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VII.2. 2020 Audit and 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: June 15, 2021 Subject: Audit and Comprehensive Annual Financial Report _____________________________________________________________________ Purpose Informational Information CliftonLarsonAllen, LLC has been engaged to complete the City’s Audit for the year ended December 31, 2020. The Audit and Comprehensive Annual Financial Report are currently being finalized. Chris Knopik, Principal and Lance Lauinger will present the results of the Audit based on draft financial statements. The Executive Audit Summary and Comprehensive Annual Financial Report will be emailed when available. The Audit is on track to be completed before the June 30th deadline. Future Action None Finance WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor ©2021 CliftonLarsonAllen LLPAudit Presentation -Council - Year Ending December 31, 2020 Meeting Date Tuesday, June 15, 2021 City of Hopkins, Minnesota ©2021 CliftonLarsonAllen LLPAudit Team Your audit team consisted of the following professionals with extensive experience in governmental accounting and auditing: o Chris Knopik –Principal (17 years) o Lance Lauinger –Director (6 years) o Troy Gabler –Senior Associate (5.5 years) o Charlie Hynes, Alex Orn, Greg Lundberg(Associates) 2 ©2021 CliftonLarsonAllen LLPAudit Results •Audit Opinion: o The City has an unmodified (clean) opinion for the December 31, 2020 financial statement audit. •Internal Controls over Financial Reporting: o Material Weakness –Material Audit Adjustment for 2020 TIF payments made in February 2021 o Significant Deficiencies –None •Minnesota Legal Compliance: o No legal compliance findings 3 ©2021 CliftonLarsonAllen LLPRequired Communications •No New Accounting Policies •Accounting Estimates •Difficulties performing the audit (None) •Uncorrected misstatements (“passed adjustments”) o Timing of State Fire Relief Aid •Corrected misstatements (“audit adjustments”) o 2020 TIF payments paid in February 2021 •Disagreements with management (None) 4 ©2021 CliftonLarsonAllen LLPSingle Audit –Internal Control and Compliance •The City had a single audit for 2020 due to incurring more than $750,000 in Federal expenditures. •The City’s $1,485,183 COVID-19 Coronavirus Relief Fund program was audited as major program. o This was 94% of the City’s Federal grant expenditures. •Received an unmodified opinion on compliance. •One compliance and control comment noted. •City did not qualify as a low-risk auditee. 5 ©2021 CliftonLarsonAllen LLPSingle Audit –CARES Funding Results •We conducted a single audit over CFDA 21.019 the Coronavirus Relief Fund and noted one reportable item during testing: o Subrecipient Monitoring –agreements did not contain all of the necessary information and not all support was obtained from subrecipients. ©2021 CliftonLarsonAllen LLPFinancial Results •Governmental Funds fund balances totaled $26.9 million, an increase of $5.3M from 2019 o Positive operating results in the General Fund o 2020A and 2020B bonds issuance •General Fund Revenues were $923K or 6% higher than budget •General Fund Expenditures were $350K or 2.3% higher than budget •Unassigned fund balance of the General Fund totaled $6.9M o 46% of annual expenditures, approx. 5.5 months o State Auditor -35%-50%, or 5 months o City Policy –42%, or 5 months 7 ©2021 CliftonLarsonAllen LLPCity Presentation Financial Results –Gen Fund Revs by Source 8 •76% -Taxes •4% -Licenses and Permits •15% -Inter- governmental •2% -Charges for Services •3% -Other Revenues 78%77%78% 79%76% 6% 6%5% 5% 4% 9% 8%10% 9% 15% 3% 3% 3% 3% 2% 5% 5%4% 4% 3% $- $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 $14,000,000 $15,000,000 $16,000,000 $17,000,000 2016 2017 2018 2019 2020 Taxes Licenses and Permits Intergovernmental Charges for Services Other Revenues ©2021 CliftonLarsonAllen LLPCity Presentation Financial Results –Gen Fund Exp by Dept. 9 •18% -General Government •55% -Public Safety •1% -Health and Welfare •19% -Highways and streets •1% -Urban Redevelopment and Housing •4% -Culture and Recreation •2% -Capital Outlay 18%18%18%17%18% 53%53%54%54%55% 1% 1% 1%1% 1% 0% 0% 0%0% 2% 22% 21% 21%21% 19% 1% 1% 1% 1% 1% 5% 5% 5% 5% 4% $- $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 $14,000,000 $15,000,000 $16,000,000 2016 2017 2018 2019 2020 General government Public safety Health and welfare Capital Outlay Highways and streets Urban redevelopment and housing Culture and recreation ©2021 CliftonLarsonAllen LLPWater Fund Operations •Operating revenues increased 10.5% (or $210K) from prior year •Operating expenses decreased -24.5% (or -$455K) from prior year •Cash flow provided by operations -$846K in 2020 Financial Results 10 $(300,000) $(100,000) $100,000 $300,000 $500,000 $700,000 $900,000 $1,100,000 $1,300,000 $1,500,000 $1,700,000 $1,900,000 2016 2017 2018 2019 2020 Operating Revenues Operating Expenses (excludes depreciation) Depreciation Expense Operating Income (before depreciation) Operating Income ©2021 CliftonLarsonAllen LLPSewer Fund Operations •Operating revenues increased 1.6% (or $46K) from prior year •Operating expenses decreased -3.9% (or -$86K) from prior year •Cash flow provided by operations $345K in 2020 •Covering depreciation Financial Results 11 $- $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $1,600,000 $1,800,000 $2,000,000 $2,200,000 $2,400,000 $2,600,000 $2,800,000 $3,000,000 2016 2017 2018 2019 2020 Operating Revenues Operating Expenses (excludes depreciation) Depreciation Expense Operating Income (before depreciation) Operating Income ©2021 CliftonLarsonAllen LLPStorm Sewer Fund Operations •Operating revenues within $5.5k less than prior year •Operating expenses up 7.3% (or $20.5K) from prior year •Cash flow provided by operations $316,937K in 2020 •Covering depreciation Financial Results 12 $- $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 $900,000 2016 2017 2018 2019 2020 Operating Revenues Operating Expenses (excludes depreciation) Depreciation Expense Operating Income (before depreciation) Operating Income ©2021 CliftonLarsonAllen LLP•Effective December 31, 2022: o Governmental Accounting Standards Board Statement No. 87 Leases •Effective December 31, 2023 o Governmental Accounting Standards Board Statement No. 96 Subscription based information technology arrangements •American Rescue Act Emerging Issues 13 CLAconnect.com WEALTH ADVISORY | OUTSOURCING | AUDIT, TAX, AND CONSULTING Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor ©2021 CliftonLarsonAllen LLPThank You! Chris Knopik, Principal (612) 397-3266 Chris.Knopik@CLAconnect.com Lance Lauinger, Director (612) 397-4519 Lance.Lauinger@CLAconnect.com 14 CITY OF HOPKINS, MINNESOTA EXECUTIVE AUDIT SUMMARY (EAS) DECEMBER 31, 2020 CITY OF HOPKINS, MINNESOTA TABLE OF CONTENTS DECEMBER 31, 2020 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 SINGLE AUDIT AND OTHER REQUIRED REPORTS 11 (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, 2020. 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 related to a material audit adjustment. See the attached Schedule of Findings and Questioned Costs item 2020-001. Single Audit Opinion Our report on compliance for the City’s major federal program noted one material weakness over compliance related to Subrecipient Monitoring, see the attached Schedule of Findings and Questioned Costs item 2020-002. There was also a material weakness in internal controls item over reporting. See the attached Schedule of Findings and Questioned Costs item 2020-003. Minnesota Legal Compliance No compliance issues were reported with respect to Minnesota Statutes. CITY OF HOPKINS, MINNESOTA FINANCIAL RESULTS DECEMBER 31, 2020 (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, 2020: Governmental Business-Type Activities Activities Total Assets: Current Assets 39,643,791$ 7,343,138$ 46,986,929$ Capital Assets 97,139,252 42,954,754 140,094,006 Total Assets 136,783,043 50,297,892 187,080,935 Deferred Outflows of Resources: Deferred Charge on Refunding 105,593 - 105,593 Pensions 2,615,154 70,655 2,685,809 OPEB 201,786 28,445 230,231 Total Deferred Outflows 2,922,533 99,100 3,021,633 Liabilities: Current Liabilities 4,659,283 484,427 5,143,710 Long-Term Liabilities 81,128,904 18,084,520 99,213,424 Total Liabilities 85,788,187 18,568,947 104,357,134 Deferred Inflows of Resources: Pensions 3,280,755 58,619 3,339,374 OPEB 17,565 2,544 20,109 Total Deferred Inflows 3,298,320 61,163 3,359,483 Net Position: Net Investment in Capital Assets 40,389,884 27,683,345 68,073,229 Restricted 20,092,105 - 20,092,105 Unrestricted (9,862,920) 4,083,537 (5,779,383) Total Net Position 50,619,069$ 31,766,882$ 82,385,951$ 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, 2020 (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, 2020: Functions/Programs Expenses Program Revenue Difference Governmental Activities: General Government 2,949,580$ 1,261,412$ (1,688,168)$ Public Safety 8,112,419 1,302,885 (6,809,534) Health and Welfare 182,017 174,717 (7,300) Highways and Streets 5,554,108 3,520,627 (2,033,481) Urban Redevelopment and Housing 3,281,052 607,151 (2,673,901) Culture and Recreation 1,959,265 817,963 (1,141,302) Interest on Long-Term Debt 1,946,713 - (1,946,713) Total Governmental Activities 23,985,154 7,684,755 (16,300,399) Business-Type Activities: Water 1,805,150 2,228,316 423,166 Sewer 2,562,282 2,928,092 365,810 Storm Sewer 581,641 803,739 222,098 Refuse 964,002 1,008,292 44,290 Pavilion/Ice Arena 1,038,880 371,079 (667,801) Housing and Redevelopment Authority 642,736 487,537 (155,199) Total Business-Type Activities 7,594,691 7,827,055 232,364 Total Governmental and Business-Type Activities 31,579,845$ 15,511,810$ (16,068,035) General Revenues: Property Taxes 20,222,627 Tax Increments 3,812,055 Franchise Taxes 1,190,241 Grants and Contributions, Not Restricted 813,233 Unrestricted Investment Earnings 139,758 Gain on Disposal of Capital Assets 139,714 Miscellaneous 40,674 Total General Revenues, Special Items, and Transfers 26,358,302 Change in Net Position 10,290,267$ CITY OF HOPKINS, MINNESOTA FINANCIAL RESULTS DECEMBER 31, 2020 (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 $12,451,755 for 2020. 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 $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 $12,000,000 $14,000,000 2016 2017 2018 2019 2020 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 $8,262,598 for 2020. $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 2016 2017 2018 2019 2020 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, 2020 (5) GENERAL FUND (CONTINUED) Fund Balance – Total fund balance of the City’s General Fund increased by $1,273,513 during fiscal 2020, from $6,083,989 to $7,357,502 at December 31, 2020. 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, 2020, the unassigned fund balance as a percentage of annual expenditures was 46.2% or approximately 24 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 $923,043 (approx. 6%) higher than the budgeted amount while total expenditures were $350,321 (approx. 2.3%) lower than had been budgeted. After considering operating transfers, the net effect was an increase to total fund balance that was $1,273,513 more than had been reflected in the City’s budget. As part of any budget update initiated for fiscal 2021, 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 $31,766,882 as of December 31, 2020. The largest portion of this being an investment in infrastructure and other capital assets net of related debt in the amount of $27,683,345. (6) APPENDIX A FORMAL REQUIRED COMMUNICATIONS Honorable Mayor and Members of the City Council City of Hopkins 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, Minnesota (the City) as of and for the year ended December 31, 2020, and have issued our report thereon dated June 28, 2021. 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 were not changed during 2020. We noted no transactions entered into by the City 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: x Management’s estimate of the useful lives of capital assets is based on authoritative guidance and past experience. x Management’s estimate of the investments at fair value is based on published market values at December 31, 2020. x Management’s estimate of other postemployment benefits is based on the actuarial valuation conducted by an independent third party. x 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, 2020. (7) Honorable Mayor and Members of the City Council City of Hopkins, Minnesota Page 2 x 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 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. 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 fire state aid as a deferred inflow in the General Fund. Late submissions by the Fire Relief Association resulted in a delay of when the 2019 and 2020 fire state aid was received. Because the state aid was received later than 60 days after year-end these revenues were not “available” for each of the years ended December 31, 2019 and 2020. As a result of passing on this adjustment, deferred inflows of resources are understated and fund balances is overstated by $119,840 in the General Fund, as of December 31, 2020. Corrected misstatements The following material misstatement detected as a result of audit procedures were corrected by management: x The City had a material audit adjustment for Fund 233 and 234 for 2020 TIF payments paid in February 2021 of $556,800 that were not accrued as of December 31, 2020. 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. (8) Honorable Mayor and Members of the City Council City of Hopkins, Minnesota Page 3 Management representations We have requested certain representations from management that are included in the management representation letter dated June 28, 2021. 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 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 financial statements 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 28, 2021. The introductory, supplementary financial information, and statistical sections accompanying the financial statements, which are the responsibility of management, were prepared for purposes of additional analysis and are 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. (9) Honorable Mayor and Members of the City Council City of Hopkins, Minnesota Page 4 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 June 28, 2021 (10) (11) APPENDIX B Single Audit and Other Required Reports (1) 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 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, 2020, 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 28, 2021. 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) as a basis for designing 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 have not been identified. We did identify a certain deficiency in internal controls, described in the accompanying schedule of Findings and Questioned Costs as item 2020-001 that we consider to be a material weakness. Honorable Mayor and Members of the City Council City of Hopkins, Minnesota () 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 financial statements. 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’ Response to Findings The City of Hopkins’ response to the finding identified in our audit is described in the accompanying Schedule of Findings and Questioned Costs. The City of Hopkins’ 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 results 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 June 28, 2021 () INDEPENDENT AUDITORS’ REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL PROGRAM, REPORT ON INTERNAL CONTROL OVER COMPLIANCE, AND REPORT ON THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS REQUIRED BY THE UNIFORM GUIDANCE Honorable Mayor and Members of the City Council City of Hopkins Hopkins, Minnesota Report on Compliance for Each Major Federal Program We have audited the City of Hopkins, Minnesota’s (the City) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on the City’s major federal program for the year ended December 31, 2020. The City’s major federal program is 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 federal statutes, regulations, and the terms and conditions of its federal awards 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 the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance 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 the major federal program. However, our audit does not provide a legal determination of the City’s compliance. Honorable Mayor and Members of the City Council City of Hopkins, Minnesota () 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 its major federal program for the year ended December 31, 2020. Other Matters The results of our auditing procedures disclosed an instance of noncompliance, which is required to be reported in accordance with the Uniform Guidance and which is described in the accompanying schedule of findings and questioned costs as item 2020-002. Our opinion on each major federal program is not modified with respect to this matter. The City of Hopkins’ response to the noncompliance finding identified in our audit is described in the accompanying Schedule of Findings and Questioned Costs. The City of Hopkins’ response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response. 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 the Uniform Guidance, 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. 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 a 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. 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. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section 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 have not been identified. We did identify certain deficiencies in internal control over compliance, described in the accompanying Schedule of Findings and Questioned Costs as items 2020-002 and 2020-003 that we consider to be a material weaknesses. Honorable Mayor and Members of the City Council City of Hopkins, Minnesota () The City of Hopkins’ 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 of Hopkins’ 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 results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance 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, 2020, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements. We issued our report thereon dated June 28, 2021, 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 the Uniform Guidance 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. CliftonLarsonAllen LLP Minneapolis, Minnesota June 28, 2021 See accompanying Notes to Schedule of Expenditures of Federal Awards. () CITYOFHOPKINS SCHEDULEOFEXPENDITURESOFFEDERALAWARDS FORTHEYEARENDEDDECEMBER31,2020 FEDERALGRANTORFEDERALPASSͲTHROUGHPASSEDͲ PASSͲTHROUGHAGENCYCFDAGRANTTHROUGHTO PROGRAMORCLUSTERTITLENUMBERNUMBERSEXPENDITURESSUBRECIPIENTS U.S.DEPARTMENTOFTREASURY PassedthroughStateofMinnesota COVIDͲ19ͲCoronavirusReliefFund21.019CSLT0016 1,485,18359,817 PassedthroughHennepinCounty CoronavirusReliefFund21.019C100827710,082 TotalCoronavirusReliefFund 1,495,265 U.S.DEPARTMENTOFJUSTICE Direct EdwardByrneMemorialJusticeAssistanceGrant16.7382099543,584 U.S.DepartmentofTransportation PassedthroughStateofMinnesota NationalPrioritySafetyPrograms20.61669A3751830000405D,ML21,595 MinimumPenaltiesforRepeatOffendersforDriving WhileIntoxicated20.60869A37519300001640MNA60,936 U.S.DepartmentofHealthandHumanServices PassedthroughStateofMinnesota BlockGrantsforPreventionandTreatmentof SubstanceAbuse93.959H55196191950 TotalExpendituresofFederalAwards1,582,330 CITY OF HOPKINS, MINNESOTA NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS DECEMBER 31, 2020 () NOTE 1 BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards (the Schedule) includes the federal award activity of the City of Hopkins (the City) under programs of the federal government for the year ended December 31, 2020. The information in this Schedule is presented in accordance with the requirements of 2 CFR Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of the City, it is not intended to and does not present the financial position, changes in net position, or cash flows of the City. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Expenditures reported on the Schedule are reported on the modified accrual basis of accounting. Such expenditures are recognized following, as applicable, either the cost principles in OMB Circular A-87, Cost Principles for State and Local Governments, or the cost principles contained in Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, wherein certain types of expenditures are not allowable or are limited as to reimbursement. The City did not elect to use the 10-percent de minimis indirect cost rate as allowed under the Uniform Guidance. () INDEPENDENT AUDITORS’ REPORT ON MINNESOTA LEGAL COMPLIANCE Honorable Mayor and Members of the City Council City of Hopkins Hopkins, Minnesota We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to the 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, 2020, 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 28, 2021. 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 contracting and bidding, deposits and investments, conflicts of interest, public indebtedness, claims and disbursements, miscellaneous provisions, and tax increment financing sections of the Minnesota Legal Compliance Audit Guide for Cities, promulgated by the State Auditor pursuant to Minn. Stat. § 6.65, insofar as they relate to accounting matters. 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, insofar as they relate to accounting matters. 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 June 28, 2021 CITY OF HOPKINS, MINNESOTA SCHEDULE OF FINDINGS AND QUESTIONED COSTS YEAR ENDED DECEMBER 31, 2020 () Section I – Summary of Auditors’ Results Financial Statements Type of auditors’ report issued: Unmodified 1. Internal control over financial reporting: x Material weakness(es) identified? x yes no x Significant deficiency(ies) identified? yes x none reported 2. Noncompliance material to financial statements noted? yes x no Federal Awards Internal control over major federal programs: x Material weakness(es) identified? x yes no x Significant deficiency(ies) identified? yes x none reported 1. Type of auditors’ report issued on compliance for major federal programs: Unmodified 2. Any audit findings disclosed that are required to be reported in accordance with 2 CFR 200.516(a)? x yes no Identification of Major Federal Programs CFDA Number(s) Name of Federal Program or Cluster 21.019C Coronavirus Relief Fund Dollar threshold used to distinguish between Type A and Type B programs: $ $750,000 Auditee qualified as low-risk auditee? yes x no CITY OF HOPKINS, MINNESOTA SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) YEAR ENDED DECEMBER 31, 2020 () Section II – Financial Statement Findings 2020-001 Type of Finding: Material Weakness: Material Audit Adjustment Criteria: The City should have proper financial procedures and controls in place to ensure that year- end adjustments and reconciliations are correct and properly reviewed and all activity is appropriately included with the year-end financial statements. Condition and Context: During the performance of our audit procedure we noted two payable items totaling $556,800 that should have been included as payable at year-end but were missing from the trial balance. Possible Effect: The City’s 2020 financial statements could be materially misstated. Repeat Finding: No Cause: When performing the year-end accounts adjustment for accounts payable these subsequent TIF payments were mislabeled causing them to be excluded from the year-end balance Recommendation: We recommend that the City review its procedures and controls related to year-end adjustments and reporting to ensure there are sufficient reviews in place to prevent misstatements. Client’s Response to the finding: The City does not disagree with the finding and has already begun any necessary adjustments to the process at year-end to ensure sufficient reviews are in place to prevent misstatements. CITY OF HOPKINS, MINNESOTA SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) YEAR ENDED DECEMBER 31, 2020 () Section III – Findings and Questioned Costs – Major Federal Programs 2020-002 U.S. Department of the Treasury Coronavirus Relief Fund CFDA Number: 20.019C Passed Through Minnesota Department of Revenue Pass Through Number: SLT0016 Award Period: 3/1/2020 – 11/15/2020 Type of Finding: Material Weakness over Compliance: Subrecipient Monitoring Criteria: Uniform Guidance 2 CFR 200.331 dictates that the City needs to monitor the subrecipient to provide reasonable assurance that the subrecipient used the subaward for authorized purposes in compliance with Federal statutes, regulations and the terms and conditions of the subaward. It also requires that specific items be included in the subrecipient agreements. Condition and Context: The City did not obtain proper support for expenditures from subrecipients and also did not have necessary components within the subrecipient agreements such as subrecipient’s DUNS number, federal award date to the city , name of the federal awarding agency, CFDA number, and indirect cost rate information. Possible Effect: Not receiving the appropriate support for expenditures could result in the subrecipient not spending the funds on award related expenditures. Not providing the appropriate award information could result in the subrecipient not being successful in the administration of the award funds. Questioned Costs: None Repeat Finding: No Cause: The federal funding was new to the City in 2020 and they were not aware of all of the required award agreement language and requirements for subrecipient monitoring. Recommendation: We recommend that the City put in place internal controls whenever working with a subrecipient of federal funding to ensure that all expenditures are properly supported by documentation, that the documentation is provided to the City on regular intervals as the expenditures are incurred by the subrecipient, and that the information is reviewed and approved by the City and documentation of this process is maintained and ensure they included all required components for subrecipient agreements prior to signing and execution of agreement Client’s Response to the finding: The City will ensure that subrecipient agreements have all required aspects necessary and that they receive, approve, and retain such documentation when working with subrecipient. CITY OF HOPKINS, MINNESOTA SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) YEAR ENDED DECEMBER 31, 2020 () 2020-003 U.S. Department of the Treasury Coronavirus Relief Fund CFDA Number: 20.019C Passed Through Minnesota Department of Revenue Pass Through Number: SLT0016 Award Period: 3/1/2020 – 11/15/2020 Type of Finding: Material Weakness in Internal Control Over Compliance: Reporting Criteria: The Coronavirus Relief Fund, as administered in the State of Minnesota, required each municipality utilizing the grant dollars to submit reports at regular intervals throughout the grant period. The Uniform Guidance requires that internal controls be maintained and documented over compliance for all federal grants. Condition and Context: The City was preparing the reports required by the State of Minnesota and submitting them timely. However, the City was not having someone other than the preparer of the report, review the report prior to submission. The City had filed 5 reports and none of them had any documentation that someone other than the preparer had reviewed them for accuracy. Possible Effect: It would be possible for something to have been incorrect in one of the reports and for that report to have been filed with the State of Minnesota. The error could go unnoticed by the City in that instance as no one was reviewing the reports other than the person preparing them. Questioned Costs: None Repeat Finding: No Cause: The federal funding was new to the City in 2020 and they were not aware that they needed to have someone reviewing the reports prior to submission to have proper controls over reporting. Recommendation: We recommend that the City ensure that if they need to prepare any reports for federal programs that someone review and approve that report, other than the preparer, prior to submitting it for the grant. That review and approval of the report should be properly documented so it can be reviewed. Client’s Response to the finding: The City will ensure that they implement a review system for these reports in the future and ensure that the review is documented. CITY OF HOPKINS, MINNESOTA SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) YEAR ENDED DECEMBER 31, 2020 () Section IV – MN Legal Compliance Findings None noted.