure did not occur for one of the two covered transactions.
Effect: Procedures ensuring the HRA does not enter into covered transactions with suspended or
debarred parties were not followed for all such transactions.
Cause: HRA personnel misinterpreted federal requirements and did not think this requirement
applied to the selected transaction.
Recommendation: We recommend the City ensure its procurement procedures are in place for all
procurement transactions.
CORRECTIVE ACTION PLAN (CAP)
Explanation of Disagreement with Audit Finding:
There is no disagreement with the audit finding.
Actions Planned in Response to Finding:
During fiscal year 2014, the City will ensure that these procedures are clarified and in place for all
covered transactions.
Official Responsible for Ensuring CAP:
The Director of Economic Development & Planning will ensure that internal controls over
reporting are put into place.
PRIOR YEAR
None.
(21)
0
Clifton onLairsonAllen
APPENDIX C
CfuftonLarsonAlllen LLP
CLAconnecitcorn
INDEPENDENT AUDITORS' REPORT ON LEGAL COMPLIANCE
Honorable Mayor and
Members of the City Council
City of Hopkins, Minnesota
We have audited, 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, the financial statements of the governmental
activities, the business -type activities, each major fund, and the aggregate remaining fund information
of the City of Hopkins, Minnesota (the City), as of and for the year ended December 31, 2013, 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 10, 2014.
The Minnesota Legal Compliance Audit Guide for Political Subdivisions promulgated by the State
Auditor pursuant to Minn. Stat. § 6.65, identifies seven categories of compliance to be tested in
connection with the audit of a City's financial statements: 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 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's noncompliance with the above -referenced provisions.
The purpose of this report is solely to describe the scope of our testing of compliance relating to the
provisions of the Minnesota Legal Compliance Audit Guide for Political Subdivisions and the results of
that testing, and not to provide an opinion on the effectiveness of the City's compliance. Accordingly,
this communication is not suitable for any other purpose.
zz_>7,>CliftonLarsonAllen LLP
Minneapolis, Minnesota
June 10, 2014
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