The URL can be used to link to this page

10. Audit-Fiscal Year Ended 6/30/98City of Kalispell Montana Fiscal Year Ended June 30, 1998 AUDIT REPORT Denning, Downey & Associates, P.C. CERTIFIED PUBLIC ACCOUNTANTS CITY OF KALISPELL, MONTANA TABLE OF CONTENTS Fiscal Year Ended .dune 30 1998 Pie Organization I Independent Auditor's Report 2 General Purpose Financial Statements Combined Balance Sheet - All Fund Types, Account Groups, and Discretely 3-4 Presented Component Unit Combined Statement of Revenues, Expenditures, and Changes in Fund Balances - All 5 Governmental Fund Types Combined Statement of Revenues, Expenditures, and Changes in Fund Balances - 6-7 Budget and Actual - General, Special Revenue, Debt Service, and Capital Projects Fund Types Combined Statement of Revenues. Expenses, and Changes in Retained Earnings - All 8 Proprietary Fund Types and Discretely Presented Component Unit Combined Statement of Cash Flows - All Proprietary Fund Types and Discretely 9 Presented Component Unit Notes to the Financial Statements 10-34 Independent Auditor's Report on Supplemental Information and Schedules 35 Supplemental Schedules Significant Provisions of Sewer Revenue Bonds Ordinances and Required 36 - 37 Information Schedule of Insurance Policies WV Schedule of Assets, Liabilities, and Fund Equity - Sewer Fund 39 Schedule of Revenues, Expenses, and Changes in Retained Earnings - Sewer Fund 40 Schedule of Cash Flows - Sewer Fund Revenue Bond Requirements 41 W -i- CITY OF KALISPELL, MONTANA TABLE OF CONTENTS - cant. Page Single Audit Section 43 Schedule of Expenditures of Federal Awards 44 Independent Auditor's Report on Compliance and on Internal Control Over Financial 45 - 46 Reporting Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards Independent Auditor's Report on Compliance With Requirements Applicable to Each 47 - 48 Major Program and Internal Control Over Compliance in Accordance With OMB Circular A-133 Schedule of Findings and Questioned Costs 49-51 Independent Auditor's Report on Other Compliance, Finanacial, and Internal 52 Accounting Control Matters Independent Auditor's Report on Prior Audit Report Recommendations 53 William E. Boharski Gary Nystul Ron Van Natta Norbert Donahue Dale Haarr Glen Neier Frank Garner Tad Waggener Amy Robertson. Heidi Ulbricht James Hansz Michael Baker Lawrence Gallagher CITY OF KALISPELL, MONTANA ORGANIZATION Fiscal Year Ended June 30, I998 CITY COUNCIL Members CITY OFFICIALS Mayor Jim Atkinson John Graves M. Duane Larson. Douglas Scarff Attorney/Acting City Manager Acting Police Chief Fire Chief Finance Director City Judge Public Works Director Parks Director Planning, Economic, and Community Development Director -T- Deming, Downey & Associates, P.C. CERTIFIED PUBLIC ACCOUNTANTS No. 4SunsetPlaza, Suite 101 • Kalispell, MT 59901 • 756-6879 INDEPENDENT AUDITOR'S REPORT City Manager, Mayor, and City Council City of Kalispell Kalispell, Montana We have audited the general-purpose financial statements of the City of Kalispell, Montana, as of and for the year ended June 30, 1998, as listed in the table of contents. These general-purpose financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these general-purpose financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the general-purpose financial statements referred to above present fairly, in all material respects, the financial position of the City as of June 30, 1998, and the results of its operations and the cash flows of its proprietary fund types and discretely presented component units for the year then ended in conformity with generally accepted accounting principles. In accordance with GovernmentAuditing Standards, we have also issued our report dated March 19, 1999, on our consideration of the City's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grants. Our audit was performed for the purpose of forming an opinion on the general-purpose financial statements of the City, taken as a whole. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non -Profit Organizations, and is not a required part of the general-purpose financial statements. Such information has been subjected to the auditing procedures applied in the audit of the general-purpose financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the general-purpose financial statements taken as a whole. CCbCC�� P.C. aennirt�, �lowne� carzd!!.�J,t3ociate6, March 19, 1999 -2- Robert K Denning, CPA • Kim M Downey, CPA F` W S N LU U m ID z Z m m D U � I m rn m�uzv mm urns cmF�fi io u3o�o7(�mo<rrninmm o.-ar.i z>}m F- t- Dz=qO � -1 rs Nm'umi� Lai �F o N cif l�?j 2 H a.�.v01i; � rmdrmi',� D U, ffl � mNip cp CJ V'Q, IO f7m ONm � LL�UJ Z III¢— ¢ Z,� u mJ LCuDD0 N:I oLLJ � m o ,m � o ��a dim Fn CO UC7 p N m' Q lCS K a c av ao m� 4 � nl. rn! triy LL; y C ui M N IONI", III i � LLi m' Sp o m m o m H ,V_tl ifl._ (6 N 'K N Q W LL i ai m v tilm;": D =! co ui N_'I ti u.i,: N ml a v I 5 i� tp gym' m LU » e� EL ydy Z: O m, J E. LU O » m; m (fl 10 o m [p m N [•l tm hw LLI uj uJ Z m m z m 9 O u w 0 n oq N N W O a 0 m m n; ° W W fp N tC5 ©_C1 M [+I F F Z }I W r O vN-- N O W F J — 0 a O N M W CO :Ni NN NMm `F' Mm� p r v Ni 1P{; a2 a2 uSti <ri Q LU ❑ �r ut U Z FII, rnNM v Nm�n0 000r�o�y'- n cD rnN W N, Z! O.V]n,WNNZ W Nm(mil C Ct N- �^❑� ❑ moMaon�n Wr�m8� <n c4iggqW �M neoN �nWn', M nrn©NN4I� W�7 Ci �'�pp C6�m CIF nA OS 4n 61 Y) WNI Q�z� i<F ¢ CN N r M +F10 M d' rNWNLo cp C.M»' N(S7 vC, i Co ZI m uio0Omti nMmLmp SnmF� ,l a O F ui U)�i�rQs o So ooxo ply C � 1zi N' I F OZI �4 LLLL LU E9 I� m o 'Fnl >}up C' Z'. M } en m I ,n En q ©o oln r v o r :q C] '"IN: N NMIp le ii 0. C i V S'7 h. F M 4] (p ' N' �i LU; r a; m o: U p_ W W F� 9 ul n q r� ice, O m', M M: �€ I 13 Li', mm m± ri r cci r C �Z uj }I, m a=m m 8 m y Q3 N m O €.LRcc 'CJ. N iC6 m .0 C m O �. W i9 C C a' ❑' occum °�°Eau�„iaom;� 'S.�c a Lu Z t�Dv°. `ova cas_.?m c.na mZu.. U fmc�mE�°�mm�m�E°so�m...° vnE@�Zw®�!� c o�am c me c...m p�� } Q1 `6' c� m m m a m m m a m a m m m c a m [] f L a Q�a❑uJU❑4C9 v> >�cn c]❑ �CJ5� LL -4- z 0 CL U) 0 C) Ch LU 0 z Ma Z) LL U) LU 0 z LU a (L z Z Li:3 LL Z z UJ (wCS.M X Z LU ,6 W > :) 0 z W vi > w w LL 0 I-- z LU m w w z m 2 0 0 V) LU m O m LL z uj 2 z x Lit 0 0 rl- LO 00 (D l4t c) Ln Lo r-- co co 0 cr) U) m 0) co Clq m Q w in CDAO LO 00 It M M - U) i oi 0) CD co iz) 0) M., w C)I-; CO v t- r- w w M to 0 ("1 V7 C'C4' 1: i VMMM-or% c raornrnvmuyjw 1 co C� m a) C) w C\T C) 0)01oo.CFrl Lo co i r.- y v L6 col! sir -j Z ("I CO C� r.- V P: 0 V N M r-- 0 W 'tx'j. r- U-) CO C�4 0 '�t 1 V- Cp It (D IS Ln m -j Z! 000 LO C\f 04: --s w C) OD c')l CD, loll U) i cq! 00 'EL V. co 4M r- LO N CO 07 04 -.-. U) M'i I I i CO CO - U-� 0bill'TV� C"F M C6:i a�: (0— col C)J� ce) m , I coal. cil r- 0�00� (3) N CN (D C) Mr CO C) C> "r I'- (A(D 0: 001 to Co 0 :LD! a) ch N. "r to Lo o): Ln: co rl- a) - CO 0 (D CD N r-- -!jN' ' M i m ?--. CA v U-): C w cli �! (D �0- U5 C5 i v (DI U) f-- &0 cq�cnl r-- N; CD r- W� 6! cr Ml C'j 'o m 'n: cl) ocl Lo C-4 c): C'4 (Q I co U) :-1 04 i Cl) Cool CO r- V 0) (n �M' LO — CO M — —0, N n LO t-- -�I-! CO 00 0) Lo 0 (0 1- CD m a) gi m! L') Z! �o _r — CO M 00 CN a) =i (0 M 0 N toil NiCV M Lr) r -- — M �o U-) LO 'r U) OD U-): CD r- (0 m N' r,-! r— Ln Liz (0� g c m in (D C"[ 1� It CO -!to to) U) CO 0 E w 0 (D (D 0 to E > 0 A CL a. 0 w d> 70 W0 'n fn Z) cu 0 =5 fn E CD 00 G E > (D c (D > (D U) Co :3 w a) 0) LL 0 (D E a) cX �Z� > 0 w 0 gn 0) (U U) C, O'w n 4) E E Z; ca CU en o " - — m CD Cl) C (n r- z 0, W m c &2 r- u 0 _0 c '65 't� (D (D 0 E > w 0 0 rz a) m , =; (D > iu 0 0� (D O)o 0) CD — — 2 2 0 En a) in L) ID o 0 X ca ;r- 0 0 CD cz Lu! CD w CD r :5 W -ci 0 M 0 Mo -0-0 _ a) CL x C:r d) E z > U, E r ED 2 (D E2 w 23 m M D 0 m 0 m C) > C 2) (n X 0 0 CL 2 0 CL O. co > LL CL CL C.) = m m L o o > x 0 =; S) :3 4) -j wo C)o LU w U- fl� LL CD a F U a �a Z Q F ltl � �iL} mcl 1- W Z Z co F m W zw n LL _I Z Lll �a Z Qz S� U Q W U a� LU(1) DIn t Lu m ❑ ❑ Z LLI LIA IL LdJ ; (1) Ldd w Z LU 7 G) LL Ltd w y LL Q LC� F LLLj Z UJ UJ iL a� F fn LL3 GO O U co O Q1 e m c C w m CD LL 0 U- 0 Z D LL w Z) z w L3 w (L U) 0 Z D LL J LL' w z w M In z 0 uj CL LL 0 z 0 W Cto LLI 50 z Z C13 LU z LL CL LU z iL z CL Q yj LU V) CO Z LLI UJ Li LL x 0- T W =1 ,6z Lu W z LLI > w LL LL Lit 0 CL in z —T w 2 LU w z w 10 0 uj z lb 0 cz 0 z m D (D LL c :3 CD >of LU w ui w U II LL LL W CD� co r-,; co r-, Cli! oc� ,a >: -,T: Lr) > > LL 69 C) . . . rl ti C) to c, CD C� f- cl C3. In: OD C61 701 63 ZD" L) 4 co u7 tx) �'o in > ALL r- Lo Lr) M: co ! m co qa LQ l�' co 7j CV m co,o) co,m! M; C) 00: :i 04 cl1 Loi, cn Lo Lo, to co; LO to Cl) 0 x 0 0 ur 0 CL (D 'a 0 cr) -6 W =; c Q z�i a; :3 - M E (D E (D > (D (D > B 15 (D 00 U) co > 0 E 2 E M S (D Z-1 co (D 0) � = w Lu C t.) 0 'o (n c (D _W _(D . M 0 M LL C r- CD 0 ui co -0 m M > Z r- t 2 a a) > 0 15 70 0 a- r CM [2 fu (D C; 0 0 ,k; �c = CL) — —0 V) W cu D)r s'D'O LS; C ) Q) -S 0 Ci !�� x W zi LLJ: w G) > cn 0 0 ca E 7�5 0 C: t (D a) 7ErA LL -6 to LLJ (a > - w RE 2 �- T 2 0 CL 2 LU M CO) c > n 0 E CL 0 IL 0 > x 0 (1) F- �E w -7- 0, 651 v-d col r r- Ln 00 CD cm a) C z z 0 J W LL W QJ LL Y 0 N C7 Z Z�- w z UJ a LLI W Z0 aIL w 0 Zuj U W E- Z lu xW U IL a LU iJ1 N W W NU _to x W �a �CO za LU z �z 0 LU w LU gaZE a y0 0w LU C- Z J �a 0 0 Z <L Z" HE W':o 0 Z CL>',-20 CL QI w CO Uj m W, p� 0. [ll V } . C7 F- ski O C N Z Lt_ CD to LL1 to p 1 (D o LL 8 LL Nr (0 LO IT CO 11- 0) (0 C) CD:; C I h 6) co co:: , CO ; N(D r CO EMI. r M N O 01 e•- N MINI LO: E9 Ld) � O M' (hD C04 M m ' t0 -:zr co; (O LC} CD 0 0 I m Cl (fl r M I �r 00 M r lzr C)l m O N co!o (n (f3 I'- ' O a CO: L O O cD'h! co Ln O CD ro �coi. LO , EDD 0 � N Cl) LO — C) 05 r CD tD ', m N Ni CO h LD Of? 0 O cc€Oh M M Ih LO m tDih': r r to hC7h O(D c_O M tD N(O co:m 14 to hcor Nw er r q• cp V'!O '. r V (A co N ' M h (O Ln N r h r ':' coLO 0 M r N h`:�T N (d) m N N m V Nr ! ltl Lo N (D (o I-- M I., co (D NOM00000 N to ?.0 (D N N:V �r Mr sts€'r�rm i(3 Nm CD co: 000 050. ("] (3) N 04 r [V (A m I 'M: N'. h co I Cl) LP CD mh V LO CD N 6i 10 C'3 � N O CV O tb`t6l (7 r(0 V fo7'pl hll r N C N tU x X iri N x w N tN) (D O m CL N (13 C N W (L) Co 6 0 ill G N N co N Q (j C7 (VA O ❑ 'n Q } N (U 3 O .X O N Qn_u3n.L -10 V 0 O J tU U m G .6 Q 0 0 m l-iiO h` CO O r-3co; MI n h h::Co-1 N m misrl (O' N C7 M?N! MI u i i O lfi l[1 r h(Dm; h h CD co M i NI i 'I OD m N €D 00 (0 M LO '; O � r 0ii(il (D h h LTCO ?O; ,zr cn �.; m N M MiN: M O; m' co to N C] N:c0; w) N M h 1 O V Q= O oa M(DU) m (D V M? r: VLo4c0., ctl Il- to U-) i com �r un m!0 h1 N MM N- r,>: K Ln (D h M V 9 T cO m 0) (D D O)M0) 0) c cM'tnO'ImN[D j C3McoDNmZ MN V mm C,4 n0Q> (0 co j FV-e '0 mI'- cv m C6m 1-- QWC0ni v�lM rm E(�D Nvm f0- Mwrn N�N < co tO nV< N wN v: Qrnli7 0G 11 n w t9 64 n I--I{..I Cj N W'C3 V m V N O t`. 'r- r- p,', [� cr, eM m1 C'1'e0? NIA 'eT r �Im r N N ;fir O co n Ir-. 061 Q O CY �.... M lO W 01 m (p M Qf s3~1 M m to V' [D Ch m V3 of �7 N M Q% to C7 MmNmO 'xt' m p (y O O O� cD O di Q fD Ir N V O MO N Cfl W N M n (0 N T - j �, Z E Lll F� M N 1 tl N fl- m all mil N" iZ.Q 47 Fk tN {!. Q ?" HI CIO E qi ciO O i M i s m m n, CD i i C3N 1 m iC'n ImO {rl-` fO _IM' 01 7 , .ItiM-s M urjIC,: Z LL }' e9 W m ' O m I If) � LO mm m m tiT W: m CD Om O[Dm W I iF M i--loj co Fj USA _ Cn 'fl c•3 cD N o [R'', 'V O �f' O O N �s] rls ' �ai W cb f` f` LO;m'1 s- (� r M (7 N to 0 �D tn C (6 N C1 fD u� N N m; r M 'NI CO 16N Yf m �i rn O O'I iL Or Cl 01 .... �': NN�vr Mm M I fY cl CL I I i Aj 2u a m a m c U O} N G t1 V � � w LL 2 C] ¢ Vl N C m G N Q CD N C Vl aj N [3 y C •� a a m H '� 41 sU d `1 E fn Q c c jy Q w C3 cc m _v rn :a m 4D E iz t—t a �rs c E q w ? r' o co ro m c vNo ? ..0Da0 mp n c Z o cm c0 cv °muc - Emh No ¢ IL °cn 15 0,> O mm � = c CN p N C 0N MyQ m NUmN U y cm N N 'OD 0 m U Qq�p Z �y Ow Im >°c1E[0OUcc"p Gtl0 ID . Ng EE q 7 -E co w CD NN an o o mCD n. E�oamiw�m�m�am� o �Q, nCL o acacmN N IL omaaN a E tEi o a c U ci d v m .G N N m 77 N tV U U U U C3 ta. L '� w' 'y m _ Y` ti m E E m 7+ a Q7 () u. m O U w m C m Z CL maC� 0¢ L(l�lCfl U U�¢Uaz ¢? m3 m vfp m U Z U Z U U z z U U 0 o z Ia* CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1998 k. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of the City's significant accounting policies: A. Reporting Entity The City is governed by an elected Mayor and City Council. The City is considered a primary government because it is a general purpose local government. Further, it meets the following criteria: (a) It has a separately elected governing body (b) It is legally separate and (c) It is fiscally independent from the State and other local governments. The accompanying general-purpose financial statements include all funds, account groups, agencies, boards, commissions and authorities which meet the criteria for inclusion in the City's financial report. These criteria include financial accountability, appointment of a majority of the secondary government and the financial benefit or burden derived by the primary government from a secondary government. As required by generally accepted accounting principles, these financial statements present the City of Kalispell and its component unit. The component unit is included in the City's reporting entity because of the significance of its operational or financial relationship with the City, as described above. The discretely presented component unit, the Kalispell Parking Commission, is a legally separate organization of the City, but the City is financially accountable. The City appoints the governing body of the Parking Commission. The Parking Commission runs a variety of metered and leased parking areas downtown which are owned by the City. They also issue tickets for parking violations in the parking district downtown. The component unit is reported in a separate column to emphasize it is legally separate from the City. B. Measurement Focus, Basis of Accounting The accounts of the City are organized and operated on the basis of funds and account groups. A fund is an independent fiscal and accounting entity with a self -balancing set of accounts. Fund accounting segregates funds according to their intended purpose and is used to aid management in demonstrating compliance with finance -related legal and contractual provisions. The minimum number of funds are maintained consistent with legal and managerial requirements. Account groups are a reporting device to account for certain assets and liabilities of the governmental funds not recorded directly in those funds. The City of Kalispell has the following fund types and account groups: -10- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1998 Governmental funds are used to account for the City's general government activities. Governmental fund types use the flow of current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual. (i.e., when they are "measurable and available"). "Measurable" means the amount of the transaction can be determined and "available" means collectible within the current period or soon enough thereafter to pay liabilities of the current period. The City considers all revenues available if they are collected within 60 days after year-end. Expenditures are recorded when the related fund liability is incurred, except for unmatured interest on general long-term debt which is recognized when due, and certain compensated absences and claims and judgements which are recognized when the obligations are expected to be liquidated with expendable available financial resources. Real and personal property taxes (excluding motor vehicle taxes), special assessments, charges for current services, and interest earnings are susceptible to accrual. Other receipts and taxes become measurable and available when cash is received by the City and are recognized as revenue at that time. The City recorded real and personal property taxes and assessments levied for the current year as revenue. Taxes and assessments receivable remaining unpaid at year-end and not expected to be collected soon enough thereafter to be available to pay obligations of the current year were recorded as deferred revenue, with a corresponding reduction in revenues, as required by generally accepted accounting principles. In addition, prior period delinquent taxes and assessments collected in the current period were recorded as revenue in the current period as required by generally accepted accounting principles. Entitlements and shared revenues are recorded at the time of receipt or earlier if the susceptible to accrual criteria are met. Expenditure driven grants are recognized as revenue when the qualifying expenditures have been incurred and all other grant requirements have been met. Governmental funds include the following fund types: The general fund is the City's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The special revenue funds account for revenue sources that are legally restricted to expenditures for specific purposes. The debt service funds account for the servicing of general long-term debt and special assessment debt not being financed by proprietary funds, and for which the City is obligated in some manner for payment. The capital project funds account for the acquisition of fixed assets or construction of major capital projects not being financed by proprietary funds. -11- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1998 Proprietary funds are accounted for on the flow of economic resources measurement focus and use the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred. The City has elected not to apply FASB pronouncements issued after November 30, 1989. The enterprise funds are used to account for those operations that are financed and operated in a manner similar to private business or where the City Council has decided that the determination of revenues earned, costs incurred and/or net income is necessary for management accountability. The internal service funds are used to account for operations that provide services to other departments or agencies of the government, or to other governments, on a cost - reimbursement basis. Fiduciary funds account for assets held by the government as an agent on behalf of others. The agency funds are custodial in nature and do not present results of operations or have a measurement focus. Agency funds are accounted for using the modified accrual basis of accounting. These funds are used to account for assets that the City holds for others in an agency capacity. Account Groups. The general fixed assets account group is used to account for fixed assets not accounted for in proprietary funds. The general long-term debt account group is used to account for general long-term debt and certain other liabilities that are not specific liabilities of proprietary funds. C. Assets, Liabilities, and Equity 1. Cash Equivalents, and Investments The City considers for the purposes of the statement of cash flows, all investments of the proprietary fund types, except for investments in sidewalk and curb warrants to be cash equivalents. Investments are carried at cost which approximates market value. 2. Receivables and Payables Transactions between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either "interfund receivables/payables" (i.e., the current portion of interfund loans) or "advances to/from other funds" (i.e., the non -current portion of interfund loans). All other outstanding balances between funds are reported as "due to/from other funds." Advances between funds are offset by a fund balance reserve account in applicable governmental funds to indicate they are not available for appropriation and are not expendable available financial resources. -12- CITE' OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1998 An allowance for uncollectible accounts was not maintained for real and personal property taxes and special assessments receivable. The direct write-off method is used for these accounts. Property tax levies are set on or before the second Monday in August, in connection with the budget process. Real property (and certain attached personal property) taxes are billed within ten days after the third Monday in October and are due in equal installments on November 30 and the following May 31. After those dates, they become delinquent (and a lien upon the property). Special assessments are either billed in one installment due November 3 0 or two equal installments due November 30 and the following May 31. Personal property taxes (other that those billed with real estate) are generally billed no later then the second Monday in July (normally in May or June), based on the prior November's levies. Personal property taxes, other than mobile homes, are due thirty days after billing. Mobile home taxes are billed in two halves, the first due thirty days after billing; the second due September 30. The tax billings are considered past due after the respective due dates and are subject to penalty and interest charges. The tax levies for the fiscal year ended June 30, 1998, were based upon a taxable valuation of $21,473,297. Reserves for estimated uncollectible accounts receivable are maintained for the water, sewer, and ambulance enterprise funds. Accounts receivable are reported as net of uncollectible accounts. Reserves for uncollectible accounts on June 30, 1998, were as follows: Water $ 4,427 Sewer 10,008 Ambulance 90,000 $104A3S 3. .Inventories and Prepaid Items Inventories of materials and supplies are valued at cost in the proprietary funds. The costs of inventories in governmental fund types are recorded as expenditures when purchased. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items. 4. Fixed Assets Fixed assets used in governmental fund types of the City are recorded in the general fixed assets account group at cost or estimated historical cost if purchased or constructed. Donated fixed assets are recorded at their estimated fair value at the date of donation. Assets in the general fixed assets account group are not depreciated. Interest incurred during construction is not capitalized on general fixed assets. -13- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1998 Property, plant, and equipment in the proprietary funds of the government are recorded at cost. Property, plant, and equipment donated to these proprietary fund type operations are recorded at their estimated fair value at the date of donation. The City records contributions to enterprise funds from city, federal, and state sources for property acquisitions as contributed capital. Public domain ('infrastructure") general fixed assets (e.g. roads, bridges, curbs and gutters, and other assets that are immovable and of value only to the government) are not capitalized, Major outlays for capital assets and improvements are capitalized in proprietary funds as projects are constructed. Interest incurred during the construction phase of proprietary fund fixed assets is reflected in the capitalized value of the asset constructed, net of interest earned on the invested proceeds over the same period. ]Fixed assets purchased or acquired by proprietary fund types are recorded in the individual fund making the purchase. Any fixed assets donated specifically for an enterprise fund are also recorded in that individual fund. Depreciation on proprietary fund fixed assets is provided over their estimated useful lives on the straight-line method. The useful lives of these assets have been estimated as follows: Years Buildings 20 - 50 Improvements other than buildings 10 - 50 Machinery and equipment 5 - 20 Vehicles and heavy equipment 5 - 20 Sewer lines and pump stations 10 - 50 5. Deferred Revenues Deferred revenue results when asset recognition criteria have been met and when revenue recognition criteria have not been met. These pertain to the net uncollected property tax and other receivables and are classified as "Deferred Revenues" on the combined balance sheet. 6. Compensated Absences it is the City's policy and state law to permit employees to accumulate a limited amount of earned but unused vacation benefits, which will be paid to employees upon separation from City service. Employees are allowed to accumulate and carry over a maximum of two times their annual accumulation of vacation, but no more than 90 days into the new calendar year. There is no restriction on the amount of sick leave that may be accumulated. Upon separation, employees are paid 100 percent of accumulated vacation and 25 percent of accumulated sick leave. The liability associated with governmental fund -type employees is reported in the general long-term debt account group, while the liability associated with proprietary fund -type employees is recorded in the respective fund. -14- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1998 7. Lang -Term Obligations The City reports long-term debt of governmental funds at face value in the general long-term debt account group. Certain other governmental fund obligations not expected to be financed with current available financial resources are also reported in the general long-term debt account group. Long-term debt and other obligations financed by proprietary funds are reported as liabilities in the appropriate funds. For governmental fund types, bond premiums and discounts, as well as issuance costs, are recognized during the current period. Bond proceeds are reported as an other financing source net of the applicable premium or discount. Issuance costs, even if withheld from the actual net proceeds received, are reported as debt service expenditures. For proprietary fund types, bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Issuance costs are reported as deferred charges. 8. Fund Equity Reservations of fund balance represent amounts that are not appropriable or are legally segregated for a specific purpose. Reservations of retained earnings are limited to outside third -party restrictions. Designations of retained earnings represent tentative management plans that are subject to change. The proprietary funds contributed capital represents equity acquired through capital grants and capital contributions from developers, customers or other funds or governments. 9. Interfund Transactions Interfund transactions consisting of identified services performed for other funds or costs billed to other funds are treated as expenditures in the fund receiving the services and as revenue in the fund performing the services. Transactions which constitute reimbursements of a fund for expenditures or expenses initially made from it which are properly applicable to another fund are recorded as expenditures in the reimbursing fund and as reductions of expenditures in the fund that is reimbursed. 10. Memorandum Only- Total Columns Total columns on the general-purpose financial statements are captioned "Memorandum Only" to indicate that they are presented only to facilitate financial analysis. Data in these columns do not present financial position, results of operation, or cash flows in accordance with generally accepted accounting principles. Neither is such data comparable to a consolidation. Interfund eliminations have not been made in the aggregation of this data. -15- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1998 II. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Budgets and Budgetary Accounting 1. Budget Process An operating budget is adopted each fiscal year for the General Fund, Special Revenue Funds, Debt Service Funds, and Capital Projects Funds on the modified accrual basis of accounting. The appropriated budget is prepared by fund, function, and for the General fund and certain other funds, by department. A non -binding management budget is adopted for the Enterprise and Internal Services Funds. The final budget is legally enacted by the City Council, on the second Monday in August after holding public hearings as required by State statutes. Budget appropriation transfers may be made between the general classifications of salaries and wages, maintenance and operation and capital outlay. The City Council may amend a final budget when shortfalls in budgeted revenues require reductions in approved appropriations to avert deficit spending; when savings result from unanticipated adjustments in projected expenditures; when unanticipated state or federal monies are received; or when a public emergency occurs which could not have been foreseen at the time of adoption. The procedure to amend the budget in total can be made only after the City prepares a resolution, notice is published of a public hearing, and a public hearing is held in accordance with state law. The City recognized certain commitments related to purchase orders and executory contracts as expenditures for budgetary purposes. In addition, a reserve for encumbrances was established for the commitments to indicate that these amounts will not be available for the ensuring year's budget, but will be used to liquidate portions of the current year's budget. Encumbrances All appropriations, except for construction in progress, lapse at the end of the fiscal year. The City utilizes an encumbrance accounting system in certain instances, as described in the preceding note. Encumbrance accounting, which is an extension of the budgetary accounting in the General, Special Revenue, and Capital Projects Funds, enables the City to record purchase orders, contracts, and other commitments for the expenditure of monies in order to reserve that portion of the applicable appropriation. Encumbrances at year-end are reflected as reservations of fund balances since they do not constitute expenditures or liabilities. -1 b- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1998 2. Deficit Fund Balances The following fiends had deficit fund balances at June 30, 1998: Special Revenue Funds: ISTEA $ 2,032 Debt Service Funds: 1970 Sidewalk and Curb 70 1990 Sidewalk and Curb 3 1993 Sidewalk and Curb 29 1996 Sidewalk and Curb 252 Capital Projects Funds: 1997 Sidewalk and Curb 646 The deficits in the Debt Service Funds were caused by a shortfall in anticipated revenue and will be eliminated as delinquent assessments are collected. The deficit in the Capital Projects Fund will be eliminated upon the sale of Sidewalk and Curb Warrants at the end of the construction season. 3. Budget OverdraftsNariances Significant favorable budget to actual variances existed in the Special Revenue Funds in the taxes revenue source in the amount of $172,130 due to increased valuation in the tax increment district. A significant unfavorable variance in the General Fund Intergovernmental revenue source was a result of corporation tax refunds. An unfavorable variance appears in the Special Revenue Funds intergovernmental revenue source for grant revenue for the Samaritan House project and the ISTEA project. This is due to timing, the fiscal year ends in the middle of construction season. Significant favorable budget to actual expenditures variances exist in the Special Revenue funds capital outlay classification of $7,537,540 within both the Downtown Tax Increment Fund and airport Tax Increment Fund due to projects yet to be completed. Downtown IF housing and Community Development also had a positive $2,560,814 for the same reason as did debt service for funds not borrowed to do these projects. Also included are the UDAG Housing carryover and ISTEA carry overs, all classified as capital outlay. 111. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS A. Cash and Cash Equivalents The City maintains a cash and investment pool for all funds under the control of the Finance Director. Pooled investments are reported on the Combined Balance Sheet as Cash/Investments. -17- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1998 Cash and investments may include cash and cash items; demand, time, savings, and fiscal agent deposits; investments in the State Short -Term Investment Pool (STIP); repurchase agreements; registered warrants of the City or of municipalities or school districts located in the City; U.S. goverment treasury hills, notes, bonds and other treasury obligations such as state and local government series; general obligations of certain agencies of the United States such as Federal Home Loan Bank; and U.S. government security money market funds if the fund meets certain conditions. The composition of cash and cash equivalents on June 30, 1998, was as follows: Total Primary Component Reporting Government Unit Entity Cash on Hand $ - $ 62 $ 62 Cash in Banks: Demand Deposits 226,117 3,656 229,773 Savings Deposits 16,385 - 16,385 Time Deposits 2,509,202 6,053 2,515,255 State Short -Term Investment Pool (STIP) 11,822,060 - 11,822,060 Bidders Bonds 55,390 - 55,390 Sidewalk and Curb Warrants 64,597 - 64,597 Fiscal Agent Deposits 47,217 - 47.217 Total $14 70,968 $ $14,750,739 Deposits - At year-end, the carrying amount of the City's deposits was $2,751,704, and the bank balance was $2,840,340. These deposits include demand, savings, and time deposits. Of the bank balance, $200,000 was covered by Federal Depository Insurance or collateral held by the City or by its agent in the City's name, and $2,640,340 was covered by securities held by the pledging financial institution's trust department or agent in the City's name. The $9,771 belonging to the Parking Commission, a component unit of the City, was completely covered by Federal Depository Insurance. Montana statutes require that the City obtain securities for the uninsured portion of the deposits as follows: 1 _ securities equal to 50% of such deposits if the institution in which the deposits are made has a net worth to total assets ratio of 6% or more, or 2. securities equal to 100% of the uninsured deposits if the institution in which the deposits are made has a net worth to total assets ratio of less than 6%. State statutes do not specify in whose custody or name the collateral is to be held. The amount of collateral held for City deposits as June 30, 1998, equaled or exceeded the amount required by State statutes. The City held no investments subject to risk categorization. -18- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1998 Governmental Accounting Standards Board (GASB) Technical Bulletin No. 94-1 requires governmental entities participating in an investment pool to disclose certain types of securities held in the pool. As noted above, the City invests in the Short -Term Investment Pool managed by the State of Montana. This pool contains two types of investments required to be disclosed, which are Asset -backed Securities and Variable Rate(Floating Rate) Securities. Amounts (unaudited) invested by STIP in each type as of June 30, 1998, were as follows: Category 1 % Asset -backed $ 460,390,750 40.42 Variable Rate 323,930,702 28.44 Other Securities 354,704 778 31.14 Total $1.139026.230 100.00 Amounts invested by the City in STIP may be redeemed at any date at the carrying value on that date. Audited financial statements for the State of Montana's Board of Investments are available at 555 Fuller Avenue in Helena, Montana. B. Interfund Receivables and Payables The composition of interfund balances as of June 30, 1998, were as follows: Amounts due to and from other Funds: Amounts due to and from other funds consisted of the following: Receivable Fund General SID Revolving Fund Payable Fund Capital Projects $ 645 S&C Construction Debt Service Fund: $ _ 2,016 1988 S&C Fund 1990 S&C Fund 1993 S&C Fund 1994 S&C Fund 1995 S&C Fund 1996 S&C Fund $ 645 $ 70 403 221 282 427 613 $ 2,016 -19- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1998 Amounts advanced to and from other Funds: Advance to Advance from Proprietary Component Unit Enterprise Garbage $11,485 Parking Commission $11,485 Enterprise Sewer �5.000 Enterprise Ambulance 5,000 Total $16,485 $16.485 C. Operating Transfers The following is an analysis of operating transfers in and out during the fiscal year ended June 30, 1998: From To Amount General Fund Drug Enforcement Fund (Special Revenue) $ 10,000 General Fund 1STEA (Special Revenue) 5 008 Total $ 15.008 D. Fixed Assets A summary of changes in general fixed assets was as follows: Land Buildings Improvements Other Than Buildings Machinery and Equipment Construction Work in Progress Total Balance Balance July 1,_1997 Additions Deletions June 30, 1998 $ 2,208,434 $ 100,000 $ 332,081 $ 1,976,353 4,697,279 4,916 - 4,702,195 1,482,088 75,416 - 1,557,504 2,611,494 143,168 49,741 2,704,921 72,740 2,243.673 - _ 2.316.413 $11.072.035 $2,567,173 $ 381822 $13.257.386 The following is a summary of proprietary fund type property, plant, and equipment as of June 30, 1998: Will CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1998 Internal Component --En—terprise Service Unit Land $ 248,063 $ - $ - Machinery and Equipment 1,393,603 321,247 37,107 Construction Work in Progress 124,360 - - Source of Supply 347,709 - Pumping Plant 1,404,203 Treatment Plant 14,181,067 Transmission and Distribution 15,844,319 General Plant 1,291,949 - Storm Sewer System _ 3,733 170 - - Total 38,568,443 321,247 37,I07 Less Accumulated Depreciation 12,784,154 204 9 13.617 Net $25,7842$9 $ 116,253 $ 23.490 The City Council approved a capitalization policy for fixed assets. The policy establishes a minimum cost of $500 and an expected life of 5 years. Additions do not include capital outlay expenditures for public domain or infrastructure asset acquisitions. Financial Accounting Standards Board (FASB) Statement No. 34 - Capitalization of interest - requires that interest expenditures incurred during construction of assets be capitalized. During fiscal year 1998, interest costs of $5,431 were incurred and capitalized related to construction of Water Well in the Water Fund. E. Long -Term Debt Changes in Long -Term Debt L iab ilities - During the year ended June 30, 1998, the following changes occurred in reported liabilities, General Obligation Bonds (1) Revenue Bonds (2) SRF Loan-WWTP (2) Special Assessment Bonds (1) Contracted Debt/Loans (1) Compensated Absences (1,2,3) Total Balance Balance July 1 _1997 Additions Reductions June 30 1998 $ 165,000 $ - $ 55,000 $ 110,000 4,275,000 - 235,000 4,040,000 3,270,000 - 156,000 3,114,000 414,983 8,573 68,959 354,597 1,262,914 - 168,827 1,094,087 855,J 19 9,264 33.298 831,285 $10 2__�__43_ 216 $ 17.837 $ 717.084 $ 9 543.969 (1) Reported in long-term debt account group (2) Reported in Enterprise Fund (3) Reported in Proprietary Component Unit -21- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1998 General Obligation Bonds - The City issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. General obligation bonds are direct obligations and pledge the full faith and credit of the City. General obligation bonds outstanding as of June 30, 1998, were as follows: L G.O. Bands Issue Interest Term of Final Bonds Outstanding Annual Purpose Date Rate Bonds Maturi1y Issued June 30,1998 Payment Pool - refunding 4/93 2.8-5.1% 7 yrs 2000 $ 385.000 $ 110,000 varies General obligation bonds of the city are secured by the general credit and revenue raising powers of the City. $16,733 is available in the Debt Service Fund to service the general obligation bonds. 2. Revenue Bonds Issue Interest Term of Final Bonds Outstanding Annual Purpose Date Rate Bonds Maturity Issued June 30. 1998 Payment 1996 Water Bonds 6/96 5.5% 15 yrs 2011 $1,060,000 $ 965,000 varies 1.991 WWTP-ref. 4/91 7.18% 20 yrs 2011 2,815,000 2,215,000 varies 1998 Sewer -ref. 5/97 5.08% 9 yrs 2006 925.000 860.000 varies Total Revenue Bonds $4.800.000 $ 4A40 000 The significant provisions of the bond ordinances relating to the issuance of the Water and Sewer System Revenue Bonds and the financial statements and other schedules required by those ordinances are presented as supplemental information in this audit report. 3. State Revolving Fund In November 1991, the City entered into an agreement with the State Revolving Fund (SRF) to borrow funds to partially finance the construction of a wastewater treatment plant facility. This obligation is to be repaid from the operating income of the Sewer Fund. Interest Amount Outstanding Rate Term Borrowed June 30, 1998 SRF Loan 4% 20 yrs $ 3.9I3.425 $ 3 114,000 4. Special Assessment Bonds Special assessment bonds are secured by a lien on the assessed properties. The primary source of repayment is the assessments levied against the benefitted properties. However, the City is liable, to an extent, for repayment of these special assessment bonds. The City is authorized by State law to establish a revolving fund to ensure the payment of debt service on the bonds in the event that assessed property owners default. -22- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1998 Issue Interest Terra of Final Bonds Outstanding Annual P. u�r ose Date Rate Bonds Maturily Issued June 30 1998 Pa naent Special Assessment Bonds: SID 337 - Sewer 12/01/86 7.74% 15 yrs 2002 $ 110,000 $ 40,000 varies SID 341 - Sewer 9/01/95 6.06% 15 yrs 2011 100,000 90,000 varies SID 342 - Sewer 11/01/95 6.34% 15 yrs 2011 209,000 160,000 varies Special Assessment Warrants: 1990 Walk & Curb 1/15/91 10,0% 8 yrs 1998 14,600 1,900 varies 1991 Walk & Curb 2/1/92 8.0% 8 yrs 2000 3,360 1,693 varies 1992 Walk & Curb 1/2/93 7.0% 8 yrs 2001 9,103 5,000 varies 1993 Walk & Curb 1/4/94 6.0% 8 yrs 2002 5,112 2,190 varies 1994 Walk & Curb 12/31/86 8.5% 8 yrs 2003 28,513 1.7,500 varies 1995 Walk & Curb 1/2/96 8.5% 8 yrs 2004 22,823 17,112 varies 1996 Walk & Curb 1/2/97 8.5% 8 yrs 2005 12,148 10,629 varies 1997 Walk & Curb 10/1/90 8.0% 8 yrs 2006 8,572 8573 varies Total Special Assessment Bonds $ 523.231 $ 35, n 5. Tax Increment Urban Renewal Bonds In December 1985 the City issued $2,100,000 in Tax Increment Urban Renewal Bonds pursuant to Title 7, Chapter 15, Parts 42 and 43, MCA, and pursuant to the Bond Resolution adopted by the Kalispell City Council. These Series 1985 Bonds are considered to be special obligations of the City payable solely from tax increment generated by the area. The City has irrevocably pledged and appropriated the tax increment to the payment of the Series 1985 Bonds which have a first lien on all tax increment revenue generated by the area. The Series 1985 Bonds do not constitute a general obligation of the City or pledge the ad valorem taxing power of the City. Although the long-term liability created by the issuance of the bonds is considered a fund -specific liability, it is reported as a liability in the general long-term debt account group as required by generally accepted accounting principles. At June 30, 1998, there was $2,529,962 available in the Tax Increment Special Revenue Fund to service these bonds. Issue .Interest Term of Final Bonds Outstanding Annual Purpose Date Rate Bonds Maturi Issued it ne 30, 1998 Pa, anent Tax Increment 12/85 6.25-9.5% 16 yrs 7/1/02 $2,100,000 $ S 35 000 varies 6. Loans/Contracted Debt Origination Interest Due Principle Outstanding PuMose Date Rate Term Date Amount .tune 30, 1998, General Long -Term Debt Group of Accounts: Board of Housing 4/93 6% 30 yrs 2/1/25 $ 271,000 $ 25__9 087 The Board of Housing is paid from the proceeds of the rents on the Courtyard Apartments per the agreement with Northwest Montana Human Resources. 7. Compensated Absences Payable Compensated absences payable, which represent vacation and sick leave earned by employees which is payable upon termination, were as follows: -23- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1998 Proprietary Component Unit $ 5,255 Enterprise Fund 135,026 General Long -Term Debt Account Group 691,004 Total $ 831285 8. Requirements to Amortize Debt The annual requirements to amortize all long-term debt outstanding, except compensated absences payable, as of June 30, 1998, are as follows: Year Ending June 30 1998 1999 2000 2001 2002 2003 2004-2009 2009-2013 2014-2018 2019-2023 2024-2028 Total Principal Interest Total Year Ending June 30, 1998 1999 2000 2001 2002 2003 2004-2008 2009-2013 2014-2018 2019-2023 2024-2028 Total Principal Interest Total G.O. SID SID Revenue Bond Bonds Warrants Bonds $ 60,555 $ 49,630 $ 19,122 $ 502,617 57,805 42,868 15,752 505,800 - 41,352 15,228 504,960 - 39,812 12,499 503,460 - 33,787 10,683 502,330 - 158,850 10,129 2,261,810 - 101,180 - 1,121,440 $_ 118,360 $ 46-•� $ 83.413 $ 5.902 4_7 $ 110,000 $ 290,000 $ 64,597 $ 4,040,000 8,360 177,209 18,816 1,862,417 $_ 118,360 $ 467.209 $ 83,413 $ 5,902,417 Urban Renewal SRF Contracted Bonds Loan Debt Totals $ 258,765 $ 284,960 $ 22,199 $ 1,197,848 262,025 285,400 22,165 1,191,815 258,225 285,580 22,129 1,127,474 282,800 284,480 23,913 1,146,964 - 285,120 19,497 851,417 - 1,425,980 97,487 3,953,986 - 1,282,400 97,487 2,602,507 - - 97,487 97,487 - 97,487 97,497 32,556 32,556 $1,061,815 $4,133,920 $ 532.407 $12.072A1 $ 835,000 $3,114,000 226.815 1,019, $1,061,815 $4.133,920 $ 259,087 273.320 $- 532,40.7 $ 8,712,684 �3,586,857 $12,072,011 -24- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1998 F. State -Wide Retirement Plans Substantially all full-time City employees are eligible for one of three retirement plans: Montana Public Employees Retirement System (PERS), Municipal Police Officers' Retirement System (MPORS), and the Firefighters' Unified Retirement System (FURS). The plans are established by State law and administered by the State of Montana. The plans are cost -sharing multiple -employer defined benefit plans that provide retirement, disability and death benefits to plan members and beneficiaries. The City had a total payroll of $4,627,972 for the fiscal year ended June 30, 1998, of which $4,088,437 was covered by PERS, MPORS, or FURS. Component Unit payroll was $59,586 for the Parking Commission. Contribution rates are required and determined by State law. The contribution rates, expressed as a percentage of covered payroll for the fiscal year ended June 30, 1998, were: PERS MPORS FURS Employee 6.80% 7.8-10.5-11% 9.5-10.7% Employer 6.70% 14.41 % 14.36% The Public Employees Retirement System issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing to Public Employees Retirement Division, P.O. Box 200131, Helena, Montana, 58620-0131 or by calling 1-406-444-3154. The City's contributions for the years ended June 30, 1996, 1997, and 1998, as listed below, were equal to the required contributions for each year. Component PERS MPORS FURS Unit - PERS 1996 $137,702 $ 127,379 $ 106,795 $ 4,045 1997 160,259 132,598 109,921 4,276 1998 158,377 135,930 112,195 3,990 G. Post Employment Benefits Terminated employees may remain on the City's health insurance plan for up to 18 months if they pay the monthly premiums. This benefit is required under the federal COBRA law. Retirees may remain on the City's health plan to age 65, provided they pay the monthly premiums. State law requires the City to provide this benefit. No cost can be estimated for the above benefits, although there is the probability that there are higher medical costs for retirees which would result in additional costs to the insurance program. -25- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1998 H. Amounts Due From and Due to Other Governments The amounts due from and due to other governments consisted of the following: Due From Other Governments: Due From County: General Fund $ 304,381 Comprehensive Insurance Fund 33,823 Retirement Fund 47,637 Health Insurance Fund 56,688 Tax Increment Fund 311,646 Tax Increment Airport 968 Light Maintenance Fund 6,228 Decorative Lights 1,093 Street Maintenance Fund 27,090 SID Funds 11,062 G.O. Bond Fund 9,653 Solid Waste 88,428 Storm Sewer Maintenance 48,871 Drug Enforcement 8,452 Due From Other Governmental Entities 11,584 Total Due From Other Governments $ 967,604 Due From Other Organizations: Due From Developers $ 25,000 Due From Kidsport 9,048 Total $ 34�048 I. Restricted Cash/Investments The following restricted cash/investments were held by the City as of June 30, 1998. Special Revenue Funds: Community Development - Rehab. Int. Subsidy Community Development - Courtyard Reserve Tax Increment - Bond Reserve Special Revenue Funds Total Debt Service Funds: Reserved for Debt Service $ 4,083 12,353 123,046 $ 139,482 $ _ 1: 5 450 -26- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1998 Enterprise Funds: Water - Sinking & Interest $ 2,524 Water - Bond Reserve I06,000 Water - Replacement 736,174 Water - Capital Improvement 4,953 Sewer - Replacement 1,644,396 Sewer - Sinking & Interest 853 Sewer - Contingency 686,437 Sewer - Capital Improvement 1,386,459 Sewer - Operating Reserve 106,500 Sewer - Storm Sewer 492,463 Ambulance - Replacement -designation 87,119 Garbage - Replacement -designation 121.810 Enterprise Funds Total $5 3775. 678 Agency Funds: Deferred Compensation - VALIC $ 7 0,874 Internal Service Fund: Data Processing - Replacement -designation J. Fund Equity Reserves and/or designations of the City at June 30, 1998, consisted of: General Fund: Reserve for Encumbrances Special Revenue Funds: Tax Increment - Reserve for Encumbrances Tax Increment - Reserve for Bond Contingency Community Development - Interest Subsidy Community Development - Courtyard Reserve Gas Tax - Reserve for Encumbrances Special Revenue Funds Total Debt Service Funds: Reserved for Debt Service $ 3 5.706 $ 64,507 123,046 4,033 12,353 _ 50,787 $ 254.726 $ 85,084 -27- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1998 Enterprise Funds: Water - Reserve for Revenue Bond $ 106,000 Water - Reserve for Sinking & Interest 2,524 Water - Reserve for Replacement 736,286 Water - Reserve for Inventory Supplies 99,939 Sewer - Reserve for Revenue Bond 686,437 Sewer - Reserve for Replacement - Sanitary 454,618 Sewer - Reserve for Advance 5,000 Sewer - Reserve for Operations 106,500 Sewer - Reserve for Sinking & Interest 853 Sewer - Reserve for Capital ImprovementlWWTP 2,576,228 Sewer - Reserve for Storm Sewer 539,212 Ambulance - Designated for Replacement 87,119 Garbage - Designated for Replacement 133,295 Garbage - Reserve for Advance �11 4885 Enterprise Funds Total $5,545,496 Internal Service Fund: Designated for Replacement $ 48,805 K. Changes in Contributed Capital A schedule of changes in contributed capital is presented below: Data Water Sewer Processing Fund Fund fund Total Contributed Capital - July 1, 1996 $2,958,118 $10,444,531 $ 6,332 $13,408,981 Add: Other government contributions - - 29,544 29,544 Developers contributions 170,401 281,445 - 451,846 Deduct: Depreciation on assets 60.235 533.852 8,787 602,874 Contributed Capital - June 30, 1998 $3,068.284 $10,192.124 $ 27,089 $13,287,497 no CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1998 L. Residual Equity Transfers Residual equity transfers are made to transfer the remaining equity balance of a discontinued fund to another fund. Transfers made during the year consisted of the following: Fund Making Transfer Fund Receiving Tra sfer Amount General Fund (1) Building Code Enforcement (2) $ 120,509 SID Revolving (3) General Fund (1) 17,148 SID Revolving (3) 1987 S & C (3) 2,195 1988 S & C (3) SID Revolving (3) 3,025 E nd Types and Total Net Transfers (1) General $ (103,361) (2) Special Revenue 120,509 (3) Debt Service (17,148) M. Segment Information For Enterprise Funds The City maintains four enterprise funds which provide water, sewer, ambulance, and garbage services. Selected segment information for the year ended .tune 30, 1998, is as follows: Water Sewer Ambulance Garbage Total Operating revenue $ 914,328 $ 2,367,042 $ 529,374 $ 41.7,277 $ 4,228,021 Depreciation expense 226,431 1,044,234 21,422 56,872 1,348,959 Operating income (loss) (20,395) 4I,752 61,499 88,328 171,184 Net income 54,321 155,326 67,257 102,915 379,819 Current capital contributions 170,401 281,445 - - 451,846 Property, plant, and equipment: Additions 774,939 739,662 22,424 31,827 1,568,852 Deletions 17,837 21,000 5,145 - 43,982 Net working capital 1,230,004 4,870,687 333,701 431,004 6,865,396 Total Assets 8,737,444 22,987,913 418,342 835,096 32,978,795 Long-term Liabilities: Payable from Operating Revenues 995,640 6,241,465 31,649 25,272 7,294,026 Total Equity 7,666,781 16,632,783 372,940 799,579 25,472,083 N. County Provided Services The City of Kalispell is provided various financial services by Flathead County. The County also serves as cashier and treasurer for the City for tax and assessment collections and other revenues received by the County which are subject to distribution to the various taxing jurisdictions located in the County. The collections made by the County on behalf of the City are accounted for in an agency fund in the City's name and are periodically remitted to the City by the County Treasurer. The County charges the City for fees associated with City Special Assessments. -29- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1998 O. Joint Ventures Joint ventures are independently constituted entities generally created by two or more governments for a specific purpose. 1. City -County Health Department The City -County Health Department is operated under an interlocal agreement between Flathead County and the City of Kalispell. The Department operates under the supervision and control of the City -County Health Board. The Board consists of seven members, six of whom are appointed by the Board of County Commissioners. The County taxed the property owners directly for the City's contributions for the fiscal year ended June 30, 1998, at an equivalent rate of mills. 2. County -Wide Administrative Board The City of Kalispell along with Flathead County, the City of Columbia Falls, and the City of Whitefish, participate in a County -wide Administrative Board(CAB) that was established by an interlocal agreement in December, 1979. The CAB was formed for the purpose of coordinating all land use planning, subdivision reviews and approval, and zoning application and enforcement in Flathead County, as well as to assist in annexation by the cities. The Board consists of four members, the Mayor of each of the three cities, and the Chairman of the Flathead County Board of County Commissioners. The CAB is financed by a tax levied by each of the parties to the interlocal agreement in proportion to the expected benefits that each party shall receive during the ensuing fiscal year. The financial activities of the CAB are accounted for by Flathead County. The City's contributions for the CAB for the fiscal year ended June 30, 1998, was $72,350. 3. Courtyard Apartments/Northwest Montana Human Resources The City entered into an agreement with Northwest Montana Human Resources (NWMHR) for a joint venture construction project of the Courtyard Apartments, The City owns 16 units of the apartment complex built with Home Grant and CDBG Funds. NWMHR has built 16 units also. The agreement provides for the management of the housing complex for low income housing. All operations and maintenance of the housing complex are managed by Northwest Montana Human Resources. NWMHR maintains a trust fund in the City's name to record the revenues and expenses of the housing complex. As of June 30, 1998, the equity in the fund was S57,630. The debt payments on the mortgage are paid from the proceeds of the rents by NWMHR. The principal balance is recorded on the City's books in the Long - Term Debt Group of Accounts. -30- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1998 P. Risk Management The City faces considerable number of risks of loss, including (a) damage to and loss of property and contents, (b) employee torts, (c) professional liability, i.e., errors and omissions, (d) environmental damage, (e) workers' compensation, i.e., employee injuries, and (f) medical insurance costs of employees. A variety of methods are used to provide insurance for these risks. Commercial policies transferring all risks of loss, except for relatively small deductible amounts, are purchased for property and content damage, employees torts, and professional liabilities. Employee medical insurance is provided through a privately - administered, self -insured plan. Given the lack of coverage available, the City has no coverage for potential losses from environmental damages. Effective July 1, 1987, the City of Kalispell joined with other Montana cities to form the Montana Municipal Insurance Authority, a self insurance pool offering Workers' Compensation and Liability Coverage. Both public entity risk pools currently operate as common risk management and insurance programs for the member governments. The liability limits for damages in tort action are $750,000 per claim and $1.5 million per occurrence with a $7,500 deductible per occurrence. State tort law limits the City's liability to $1.5 million. The City pays an annual premium for its employee injury insurance coverage which is allocated to the employer funds based on total salaries and wages. The agreements for formation of the pools provide that they will be self-sustaining through member premiums. The tort liability plan and Workers' Compensation program issued bonds in the amount of $4.41 million and $7.610 million, respectively, to immediately finance the necessary insurance reserves. All members signed a contingent note for a pro rata share of this liability in case operating revenues were insufficient to cover the debt service. The City's share is $201,445 for liability and $281,715 for Workers' Compensation to finance the necessary insurance reserves. Based on the plan's current financial position, the City doesn't expect to make any payment on these notes. Separate financial statements are available from the Montana Municipal Insurance Authority. Health Insurance In October 1993, the City established an internal service fund for the City's self insured health insurance plan. The plan is administered by Blue Cross/Blue Shield of Montana. The City pays premiums recommended by Blue Cross into the City Health fund. The claims are submitted weekly by Blue Cross and paid out of this fund. The City pays the total monthly premium for all full-time employees and their dependents. Vision is optional and paid by the employee. The plan pays 80% of the medical claims after the $100 deductible for each employee and covered dependent has been satisfied, up to total of $200 maximum family deductible. Generic prescriptions drugs are 100% covered. Dental claims are paid 100% if the dentist is a participating Blue Cross dentist, otherwise 80% of the claims are paid. A "stop -loss" policy has been purchased to cover any claims which exceed $75,000 per individual or aggregate claims of 115% of claims projected by Blue Cross. No individual reached the stop loss amount nor did the City total reach the projected amount. IRIIE CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1998 Q. Pending Litigation The following is a list of litigation pending against the City and the amount of damages claimed by the Plaintiff. The City Attorney has made no evaluation as to the outcome of each case. The City has liability insurance which may cover all or part of the damages requested. Accordingly, no provision has been made in the financial statements for these contingent liabilities. Case Grey vs. City of Kalispell Storm vs. City of Kalispell Broad vs. City of Kalispell NuPac vs. City of Kalispell Holt, et al. vs. City of Kalispell R. Loans Receivable Damages Potential Requested of Loss $ 50,000 Unknown Not Stated Remote Not Stated Remote 70,000 Remote 10,000-20,000 Possible A loan was made from the Tax Increment Special Revenue Fund to the 2nd Avenue West Professional Building, a partnership, in the amount of $67,000 on December 30, 1985. The loan was made for the purpose of acquiring real property for development as a parking lot. The term of the loan is fifteen years, of which interest will accrue at the rate of 5% for the first five years and for years six through 15 the interest rate will accrue at a rate paid on U.S. Treasury bills as of the 15th day of January of the year in which the payments are due. The loan is authorized pursuant to Title 7, Chapter 15, Parts 42 and 43, MCA, and ordinance #933 enacted by the City of Kalispell creating the Kalispell Downtown Redevelopment Plan. The City is authorized to eliminate and prevent the spread of blight by encouraging the redevelopment of land by private enterprise. The current repayment schedule calls for a monthly principal and interest payment of $496 each month. The balance of the loan receivable of $15,115 was recorded in the Tax Increment Fund as of June 30, 1998. The City entered into a community development program which includes funding from a community development block grant, to make available to eligible applicants (low -to moderate income residents) a loan for at least one-half of the required rehabilitation cost. These funds from the City, together with loans from the First Federal Savings Bank (now Glacier Bank) of Montana, the lender, must provide the total funds required for the purchase and rehabilitation of the housing unit. At the time the bank loans are closed with the borrower, the proceeds of the City's loan will be deposited into the borrower's construction account at First Federal. The City's loan is secured by the property, and filed in a third lien position. Repayment of the City loan will not begin until 30 days after the Lender's loan (second lien) for construction of the unit has been paid off. The City's loan is interest free until such time as repayment begins. The maximum amount of a private lender loan cannot exceed $20,000 per property with a ten year pay back. In addition, when an owner -occupant is unable to afford a private lender loan at the pre -determined interest rate agreed to by the City and lender, he or she may qualify for City financing. The City may provide a direct loan of up to $25,000 with a varying interest rate (as low as zero percent) or with a longer amortization period (maximum of fifteen years) or a deferred loan to be repaid -32- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS .Tune 30, 1998 simultaneously, at a later date, with a balloon payment, or to be released at the end of ten years. The City had $304,184 recorded as loans receivable as of .tune 30, 1998, in the Community Development Loan Revolving Fund. Housing loans leveraged with Tax Increment Funds are recorded in the Tax Increment Fund in the amount of $52,115. The above mentioned loans are offset with deferred revenue accounts. Uncollected taxes receivable in governmental funds are offset with deferred revenue accounts as explained in the "basis of accounting." S. Significant Construction Commitments and/or Other Contingencies Encumbered Significant construction contracts and other commitments entered into but incomplete at fiscal year-end included the following: General Fund $ 35,706 Tax Increment Fund 64,507 Gas Tax Fund 50,787 Total $ 151.000 T. City Court Contracts Receivable A -I Paving Overlay contract A-1 Paving Overlay contract A-1 Paving Overlay contract Contracts receivable for the City Court have been recorded as an asset in the General Fund. The contracts receivable are offset with deferred revenue as required by generally accepted accounting principles. The receivables estimated as collectible are $163,454. U. Wastewater Treatment Plant Agreement with Evergreen The City of Kalispell entered into an Interlocal Agreement with Evergreen Sewer District Number I for treatment of district sewage at the City's plant. The City bills Evergreen monthly for debt service at 22% of the principle and interest due for the plant. The City also bills for maintenance and operation and replacement costs per the agreement based on metered flows. Evergreen Sewer District has an equity interest in the replacement account carried on the City's books. The balance of the account as of June 30, 1998, was $1,125,171 of which Evergreen's interest was $213,479. The City of Kalispell has sole responsibility for the use of these funds. -33- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1998 V. Component Unit - Kalispell Parking Commission The Kalispell City Council passed Resolution 4103, a resolution of intention to create Special Parking District Number 2, on June 21, 1993. Also passed was Resolution 4104, a resolution of intention to provide for funding the cost of maintaining, operating, repairing, and improving Special Parking Maintenance District Number 2, and Resolution 4105, a resolution declaring the need for a Parking Commission to function in the City of Kalispell and declaring a jurisdictional area wherein said Parking Commission is authorized to function. The Mayor and City Council appointed the Board of Directors composed on City residents who operate businesses within the district. It is the intention of the City of Kalispell that the downtown business community manage the parking for the downtown district. The Parking Commission began operation on February 1, 1994. The City transferred $53,000 in fiscal year 1994 to the Parking District as start-up money, no further City funds have been given to the District. It is intended that the Parking Commission be operated as a proprietary type fund and has been classified as such in the City's financial statements. W. Year 2000 Issue The year 2000 issue is the result of shortcomings in many electronic data processing systems and other electronic equipment that may adversely affect the government's operations as early as fiscal year 1999. During fiscal year 1998, the audit period, the City had implemented new accounting software updates to address the year 2000 issue. Those packages included General Ledger, Accounts Payable, Payroll and the Check Reconciliation program. During the summer of 1998, the City determined that their software vendor was not going to be timely in their update of the utility billing program and the City Council authorized purchase of a new program for Utility Billing and Accounts Receivable. This program was purchased and installed in March of 1999. Prior to conversion and installation of this new program, the City purchased and installed a new file server (January 1999), updated hardware, changed the operating system to NT, and certified the network cabling. The City has purchased an Ambulance billing program which will be installed in May of 1999. The only remaining piece of software is the fixed asset program, which the City will make a decision on in the near future. Because of the unprecedented nature of the year 2000 issue, its effects and the success of related remediation efforts will not be fully determinable until the year 2000 and thereafter. Management cannot assure that the City is or will be year 2000 ready, that the City's remediation efforts will be effective in whole or in part, or that parties with whom the City does business will be year 2000 ready. -34- Denning, Downey & Associates, P. C. CERTIFIED P UBLIC ACCO UNTANTS No, 4 Sunset Plaza, Suite 101 • Kalispell, MT 59901 • 756-6879 INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTAL INFORMATION AND SCHEDULES City Manager, Mayor, and City Council City of Kalispell Kalispell, Montana We have audited the general-purpose financial statements of the City of Kalispell, Montana, as of and for the year ended June 30, 1998, and have issued our report thereon dated March 19, 1999. These general- purpose financial statements are the responsibility of the City management. Our responsibility is to express an opinion on these general-purpose financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the general-purpose financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting amounts and disclosures in the general purpose financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Our audit was made for the purpose of forming an opinion on the general-purpose financial statements taken as a whole. The accompanying supplemental information schedules as listed in the table of contents for the year ended June 30, 1998, are presented for purposes of additional analysis and are not a required part of the general-purpose financial statements. The information in these schedules has been subjected to the auditing procedures applied in the audit of the general-purpose financial statements and, in our opinion, is fairly presented in all material respects in relation to the general-purpose financial statements taken as a whole. eYLtLLPIf , eaL.Jownet CL.J_4,_40C 0'4' P. C. March 19, 1999 -35- Robert K Denning, CPA • Kim M. Downey, CPA SIGNIFICANT PROVISIONS OF SEWER REVENUE BONDS ORDINANCES AND REQUIRED INFORMATION The City will establish a separate revenue bond account into which will be paid each month an amount equal to but not less than the sum of one -sixth of the interest due within the next six months and one -twelfth of the principal due within the next twelve months with respect to all Bonds secured by the ordinance and payable from that account, and into which shall be paid each month additional net revenue equal to one -sixtieth of the maximum amount of principal and interest to fall due within any subsequent fiscal year on all such bonds until a reserve equal to such .maximum amount of principal and interest is established, which reserve shall thereafter be maintained. Total Reserve Bond Balance $686,437 Maximum Requirement (Fiscal Year 2000) 686,437 Balance $ 2. Rates and charges will be made and kept sufficient to provide gross income and revenues adequate to pay promptly the reasonable and current expenses of operating and maintaining the system and to produce in each fiscal year net revenues in excess of such current expenses, equal to 125% of the maximum amount of principal and interest payable from the Revenue Bond Account in any subsequent fiscal year. Cash. Flow Coverage Sewer Service Charges $2,109,794 Storm Sewer Assessment 248,104 Miscellaneous and Hookup Fees 204,399 Total Operating Revenue 2,562,297 Less: Operating Expense (Before Depreciation) 1,281,056 Available for Debt Service 1,281,241 Maximum Debt Service 6�....686,437 Coverage 187°/a 3, The City shall maintain an Operating Reserve equal to one month's operating expenses. The term "operating expenses" shall mean current expenses, paid or accrued, of operation, maintenance and current repair of the system and its facilities, and shall include administrative expenses of the City relating solely to the system, premiums for insurance on the properties, labor and the cost of materials and supplies used for current operation and for maintenance, and charges for the accumulation of appropriate reserve for current expenses which are not recurrent monthly but may reasonably be expected to be incurred in accordance with sound accounting practices. Such expenses shall not include any allowance for depreciation or renewals or replacements of capital assets of the system and shall not include any portion of the salaries and wages paid to any officer or employee of the City, except such portion as shall represent reasonable compensation for the performance of duties necessary to the operation of the system. -3 6- Operating expenses for fiscal year ended June 30, 1998, of $1,281,056 divided by 12 = $106,754. The Sewer Operating Reserve balance of $106,500. 4. The City shall, within 120 days after the close of each fiscal year, cause to be prepared and supply to the original purchaser or purchasers of Bonds issued hereunder and the bank or banks designated as agent for the payment of principal of and interest thereon a financial report with respect to the system of such fiscal year as prepared by an independent certified public accountant. The City did not comply with this provision. 5. The audit report shall include the following: a. a statement in detail of the income and expenditures of the system for the fiscal year, identifying capital expenditures and separating them from operating expenditures; b. a balance sheet as of the end of the fiscal year; c. the number of premises connected to the system at the end of the fiscal year; d, the amount on hand in account of the Sewer System Fund at the end of the fiscal year; e. a list of the insurance policies and fidelity bonds in force at the end of the fiscal year, setting out as to each the amount thereof, the risks covered thereby, the name of the insurer or surety and the expiration date of the policy or bonds; and f a determination that the report shows full compliance by the City with the provisions of this ordinance during the fiscal year covered thereby, including proper segregation of the capital expenditure from operating expenses, maintenance of the required balance in the Revenue Bond account, and the receipt of net revenue during the fiscal year at least equal to 125% of the maximum amount of principal and interest payable from the Revenue Bond Account in any subsequent fiscal year; or if the report should reveal that the revenues have been. insufficient for compliance with this ordinance, or that the methods used in accounting for such revenues were contrary to any provision of this authorizing ordinance, the report of audit shall include full explanation thereof, together with the recommendations for such change in rates or accounting practices or in the operation of the system as may be required. The following are the required disclosures which are not contained elsewhere in the audited financial statements. Number of premises connected to the system at the end of the fiscal year: 5451 Amount of cash on hand in each account of the Sewer System at the end of the fiscal year: Unrestricted Cash $ 442,366 Sewer Operating Reserve 106,500 Sewer Capital Improvement 1,386,459 Replacement and Depreciation 2,136,849 Sewer Sinking and Interest 853 Bond Reserve 696,437 ".Total $4 759 46 -37- Schedule of Insurance Policies June 30, 1998 Flathead Association. of Independent Insurance Agents St. Paul Property and Liability Insurance provided the fidelity bond coverage. A public official bond in the amount of $50,000, for the finance director expires 6/30/98. A $5,000 public employees blanket faithful performance bond expires June 30, 1997, with an additional indemnity for city accountant, city court judge, assistance finance director, city court clerk, personnel specialist, and city water department cashiers of $7,500 each. 2. Property Insurance: Blanket building policy with $19,769,288 limit and a $1,000 deductible per event. Boiler and machinery policy with $21,419,799 and a $1,000 deductible. Expires 6130/98. Montana Municipal Insurance Authority 3. Liability Insurance: $750,000 per occurrence which arises or derives from injury to or death of a single person or damage to property of a single person regardless of number of persons or entities claiming damages. $1,500,000 per occurrence not covered as stated above. A $2,500 deductible applies. Expires July 1, 1998. -39- CITY OF KALISPELL, MONTANA SEWER FUND SCHEDULE OF ASSETS, LIABILITIES, AND FUND EQUITY June 30, 1998 ASSETS Cash/investments Taxes/assessments receivable Accounts receivables Due from County Due from developers Advance to other funds Fixed assets (Net of accumulated depreciation) TOTAL ASSETS LIABILITIES AND -FUND EQUITY Liabilities: Short-term payables Long-term liabilities Total Liabilities Fund Equity: Contributed capital Retained earnings: Reserved Unreserved Total Fund Equity TOTAL LIABILITIES AND FUND EQUITY -39- $ 4,759,464 19,635 131,382 48,871 25,000 5,000 17, 998, 561 $ _22 987 913 $ 113,665 6,241,465 6,355,130 10,192,124 4,368,848 2,071,811 16,632,783 $ 22,987,913 CITY OF KALISPELL, MONTANA SEWER FUND SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN RETAINED EARNINGS Fiscal Year Ended June 30, 1998 Operating Revenues: Charges for services Special assessments Total Operating Revenues Operation Expenses: Personal services Supplies Purchased services Fixed charges Losses/bad debt expenses Depreciation Building materials Total Operating Expenses Operating Income Non -Operating Revenues (Expenses): Hookup fees Interest Debt service interest expense Total Non -Operating Revenues (Expenses) Net Income Add depreciation on fixed assets acquired by contributions Increase in Retained Earnings Retained Earnings - July 1, 1997 Retained Earnings - June 30, 1998 2,118,938 248,104 2.367.042 528,057 51,599 469,622 223,003 1,702 1,044,234 7,072 W .._�..��..�---- _. 2,325,289 41,753 CITY OF KALISPELL, MONTANA SEWER FUND SCHEDULE OF CASH FLOWS Fiscal Year Ended June 30, 1998 Cash Flows from Operating Activities: Operating Income 41,753 Adjustments to reconcile operating income to net cash provided: Depreciation 1,044,234 Changes in assets and liabilities: Decrease in taxes receivable 26,623 Decrease in accounts receivable 15,829 Increase in due from developers (25,000) Increase in due from government (48,871) Increase in compensated absences 4,160 Net Cash Provided by Operating Activities 1,058,728 Cash Flows from Capital and Related Financing Activities: Cash received from hookup fees 195,255 Principal paid on revenue bonds (185,000) Interest paid on revenue bonds (213,419) Principal paid on notes/loans (156,000) Interest paid on notes/loans (129,261) Acquisition and construction of capital assets (545,650) Net Cash Used for Capital and Related Financing Activities (1,034,075) Cash Flows from Non -Capital Financing Activities: Payments received on advances 41,682 Cash Flows from Investing Activities: Interest on investments 260,998 Net decrease in cash and cash equivalents 327,333 Cash and cash equivalents at July 1, 1997 4,432,131 Cash and cash equivalents at June 30, 1998 $ 4,759,464 Non -Cash Transactions: Assets were contributed by developers of $281,445 -41- REVENUE BOND REQUIREMENTS Significant provisions of the 1996 Water System Revenue Bonds are as follows. Debt Service Accpnnt Monthly an amount equal to not less than 1/6 of the interest due within the next 6 months and 1/12 of the principal to become due within the next twelve months shall be credited to the debt service account. Reserve Accoun The City shall keep in the reserve account an amount equal to the lesser of 10% of the original principal or the maximum amount of principal and interest requirements. Property Insuran The City will cause all buildings, properties, fixtures, and equipment to be kept insured in amounts that are ordinarily carried. Liability Insuran The City will carry insurance against liability of the City and its employees. Rates and Charges Net revenues will be at least equal to 125% of the maximum principal and interest requirements for all future fiscal years. The City complied with the above revenue bond requirements. -42- SINGLE AUDIT SECTION -43- v o a 0'Ln Mmni'7 63 OI Q1, tf1010 MNOa u uj cam; 03,: O d`I O NO mmN l Ma N ' gnM'I Oo: wi m a nLL'S.. : CM . us -T M, UY O 69 � m NI c C] M M O M IMi V N(O m co V N; M U) m 0) ;co M O Mv' m o rni of v ci ro m.� �� v a a` m M. ita. W _ !, W' c " I pp Stp� vT ° 0000 IT n Na m 01 i� V �'. 00 V m .N- CND] l mQ�E oQ u. n oa g I r> M to 94 c E i7 pmmQ co m p A n n n m � m � z 0 mewCOr ¢ (p IL T � c 3 m m � Q m m m m cn cn a� .L] N co {.. (O V N X -0 © r N N (4 tq V O L-� l6 m D M ILL Li ZI r� N 0 01 N U 6 CL N 0 W [y� u E y h O ID 2 N Mw m c C o G E Q¢ Q y w a c w w w E c E — O O v to O E cpi Nui ¢¢¢ a. w c_ n E w �+ o C]I —.n m c'i v c'i ro r E -a 3 UH m aci aci_ f6 u Q1 a c� mE� an7m+ Y;=c 16y -n 41 c F Y a E o 0 oz.ou E 0Ua QmEa)c aCDm o a°a"o° ooF fl2 ham_�� £O m a)m Ep E E L igE 2 (L �w 0 -'E� n 0— CL 0 .�yyN OL It:}L m°c rm OIL EEayG1E E r'x E a og °�C w X. co W mol° o: oo fI TEa'wvonc�E m m ° E��a�ium'mp m3'Ea U Lsn ex mu} =>- 'a 0 rIt c m,00n _3 io UmmL"y" .`d..a. I E E m; a+i m t � Yj c� 0 C O; In 0 O -. » p�Y3 4) 0y p vrA an u LL -44- Denning, Downey & associates, P.C. CERTIFIED PUBLIC ACCOUNTANTS No. 4 Sunset Plaza, ,Suite 101 • Kalispell, MT 59901 - 756-6879 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS City Manager, Mayor, and City Council City of Kalispell Kalispell, Montana We have audited the financial statements of the City of Kalispell, Montana, as of and for the year ended June 30, 1998, and have issued our report thereon dated March 19, 1999. We conducted our audit in accordance with generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Compliance 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 grants, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards, Internal. Control Over Financial Retorting In planning and performing our audit, we considered the City's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in our judgement, could adversely affect the City's ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements. The reportable conditions are described in the accompanying Schedule of Findings and Questioned Costs as items 98-1 and 98-2. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we do not believe the conditions reported above to be material weaknesses. _45_ Rohert K Denning, CPA -Kim M Downey, CPA This report is intended solely for the information and use of the City Council, management, the Montana Department of Commerce, and federal awarding agencies and pass -through entities and is not intended to be and should not be used by anyone other than these specified parties. G(.Jenninr�, aLJawrcec� arcd._/¢�6ucicr�e�� March 19, 1999 -46- Denning, Downey & Associates, P.C. CERTFFED PUBLIC ACCOUNTANTS A10. 4 Sunset Plaza, Suite 101 - Kalispell, ACTT 59901 - 756-6879 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 City Manager, Mayor, and City Council City of Kalispell Kalispell, Montana Compliance We have audited the compliance of the City of Kalispell, Montana, with the types of compliance requirements described in the U.S Office ofManagement and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended June 30, 1998. The City's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs is the responsibility of the City's management. Our responsibility is to express an opinion of the City's compliance based on our audit. We conducted our audit of compliance in accordance with generally accepted auditing standards; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A 133, Audits of States, Local Governments, and Non -Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the City's compliance with those requirements. In our opinion, the City complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the year ended June 30, 1998. Internal Control_OvveL C "=Rance The management of the City is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered the City's internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing an opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133. -47- Robert K Denning, CPA -Kim M Downey, CPA Our consideration of the internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that noncompliance with applicable requirements of laws, regulations, contracts and grants that would be material in relation to a major federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses. This report is intended solely for the information and use of the City Council, .management, the Montana Department of Commerce, and federal awarding agencies and pass -through entities and is not intended to be and should not be used by anyone other than these specified parties. L.J. iaq�, 2)ownet and✓-4ucia.%3, /9C,. March 19, 1999 -48- CITY OF KALISPELL, MONTANA SCHEDULE OF FINDINGS AND QUESTIONED COSTS Fiscal Year Ended June 30, 1998 Section I - Summary of Auditor's Results Financial Statements Type of auditor's report issued Unqualified Internal control over financial reporting: Material weakness identified? No Reportable condition identified not considered to be material weaknesses? Yes Noncompliance material to financial statements noted? No Federal Awards Internal Control over major programs: Material weakness identified? No Reportable condition identified not considered to be material weaknesses? None reported Type of auditor's report issued on compliance for major programs: Unqualified Any audit findings disclosed that are required to be reported in accordance with Circular A-133, Section .510(a)? No Identification of major programs: FDA Number Name of Federal Program or C luster 14.228 U.S. Department of Housing and Urban Development - Community Development Block Grant (CDBG) - Housing and Public facilities 14.239 U.S. Department of Housing and Urban Development - Home Investment Partnerships Program (HOME) Dollar threshold used to distinguish between Type A and Type B programs: $ 300,000 Auditee qualified as low -risk auditee? Yes -49- SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Section II - Financial Statement. Findings 98-1 City Court Receivables Statement of Condition: The City uses a manual card system for tracking court receivables. The system is not self balancing, it does not provide aged receivables reports or summaries of whom have not made payments as agreed upon. Criteria: A good system of internal controls should include at a minimum the preparation of aged receivables and be self balancing to ensure that all receivables are collected or monitored. Effect: The City is unable to adequately monitor court receivables. Cause: The City has always used a manual card system for court receivables. Recommendation: The City should use an accounting system that monitors court receivables. 98-2 Parking_ Commission Statement of Condition: The accounting system was not able to provide reliable financial information to the parking commission or the City on which management could base their decisions. The following conditions were noted during the audit of the parking commission: 1. Compensated absences as of June 30`h was estimated and not calculated based on actual accumulated sick leave and vacation hours. 2. The advance from the solid waste fund was not updated correctly for the payments made and did not agree to the amortization schedule provided by the City. 3. The amount of cash reported on the financial statements did not agree with the monthly bank reconciliation prepared as of June 30, 1998. Criteria: The accounting system should provide management with adequate and reliable information on which they can base their decisions. Effect of Condition: Management was not able to rely on the financial information that was provided to them. The following accounts were misstated: 1. Compensated absences was understated by $2,687. 2. The advance from the garbage fund was overstated by $1,181, 3. Cash was understated by $1,078. -50- SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) The audit report reflects the correct amounts. Recommendation: The City should review the monthly financial reports prepared by the Kalispell Parking Commission and the supporting documentation to verify that the reports are accurate to enable them base their decisions, until such time as the City feels comfortable with their accounting system. The following steps should also done to correct the errors that were noted during the audit: 1. Calculate compensated absences based on accumulated vacation and sick leave hours as of June 30th. Z. The parking commission should obtain a copy of the amortization schedule from the City regarding the advance from the garbage fund and make sure to update their books as they make their payments. 3. Monthly reconciliations should be prepared and should agree to the accounting records prepared by the parking commission. Subsequent to the audit, the Kalispell Parking Commission has hired a Certified Public Accountant to implement an effective accounting system and prepare reliable financial information on which management can base their decisions. Section III - Federal Award Findings and Questioned Casts There were no matters reported. -51- Denning, Downey & Associates, P.C. CERTIFIED PUBLIC ACCOUNTANTS No. 9 SunsetPlaza, Suite 101 • Kalispell, MT 59901 • 756--6879 INDEPENDENT AUDITOR'S REPORT ON OTHER COMPLIANCE, FINANCIAL, AND INTERNAL ACCOUNTING CONTROL MATTERS City Manager, Mayor, and City Council City of Kalispell Kalispell, Montana There were no other compliance, Financial, or internal accounting control matters. Anning, Aivnvy and. ijociale3, 1-9C March 19, 1999 -52- Robert K. Denning, CPA -Kim M. Downey, CPA Denning, Downey & Associates, P.C. CERTIFIED PUBLIC ACCOUNTANTS No. 4 Sunset Plaza, Sprite 101 • Kalispell, MT 59901 • 756-6879 INDEPENDENT AUDITOR'S REPORT ON PRIOR AUDIT REPORT RECOMMENDATIONS City Manager, Mayor, and City Council City of Kalispell Kalispell, Montana The prior audit report contained one recommendation, concerning the Parking Commission. This recommendation was repeated in this audit report. Anninq, l b wne y candt-143.4ociafe.4, PC March 19, 1999 -53- Robert K Denning, CPA -Kim M Downey, CPA