III.5. 2021 Audit and Annual Comprehensive Financial Report; Bishop
CITY OF HOPKINS
Memorandum
To: Honorable Mayor and Council Members
Mike Mornson, City Manager
From: Nick Bishop, Finance Director
Date: July 19, 2022
Subject: 2021 Audit and Annual Comprehensive Financial Report
_____________________________________________________________________
PURPOSE
Informational
INFORMATION
At the October 5, 2021 City Council meeting, Abdo, Eick & Meyers were approved as
the City’s auditor for 2021-2023. They have since changed their name to Abdo.
Abdo has completed the City’s Audit for the year ended December 31, 2021. The
Auditor’s Report is dated June 30, 2021. Brad Falteysek, Partner will present their
results. The Management Communication Letter and Other Required Reports are
attached. Due to its size the Annual Comprehensive Financial Report is not included in
the packet. It is available on the City’s website:
https://www.hopkinsmn.com/ArchiveCenter/ViewFile/Item/398
FUTURE ACTION
None
Finance Department
Management
Communication
City of Hopkins
Hopkins, Minnesota
For the year ended December 31, 2021
June 30, 2022
Management, Honorable Mayor and 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), for the year ended
December 31, 2021. Professional standards require that we provide you with information about our responsibilities under
generally accepted auditing standards, Government Auditing Standards, as well as certain information related to the
planned scope and timing of our audit. We have communicated such information in our letter to you dated
December 10, 2021. Professional standards also require that we communicate to you the following information related to
our audit.
Significant Audit Findings
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.
Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not
designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and
therefore, material weaknesses or significant deficiencies may exist that were not identified However, as described in the
accompanying Schedule of Findings and Responses, we identified certain deficiencies in internal control that we consider
to be a material weakness and a significant deficiency.
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 below as item 2021-001 to be a material weakness.
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. We noted no deficiencies
during the year that we consider to be significant deficiencies.
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2021-001 Material Audit Adjustment
Condition: During our audit, material adjustments were needed to correct the beginning equity from the prior
years in relation to special assessments receivable and revenues.
Criteria: Adjustments were needed to correct beginning balances. The financial statements are the
responsibility of the City’s management; therefore, the City must be able to prevent or detec t a
material misstatement in the financial statements.
Cause: During the audit of special assessments it was noted that the beginning balances did not include
assessments certified at the end of 2020 that should have been recorded as receivable. The
failure to recognize special assessment receivable in the prior year caused an adjustment to the
beginning equity.
Effect: This indicates that it would be likely that a misstatement may occur and not be detected by the
City’s system of internal control.
Recommendation: We recommend management review the general ledger and balance sheet for all audit sections
to ensure all accruals are accurate at year end.
Management Response:
The City agrees with the finding. The City will review its procedures and controls related to year-end adjustments and
reporting to ensure there are sufficient reviews in place to prevent misstatements.
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 two instances of noncompliance or other matters that are
required to be reported under Governmental Auditing Standards or Minnesota statutes described below as findings 2021-
002 and 2021-003.
2021-002 Accepting Donations
Condition: During our audit we noted that the City received donations during the year that were not approved
by resolution.
Criteria: In accordance with Minnesota statute, section 465.03, if the political subdivision accepts a grant
or devise of real or personal property on terms, it needs to be prescribed by the donor made by
resolution of the city council adopted by a two-thirds majority of its members and expressing
such terms in full.
Cause: The City had accepted a donation without approval by resolution.
Effect: At year end, the City was not in compliance with Minnesota statute section 465.03.
Recommendation: We recommend that in the future if the City is to receive donations, it receive approval by
resolution by a two-thirds majority of the city council members.
Management Response:
The City agrees with the finding. The City will accept donations annually by resolution.
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2021-003 Insufficient Collateral Coverage
Condition: During our audit of Minnesota legal compliance requirements, we noted that the City’s deposits
were not sufficient to cover deposits.
Criteria: In accordance with Minnesota Statute, section 118A.03, the City is required to have pledged
collateral equal to 110 percent of the deposit not covered with insurance.
Cause: The City had $19,870,167 in deposits, of which the City was $34,018 under the 110% requirement
on December 31, 2021 due to large incoming wires near year end.
Effect: At year end, the City did not have sufficient collateral pledged and therefore was not in
compliance with state statute.
Recommendation: We recommend the City establish a more specific understanding with the bank for the needed
collateral and review month end procedures to ensure deposits are sufficiently collateralized.
Management Response:
The City agrees with the finding. The City will review its month end procedures to ensure that sufficient collateral is
obtained.
Qualitative Aspects of Accounting Practices
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 2021. 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 be en
recognized in the financial statements in the proper period.
Accounting estimates are an integral part of the financial statements prepared by management and are based on
management’s knowledge and experience about past and current events and assumptions about future events. Certain
accounting estimates are particularly sensitive because of their significance to the financial statements and because of
the possibility that future events affecting them may differ significantly from those expected . The most sensitive
estimates affecting the financial statements were depreciation on capital assets, allocation of payroll and compensated
absences, liability for other post-employment benefit, and the liability of the City’s pensions.
• Management’s estimate of depreciation is based on estimated useful lives of the assets. Depreciation is
calculated using the straight-line method.
• Allocations of gross wages and payroll benefits are approved by City Council within the City’s budget and are
derived from each employee’s estimated time to be spent servicing the respective functions of the City. These
allocations are also used in allocating accrued compensated absences payable.
• The City’s liability for other post-employment benefits was estimated to be zero primarily based on the
assumption that employees, whom participate in the health insurance plan, will retire after the age of 65 and not
continue to participate in the plan following retirement.
• Management’s estimate of its pension liability is based on several factors including, but not limited to, anticipated
investment return rate, retirement age for active employees, life expectancy, salary increases and form of annuity
payment upon retirement.
We evaluated the key factors and assumptions used to develop these accounting estimates in determining that it is
reasonable in relation to the financial statements taken as a whole. The disclosures in the financial statements are
neutral, consistent, and clear. Certain financial statement disclosures are particularly sensitive because of their
significance to financial statement users.
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Corrected and Uncorrected Misstatements
Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than
those that are trivial, and communicate them to the appropriate level of management. Management has corrected all such
misstatements. The following material misstatements detected as a result of audit procedures were corrected by
management: Recognizing special assessment receivable and related adjustment to equity for revenue impact for
certified assessments from 2020.
Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a financial accounting,
reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial
statements or the auditor’s report. We are pleased to report that no such disagreements arose during the course of our
audit.
Management Representations
We have requested certain representations from management that are included in the management represen tation letter
dated June 30, 2022.
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 governmental unit’s financial statements or a determination of the type of auditor’s opinion that may be
expressed on those statements, our professional standards require the consulting accountant to check with us to
determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other
accountants.
Other Audit Findings or Issues
We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with
management each year prior to retention as the City’s auditors. However, these discussions occurred in the normal
course of our professional relationship and our responses were not a condition to our retention.
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Other Matters
We applied certain limited procedures to the required supplementary information (RSI) (Management’s Discussion and
Analysis, the Schedules of Employer’s Share of the Net Pension Liability, the Schedules of Employer’s Contributions, the
Schedule of Changes in Net Pension Liability (Asset) and Related Ratios ), and the Schedules of Employer’s Contributions,
and the Schedule of changes in the City's OPEB Liability), which is information that supplements the basic financial
statements. Our procedures consisted of inquiries of management regarding the methods of preparing the information
and comparing the information for consistency with management’s responses to our inquiries, the basic financial
statements, and other knowledge we obtained during our audit of the basic financial statements. We did not audit the RSI
and do not express an opinion or provide any assurance on the RSI.
We were engaged to report on the supplementary information (Combining and Individual Fund Financial Statements and
Schedules and Statistical Section), which accompany the financial statements but are not RSI. With respect to this
supplementary information, 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 ge nerally accepted in the
United States of America, the method of preparing it has not changed from the prior period, 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 were not engaged to report on the introductory section or statistical sections, which accompany the financial
statements but are not RSI. We did not audit or perform other procedures on this other information and we do not express
an opinion or provide any assurance on them.
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Future Accounting Standard Changes
The following Governmental Accounting Standards Board (GASB) Statements have been issued and may have an impact
on future City financial statements: (1)
GASB Statement No. 87 - Leases
Summary
The objective of this Statement is to better meet the information needs of financial statement users by improving
accounting and financial reporting for leases by governments. This Statement increases the usefulness of governments’
financial statements by requiring recognition of certain lease assets and liabilities for leases that previously were
classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment
provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that
leases are financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a
lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a
deferred inflow of resources, thereby enhancing the relevance and consistency of information about governments’ leasing
activities.
Effective Date and Transition
The requirements of this Statement are effective for fiscal years beginning after June 15, 2021, and all reporting periods
thereafter.
Leases should be recognized and measured using the facts and circumstances that exist at the beginning of the period of
implementation (or, if applied to earlier periods, the beginning of the earliest period restated). However, lessors should not
restate the assets underlying their existing sales-type or direct financing leases. Any residual assets for those leases
become the carrying values of the underlying assets.
How the Changes in This Statement Will Improve Accounting and Financial Reporting
This Statement will increase the usefulness of governments’ financial statements by requiring reporting of certain lease
liabilities that currently are not reported. It will enhance comparability of financial statements among governments by
requiring lessees and lessors to report leases under a single model. This Statement also will enhance the decision -
usefulness of the information provided to financial statement users by requiring notes to financial statements related to
the timing, significance, and purpose of a government’s leasing arrangements.
7
Future Accounting Standard Changes (Continued)
GASB Statement No. 91 - Conduit Debt Obligations
Summary
The primary objectives of this Statement are to provide a single method of reporting conduit debt obligations by issuers
and eliminate diversity in practice associated with (1) commitments extended by issuers, (2) arrangements associated
with conduit debt obligations, and (3) related note disclosures. This Statement achieves those objectives by clarifying the
existing definition of a conduit debt obligation; establishing that a conduit debt obligation is not a liability of the issue r;
establishing standards for accounting and financial reporting of additional commitments and voluntary commitments
extended by issuers and arrangements associated with conduit debt obligations; and improving required note disclosures.
All conduit debt obligations involve the issuer making a limited commitment. Some issuers extend additional
commitments or voluntary commitments to support debt service in the event the third party is, or will be, unable to do so.
An issuer should not recognize a conduit debt obligation as a liability. However, an issuer should recognize a liability
associated with an additional commitment or a voluntary commitment to support debt service if certain recognition
criteria are met. As long as a conduit debt obligation is outstanding, an issuer t hat has made an additional commitment
should evaluate at least annually whether those criteria are met. An issuer that has made only a limited commitment
should evaluate whether those criteria are met when an event occurs that causes the issuer to reevalua te its willingness
or ability to support the obligor’s debt service through a voluntary commitment.
This Statement also addresses arrangements - often characterized as leases - that are associated with conduit debt
obligations. In those arrangements, capital assets are constructed or acquired with the proceeds of a conduit debt
obligation and used by third-party obligors in the course of their activities. Payments from third-party obligors are intended
to cover and coincide with debt service payments. During those arrangements, issuers retain the titles to the capital
assets. Those titles may or may not pass to the obligors at the end of the arrangements.
This Statement requires issuers to disclose general information about their conduit debt obligations, organized by type of
commitment, including the aggregate outstanding principal amount of the issuers’ conduit debt obligations and a
description of each type of commitment. Issuers that recognize liabilities related to supporting the debt service of conduit
debt obligations also should disclose information about the amount recognized and how the liabilities changed during the
reporting period.
Effective Date and Transition
The requirements of this Statement are effective for reporting periods beginning after December 15, 2021. Earlier
application is encouraged.
How the Changes in This Statement Will Improve Accounting and Financial Reporting
The requirements of this Statement will improve financial reporting by eliminating the existing option for issuers to report
conduit debt obligations as their own liabilities, thereby ending significant diversity in practice. The clarified definition will
resolve stakeholders’ uncertainty as to whether a given financing is, in fact, a conduit debt ob ligation. Requiring issuers to
recognize liabilities associated with additional commitments extended by issuers and to recognize assets and deferred
inflows of resources related to certain arrangements associated with conduit debt obligations also will eli minate diversity,
thereby improving comparability in reporting by issuers. Revised disclosure requirements will provide financial statement
users with better information regarding the commitments issuers extend and the likelihood that they will fulfill those
commitments. That information will inform users of the potential impact of such commitments on the financial resources
of issuers and help users assess issuers’ roles in conduit debt obligations.
8
Future Accounting Standard Changes (Continued)
GASB Statement No. 92 - Omnibus 2020
Summary
The objectives of this Statement are to enhance comparability in accounting and financial reporting and to improve the
consistency of authoritative literature by addressing practice issues that have been identified during implementation and
application of certain GASB Statements. This Statement addresses a variety of topics and includes specific provisions
about the following:
• The effective date of Statement No. 87, Leases, and Implementation Guide No. 2019 -3, Leases, for interim
financial reports
• Reporting of intra-entity transfers of assets between a primary government employer and a component unit
defined benefit pension plan or defined benefit other postemployment benefit (OPEB) plan
• The applicability of Statements No. 73, Accounting and Financial Reporting for Pensions and Related Assets That
Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67
and 68, as amended, and No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension
Plans, as amended, to reporting assets accumulated for postemployment benefits
• The applicability of certain requirements of Statement No. 84, Fiduciary Activities, to postemployment benefit
arrangements
• Measurement of liabilities (and assets, if any) related to asset retirement obligations (AROs) in a government
acquisition
• Reporting by public entity risk pools for amounts that are recoverable from reinsurers or excess insurers
• Reference to nonrecurring fair value measurements of assets or liabilities in authoritative literature
• Terminology used to refer to derivative instruments.
Effective Date and Transition
The requirements of this Statement are effective as follows:
• The requirements related to the effective date of Statement 87 and Implementation Guide 2019 -3, reinsurance
recoveries, and terminology used to refer to derivative instruments are effective upon issuance.
• The requirements related to intra-entity transfers of assets and those related to the applicability of Statements 73
and 74 are effective for fiscal years beginning after June 15, 2020.
• The requirements related to application of Statement 84 to postemployment benefit arrangements and those
related to nonrecurring fair value measurements of assets or liabilities are effective for reporting periods
beginning after June 15, 2020.
• The requirements related to the measurement of liabilities (and assets, if any) associated with AROs in a
government acquisition are effective for government acquisitions occurring in reporting periods beginning after
June 15, 2020.
Earlier application is encouraged and is permitted by topic.
9
Future Accounting Standard Changes (Continued)
How the Changes in This Statement Will Improve Accounting and Financial Reporting
The requirements of this Statement will enhance comparability in the application of accounting and financial reporting
requirements and will improve the consistency of authoritative literature. More comparable reporting will improve the
usefulness of information for users of state and local government financial statements.
GASB Statement No. 93 - Replacement of Interbank Offered Rates
Summary
The objective of this Statement is to address those and other accounting and financial reporting implications that result
from the replacement of an IBOR. This Statement achieves that objective by:
• Providing exceptions for certain hedging derivative instruments to the hedge accounting termination provisions
when an IBOR is replaced as the reference rate of the hedging derivative instrument’s variable payment
• Clarifying the hedge accounting termination provisions when a hedged item is amended to replace the reference
rate
• Clarifying that the uncertainty related to the continued availability of IBORs does not, by itself, affect the
assessment of whether the occurrence of a hedged expected transaction is probable
• Removing LIBOR as an appropriate benchmark interest rate for the qualitative evaluation of the effectiveness of
an interest rate swap
• Identifying a Secured Overnight Financing Rate and the Effective Federal Funds Rate as appropriate benchmark
interest rates for the qualitative evaluation of the effectiveness of an interest rate swap
• Clarifying the definition of reference rate, as it is used in Statement 53, as amended
• Providing an exception to the lease modifications guidance in Statement 87, as amended, for certain lease
contracts that are amended solely to replace an IBOR as the rate upon which variable payments depend
Effective Date and Transition
The removal of LIBOR as an appropriate benchmark interest rate is effective for reporting periods ending after
December 31, 2021. All other requirements of this Statement are effective for reporting periods beginning after
June 15, 2020. Earlier application is encouraged. The exceptions to the existing provisions for hedge accounting
termination and lease modifications in this Statement will reduce the cost of the accounting and financial reporting
ramifications of replacing IBORs with other reference rates. The reliability and relevance of reported information will be
maintained by requiring that agreements that effectively maintain an existing hedging arrangement continue to be
accounted for in the same manner as before the replacement of a reference rate. As a result, this Statement will preserve
the consistency and comparability of reporting hedging derivative instruments an d leases after governments amend or
replace agreements to replace an IBOR.
How the Changes in This Statement Will Improve Accounting and Financial Reporting
The requirements of this Statement will enhance comparability in the application of accounting and financial reporting
requirements and will improve the consistency of authoritative literature. More comparable reporting will improve the
usefulness of information for users of state and local government financial statements.
10
Future Accounting Standard Changes (Continued)
GASB Statement No. 94 - Public-Private and Public-Public Partnerships and Availability Payment Arrangements
Summary
The primary objective of this Statement is to improve financial reporting by addressing issues related to public-private and
public-public partnership arrangements (PPPs). As used in this Statement, a PPP is an arrangement in which a
government (the transferor) contracts with an operator (a governmental or nongovernmental entity) to provide public
services by conveying control of the right to operate or use a nonfinancial asset, such as infrastructure or other capital
asset (the underlying PPP asset), for a period of time in an exchange or exchange-like transaction. Some PPPs meet the
definition of a service concession arrangement (SCA), which the Board defines in this Statement as a PPP in which (1) the
operator collects and is compensated by fees from third parties; (2) the transferor determines or has the ability to modify
or approve which services the operator is required to provide, to whom the operator is required to provide the services,
and the prices or rates that can be charged for the services; and (3) the transferor is entitled to significant residual inte rest
in the service utility of the underlying PPP asset at the end of the arrangement.
This Statement also provides guidance for accounting and financial reporting for availability payment arrangements
(APAs). As defined in this Statement, an APA is an arrangement in which a government compensates an operator for
services that may include designing, constructing, financing, maintaining, or operating an underlying nonfinancial asset
for a period of time in an exchange or exchange-like transaction.
Effective Date and Transition
The requirements of this Statement are effective for fiscal years beginning after June 15, 2022, and all reporting periods
thereafter. Earlier application is encouraged.
PPPs should be recognized and measured using the facts and circumstances that exist at the beg inning of the period of
implementation (or if applicable to earlier periods, the beginning of the earliest period restated).
How the Changes in This Statement Will Improve Accounting and Financial Reporting
The requirements of this Statement will improve financial reporting by establishing the definitions of PPPs and APAs and
providing uniform guidance on accounting and financial reporting for transactions that meet those definitions. That
uniform guidance will provide more relevant and reliable information for financial statement users and create greater
consistency in practice. This Statement will enhance the decision usefulness of a government’s financial statements by
requiring governments to report assets and liabilities related to PPPs consistently and disclose important information
about PPP transactions. The required disclosures will allow users to understand the scale and important aspects of a
government’s PPPs and evaluate a government’s future obligations and assets resulting from PPPs.
11
Future Accounting Standard Changes (Continued)
GASB Statement No. 96 - Subscription-Based Information Technology Arrangements
Summary
This Statement provides guidance on the accounting and financial reporting for subscription -based information
technology arrangements (SBITAs) for government end users (governments). This Statement (1) defines a SBITA; (2)
establishes that a SBITA results in a right-to-use subscription asset - an intangible asset - and a corresponding
subscription liability; (3) provides the capitalization criteria for outlays other than subscription payments, including
implementation costs of a SBITA; and (4) requires note disclosures regarding a SBITA. To the extent relevant, the
standards for SBITAs are based on the standards established in Statement No. 87, Leases, as amended.
Under this Statement, a government generally should recognize a right-to-use subscription asset - an intangible asset -
and a corresponding subscription liability. A government should recognize the subscription liability at the commencement
of the subscription term, - which is when the subscription asset is placed into service. The subscription liability should be
initially measured at the present value of subscription payments expected to be made during the subscription term.
Future subscription payments should be discounted using the interest rate the SBITA vendor charges the government,
which may be implicit, or the government’s incremental borrowing rate if the interest rate is not readily determinable. A
government should recognize amortization of the discount on the subscription liability as an outflow of resources (for
example, interest expense) in subsequent financial reporting periods.
This Statement provides an exception for short-term SBITAs. Short-term SBITAs have a maximum possible term under the
SBITA contract of 12 months (or less), including any options to extend, regardless of their probability of being exercised.
Subscription payments for short-term SBITAs should be recognized as outflows of resources.
This Statement requires a government to disclose descriptive information about its SBITAs other than short -term SBITAs,
such as the amount of the subscription asset, accumulated amortization, other payments not included in the
measurement of a subscription liability, principal and interest requirements for the subscription liability, and other
essential information.
Effective Date and Transition
The requirements of this Statement are effective for fiscal years beginning after June 15, 2022, and all reporting periods
thereafter. Earlier application is encouraged. Assets and liabilities resulting from SBITAs should be recognized and
measured using the facts and circumstances that existed at the beginning of the fiscal year in which this Statement is
implemented. Governments are permitted, but are not required, to include in the measurement of the subscription asset
capitalizable outlays associated with the initial implementation stage and the operation and additional implementation
stage incurred prior to the implementation of this Statement.
How the Changes in This Statement Will Improve Accounting and Financial Reporting
The requirements of this Statement will improve financial reporting by establishing a definition for SBITAs and provi ding
uniform guidance for accounting and financial reporting for transactions that meet that definition. That definition and
uniform guidance will result in greater consistency in practice. Establishing the capitalization criteria for implementation
costs also will reduce diversity and improve comparability in financial reporting by governments. This Statement also will
enhance the relevance and reliability of a government’s financial statements by requiring a government to report a
subscription asset and subscription liability for a SBITA and to disclose essential information about the arrangement. The
disclosures will allow users to understand the scale and important aspects of a government’s SBITA activities and
evaluate a government’s obligations and assets resulting from SBITAs.
12
Future Accounting Standard Changes (Continued)
GASB Statement No. 97 - Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue
Code Section 457 Deferred Compensation Plans - an amendment of GASB Statements No. 14 and No. 84, and a
supersession of GASB Statement No. 32
Summary
The primary objectives of this Statement are to (1) increase consistency and comparability related to the reporting of
fiduciary component units in circumstances in which a potential component unit does not have a governing board and the
primary government performs the duties that a governing board typically would perform; (2) mitigate costs associated
with the reporting of certain defined contribution pension plans, defined contribution other postemployment benefit
(OPEB) plans, and employee benefit plans other than pension plans or OPEB plans (other employee benefit plans) as
fiduciary component units in fiduciary fund financial statements; and (3) enhance the relev ance, consistency, and
comparability of the accounting and financial reporting for Internal Revenue Code (IRC) Section 457 deferred
compensation plans (Section 457 plans) that meet the definition of a pension plan and for benefits provided through
those plans.
This Statement requires that for purposes of determining whether a primary government is financially accountable for a
potential component unit, except for a potential component unit that is a defined contribution pension plan, a defined
contribution OPEB plan, or another employee benefit plan (for example, certain Section 457 plans), the absence of a
governing board should be treated the same as the appointment of a voting majority of a governing board if the primary
government performs the duties that a governing board typically would perform.
This Statement also requires that the financial burden criterion in paragraph 7 of Statement No. 84, Fiduciary Activities, be
applicable to only defined benefit pension plans and defined benefit OPEB plans that are administered through trusts that
meet the criteria in paragraph 3 of Statement No. 67, Financial Reporting for Pension Plans, or paragraph 3 of Statement
No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, respectiv ely.
This Statement (1) requires that a Section 457 plan be classified as either a pension plan or another employee benefit
plan depending on whether the plan meets the definition of a pension plan and (2) clarifies that Statement 84, as
amended, should be applied to all arrangements organized under IRC Section 457 to determine whether those
arrangements should be reported as fiduciary activities.
This Statement supersedes the remaining provisions of Statement No. 32, Accounting and Financial Reporting fo r Internal
Revenue Code Section 457 Deferred Compensation Plans, as amended, regarding investment valuation requirements for
Section 457 plans. As a result, investments of all Section 457 plans should be measured as of the end of the plan’s
reporting period in all circumstances.
Effective Date and Transition
The requirements of this Statement that (1) exempt primary governments that perform the duties that a governing board
typically performs from treating the absence of a governing board the same as the appointment of a voting majority of a
governing board in determining whether they are financially accountable for defined contribution pension plans, defined
contribution OPEB plans, or other employee benefit plans and (2) limit the applicability of th e financial burden criterion in
paragraph 7 of Statement 84 to defined benefit pension plans and defined benefit OPEB plans that are administered
through trusts that meet the criteria in paragraph 3 of Statement 67 or paragraph 3 of Statement 74, respectiv ely, are
effective immediately.
The requirements of this Statement that are related to the accounting and financial reporting for Section 457 plans are
effective for fiscal years beginning after June 15, 2021. For purposes of determining whether a primary government is
financially accountable for a potential component unit, the requirements of this Statement that provide that for all other
arrangements, the absence of a governing board be treated the same as the appointment of a voting majority of a
governing board if the primary government performs the duties that a governing board typically would perform, are
effective for reporting periods beginning after June 15, 2021. Earlier application of those requirements is encouraged and
permitted by requirement as specified within this Statement.
13
Future Accounting Standard Changes (Continued)
The Board considered the effective dates for the requirements of this Statement in light of the COVID-19 pandemic and in
concert with Statement No. 95, Postponement of the Effective Dates of Certain Authoritative Guidance.
How the Changes in This Statement Will Improve Accounting and Financial Reporting
The requirements of this Statement will result in more consistent financial reporting of defined contribution pension plans,
defined contribution OPEB plans, and other employee benefit plans, while mitigating the costs associated with reporting
those plans. The requirements also will enhance the relevance, consistency, and comparability of (1) the informa tion
related to Section 457 plans that meet the definition of a pension plan and the benefits provided through those plans and
(2) investment information for all Section 457 plans.
(1) Note. From GASB Pronouncements Summaries. Copyright 2021 by the Financial Accounting Foundation, 401 Merritt 7,
Norwalk, CT 06856, USA, and is reproduced with permission.
* * * *
Restriction on Use
This purpose of this communication is solely for the information and use of the City Council and management of the City
and is not intended to be, and should not be used by anyone other than those specified parties.
Our audit would not necessarily disclose all weaknesses in the system because it was based on selected tests of the
accounting records and related data. The comments and recommendations in the report are purely constructive in nature,
and should be read in this context.
If you have any questions or wish to discuss any of the items contained in this letter, please feel free to contact us at your
convenience. We wish to thank you for the continued opportunity to be of service and for the courtesy and cooperation
extended to us by your staff.
Abdo
Minneapolis, Minnesota
June 30, 2022
14
Other Required
Reports
City of Hopkins
Hopkins, Minnesota
For the year ended December 31, 2021
City of Hopkins, Minnesota
Other Required Reports
Table of Contents
For the Year Ended December 31, 2021
Page No.
Other Required Reports
Independent Auditor’s Report
on Minnesota Legal Compliance 3
Independent Auditor’s 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 4
Schedule of Finding and Responses 6
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INDEPENDENT AUDITOR’S REPORT
ON MINNESOTA LEGAL COMPLIANCE
Honorable Mayor and City Council
City of Hopkins, Minnesota
We have audited, in accordance with auditing standards generally accepted in the United States of America, the financial
statements of 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, 2021, and the related
notes to the financial statements, and have issued our report thereon dated June 30, 2022.
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, except as described in the Schedule of
Findings and Responses as items 2021-002 and 2021-003. 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.
This report is intended solely for the information and use those charged with governance and management of the City and
the State Auditor and is not intended to be and should not be used by anyone other than these specified parties.
Abdo
Minneapolis, Minnesota
June 30, 2022
3
INDEPENDENT AUDITOR’S 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 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, 2021, 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 30, 2022.
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.
Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not
designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and
therefore, material weaknesses or significant deficiencies may exist that were not identified However, as described in the
accompanying Schedule of Findings and Responses, we identified certain deficiencies in internal control that we consider
to be a material weakness and a significant deficiency.
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 det ected
and corrected on a timely basis. We consider the deficiency described below as item 2021-001 to be a material weakness.
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. We noted no deficiencies
during the year that we consider to be significant deficiencies
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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 two instances of noncompliance or other matters that are
required to be reported under Governmental Auditing Standards or Minnesota statutes described in the Schedule of
Findings and responses as findings 2021-002 and 2021-003.
The City’s Response to the Finding
The City’s response to the finding identified in our audit are described in the accompanying Schedule of Finding 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 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.
Abdo
Minneapolis, Minnesota
June 30, 2022
5
City of Hopkins, Minnesota
Schedule of Finding and Response
For the Year Ended December 31, 2021
Finding Description
2021-001 Material Audit Adjustment
Condition: During our audit, material adjustments were needed to correct the beginning equity from the prior
years in relation to special assessments receivable and revenues.
Criteria: Adjustments were needed to correct beginning balances. The financial statements are the
responsibility of the City’s management; therefore, the City must be able to prevent or detect a
material misstatement in the financial statements.
Cause: During the audit of special assessments it was noted that the beginning balances did not include
assessments certified at the end of 2020 that should have been recorded as receivable. The
failure to recognize special assessment receivable in the prior year caused an adjustment to the
beginning equity.
Effect: This indicates that it would be likely that a misstatement may occur and not be detected by the
City’s system of internal control.
Recommendation: We recommend management review the general ledger and balance sheet for all audit sections
to ensure all accruals are accurate at year end.
Management Response:
The City agrees with the finding. The City will review its procedures and controls related to year-end adjustments and
reporting to ensure there are sufficient reviews in place to prevent misstatements.
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City of Hopkins, Minnesota
Schedule of Findings and Responses- (Continued)
For the Year Ended December 31, 2021
Finding Description
2021-002 Accepting Donations
Condition: During our audit we noted that the City received donations during the year that were not approved
by resolution.
Criteria: In accordance with Minnesota statute, section 465.03, if the political subdivision accepts a grant
or devise of real or personal property on terms, it needs to be prescribed by the donor made by
resolution of the city council adopted by a two-thirds majority of its members and expressing
such terms in full.
Cause: The City had accepted a donation without approval by resolution.
Effect: At year end, the City was not in compliance with Minnesota statute section 465.03.
Recommendation: We recommend that in the future if the City is to receive donations, it receive approval by
resolution by a two-thirds majority of the city council members.
Management Response:
The City agrees with the finding. The City will accept donations annually by resolution.
2021-003 Insufficient Collateral Coverage
Condition: During our audit of Minnesota legal compliance requirements, we noted that the City’s deposits
were not sufficient to cover deposits.
Criteria: In accordance with Minnesota Statute, section 118A.03, the City is required to have pledged
collateral equal to 110 percent of the deposit not covered with insurance.
Cause: The City had $19,870,167 in deposits, of which the City was $34,018 under the 110% requirement
on December 31, 2021 due to large incoming wires near year end.
Effect: At year end, the City did not have sufficient collateral pledged and therefore was not in
compliance with state statute.
Recommendation: We recommend the City establish a more specific understanding with the bank for the needed
collateral and review month end procedures to ensure deposits are sufficiently collateralized.
Management Response:
The City agrees with the finding. The City will review its month end procedures to ensure that sufficient collateral is
obtained.
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