City of Hopkins Executive Audit Summary 2009CITY OF HOPKINS
EXECUTIVE AUDIT SUMMARY (EAS)
DECEMBER 31, 2009
CITY OF HOPKINS
TABLE OF CONTENTS
DECEMBER 31, 2009
AUDIT REPORT SUMMARY
FINANCIAL RESULTS
GOVERNMENT -WIDE FINANCIAL STATEMENTS
GENERAL FUND
ENTERPRISE FUNDS
APPENDIX A
FORMAL REQUIRED COMMUNICATIONS
APPENDIX B
2
4
5
6
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON
COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL
STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING
STANDARDS 9
APPENDIX C
REPORT ON MINNESOTA LEGAL COMPLIANCE
NEW ACCOUNTING AND REPORTING STANDARDS
11
FUND BALANCE REPORTING CHANGES (GASB STATEMENT NO. 54) 12
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Audit Report Summary
We prepared this Executive Audit Summary and Management Report in conjunction with our audit of
the City's financial records for the year ended December 31, 2009. The following is a summary of
reports we have issued:
Audit Opinion
The financial statements are fairly stated. We issued an "unqualified" audit opinion.
Yellow Book Opinion
Our report on internal control noted no material weaknesses.
Single Audit Compliance
A compliance audit over federal grant expenditures was not required in 2009.
Legal Compliance
No compliance issues were reported with respect to Minnesota Statutes.
Significant Reporting Changes from Prior Year
There were no changes in accounting principles in 2009.
(1)
FINANCIAL RESULTS
GOVERNMENT -WIDE FINANCIAL STATEMENTS
Statement of Net Assets
The Statement of Net Assets reflects what the City owns and owes at a given point in time, the last day
of the fiscal year. Theoretically, net assets represent the resources the City has leftover 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, invested
in capital assets -net of related debt is the largest classification and reflects the balance of infrastructure
(streets, storm water, side walks, 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 assets into
three components: net assets invested in capital assets -net of related debt, restricted net assets, and
unrestricted net assets.
The following is a condensed version of the Statement of Net Assets at December 31, 2009:
Assets:
Current Assets
Capital Assets
Total Assets
Liabilities:
Current Liabilities
Long -Term Liabilities
Total Liabilities
Net Assets:
Invested in Capital Assets,
Net of Related Debt
Restricted
Unrestricted
Total Net Assets
Governmental
Business -Type
Activities
Activities
Total
$ 27,868,693
$ 3,586,315
$ 31,455,008
46,014,532
19,747,908
65,762,440
73,883,225
23,334,223
97,217,448
3,624,014
287,671
3,911,685
25,536,926
6,396,314
31,933,240
29,160,940
6,683,985
35,844,925
31,700,690
13,484,942
45,185,632
11,952,783
-
11,952,783
1,068,812
3,165,296
4,234,108
$ 44,722,285
$ 16,650,238
$ 61,372,523
A significant portion of the City's net assets translate into restricted net assets by virtue of external
restrictions (statutory reserves) or by the nature of the fund they are in (e.g. equity in a debt service
fund typically can only be spent on future repayment of debt).
(2)
Statement of Activities
The Statement of Activities tracks the City's yearly revenues and expenses, as well as any other
transactions that increase or reduce total net assets. 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,
2009:
Functions/Programs
Governmental Activities:
General Government
Public Safety
Health and Welfare
Highways and Streets
Urban Redevelopment and Housing
Culture and Recreation
Interest on Long -Term Debt
Total Governmental Activities
Business -Type Activities:
Water
Sewer
Storm Sewer
Refuse
Pavilion/Ice Arena
Housing and Redevelopment Authority
Total Business -Type Activities
Total Governmental and
Business -Type Activities
Expenses Program Revenue
$ 1,679,040
6,249,519
278,002
3,069,078
1,690,861
1,482,349
1,025,771
15,474,620
1,221,556
1,741,115
403,231
786,522
401,598
528,542
5,082,564
$ 347,103
1,374,121
206,240
748,055
808,269
578,809
4,062,597
1,339,390
1,598,717
800,843
846,209
398,691
518,321
5,502,171
$ 20,557,184 $ 9,564,768
General Revenues:
Property Taxes
Tax Increments
Grants and Contributions Not Restricted
Unrestricted Investment Earnings
Gain on Sale of Capital Assets
Total General Revenues, Special Items, and Transfers
Change in Net Assets
(3)
Difference
$ (1,331,937)
(4,875,398)
(71,762)
(2,321,023)
(882,592)
(903,540)
(1,025,771)
(11,412,023)
117,834
(142,398)
397,612
59,687
(2,907)
(10,221)
419,607
(10,992,416)
9,353,966
1,636,609
309,609
183,801
11,163
11,495,148
$ 502,732
GENERALFUND
The following table presents the City's General Fund revenue sources for each of the past three years.
The most significant component is property taxes which amounted to $8,014,416 for 2009. 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.
General Fund Revenue by Source
Years Ended December 31,
$8,000,000 .......... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ...
$7,000,000
$6,000,000
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
$0
2007 2008 2009
❑Taxes E3 Intergovernmental ❑ Charges for Services ❑ License and Permits 0 Other
The following table presents the City's General Fund expenditures for each of the past three years. The
most significant component is public safety which amounted to $5,676,184 for 2009.
General Fund Expenditures by Function
Years Ended December 31,
$6,000,000 ....... ......... ......... ......... ......... ......... .........
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
$0 IL ... ... ... ... ... ...
2007 2008 2009
General Governmental M Public Safety ❑ Health & Welfare
Highways & Streets M Culture & Recreation ❑ Capital Outlay
(4)
GENERAL FUND (CONTINUED)
Fund Balance — Total fund balance of the City's General Fund increased by $131,671 during fiscal
2009 from $3,996,115 to $4,127,786 at December 31, 2009. 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 cash flow, as a cushion against unanticipated expenditures, funding
deficiencies and similar problems. At December 31, 2009, the unreserved fund balance as a
percentage of annual expenditures is 39.7% or approximately 21 weeks of expenditures. This
compares to 39.0% and approximately 21 weeks of expenditures as of December 31, 2008. In order to
properly analyze fund balance levels you must review fund balance reservations and designations 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 $75,615 (or 0.8%) less than the budgeted
amount while total expenditures were $148,122 (or 1.5%) less than had been budgeted. After
considering operating transfers, the net effect was an increase to total fund balance that was $131,671
more than had been reflected in the City's budget. As part of any budget update initiated for fiscal 2009,
the Council will want to take this and other budget variances into consideration in order to limit future
budget differences to every extent possible. While we recognize that the above variances are in part
due to conservative budgeting, we generally like to recommend that budget variances in a city's
environment be limited to 1 % to 2% on either side of zero.
ENTERPRISE FUNDS
The enterprise funds (Water Utility, Sewer Utility, Storm Water Utility, Refuse Utility, and Pavilion/Ice
Arena Fund) have a healthy combined net asset balance in the amount of $16,650,238 as of
December 31, 2009. The largest portion of this being an investment in infrastructure and other capital
assets net of related debt in the amount of $13,484,942.
(5)
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APPENDIX A
FORMAL REQUIRED COMMUNICATIONS
Honorable Mayor and
Members of the City Council
City of Hopkins, Minnesota
We have audited the financial statements of the governmental activities, the business -type activities,
each major fund, and the aggregate remaining fund information of City of Hopkins, Minnesota (the City)
for the year ended December 31, 2009, and have issued our report thereon dated June 22, 2010.
Professional standards require that we provide you with the following information related to our audit.
Our Responsibility under U.S. Generally Accepted Auditing Standards and Government
Auditing Standards
As stated in our engagement letter dated January 8, 2010, our responsibility, as described by
professional standards, is to express opinions about whether the financial statements prepared by
management with your oversight are fairly presented, in all material respects, in conformity with U.S.
generally accepted accounting principles. Our audit of the financial statements does not relieve you or
management of your responsibilities.
As part of our audit, we considered the City's internal control. Such considerations were solely for the
purpose of determining our audit procedures and not to provide any assurance concerning such
internal control.
As part of obtaining reasonable assurance about whether the financial statements are free of material
misstatement, we performed tests of the City's compliance with certain provisions of laws, regulations,
contracts, and grants. However, the objective of our tests was not to provide an opinion on compliance
with such provisions.
Our responsibility is to plan and perform the audit to obtain reasonable, but not absolute,
assurance that the financial statements are free of material misstatement.
2. We are responsible for communicating significant matters related to the audit that are, in our
professional judgment, relevant to your responsibilities in overseeing the financial reporting
process. However, we are not required to design procedures specifically to identify such
matters.
3. We are also responsible for communicating matters regarding the provisions of the Minnesota
Legal Compliance Audit Guide for Local Government, promulgated by the State Auditor
pursuant Minnesota Statute 6.65.
(6)
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Honorable Mayor and
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City of Hopkins
Other Information in Documents Containing Audited Financial Statements
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 client prepared
document, such as an annual report, should be done only with our prior approval and review of the
document. Our responsibility for other information in documents containing the City's financial
statements and our auditors' report does not extend beyond the financial information identified in our
auditors' report. We have no responsibility for determining whether such other information is properly
stated and do not have an obligation to perform any procedures to corroborate other information
contained in such documents.
Planned Scope and Timing of the Audit
We performed the audit according to the planned scope and timing previously communicated to you in
our meeting about planning matters on February 1, 2010.
Significant Audit Findings
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies. The significant
accounting policies used by City of Hopkins are described in Note 1 to the financial statements. No new
accounting policies were adopted during 2009.
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 were:
Management's estimate of the useful lives of capital assets is based on authoritative guidance and
past experience.
Management's estimate of the investments at fair value is based on published market values at
December 31, 2009.
Estimated current portion of compensated absences payable — 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, 2009 is based on historical trends and anticipated leave time activity.
We evaluated the key factors and assumptions used to develop the above estimates in determining that
it is reasonable in relation to the financial statements taken as a whole.
Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management in performing and completing our
audit.
(7)
Honorable Mayor and
Members of the City Council
City of Hopkins
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. There were no misstatements detected as a result of audit procedures that were
material, either individually or in the aggregate, to the financial statements taken as a whole.
Management did not identify and we did not notify them of any uncorrected financial statement
misstatements.
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 auditors' 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
representation letter dated June 22, 2010.
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.
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.
This information is intended solely for the use of the Members of the City Council and management of
the City of Hopkins, Minnesota and is not intended to be and should not be used by anyone other than
these specified parties.
Minneapolis, Minnesota
June 22, 2010
a
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APPENDIX B
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN
AUDIT OF FINANCIAL STATEMENTS PERFORMED
IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
Honorable Mayor and
Members of the City Council
City of Hopkins, Minnesota
We have audited the financial statements of the governmental activities, 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, 2009, which collectively comprise the City's basic financial
statements and have issued our report thereon dated June 22, 2010. We conducted our audit 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.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered the City's internal control over financial reporting
as a basis for designing our auditing procedures 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 over financial reporting. Accordingly, we do not express an opinion on the effectiveness
of the City's internal control over financial reporting.
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.
Our consideration of internal control over financial reporting 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
financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did
not identify any deficiencies in internal control over financial reporting that we consider to be material
weaknesses as defined above.
(9)
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City of Hopkins
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City's financial statements are free of
material misstatement, we performed tests of its compliance with certain provisions of laws, regulations,
contracts, and grant agreements, noncompliance with which could have a direct and material effect on
the determination of financial statement amounts. However, providing an opinion on compliance with
those provisions was not an objective of our audit and, accordingly, we do not express such an opinion.
The results of our test disclosed no instances of noncompliance or other matters that are required to be
reported under Government Auditing Standards.
This report is intended solely for the information and use of the City Council, management, the Office of
the State Auditor, and state and federal awarding agencies and is not intended to be and should not be
used by anyone other than these specified parties.
Minneapolis, Minnesota
June 22, 2010
(10)
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APPENDIX C
REPORT ON MINNESOTA LEGAL COMPLIANCE
Honorable Mayor and
Members of the City Council
City of Hopkins, Minnesota
We have audited the financial statements of the governmental activities, 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, 2009, which collectively comprise the City's basic financial
statements and have issued our report thereon dated June 22, 2010.
We conducted our audit in accordance with auditing standards generally accepted in the Unites 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 provisions of the Minnesota Legal
Compliance Audit Guide for Local Government, promulgated by the State Auditor pursuant to Minn.
Statutes Section 6.65. Accordingly, the audit included such tests of the accounting records and such
other auditing procedures as we considered necessary in the circumstances.
The Minnesota Legal Compliance Audit Guide for Local Government covers seven main categories of
compliance to be tested: contracting and bidding, deposits and investments, conflicts of interest, public
indebtedness, claims and disbursements, miscellaneous provisions, and tax increment financing. Our
study included all of the listed categories.
The results of our tests indicate that for the items tested the City complied with the material terms and
conditions of applicable legal provisions.
This report is intended solely for the information and use of the City Council, management of the City,
and the Office of the Minnesota State Auditor and is not intended to be and should not be used by
anyone other than these specified parties.
Minneapolis, Minnesota
June 22, 2010
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(11)
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NEW ACCOUNTING AND REPORTING STANDARDS
Fund Balance Reporting Changes (GASB Statement No. 54)
In March 2009, Governmental Accounting Standards Board issued GASB Statement No. 54, Fund
Balance Reporting and Governmental Fund Type Definitions. The requirements of this Statement are
effective for the City's fiscal year ending December 31, 2011. Governments that wish to implement
earlier than that date are encouraged to do so.
Statement 54 distinguishes between fund balance amounts that are considered non -spendable, such
as fund balance associated with inventories, and other amounts that are classified based on the relative
ability to be spent. Beginning with the most non -spendable classification, fund balances will be reported
in the following classifications:
• Restricted—amounts constrained by external parties, constitutional provision, or enabling
legislation.
• Committed -includes amounts that can be used only for the specific purposes determined by a
formal action of the government's highest level of decision-making authority
• Assigned -amounts a government intends to use for a particular purpose. In governmental
funds other than the general fund, assigned fund balance represents the remaining amount that
is not restricted or committed.
• Unassigned—amounts that are not constrained at all will be reported in the general fund or to
report deficit balances in other governmental funds.
The statement interprets certain terms within the definition of special revenue funds. The statement
also specifies how economic stabilization or "rainy -day" amounts should be reported. For financial
reporting purposes, stabilization should be regarded as a "restricted" or "committed" classification only if
the government details the circumstances or conditions that signal the need for stabilization in sufficient
detail. Otherwise, these amounts should be reported as "unassigned" in the general fund.
(12)