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VII.2. 2025 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: June 16, 2026 Subject: 2025 Audit and Annual Comprehensive Financial Report _____________________________________________________________________ PURPOSE Informational. INFORMATION Abdo has completed the City’s Audit for the year ended December 31, 2025. The Auditor’s Report is dated June 5, 2026. Justin Nilson, Partner will present their results. The Executive Governance Summary and Other Required Reports are attached. Due to its size the Annual Comprehensive Report is not included in the packet. It is available on the City’s online document archives: 2025 Annual Comprehensive Financial Report FUTURE ACTION None Finance Department Executive Governance Summary City of Hopkins Hopkins, Minnesota For the year ended December 31, 2025 June 5, 2026 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, 2025. 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 January 5, 2026. 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. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 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 Minnesota Legal Compliance or Government Auditing Standards noted below as items 2025- 001 and 2025-002. 2 Finding Description 2025-001 Insufficient Collateral Coverage Condition: During our audit, we noted that the City did not maintain sufficient collateral to secure its public deposits for the Housing and Redevelopment Authority (HRA) as required by Minnesota Statutes §118A.03 and §118A.04 as of December 31, 2025. Specifically, the collateral pledged by the depository institution was less than the amount required to fully secure the City’s uninsured and unbonded deposits at year-end. Criteria: Minnesota Statutes §118A.03 and §118A.04 require that public deposits be protected by federal deposit insurance, a corporate surety bond, or collateral pledged by the depository institution. Deposits in excess of available federal deposit insurance that are not covered by a corporate surety bond must be secured by pledged collateral with a market value of at least 110 percent of the uninsured and unbonded deposit balance. Cause: The City relied on the depository institution to monitor pledged collateral levels and did not independently verify that sufficient collateral was maintained to meet statutory requirements at year-end. Effect: The City was not in compliance with Minnesota Statutes. Recommendation: We recommend the City implement procedures to regularly monitor collateral levels relative to deposit balances to ensure compliance with Minnesota Statutes. Such procedures may include periodically obtaining and reviewing collateral reports from the depository institution and communicating with the institution to ensure pledged collateral is adjusted when necessary. Management Response: Management will ensure bank has deposits in excess of FDIC coverage collateralized going forward. 2025-002 Time Period for Payment Condition: Auditing for legal compliance requires a review of the City’s payment of claims. Our study indicated an instance of non-compliance that we believe is required to be remedied. Criteria: Minnesota statute section 471.425 requires that the City pay bills within 35 days from receipt. If the invoice is not paid within 35 days, interest at 1.5 percent per month is to be added to amount due. Cause: While testing disbursements we noted invoices that were paid after the 35 -day period. Effect: The City is out of compliance with Minnesota statute. Recommendation: We recommend that the City develop policies and procedures related to the accounts payable cycle that ensure department heads are timely passing along invoices to the finance department. These policies and procedures should include payment terms that are outlined within State statutes. Management Response: Management has taken steps to ensure the finance department has time to review, approve, and pay invoices timely. 3 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 were not changed during the year ended December 31, 2025. 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 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 are included below: • 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. • Management’s estimate of its other postemployment benefit liability is based on several factors including, but not limited to, anticipated retirement age for active employees, life expectancy, turnover, and healthcare cost trend rates. • 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. • Management’s estimate of its lease receivable is based on the present value of future lease payments expected to be received during the lease term. • Management’s estimate of future paid sick time usage is based on historical usage data. 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. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. In addition, none of the misstatements detected as a result of audit procedures and corrected by management were material, either individually or in the aggregate, to each opinion unit’s financial statements taken as a whole. 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. 4 Management Representations We have requested certain representations from management that are included in the management representation letter dated June 5, 2026. 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. Other Matters We applied certain limited procedures to the required supplementary information (RSI) (Management’s Discussion and Analysis, the budgetary comparison schedules and notes, 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), 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 generally 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. 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: GASB Statement No. 103 – Financial Reporting Model Improvements Effective: 12/31/2026 GASB Statement No. 104 – Disclosure of Certain Capital Assets Effective: 12/31/2026 Further information on upcoming GASB pronouncements. 5 * * * * 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 you r 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 5, 2026 6 Other Required Reports City of Hopkins Hopkins, Minnesota For the year ended December 31, 2025 City of Hopkins, Minnesota Other Required Reports Table of Contents For the Year Ended December 31, 2025 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 Findings and Responses 6 2 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, 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, 2025, and the related notes to the financial statements, and have issued our report thereon dated June 5, 2026. In connection with our audit, nothing came to our attention that caused us to believe that the City of Hopkins 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 2025-001 and 2025-002. 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 City’s response to the finding in our audit is described in the accompanying Schedule of Findings and Responses. The City’s responses were not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on them. The purpose of this report is solely to describe the scope of our testing of compliance and the results of that testing, and not to provide an opinion on compliance. Accordingly, this communication is not suitable for any other purpose. Abdo Minneapolis, Minnesota June 5, 2026 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, 2025, 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 5, 2026. Report on 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. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 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 statement s. 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 Government Auditing Standards noted below as items 2025-001 and 2025-002. 4 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 entity’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 5, 2026 5 City of Hopkins, Minnesota Schedule of Findings and Responses For the Year Ended December 31, 2025 Finding Description 2025-001 Insufficient Collateral Coverage Condition: During our audit, we noted that the City did not maintain sufficient collateral to secure its public deposits for the Housing and Redevelopment Authority (HRA) as required by Minnesota Statutes §118A.03 and §118A.04 as of December 31, 2025. Specifically, the collateral pledged by the depository institution was less than the amount required to fully secure the City’s uninsured and unbonded deposits at year-end. Criteria: Minnesota Statutes §118A.03 and §118A.04 require that public deposits be protected by federal deposit insurance, a corporate surety bond, or collateral pledged by the depository institution. Deposits in excess of available federal deposit insurance that are not covered by a corporate surety bond must be secured by pledged collateral with a market value of at least 110 percent of the uninsured and unbonded deposit balance. Cause: The City relied on the depository institution to monitor pledged collateral levels and did not independently verify that sufficient collateral was maintained to meet statutory requirements at year-end. Effect: The City was not in compliance with Minnesota Statutes. Recommendation: We recommend the City implement procedures to regularly monitor collateral levels relative to deposit balances to ensure compliance with Minnesota Statutes. Such procedures may include periodically obtaining and reviewing collateral reports from the depository institution and communicating with the institution to ensure pledged collateral is adjusted when necessary. Management Response: Management will ensure all deposits in excess of FDIC coverage are collateralized in the future. 2025-002 Time Period for Payment Condition: Auditing for legal compliance requires a review of the City’s payment of claims. Our study indicated an instance of non-compliance that we believe is required to be remedied. Criteria: Minnesota statute section 471.425 requires that the City pay bills within 35 days from receipt. If the invoice is not paid within 35 days, interest at 1.5 percent per month is to be added to amount due. Cause: While testing disbursements we noted invoices that were paid after the 35 -day period. Effect: The City is out of compliance with Minnesota statute. Recommendation: We recommend that the City develop policies and procedures related to the accounts payable cycle that ensure department heads are timely passing along invoices to the finance department. These policies and procedures should include payment terms that are outlined within State statutes. Management Response: Management has taken steps to ensure the finance department has time to review, approve, and pay invoices timely. 6