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VII.4. 2017 Audit and Draft Comprehensive Annual Financial Report; Bishop CITY OF HOPKINS Memorandum To: Honorable Mayor and Council Members Mike Mornson, City Manager From: Nick Bishop, Finance Director Date: July 17, 2018 Subject: 2017 Audit and draft Comprehensive Annual Financial Report (CAFR) _____________________________________________________________________ PURPOSE Informational INFORMATION Our auditors, Dennis Hoogeveen, Principal and Lance Lauinger, Senior Associate of the audit firm CliftonLarsonAllen, LLC will be in attendance to present the results of the audit. The CAFR is currently undergoing a final review and being submitted to CliftonLarsonAllen’s Quality Review Department. These are the last steps before the audit is issued. A copy of their presentation and the draft executive summary are attached. FUTURE ACTION N/A FINANCE DEPARTMENT WEALTH ADVISORY | OUTSOURCING| AUDIT, TAX, AND CONSULTINGInvestment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor. | ©2016 CliftonLarsonAllen LLPCity of HopkinsAudit Results and CommunicationsDennis Hoogeveen, PrincipalLance Lauinger, Senior ©2016 CliftonLarsonAllen LLPWEALTH ADVISORY | OUTSOURCING| AUDIT, TAX, AND CONSULTINGAudit TeamYour audit team consisted of the following professionals with extensive experience in governmental accounting and auditing:– Dennis Hoogeveen – Principal (30 years)–John Lorenzini – Manager (10 years)– Lance Lauinger –Senior Associate (3 years)2 ©2016 CliftonLarsonAllen LLPAudit Results3 ©2016 CliftonLarsonAllen LLPWEALTH ADVISORY  |  OUTSOURCING|  AUDIT, TAX, AND CONSULTINGAudit Results•The City has an unmodified (clean) opinion for the December 31, 2017 financial statement audit.• Financial Statement Findings:–One material weakness• Report on Minnesota Legal Compliance (Minnesota Legal Compliance Audit Guide for Citiespromulgated by the State Auditor):–No Minnesota Legal Compliance Findings4 ©2016 CliftonLarsonAllen LLPRequired CommunicationsHighlights5 ©2016 CliftonLarsonAllen LLPWEALTH ADVISORY  |  OUTSOURCING|  AUDIT, TAX, AND CONSULTINGRequired Communications•No new accounting policies• Accounting Estimates•Material Audit Adjustments –Prior Period Adjustment– Reclassification of water portion of 2016C bonds–Prior year over‐accrual of retainage payable in PIR fund•Two uncorrected misstatements (both were relaed to prior year, not new. Not considered material to the financial statements)•No difficulties or disagreements with management6 ©2016 CliftonLarsonAllen LLPFinancial Results7 ©2016 CliftonLarsonAllen LLPWEALTH ADVISORY  |  OUTSOURCING|  AUDIT, TAX, AND CONSULTINGFinancial Results• Governmental Funds fund balances totaled $24.2 million, a decrease of $533k million from 2016– (offset by prior period adjustment, which increased beginning PIR fund balance by $1,458,347)• Unassigned fund balance of the General Fund totaled $5.4 million or 41.7% of expenditures.• General Fund Revenues were $290,664 or 2.3% higher than budget• General Fund Expenditures were $304,271 or 2.4% higher than budget•GF fund balance decreased by only $14k more than budgeted8 ©2016 CliftonLarsonAllen LLPWEALTH ADVISORY  |  OUTSOURCING|  AUDIT, TAX, AND CONSULTINGCityPresentationFinancial Results – Gov Funds Revs by Source67%59%65%68%65%58%7%8%6%5%6%7%2%3%3%2%3%3%8%18%15%11%12%14%4%4%4%4%4%4%12%8%7%10%10%14% $‐ $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,0002012 2013 2014 2015 2016 2017TaxesSpecial AssessmentsLicenses and PermitsIntergovernmentalCharges for ServicesOther Revenues ©2016 CliftonLarsonAllen LLPWEALTH ADVISORY  |  OUTSOURCING|  AUDIT, TAX, AND CONSULTINGCityPresentationFinancial Results –Gen Fund Exp by Dept.16%16%16%18%18%18%57%55%54%54%53%53%1%2%2%2%1%1%20%21%22%21%22%21%1%1%1%1%1%1%5%5%5%5%5%5% $‐ $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 $8,000,000 $9,000,000 $10,000,000 $11,000,000 $12,000,000 $13,000,000 $14,000,0002012 2013 2014 2015 2016 2017General governmentPublic safetyHealth and welfareHighways and streetsUrban redevelopment and housingCulture and recreation ©2016 CliftonLarsonAllen LLPWEALTH ADVISORY  |  OUTSOURCING|  AUDIT, TAX, AND CONSULTINGStatement of Net AssetsFinancial Results(in thousands)2017 2016AssetsCash and investments 28,122$        28,928$      Taxes and special assessments receivable 2,974            3,193           Other receivables 3,540            1,068           Other assets 1,646            1,613           Capital assets (net of depreciation) 104,278        89,027         Deferred outflows 7,268            11,842         Total Assets147,828$      135,671$    LiabilitiesAccounts payable 3,811$          3,360$         Accrued compensation 246                214              Other liabilities 881                715              Long term liabilities 76,769          73,068         Deferred inflows 7,642            1,982           Total Liabilities89,349$        79,339$      Total Net Position58,479$        56,332$       ©2016 CliftonLarsonAllen LLPWEALTH ADVISORY  |  OUTSOURCING|  AUDIT, TAX, AND CONSULTINGStatement of ActivitiesFinancial ResultsGovernmental Fund Types, (in thousands)2017 2016RevenuesProperty taxes and assessments 15,043$     14,954$  Charges for service 1,468          1,492      Operating grants & contributions 8,008          4,088      Capital grants & contributions 1,732          1,109      Grants & contributions not restricted 21               21            Other revenues 237             186          Total Revenues26,509$     21,850$  ExpendituresGeneral government 6,752$        10,341$  Public safety 8,126          8,562      Health & welfare 180             185          Highways & streets 5,933          5,169      Urban redevelopment & housing 1,354          1,399      Culture & recreation 2,737          2,231      Interest on long‐term debt 1,335          953          Transfers out 3,533          2,090      Total Expenditures29,950$     30,930$  Change in Net Position(3,441)$      (9,080)$    ©2016 CliftonLarsonAllen LLPWEALTH ADVISORY  |  OUTSOURCING|  AUDIT, TAX, AND CONSULTINGStatement of ActivitiesFinancial ResultsProprietary Fund Types, (in thousands)2017 2016RevenuesCharges for service 6,632$      5,815$      Operating grants & contributions 698           722           Capital grants & contributions‐                 703           Other revenues 21              87              Transfers In 3,533        2,090        Total Revenues10,884$    9,417$      ExpendituresWater 1,872$      1,879$      Sewer 2,406        2,251        Storm Sewer 460           398           Refuse 875           868           Pavilion/Ice Arena 548           483           Housing & Redevelopment Authority 592           617           Total Expenditures6,753$      6,496$      Change in Net Position4,131$      2,921$       ©2016 CliftonLarsonAllen LLPWEALTH ADVISORY | OUTSOURCING| AUDIT, TAX, AND CONSULTING• Effective December 31, 2018:– Governmental Accounting Standards Board Statement No. 75◊Other Postemployment Benefits (retiree access to medical insurance)– Governmental Accounting Standards Board Statement No. 85◊Blending component units◊Goodwill◊Fair value measurements– Governmental Accounting Standards Board Statement No. 86◊Certain Debt Extinguishment Issues (Defeasance of debt/refunded bonds)• Effective December 31, 2020:– Governmental Accounting Standards Board Statement No. 87◊Leases (both revenue and expenditure)Emerging Issues14 twitter.com/CLAconnectfacebook.com/cliftonlarsonallenlinkedin.com/company/cliftonlarsonallen©2016 CliftonLarsonAllen LLPCLAconnect.comThank You!Dennis Hoogeveen, Principal(612) 397‐3063Dennis.Hoogeveen@CLAconnect.comLance Lauinger, Senior(612) 376‐4519Lance.Lauinger@CLAconnect.com15 CITY OF HOPKINS, MINNESOTA EXECUTIVE AUDIT SUMMARY (EAS) DECEMBER 31, 2017 CITY OF HOPKINS, MINNESOTA TABLE OF CONTENTS DECEMBER 31, 2017 AUDIT REPORT SUMMARY 1  FINANCIAL RESULTS  GOVERNMENT-WIDE FINANCIAL STATEMENTS 2 GENERAL FUND 4  ENTERPRISE FUNDS 5  APPENDIX A  FORMAL REQUIRED COMMUNICATIONS 6  APPENDIX B  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 10  SCHEDULE OF FINDINGS AND RESPONSES 12  APPENDIX C  INDEPENDENT AUDITORS’ REPORT ON LEGAL COMPLIANCE 14  CliftonLarsonAllen LLP CLAconnect.com (1) AUDIT REPORT SUMMARY We prepared this Executive Audit Summary and Management Report in conjunction with our audit of the City of Hopkins, Minnesota’s (the City’s) financial records for the year ended December 31, 2017. 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 as a result of audit adjustments and a prior period adjustment. Minnesota Legal Compliance No compliance issues were reported with respect to Minnesota Statutes. CITY OF HOPKINS, MINNESOTA FINANCIAL RESULTS DECEMBER 31, 2017 (2) 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, 2017: Governmental Business-Type Activities Activities Total Assets: Current Assets 33,235,896$ 3,045,994$ 36,281,890$ Capital Assets 73,787,401 30,491,036 104,278,437 Total Assets 107,023,297 33,537,030 140,560,327 Deferred Outflows of Resources: Deferred Charge on Refunding 227,927 - 227,927 Pensions 6,774,365 265,497 7,039,862 Liabilities: Current Liabilities 9,231,923 989,249 10,221,172 Long-Term Liabilities 64,324,949 7,161,065 71,486,014 Total Liabilities 73,556,872 8,150,314 81,707,186 Deferred Inflows of Resources: Pensions 7,424,016 218,022 7,642,038 Net Position: Net Investment in Capital Assets 32,064,111 23,990,746 56,054,857 Restricted 18,544,263 - 18,544,263 Unrestricted (17,563,673) 1,443,445 (16,120,228) Total Net Position 33,044,701$ 25,434,191$ 58,478,892$ 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). CITY OF HOPKINS, MINNESOTA FINANCIAL RESULTS DECEMBER 31, 2017 (3) GOVERNMENT-WIDE FINANCIAL STATEMENTS (CONTINUED) 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, 2017: Functions/Programs Expenses Program Revenue Difference Governmental Activities: General Government 6,751,459$ 2,660,021$ (4,091,438)$ Public Safety 8,126,086 1,482,275 (6,643,811) Health and Welfare 179,916 209,184 29,268 Highways and Streets 5,932,978 4,019,643 (1,913,335) Urban Redevelopment and Housing 1,354,036 330,758 (1,023,278) Culture and Recreation 2,737,116 2,505,115 (232,001) Interest on Long-Term Debt 1,335,290 - (1,335,290) Total Governmental Activities 26,416,881 11,206,996 (15,209,885) Business-Type Activities: Water 1,871,868 1,838,235 (33,633) Sewer 2,406,027 2,698,457 292,430 Storm Sewer 460,771 834,262 373,491 Refuse 874,750 1,004,344 129,594 Pavilion/Ice Arena 547,831 469,693 (78,138) Housing and Redevelopment Authority 591,895 484,784 (107,111) Total Business-Type Activities 6,753,142 7,329,775 576,633 Total Governmental and Business-Type Activities 33,170,023$ 18,536,771$ (14,633,252) General Revenues: Property Taxes 12,895,910 Tax Increments 2,146,730 Grants and Contributions, Not Restricted 20,510 Unrestricted Investment Earnings 189,197 Gain on Disposal of Capital Assets 69,829 Total General Revenues, Special Items, and Transfers 15,322,176 Change in Net Position 688,924$ CITY OF HOPKINS, MINNESOTA FINANCIAL RESULTS DECEMBER 31, 2017 (4) GENERAL FUND 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 $10,068,131 for 2017. 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. $0$1,000,000 $2,000,000 $3,000,000$4,000,000 $5,000,000$6,000,000 $7,000,000$8,000,000 $9,000,000$10,000,000 $11,000,000 2013 2014 2015 2016 2017 General Fund Revenue by Source Years Ended December 31, Taxes Intergovernmental Charges for Services License and Permits Other 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 $6,987,999 for 2017. $0 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 2013 2014 2015 2016 2017 General Fund Expenditures by Function Years Ended December 31, General Governmental Public Safety Health & Welfare Highways & Streets Culture & Recreation Capital Outlay Urban Redevelopment and Housing CITY OF HOPKINS, MINNESOTA FINANCIAL RESULTS DECEMBER 31, 2017 (5) GENERAL FUND (CONTINUED) Fund Balance – Total fund balance of the City’s General Fund decreased by $13,607 during fiscal 2017, from $5,865,894 to $5,852,287 at December 31, 2017. 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, 2017, the unassigned fund balance as a percentage of annual expenditures was 41.7% or approximately 22 weeks of expenditures. 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 $290,664 (approx. 2.3%) higher than the budgeted amount while total expenditures were $304,271 (approx. 2.4%) higher than had been budgeted. After considering operating transfers, the net effect was a decrease to total fund balance that was only $13,607 more than had been reflected in the City’s budget. As part of any budget update initiated for fiscal 2018, 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 $25,434,191 as of December 31, 2017. The largest portion of this being an investment in infrastructure and other capital assets net of related debt in the amount of $23,990,746. CliftonLarsonAllen LLP CLAconnect.com (6) APPENDIX A FORMAL REQUIRED COMMUNICATIONS Honorable Mayor and Members of the City Council City of Hopkins, Minnesota We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Hopkins, Minnesota (the City) as of and for the year ended December 31, 2017, and have issued our report thereon dated REPORT DATE. 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 2017. 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, 2017. Honorable Mayor and Members of the City Council City of Hopkins, Minnesota (7)  Management’s estimate of for other postemployment benefits is based on the actuarial valuation conducted by an independent third-party.  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, 2017.  Management’s estimate of the City’s proportionate share of the PERA’s GERF and PEPFF and Hopkins Fire Relief Association’s net pension liabilities, as well as the deferred inflows and outflows, is based on guidance from GASB Statement No. 68, GASB Statement No. 71, and the plans’ allocation tables. The plans’ allocation tables allocate a portion of the plans’ net pension liabilities based on the City’s contributions during the plan’s fiscal years as a percentage of total contributions received for the related fiscal year by the plans. 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. 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 The completion of our audit was delayed due to delays in receiving required audit information from management. 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. The following summarizes uncorrected misstatements of the financial statements. Management has determined that their effects are immaterial, both individually and in the aggregate, to the financial statements taken as a whole. The City passed on recording grant revenue and receivable for eligible watershed projects that occurred in 2016. As a result of passing on this adjustment, business-type activities and storm sewer utility 2017 revenues and beginning net position are overstated by $25,000. The City passed on recording Pavilion revenue for December 2016 usage that was received in January 2017, in the prior year. As a result of passing on this adjustment, business-type activities and Pavilion revenues and beginning net position is overstated by approximately $31,000. Corrected misstatements As part of the 2017 audit, the January 1, 2017 net position of governmental and business-type activities and fund balance of the permanent improvement revolving fund were restated to correct prior year errors related to the classification of bonds payable between governmental and business-type activities, and a prior-year over-accrual of retainage payable. These restatements resulted in governmental activities net position being increased by $2,388,347, business-type activities net position being decreased by $930,000 and permanent improvement revolving fund balance being increased by $1,458,347. Honorable Mayor and Members of the City Council City of Hopkins, Minnesota (8) 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 REPORT DATE. 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 entity’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 entity’s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses 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 REPORT DATE. The introductory and statistical sections 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. Honorable Mayor and Members of the City Council City of Hopkins, Minnesota (9) Other information in documents containing audited financial statements (continued) Our auditors’ opinion, the audited financial statements, and the notes to financial statements should only be used in their entirety. Inclusion of the audited financial statements in a document you prepare, such as an annual report, should be done only with our prior approval and review of the document. This communication is intended solely for the information and use of the Mayor, 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. CliftonLarsonAllen LLP Minneapolis, Minnesota REPORT DATE CliftonLarsonAllen LLP CLAconnect.com (10) APPENDIX B 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, Minnesota (the City), as of and for the year ended December 31, 2017, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated REPORT DATE. 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. 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. A significant deficiency is a deficiency, or a 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. Our consideration of internal control was for the limited purpose described in the first paragraph of this section 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. We did identify a certain deficiency in internal control, described in the accompanying schedule of findings and responses as item 2017-001, that we consider to be a material weakness. Honorable Mayor and Members of the City Council City of Hopkins, Minnesota (11) 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. The City’s Response to Findings The City’s response to the finding identified in our audit is described in the accompanying schedule of findings and questioned costs. 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 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. CliftonLarsonAllen LLP Minneapolis, Minnesota REPORT DATE CITY OF HOPKINS, MINNESOTA SCHEDULE OF FINDINGS AND RESPONSES YEAR ENDED DECEMBER 31, 2017 (12) Section I – Summary of Auditors’ Results Financial Statements Type of auditors’ report issued: Unmodified 1. Internal control over financial reporting:  Material weakness(es) identified? x yes no  Significant deficiency(ies) identified? yes x none reported 2. Noncompliance material to financial statements noted? yes x no Section II – Financial Statement Findings Current Year 2017-001: Material Audit Adjustments/Prior Period Restatements Type of Finding: Material Weakness in internal controls over financial reporting. Criteria: An effective internal control system over financial reporting provides reasonable assurance that assets are safeguarded against loss and theft, and that reliable financial statements are prepared in accordance with the appropriate accounting standards and in compliance with applicable laws and regulations. Condition/Context: Material audit adjustments were necessary to properly present the financials. Also, restatements were necessary to correct errors in the previously issued financial statements. Effect: Material adjustments and restatements of beginning fund balance and net position were proposed throughout the audit and subsequently recorded by management. Cause: The City’s past procedures and processes were not sufficient to ensure all accounts are adjusted to their appropriate year-end balances in accordance with GAAP. Recommendation: We recommend that the City ensure its internal controls over financial reporting and year-end closing procedures are operating effectively to ensure accurate financial reporting. Management Response: Management agrees with the recommendation. The City’s finance department has experience recent turnover, and the City’s Finance Director is committed to ensuring that the department’s procedures are in place to ensure accurate financial reporting. CITY OF HOPKINS, MINNESOTA SCHEDULE OF FINDINGS AND RESPONSES YEAR ENDED DECEMBER 31, 2017 (13) Section II – Financial Statement Findings (Continued) Prior Year 2016-001: Invoice Approval Condition/Context: In our disbursement testing sample, we noted one disbursement where an invoice had been coded, but did not show evidence of approval from the department supervisor. Recommendation: We recommend that the City ensure its internal control procedures are being followed by all city employees. Current Status: No such finding was reported in current year audit. Section III – MN Legal Compliance Findings None noted CliftonLarsonAllen LLP CLAconnect.com (14) INDEPENDENT AUDITORS’ REPORT ON MINNESOTA 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, 2017, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated REPORT DATE. The Minnesota Legal Compliance Audit Guide for Cities promulgated by the State Auditor pursuant to Minn. Stat. § 6.65, identifies 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. Our audit considered all of the listed categories. 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 Cities. 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 Cities and the results of that testing, and not to provide an opinion on compliance. Accordingly, this report is not suitable for any other purpose. CliftonLarsonAllen LLP Minneapolis, Minnesota REPORT DATE