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15. Audit-Fiscal Year Ended 6/30/03CITY OF KALISPELL FLATHEAD COUNTY, MONTANA Fiscal Year Ended June 30, 2003 AUDIT REPORT Denning, Downey & Associates, P.C. CERTIFIED PUBLIC ACCOUNTANTS CITY OF KALISPELL FLATHEAD COUNTY, MONTANA Fiscal Year Ended June 30, 2003 TABLE OF CONTENTS Organization I Management Discussion and Analysis 2-11 Independent Auditor's Report 12-13 Financial Statements Government -wide Financial Statements Statement of Net Assets 14-15 Statement of Activities 16 Fund Financial Statements Balance Sheet — Governmental Funds 17 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets 18 Statement of Revenues, Expenditures and Changes in Fund Balance— Governmental Funds 19 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities 20 Statement of Net Assets — Proprietary Funds 21 Statement of Revenues, Expenses and Changes in Net Assets -- Proprietary Funds 22 Statement of Cash Flows Proprietary Fund Types 23 Fiduciary Funds -- Statement of Fiduciary Net Assets 24 Notes to Financial Statements 25-53 Required Supplemental Information Budgetary Comparison Schedule 54-55 Budgetary Comparison Schedule — Budget -to -GAAP Reconciliation 56 Single Audit Section Schedule of Expenditures of Federal Awards 57 Notes to the Schedule of Expenditures of Federal Awards 56 Report on Compliance and on Internal Control Over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 57-58 ac CITY OF KALISPELL FLATHEAD COUNTY, MONTANA TABLE OF CONTENTS - Continued Report on Compliance with Requirements Applicable to Each Major Program and Internal Control Over Compliance in Accordance with OMB Circular A-133 59-60 Schedule of Findings and Questioned Costs 61-62 Report on Other Compliance, Financial, and Internal Accounting Control Matters 63 Report on Prior Audit Recommendations -11- 64 CITY OF KALISPELL FLATHEAD COUNTY, MONTANA ORGANIZATION Fiscal Year Ended June 30, 2003 Pamela B. Kennedy Donald Counsell Ward I Robert Hafferman Ward I Fred Leistiko Ward II Hank Olsen Ward II Chris Kukulski Charles Harball Frank Garner Amy Robertson Heidi Ulbricht Jaynes Hansz Michael Baker Susan Moyer Rick Wills Mayor CITY COUNCIL Jinn Atkinson. Ward III Randy Kenyon Ward III M. Duane Larson Ward IV Jason Peters Ward IV OFFICIALS City Manager Attorney Police Chief Finance Director City Judge Public Works Director Parks Director Community Development Director City Accountant MANAGEMENT'S DISCUSSION AND ANALYSIS As management of the City of Kalispell, we offer readers of the City of Kalispell's financial statements this narrative overview and analysis of the financial activities of the City of Kalispell for the fiscal year ended June 30, 2003. We encourage readers to consider the information presented here in conjunction with additional information that we have famished in our letter of transmittal, which can be found on pages of this report. A comparative analysis will be provided in future years when information is available. FINANCIAL HIGHLIGHTS ➢ The assets of the City of Kalispell exceeded its liabilities at the close of the recent fiscal year by . $54,875,342 (net assets). Of this amount, $4,726,682 (unrestricted net assets) may be used to meet the government's ongoing obligations to citizens and creditors. As of the close of the current fiscal year, the City of Kalispell's governmental funds reported combined ending fund balances of $10,168,261, a decrease of $1,944,987 in comparison with the prior year. The majority of this decrease can be attributed to the $1.9 million expenditure for the Streetscape project out of the Downtown Tax Increment District. ➢ At the end of the current fiscal year, unreserved fund balance for the general fund was $1,085,450, or 17.9 percent of total general fund expenditures. ➢ The City of Kalispell's total debt decreased by $376,236 during the current fiscal year. The City issued $489,177 in new Water revenue bonds for the meter replacement program while paying down other debt obligations. ➢ During the year, the City of Kalispell revenues for governmental programs (before special items) exceeded expenses by $1,059,037 (change in net assets). ➢ In the City's business -type activities, program revenues increased $614,670 (or 10 percent); expenses increased $183,475 (or 4 percent). AN OVERVIEW OF THE FINANCIAL STATEMENTS There are three main components to the City of Kalispell's financial statements: 1) government -wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. Other supplementary material is included in this report. in addition to the basic financial statements themselves. The City of Kalispell intends for this discussion and analysis to be used in conjunction with the basic financial statements and other material as an introduction and also as a means to help the user better understand the information. Government -wide Financial Statements The government -wide financial statements are designed to provide readers with a broad overview of the City of Kalispell's finances. The way information is presented in these statements is comparable to how the financial information of a private -sector business would be presented. The statement of net assets presents information on all of the City of Kalispell's assets and liabilities. `The difference between these two (assets minus liabilities) is reported as net assets. Net assets can be a useful tool in evaluating the financial health of an entity. A substantial decrease in net assets may be a sign of deteriorating financial position. -2- The change in net assets during the most recent fiscal period is presented by the statement of activities_ The statement of activities reports changes in net assets at the time the event takes place without regard to the corresponding cash transaction. This results in some revenues and expenses being reported in this statement that will not result in cash flow until a future fiscal period. Some examples of this would be uncollected but earned taxes and earned leave benefits. The government -wide financial statements of the City of Kalispell are segregated to distinguish between functions supported predominantly by taxes and intergovernmental revenues (governmental activities) and those that are intended to recover the majority of their costs through user fees and charges for services (business -type activities). The governmental activities of the City of Kalispell include general government/administration, public safety, public works, culture and recreation, and housing and community development. The business -type activities of the City of Kalispell include water distribution, sewer collection and treatment, solid waste collection, and ambulance service. The government -wide financial statements include; in addition to the primary government described in the above paragraph, a legally separate parking commission and a legally separate Tri -city planning office. The financial information of these component units is reported in their own dedicated column. Fund Financial Statements The City of Kalispell, like most other governmental entities, uses fund accounting. Funds are set up to. account for specific activities or objectives of the government. Funds also aide in ensuring compliance with legal requirements. The City of Kalispell categorizes its funds as either governmental, proprietary, or fiduciary. Governmental funds correspond with the functions reported as governmental activities in the government -wide financial statements. Governmental fund financial statements, by focusing on near-term inflows and outflows of spendable resources, may be more useful in evaluating a government's short-term fiscal health than the government -wide financial statements. A reconciliation has been prepared to help users more easily compare the governmental fund balance sheet to the government -wide statement of net assets and the governmental fund statement of revenues, expenditures, and changes in fund balance to the government -wide statement of activities. These reconciliations can be useful in contrasting, comparing and understanding the long- term impact (government -wide statements) of near-term decisions (governmental fund statements). The City of Kalispell maintains numerous individual governmental funds. The governmental fund balance sheet and statement of revenues, expenditures, and. changes in fiend balance present information separately only for funds which are considered major. Major funds are determined by a formula which considers the percentage of total governmental assets, liabilities, revenues, and expenditures contained in each individual fund. The City of Kalispell has six major governmental funds, the general fund (always a major fund), the Downtown Tax Increment (special revenue) fund, the Community Development Loan Revolving (special revenue) hind, the UDAG (special revenue) fund, the Special Improvement District 343 (debt service) fund, and the Pool Construiction (capital project) fund. All non -major funds are presented as a group. The City of Kalispell adopts an annual appropriated budget for its funds. A budgetary comparison statement has been provided for the general fund and each of the major special revenue funds to demonstrate compliance with this budget. The City of Kalispell maintains two different types of proprietary funds. Enterprise funds are used to report the same functions presented as business -type activities in the government -wide financial statements. Water, sewer, solid waste, and ambulance make up the City of Kalispell's enterprise funds. The City of Kalispell uses internal service funds to accumulate and allocate its data processing and health insurance transactions internally among its various functions. Under the old reporting model internal service funds were reported as proprietary funds because they recovered most of their cost through user fees from other fiends. Under this new model these funds are eliminated through an allocation process and categorized as either a governmental or business -type activity. Because both of the City of Kalispell's internal service funds benefit governmental more so than business -type fiinctions, they have been included within the governmental activities in the government -wide financial statements. information in the proprietary fund financial statements is of the same type as that provided in the government -wide financial statements, however, it is more detailed. Individual fund data is provided for all of the enterprise funds. The City of Kalispell maintains two funds to account for resources held by the government for the benefit of outside parties. These fiduciary funds are not reflected in the government -wide financial statements because the resources are not available to support the City of Kalispell's own programs. The City of Kalispell must ensure that the assets reported in these funds are used for their intended purpose. The accounting method used for fiduciary funds is similar to that used for proprietary funds. '_=Votes to the Financial Statements The information contained in the government -wide and fund financial statements is meant to be used in concurrence with the notes to the financial statements. The notes present further detail of the data provided by these statements. -4- ANALYZING THE CITY AS A WHOLE As mentioned prior, net assets can be an important indicator of an entities financial well-being. For the period ending June 30, 2003, the City of Kalispell's assets exceeded liabilities by $54,875,342. CITY OF KALISPELL'S NET ASSETS Investment in capital assets (e.g., land, buildings, machinery, and equipment), net of any related debt still outstanding on those assets makes up 61 % of the City of Kalispell's net assets. These capital assets are used to provide services to the citizens of Kalispell and are not spendable. Therefore, repayment of the debt related to capital assets must be provided from other sources. Restricted net assets equal $16,839,675 or 31 %of total net assets. $8,470,545 of this is restricted in the enterprise funds and is reserved for debt service ($824,997) and capital projects ($7,645,548). The $8,369,130 restricted in governmental activities consist of $812,951 for debt service, $2,784,074 for capital projects, $349,373 for public safety, $2,151,043 for public works, 540,052 for parks, and $2,231,637 for community development. The remaining balance of unrestricted net assets ($4,726,682) may be used to meet the City of Kalispell's ongoing obligations to citizens and creditors. At the end of fiscal year 2003, the City of Kalispell is able to report positive balances in all categories of net assets. Governmental activities. Governmental activities increased the City of Kalispell's net assets by $1,059,037, accounting for a 2% growth in the City's total net assets. -5- Governmentai Business -type Total activities activities 2003 2002 2003 2002* 2003 2002* Current and other assets $ 15,597,408 $ 10,700,932 $ 26,298,340 $ Capital assets -net $18,204,233 27,130,462 45,334,695 Total assets 33,801,647 . _ ..,,:: .:i 37,831,394 '. ... 71,633,035 Long-term liabilities outstanding $ 7,881,285 ..' _..;, . 6,576,264.._!. 14,457,549 Other liabilities $ 1,890,929 409,215 2,304,144 - Total liabilities $ 5,772,214 �. ;.. .. 6,985,479 ..... 16,757,693 Net assets: Invested in capital assets, net of related debt $12,489,553. _..._ � : - 20,819,432 ...;!........ . 33,308,985 Restricted $ 8,369,130 ...:: _ ...,.=,..:� 8,470,545 .. ,... �..', 16839,675 Unrestricted $ 3,170,744 , _�� 1,555,938 4,726,682 .... ..: Total net assets $24,029,427 ... .� $ 30,845,915 �;: _.e' $ 54,875,342 Fund Balances Investment in capital assets (e.g., land, buildings, machinery, and equipment), net of any related debt still outstanding on those assets makes up 61 % of the City of Kalispell's net assets. These capital assets are used to provide services to the citizens of Kalispell and are not spendable. Therefore, repayment of the debt related to capital assets must be provided from other sources. Restricted net assets equal $16,839,675 or 31 %of total net assets. $8,470,545 of this is restricted in the enterprise funds and is reserved for debt service ($824,997) and capital projects ($7,645,548). The $8,369,130 restricted in governmental activities consist of $812,951 for debt service, $2,784,074 for capital projects, $349,373 for public safety, $2,151,043 for public works, 540,052 for parks, and $2,231,637 for community development. The remaining balance of unrestricted net assets ($4,726,682) may be used to meet the City of Kalispell's ongoing obligations to citizens and creditors. At the end of fiscal year 2003, the City of Kalispell is able to report positive balances in all categories of net assets. Governmental activities. Governmental activities increased the City of Kalispell's net assets by $1,059,037, accounting for a 2% growth in the City's total net assets. -5- Business -type activities. Business -type activities increased the City of Kalispell's net assets by $1,305,477, accounting for a 2.5% growth in the City's net assets. The key element of this increase was an increase in charges for services for business -type activities of 13% or $627,199. The City's Ambulance service accounts for a significant portion ($404,713 or 9%) of this increase. Increased ambulance charges were mainly the result of an increase in the billing rate structure. Increased rates in the Water, Sewer and Solid Waste funds, together with slight increases in demand, also resulted in increases in those fiends charges for services. CITY OF KALISPELL'S CHANGE IN NET ASSETS Governmental Business -type Total activities activities Capitai grants and contributions General revenues: cmer taxes Grants and contribution: not restricted to specific Expenses: General Public s Public %A Culture Housing deve�oL Sewer Solid waste Transfers Net assets - Net assets - Fund balanc -6- ANALYZING THE CITY'S INDIVIDUAL FUNDS Governmental Funds The focus of the City of Kalispell's governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources (fund balance). Unreserved fund balance is a useful tool when assessing the net resources a government has available to spend at the end of a fiscal period, At the end of fiscal year 2003, the City of Kalispell's governmental funds reported combined ending fund balances of $l 0,168,261, a decrease of $1,944,987 in comparison with the prior fiscal year. 4f this amount $843,296 is reserved for debt service and $115,000 is reserved for advances to other funds. Reserved portions of fund balance are not available for new spending. The general fund is the chief operating fund of the City of Kalispell. At the end of fiscal year 2003 unreserved fund balance of the general fund was $1,085,450. Unreserved fund balance as a percentage of total fund expenditures can be a good tool to use to measure the liquidity of the general fund. For fiscal year 2003, unreserved fund balance represented 17.8% of total general fund expenditures. The decrease in the fund balance of the general fund during fiscal year 2003 was insignificant. The downtown tax increment fund is a special revenue fund which was established to help finance projects deemed crucial to the growth and continued viability of the City of Kalispell's downtown area. Fiscal year 2002 was the last year for this fund to receive tax revenue, and all funds were budgeted for approved downtown projects. However, due to delays in the completion of these projects, the fund balance was $559,541 at the close of fiscal year 2003. The completion of the approved projects should close out this fund in fiseal year 2004. The community development loan revolving fund is a special revenue fund used to make low interest housing and commercial loans within a designated area. Principal and interest from these loans or the purchase and subsequent resale of a fixed asset are the only sources of revenue in this fund. During fiscal year 2003 the fund balance grew over 60%, increasing from $399,790 to $646,709, however, $253,813 of this total has been designated for specific redevelopment projects. This substantial overall fund balance increase was due to expenditures (loans and grants) of only $294,878, while revenues (mainly loam repayments) were $541,443. The UDAG (Urban Development Action Grant) fund (a special revenue fund) is very similar to the community development loan revolving fund. The City of Kalispell must clearly designate at least 51% of the UDAG funds, through loans and other programs, for the benefit of persons of low and moderate income. This fund is also self sustaining through loan repayments. During fiscal year 2003 the fund balance decreased $154,597 to $722,510. Special Improvement District 343 (debt service) fund was established by the City of Kalispell in fiscal year 2001 for the purpose of servicing the debt contributable to the reconstruction of Sunnyview Drive. This project was funded through the sale of bonds and a small contribution from the City of Kalispell. The fund balance increased to $111,082 from 589,469 during the fiscal year 2003 operating period. This increase was. a result of the residual equity transfer of $88,855 from the Sunnyview Drive capital project fund, an will be used to retire bonds. -7- The City of Kalispell established a capital project fund in fiscal year 2002 for the construction of a new aquatic facility and skateboard park at Woodland Park. Construction of this voter approved facility is expected to be completed in fiscal year 2004- All funds are expected to be expended for construction. Proprietary Funds The City of Kalispell's proprietary funds provide the same type of information found in the government - wide financial statements, but in more detail. Unrestricted net assets of all proprietary funds at the end of the fiscal year amounted to $1,555,938. Of this amount, $617,674 was attributable to the water fund and $722,673 to the sewer. The total growth in net assets of all proprietary funds equaled $1,305,477. The water funds increase in net assets for fiscal year 2003 was $612,185, the sewer funds net assets increased $670,176. Other factors concerning the finances of the water and sewer funds have already been addressed in the discussion of the City of Kalispell's business - type activities. 400UUUL 3500001] 3000000 2500000 c E 2000000 a 1500000 1000000 530000 Expenses and Program Revenues - Business -type Activ4les water sewer solid waste ambulance Activity GENERAL FUND BUDGETARY HIGHLIGHTS jyeven by S-1- - AtM Invesuneni Earnings Charges for s- h8% e Over the course of the year, the City of Kalispell's general fiend budget was revised several times. The original general fund expenditure budget was increased a total of $787,249 to the final amended budget figure of $6,403,071. Most of the difference between the original and the final.budget was related to on— behalf retirement payments from the State of Montana for public safety employees. This is recorded as an expense of the City and is offset by a contribution revenue from the State. Total actual expenditures were $205,012 below the final budget amounts. General fund resources available for appropriation were $7,333,682, $49,039 less than the budgeted amount. -8- CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets At the end of 2003, the City of Kalispell has $45,334,695 invested in a broad range of capital assets, including police and fire equipment, buildings, land, park facilities, garbage collection equipment, and water and sewer lines. The City of Kalispell has not yet booked some infrastructure; therefore, the dollar amount related to these assets is not included in the total. These assets, which include streets, will represent a Significant increase in the capital assets of the City of Kalispell when booked. Major capital asset events during the fiscal year 2003 included the following., Purchase of land on 2"1 Avenue West and construction on the land of a parking lot at a total cost of $208,326. $70,978 was spent to make upgrades to City Hall. Streetseape projects cost $1,867,501. ➢ The new aquatic facility/skateboard. park cost for fiscal year 2003 was $890,297. Three police patrol cars were added at a total cost of $69,976. A dump truck was purchased for the street department at a cost of $75,505. $266,505 was spent on the ongoing facility plan and rate study. ➢ The city replaced fire hydrants at a total cost of $90,343. ➢ The water department continued a radio read meter project. The goal is to replace all the non radio read meters by 2005. These new radio read meters are more accurate and only have to be driven by for their consumption reading to be taken. Total cost of this project for fiscal year 2003 was $374,400 ➢ Electrical upgrades were made at the Buffalo Hill well site at a total cost of $239,599 Equipment was replaced at the Waste Water Treatment Plant equaling $184,266. CITY OF KALISPELL'S CAPITAL ASSETS (NET OF DEPRECIATION) Governmental Business -type activities activities Total Land 2003 $ 2,193,522$ :2002 = :. 3,354i:; 2003 $ 238,768 $ . , .'23$;768::': $ 2003 2,432,290 X002 Buildins $ 6,783,045 219,806 236 .1t1S ;' $ 7,002,851 7;(323,(345 Improvements not buildings $ 6,191,373 3;,x{39 778 $ 6,191,3.23 _3;1L 77F3: Machineg and equipment $ 1,865,781 'MT681 792,025X716 84 $ 2,657,806 Construction m Progress $ 1,170,512 1502,346' 328,61478 88��" $ 1,499,126 ., . 1-;.881 22:9.'- Source of Supply '". 454,806 472)74 _t= $ 454,806 ...,. . ;472 74 :i Pump], n Plan# 1,061,264 f344 60.6's $ 1,061,264 Q Treatment Plant 6,019,942 6;699 73'- $ 6,019,942 „6,699,73(1 Transmission and Distribution 14,402,257 13,„838 629.' $14,402,257 i& 38 629: General Plant 668,580 444,275:; $ 668,580 444,275.: Storm Sewers sten 2,944,402 .2994,57: $ 2,944,402;"1994;5x4' Total $18,204,233 $151220,0.96? $27,130,464 $.26;885216;= $45,334,697 $42D$5,`31 Additional information on the City of Kalispell's capital assets can be found in of this report. -9- Debt At the end of fiscal year 2003, the City of Kalispell had total long-term debt outstanding of $14,915,178. Of this amount, $3,675,000 comprises debt backed by the full faith and credit of the government and $5,865,364 represents bonds secured solely by specified revenue sources (i.e., revenue bonds). The remainder consists of $2,235,000 outstanding on a SRF loan for construction of the wastewater treatment plant, $1,496,139 of special assessment debt for which the City of Kalispell is liable in the event of default by the property owners subject to the assessment, and $370,683 of loans for the purchase of equipment. The. City of Kalispell also has debt outstanding on the books of $236,108 for the financing of the Courtyard Apartments. This debt is paid for by the rent proceeds attributed to those apartments. CITY OF KALISPELL'S OUTSTANDING DEBT General obligation bonds Governmental activities 2003 2UQ $ 3,675,000 $ 3,,F65,000 Business -type activities 20fl3D2 Total 2003. $ 3,675,000 $ Revenue bonds $1,903,011 2, 14,293 " 3,962,353 3,8.82,721. 5,865,364 w, SRF loans 2,235,000 :=, x;425 000 2,235,000 Assessments $1,496139 = 16fi1,59fl: 1,496,139 Contract debt/loans $ 543,541 . ., ..49,516 63,250 X7,115 606 791 ; Total $ 7,617,691 $ 7,91'6,399, $6,260,603 $ 6 38,836 $13,878,294 $1? Other obligations of the City of Kalispell include accrued vacation pay and sick leave. More detailed information about the City's long -terra liabilities is presented in the notes to the financial statements. ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES ➢ Preliminary April 2003 statistics report Flathead County's unemployment rate at 5.3 percent, which is a decrease from the April 2002 rate of 6.4 percent. This is substantially higher than the State's unemployment rate of 4 percent, but compares favorably to the nations rate of 5.8 percent. ➢ The employment growth rate for Flathead County averaged 2.6 percent from 1996 to 2001. During this same period the County's unemployment rate dropped from 7.3% to 5.9%. ➢ The City of Kalispell's population grew 19.4% during the 1990 decade. Flathead County and Northwest Montana have been experiencing rapid population growth for many years. All of these factors were considered in preparing the City of Kalispell's budget for the 2004 fiscal year. -10- Request for Information This financial report is designed to provide a general overview of the City of Kalispell's finances for all those with an interest in the government's finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the City of Kalispell, Finance Director, P.O. Box 1997, Kalispell, MT 59903-1997. -11- Denning, Downey & Associates, P, C. CERTIFIED PUBLIC A CCO UNTANTS 1740 U.S. Hwy 93 south - Suite 10.7 Kalispell, MT 19901 INDEPENDENT AUDITOR'S REPORT Mayor and City Council City of Kalispell Flathead County Kalispell, Montana We have audited the accompanying financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate, discretely presented component unit and the aggregate remaining fund information of City of Kalispell, Flathead County, Montana, as of and for the year ended June 30, 2003, which collectively comprise the City's basic financial statements as listed in the table of contents. We also have audited the internal service fund type and each fiduciary fund type of the City, as of and for the fiscal year ended June 30, 2003, as displayed in the City's basic financial statements. These basic financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. 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 our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business -type activities, each major fund, and the aggregate, discretely presented component unit and the aggregate remaining fund information, as well as the internal service fund type and fiduciary fund types of the City of Kalispell, Flathead County, Montana, as of June 30, 2003, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. As described in Note 1, the City has implemented a new financial reporting model, as required by the provisions of GASB Statement No. 34, Basic Financial Statements -and Management's Discussion and Analysis for State and Local Governments, as of June 30, 2003. The management's discussion and analysis and budgetary comparison information on pages 2 through 11 and 53 through 55, are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding methods of measurement and presentation of the supplementary information. However, we did not audit the information and express no opinion. -12- fn accordance with Government Auditing Standards, we have also issued our report dated February 13, 2004, on our consideration of City of Kalispell, Flathead County, Montana's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City of Kalispell, Flathead County, Montana basic financial. statements. 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 -Profits Organizations and is not a required part of the financial statements of City of Kalispell, Flathead County, Montana. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the financial statements taken as a whole. 4,4" d,� �Laa a c -cam �' PA s PC . February 13, 2004 -13- CITY OF KALISPELL, FLATHEAD COUNTY, MONTANA Assets Current 19 ets Cash and investments Taxes receivable, net Accounts receivable, net ]merest receivable Due from other governments Current portion of notes receivable Inventories Internal balances Prepaids Due from others Total Current Assets on , rr nt Restricted Assets Cash and investments Advances to other funds Loans receivable Capital assets - Depreciable, Net Capital assets - Land Capital assets - Construction in progress Total Noncurrent Assets Total Assets STATEMENT OF NET ASSETS As of June 30, 2003 Primary Government Govcrnrnental Business -type Activities Activities Total Component Units Tri -City Parking Planning Commission S 9,915,569 $ 9,176,712 $ 19,092,281 S 132,452 $ 22,263 2,026,788 65,085 2,09L873 - 266,767 568,319 835,086 - 5,470 1,100 1,100 - - 853,871 163,429 1,017,300 - 166,2t9 - 166,219 - - - 109,815 109,815 - 42,562 (42,562) - 44,468 44,468 4,054 - 4,054 - - S 13,321,398 S 10,040,798 $ 23,362,1.96 $ 132,452 $ 27,733 $ 327,811 $ 614,572 $ 942,383 $ 115,000 - 115,000 1,875,761 - 1,875,761 I4,840,199 26,536,530 41,376,729 2,193,522 265,318 2,458,840 1,170,512 328,614 1,499,126 $ 20,522,805 $ 27,745,034 $ 48,267,839 $ S 33,844,203 $ 37,785,832 $ 71,630,035 $ See accompanying dotes to the Financial Statements 21,73( 8,334 21,731 S 8,334 154,183 $ 36,067 CITY OF KALISPELL, FLATHEAD COUNTY, MONTANA Liabilities Current Liabilities Accounts payable Accrued payroll Current portion of long -tent debt Due to others Purchase contract Retainage -due to contractor Estimated liability for claims Total Current Liabilities Lang.- �erm Liabilities Long-term debt Advances from other funds Compensated absences Total Noncurrent Liabilities Total Liabilities STATEMENT OF NET ASSETS (Continued) As of June 30, 2003 Primary Government Component Units Govemmorital Business -type Tri -City Parking Activities Activities Total Planning Commission S 939,841 S 309,924 $ 1,249,765 S 5,358 $ 932 183,351 53,729 237,080 5,922 1,082 524,170 - 524,170 - 22,458 Culture and Recreation 22,458 - - - - 2,231,637 - - 6,552 139,152 1,555,938 139,152 - - 124,519 - 124,51.9 - - S 1,933,491 $ 363,653 8 2,297,144 $ 11,280 S 8,566 7,093,521 6,260,604 13,354,125 - - - 115,000 115,000 - - 787,764 200,660 988,424 45,796 2,664 7,881,285 6,576,264 14,457,549 45,796 2,664 9,814,776 $ 6,939,917 S 16,754,693 S 57,076 S 11,230 Net Assets Invested in capital assets, net of related t S 12,489,553 $ 20,819,432 $ 33,308,985 $ 21,731 $ 8,334 Restricted for: Debt service 812,951 824,997 1,637,948 - Capital projects 2,784,074 7,645,548 10,429,622 Public Safety 349,373 349,373 - Public Works 2,151,043 2,151,043 - Culture and Recreation 40,052 40,052 Housing and Community Development 2,231,637 2,231,637 - - Unrestricted 3,170,744 1,555,938 4,726,682 75,376 16,503 Total Net Assets $ 24,029,427 $ 30,845,915 $ 54,875,342 S 97,107 $ 24,837 See accompanying Notes to the Financial Statements -15- CITY OF KALISPELL, FLATHEAD COUNTY, MONTANA STATEMENT OF AC'TIVCI7E5 For tllo Fiscal Yeax Ended June 30, 2003 Net (Expenses) Revenues and W Chances iu Ret Assets Prngram Revenues PrimAry Government Component units Op -ting Capital Business - Charges for Grants and Grant and Governmental type Tri -City Parking FunctianslProrzrams Exoemes Serv_i- Contributions Contribntinns Activities Activities T_q-tal Plan Cmnm -ns n Primary Guverotnent: (3--3n-Ml activities, (3enent16-e-ent $ 1,541,939 $ 390,202 $ - $ - $ (1,151,737) - $ (1,151,737} $ - $ - PubticSafety 4,922,033 966,772 821,247 50,000 (3,084,014) - (3,084,0t4) - - Pnblie Warks 1,540,717 863,257 825 34,531 (642,104) - (642,104) - - CulhneandReereatiat L, 160,OB1 356,819 24,624 - (778,638) - (778,638) - Housingand Colnnn3ntyDevelapmeiti 1,162,224 597,844 566,589 - 2,209 - 2,209 - - Miscellaueous 26€,437 - - - (261,437) - (261,437) - - IntemstLxpetse 534,259 - - - (534,259) - (534,259) - - Debt S-iceExpensc 287,042 125,00 225,375 637,411 637417_ "fetal Gol-let euml AetwinIs $ 11,122,690 $ 3,461,936 $ 1,538,265 $ 309,906 $ (5,812,563) $ (5,812,563) $ $ Busmen, -type aetivehes- Water $ 1368,745 $ 1,543,388 $ - $ 425,134 $ - $ 599,777 $ 599,777 $ - $ - Sewer 2,874,950 3,219,645 - 198,262 - 562,957 562,957 - - Selid Waste 516,693 568,450 - - - 51,457 51,457 Atnbulanee 1,233,459 1,155,167 47,991 - (33 201) 311,201 _ Total business -type activities $ 5,993,847 $ 6,566,350 $ X7091 $ 623396 $ _ $ 1,182,990 $ - 1182,99€3 "fetal Primary Govenmteut S 17116,537 $ 9968,286 $1,585356 S 933302 S (5,812,563) $ 1,182,990 S (4,029,571) S $_ Component Units: Tti-City Planning $ 323,181 $ 345,151 3 - $ - $ - S - $ - $ 21,970 S - Pa'vngConunission 11579b 105077 _ - - - - (10,719) "Coral Conpea-, Units $ 438,977 $ 450.228 $ - $ - $ - $ - $ - $ 21,970 _ (10,719) Genesal i2evwues propefty lazes for gnueral purposes $ 4,163,922 $ - 5 4,163,922 $ - 5 - GasTa,e 290,319 - 290,919 - - Euritlerneut 1,965,736 - 1,9b5,736 - - itotrse 13ill 20 7,873 - 7,873 - - Senate Bill 417 6,786 - 6,790 452 204 State Gaming License 5e-506 - 50,590 - - Other 5,103 - 5,10 - - [nvcsnncn[eatnings 381,L67 122,487 503,654- T-1 general ravenaes S 6,871,600 S 122,487 $ 6.994,987 $ 452 S _304 Cltauge in Net Assess .$ 1,059,037 S 3,305,477 $ _ 2-364514 $ 22,422 S (10515) Net Assets-My1,2002 $ 12113,248 5 17,198,589 $ 29,311,837 5 (10,691) 5 44,686 Restate+nenN 70,972 12,384,411 12,455,383 107,392 (9,334) Restatonrentt (GASB 164) 10y786z1�0 X562 19,743.608 (22016) NetAssets - July 1, 2.002 -Restated $ 22,970,390 5 29,546,438 S 52;510,828 5 74,685 $ 35,352 Net Assets -j-30,2063 S 24,029,427 $ 30,845,915 5 54,875,342 $ 97,107 $ 24,937 See accompa,�ying Notes m the Pinanoial S�nwm�7its CITY OF KAL ISPELL, FLATHEAD COUN7 Y, MONTANA BALANCE SHEET GOVERNMENTAL FUNDS June K, 2003 LIABILITIES CIAMMtiabilitj9.q Accounts Payable S 78,374 S 346,239 $ 359 S 10,687 S - $ 323,613 $ 176,692 $ 935,964 Accrued Payroll Other Total - 5,020 - General Tax Comm Dev Due to other funds - 559,541 644,709 722,510 - 3,442,026 Pool Governmental Governmental 2,452 2,452 Fund Increment Loan Rev. - UDAG S10343 Construction Funds Funds ASSETS - 960,815 1,035,928 1,334,495 - 442,916 4,023,531 Retainage - due to contractor - 74,732 5,000 Current As5-e191 58,737 683 139,152 Total. current liabilities $ 488,499 $ 420,971 $ 966,174 $ 1,051,635 $ 1,334,495 382,350 $ 662,784 $ Cash and investments $ 963,767 $ 980,512 $ 652,068 S 738,217 $ 32,944 3,062,210 $ 3,688,97 t $ 10,118,689 'Taxes Receivable - net 249,377 - - - 1,334,495 - 442,916 2,026,988 Accounts Receivable - net - - - - - - 266,767 266,767 Interest Receivahle 1,100 - - - - - - 1,100 Due From other governments 313,266 - - - 78,138 - 462,467 853,871 Prepaids 60 - - - - - 44,408 44,468 Due from other funds - 2,452 2,452 Due from others 1,142 - 2,912 4,054 Total current assets $ 1,528,712 S 980,512 $ 652,068 $ 738,217 $ 1,445,577 3,062,210 $ 4,910,893 $7 189 uit[rcnt as5dC' Advances to other funds $ 115,006 $ - $ - $ - $ - $ - $ - $ 115,000 Loans receivable 45,237 960,815 1,035,928 2,041,980 Fetal noncurrent assets $ 160,237 $ $ 960,815 $ 1,035,928 $ $ $ 2,156,980 'total Assets $ 1,688,949 $ 980,512 S 1,612,883 $ 1,774145 $ 1,045,571 3,062,210 $ 4,910,893 $ 75,475,169 LIABILITIES CIAMMtiabilitj9.q Accounts Payable S 78,374 S 346,239 $ 359 S 10,687 S - $ 323,613 $ 176,692 $ 935,964 Accrued Payroll 158,290 - - 5,020 - - 20,041 183,351 Due to other funds - 559,541 644,709 722,510 - 3,442,026 5,3707786 - - 2,452 2,452 Due to others 2,458 - - - - - 20,000 22,458 Deferred Revenue 249,377 - 960,815 1,035,928 1,334,495 - 442,916 4,023,531 Retainage - due to contractor - 74,732 5,000 58,737 683 139,152 Total. current liabilities $ 488,499 $ 420,971 $ 966,174 $ 1,051,635 $ 1,334,495 382,350 $ 662,784 $ 5,306,908 Total Liabilities $ 488,499 $ 420,971 S 966,174 $ 1,051,635 5 1,334,495 382,350 $ 662,784 $ 5,306,908 FUND BALANCES V5MT'ti.%i_ Advancesto other funds $ 115,000 $ - $ - $ - $ - S - $ - $ 115,000 pebt Service - 111,082 732,214 843,296 Unteserved reported hr General Fund 1,085,450 - - - - - - 1,085,450 Special revenue funds - 559,541 644,709 722,510 - 3,442,026 5,3707786 Capital projects finds - - 2,679,860 104,214 2,784,074 Debt Service finds - (30,345) (30 345) Total fund balances S 1,200,45f) $ 559,541 S 646,70'3 $ 722,510 $ 111,082 $ 2,679,860 $ 4,248,109 $ 10,168,261 Total liabilities and fund balances S 1,688,949 $ 980,512 $ 1,612,883 $ 1,'774,145 $ 1,445,577 $ 3,062,210 $ 4,910,893 $ 15,475,1159 See ac-t-yr,g Notes to- the Financial Statements CITY OF KALISPELL, FLATHEAD COUNTY, MONTANA Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets As of June 30, 2003 Total fund balances - governmental funds S 10,168,261 Capital assets used in governmental activities are 18,130,569 not financial resources and therefore are not reported as assets in governmental funds Receivables that are not available soon enough to pay 4,023,531 for the current period's expenditures are deferred in the funds. Internal service funds are used by management to. I)account 1.12,521 for the cost of providing medical insurance to employees, and 2)account for data processing (computer supplies and services) cost. The governmental portion of the internal service fund are included with governmental activities Long-term liabilities are not due and payable in (8,405,455) the current period and therefore are not reported as liabilities in the funds Total net assets - governmental activities $ 24,029,427 See accompanying Notes to the Financial Statements _18- Revenues: Taxes and Assessments Licenses and Permits intergovernmental Charges 'Cor Services Fines and Forfeitures Miscellaneous Investment Earnings Total Revenues Expenditures:�, General Govemment Public Safety Public Works _ Culture and Recreation sD Housing and Community Development Miscellaneous Capital Outlay Debt Service Dotal Expenditures Excess (Deficiency) of Revenues Over (Under) Expenditures Other Financing Sources (Uses): Operating transfers in CO'P'Y OF KALISPELL, FLATPIEAD COUNTY, MONTANA 18,146 S - $ - $ STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IS FUND BALANCES $ - $ 128,448 S 235,449 Operating transfers out GOVERMENTAL FUNDS - - - - - For the Year Ended June 30, 2003 (235,449) Proceeds Long-tenndebt 40,888 - - - Other Total General Tax Comm. Des, Fool Governmental Governmental Fund Increment Loan Rev. LDAG SID 343 Conslruetion Funds Funds $ 2,115,245 $ 42,791 $ $ S 164,279 S S 2,713,773 $ 5,036,088 349,104 - - - - - 360,853 509,957 2,498,686 $ 246,919 S 6,899 21,613 1,399,840 3,905,425 693,544 - - - - - 108,833 802,377 453,892 - - - - - - 453,892 68,470 - 900 - 380,487 449,357 85,638 6,456 533,644 153,506 ;;2,664 76,785 908,693 $ 6,064,579 $ 49,247 $ 541,443 $ 153,506 S 164,279 $ 52,664 S 5,040,571 $ 12,066,289 S 10,168,261 $ 1,113,424 $ - $ - S - $ - $ - $ 144,325 S 1,257,749 3,495,649 1,284,533 4,780,182 562,1.89 - - - - - 881,262 1,443,451 749,069 - - - 238,946 988,015 - 179,709 18,646 308,103 - 617,039 1,123,497 2,254 - - - - 259,183 261,437 147,029 1,870,925 275,878 - - 890,297 210,8 t8 3,394,947 25,739 825 - - 231,521 728,527 986,612 $ 6,095,353 S 2,051,459 $ 294,524 $ 308,103 $ 231,521 5 990,297 $ 4,364,633 $ 14,235,890 $ (3Q774) $ (2,002,212) S 246,919 S (154,597) $ (67,242) $ ($37,633) $ 675,938 $ (2,1691601) Operating transfers in S 18,146 S - $ - $ - S 88,855 $ - $ 128,448 S 235,449 Operating transfers out (102,706) - - - - - (132,743) (235,449) Proceeds Long-tenndebt 40,888 - - - - - 112,754 153,642 Proceeds sale of Fixed Assets - - - Total other financing sources (uses) S (43,672) $ $ $ S 88,855 $ 108,459 $ 153,642 Net Change in Fund Balances S _ (74446 S (2,002,212) $ 246,919 S (154,597) ,'S 21,613 (837,633) $ 784,397 $ (2,015,959) Fund Balance Beginning ofyear $ 1,228,215 $ 2,539,612 $ 399,790 S 877,107 S 89,469 $ 3,517,493 $ 3,461,562 $ 12,113,248 Restatements 46,681 22,141 2,150 _ 70,972 Fund Balance lend olyear $ 1,200,450 $ 559,541. $ 646,709 S 722,510 $ 111,082 2,679,860 S 4,248,109 S 10,168,261 See accompanying Notes to the Financial Statements CITY OF KALISPELL, FLATHEAD COUNTY, MONTANA Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Fiscal Year Ended June 30, 2003 Amounts reported for governmental activates in the statement of activities are different because: Net change in fund balances - total governmental funds iTvvel3�}hien . hilt— report capital outlays as LL1��1 V1L1.11 Ural.}. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which capital outlays exceeded depreciation in the current period. Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds. Some expenses reported in the statement of activies do not require the use of current financial resources and therefore are not reported as expenditures in governmental funds. Long-term debt proceeds provide current financial resources to governmental funds, but issuing debt increases long -terra liabilities in the statement of net assets. Repayment of long-term debt principal is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net assets. Change in net assets - statement of activities See accompanying Notes to the Financial Statements -20- S (2,015,959) 2,696,890 115,438 (36,043) (153,642) 452,353 $ 1,059,037 CITY OF KALISPELL, FLATILLAD COLIN"FY, MONTANA STATEMENT OF NET ASSET PROPRIETARY FUNDS June 30, 2003 N LIABILITIES (`urrcm iabiljticu' Accounts Payable S 62,204 $ 241,030 $ 3,751 Governmental 2,939 $ 309,924 S 3,877 Business -Type Activities - Enterprise Funds Activities 18,604 6,317 56,729 Other Est. liability for claims Business -type internal Service 124,519 Total current liabilities _ Water Sewer Ambulance Funds Totals _ Funds ASSETS 9,256 $ 366,653 $ 128,396 Ncl-wWro A-LiabA IItC- CUMMI MI,.A$ Advances from other funds Cash and investments $ 423,962 $ 787,065 $ 6,053 $ 132,798 $ 1,349,878 S 124,691 'Taxes Receivable - net $ - 22,341 - 42,744 65,085 - Accounts Receivable - net 116,282 189,60.0 268,39? - 568,319 - Due From other governments 61.,618 51,703 42,198 69,528 _245,()70 163,429 - Total current assets S 585,947 S 1,041,244 $274,450 $ S 2,146,711 $ 124,691 - NDiKutLe Lass'=, $ 6,576,264_ $ - Total Liabilities $ 2,015,775 $ 4585,738 Restricted cash S 817,545 $ 7,532,220 $ - $ 94,641 $ 8,444,406 $ - invertories 109,815 - - 109,815 - Fixed Assets invested in capital assets, net of related debt 14,601,510 30,303,001 405,438 1,132,860 46,442,809 308,204 Less Accumulated Depreciation 553,682 (4,404 128) 14,154,900 280,318 473,001 (19,312,347) _____L234,541)1 Total noncurrent assets $ 11,124,742 $ 23,680,321 $ 125,120 $ 754,500 $ 35,684,683 $ 73,664 Total Asset6 $ 11,710,689 $ 24,721,565 $ 399,570 $ 999,570 $ 37,831,394 $ 198,355 N LIABILITIES (`urrcm iabiljticu' Accounts Payable S 62,204 $ 241,030 $ 3,751 $ 2,939 $ 309,924 S 3,877 Accrued Payroll 15,885 15,923 18,604 6,317 56,729 - Est. liability for claims - 124,519 Total current liabilities $ 78,089 S 256,953 $22,355 $ 9,256 $ 366,653 $ 128,396 Ncl-wWro A-LiabA IItC- Advances from other funds $ S $ 115,000 $ - S 115,000 $ .Gong-ternadebt 1,887,260 4,267,167 - 106,177 6,260,604 - Compensated absences 50,426 61.,618 10a954 37,662 200,660 - TotalNoucuirentLiabilities $ I937,686 $ 4,328,785 $ _165,954 5 143,839 $ 6,576,264_ $ - Total Liabilities $ 2,015,775 $ 4585,738 $ 188,309 5 153,095 $ 6,942,917 5 128,396 N ci Ass4ts: invested in capital assets, net of related debt $ 8,259,696 $ 11,880,934 $ 125,120 $ 553,682 $ 20,819,432 S 73,664 Restricted Net Assets 817,544 7,532,220 - 120,781 8,470,545 - lJorestrictedNetAssets 617,674 722,673 86,141 172,012 1,598,500 (3,705) Total net assets .$ 9,694,914 $ 20,135,827 $ 211,261 $ 846,475 $ 30,888,477 S 69,959 Adjustment to reflect the consolidation of internal service fund activities related to enterprise funds. (42,562) Net assets of'business-type activities 30,845,915 See accompanying Nofes to the financial Statements CITY 01' KALISPELL, FLATHEAD COUNTY, MONTANA STATEMENT OF REVENUES, EXPENSES AND CIJANGES IN NET ASSETS PROPRIETARY FUNDS For the Year Ended June 30, 2003 Governmental Business -Type Activities - Enterprise Funds Activities Other Business -type Internal Service Water Sewer Ambulance Funds Totals Funds QPSLAM6 Revemies: Charges for services $ 1,354,477 $ 2,520,938 $ 1,154,552 $ 563,946 $ 5,593,853 $ Miscellaneous 3,734 2,246 615 - 6,595 1,005 Internal Services - - - - - 1,567,769 Special Assessments 273,142 - 4,204 277,346 - Intergovernmental - - 47,091 47,091 - Total Operating Revenues Ouarating Expenses: $ 1,358,151 $ 2,796,326 $ 3,202,258 $ 568,150 $ 5,924,885 $ 1,568.774 Personal services S 537,932 $ 704,037 $ 555,752 $ 314,804 $ 2,112,525 $ - Supplies 25,737 45,639 13,962 30,800 116,138 11,717 Purchased services 242,716 620,390 62,531 13,338 938,975 1,621,461 Fixed Charges 127,348 178,550 56,509 68,824 431,231 22,694 C.oss/bad debt expenses 11,905 6,452 493,930 3,148 515,435 - Depreciation 318,035 1,141,773 49,675 82,020 1,591,503 42,145 Building materials 31,537 9,250 - 40,787 Total operating expenses $ 1,295,2t0 $ 2,706,091 $ t,232,359 $ 512,934 S 5,746,594 $ 1,698,017 Operating Income (loss) $ 62,941 $ 90,235 $ (30,101) $ 55,216 S 178,291 $ (129,243) Nolioperating rev eg-,(expenses) Interest and investment revenue $ 12,408 $ 107,219 $ 10 $ 2,850 $ 122,487 $ 2,547 Intergovernmenralreve❑ue 94,868 - - - 94,868 - Ilooknps 185,237 443,319 628,556 Debt Ser vice interest expense (73,535) (168,859) (1,1.00) (3,759) (247,253) Total nonoperating revenue (expenses) $ 218,978 $ 381,679 $ (1,090) $ (909) $ 598,658 $ 2,547 Net income (loss)before contributions S 281,919 $ 471,914 $ (31,191) 5 54,307 $ 776,949 $ (126,696) Capital Contributions S 330,266 $ 198,262 $ $ $ 528,528 $ Change in net assets $ 612,185 $ 670,176 $ (31,191) $ 54,307 $ 1,305,477 $ (126,696) Total net assets - beginning ofyear $ 5,803,992 $ 10,318,182 $ 242,452 $ 833,963 $ 17,198,589 $ 196,655 Restatements 3,278,737 9,147,469 - (41,795) 12,384,411 - Total net assets - end ofyear $ 9,694,914 $ 20,135,827 $ 211,261 $ 846,475 $ 30,888,477 69,959 See accompanying Notes to the Financial Statements CITY OF KALISPELL, FLATHEAD COUNTY, iv10NTANA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS For the Year Ended June 30, 2003 OTHER WATER SEWER AMB17LANCE BUSINESS -TYPE TOTAL FUND FUNDS FUND PUNDS FUNDS Cash flow from Operating Acitivtes: Cash Received From Customers S 1,216,627 3 2,541,676 $ 565,457 S - S 4,323,760 Cash Received From Assessments - 263,847 - 531.755 815,602 Cash Payments to Suppliers for Goods R Services (428,550) (828,788) (132,598) (111,995) (1,501,931) Cash Payments to Etopioyees for Services (531,415) (695,510) (542,859) (311,682) (2,081,466) Cash From Otter Operating Revenues 115,104 2,246 47,706 - 165,056 Net Cash ProvidedActivities lJsed by Operating ( 3°' a $ 371,766 ___.. 1,283,471 _ _ (62,294) 3 _.128,078 $ 1721,021 Cash Flaws from Noucapital Financing Activities: Loans from Other Funds $ - $ - $ 6€7,000 $ - $ 50,000 Net Cash Provided by Noucapital Financing Activities $ - $ - $ 60,000 3 - $ 60,000 Cash Flows bran n Capital and Related Financing Activities: Acquisition and Constrnctiou of Capital Assets $ (823,222) 5 (245,916) 5 - 5 (152,144) 3 (1,221,282) Proceeds-Boudsil.oans 453,878 - - - 453,878 Principal Paid on Debt Service (97,621) (489,243) (26,544) (613,408) Inretest Paid onDebt Service (69,966) (158,934) - (3,759) (232,659) Cash Received From Hookups 185,237 441,042 - - 626,279 Capital contributed by Tax incre rtent/Other Gov't 58,463 - - - 88,463 Net Cash Used far Capital and Related Finanneutg Activities S (263,23 €) $ (453,051) $ - $ (182,447) $ (893,729) Cash Flows From Investing ActiviLics: hatereston Investtnents 3 12,408 $ 107,219 $ I0 S 2,849 $ 122,486 Purchase ofS'idewalk and Curb Warrants - (13,364) - - (13,364) Redemptions ofSidewalk and Curb Warrants 9,815 - 9,815 Net Cash Provided in Investing Activities $ 12,408 3 103,670 $ f 0 $ 2,849 S 118,931 Net 111crea8e(Deeref 5e) in Cash and Cash Equivalents $ 120,943 $ 934,090 S (2,284) S (51,526) $ 1,001,229 CasbindCash EquivaicntsatJuly I,2002 1,120,564 7,359,056 8,333 278,962 3,766,920 Cash and Cash Equivalents at lune 30, 2003 $ 1,241,507 S 8,293,146 $ 6,054 S 227,442 $ 9,768.149 Reconciiiatiou of Operating Income to Net Cash Frovidedby Operating Activities: Operating Inconne (Loss) $ 62,941 $ 90,235 $ (30,161) 3 55,216 S 178,291 Ad}usttrtents to RetOI1Cife Operating haco€ne to Net Casb Provided by Operating Activities: Depreciation 318,035 17141,773 49,675 82,020 1,591,503 [lad DebtExpensell-oss on Disposal 9.781 6,452 403,910 3,148 513,311 Change in Assets and Liabilities: Decrease (Increase) in Accounts Receivable (24,296) 20,738 (589,099) (592,653) Decrease (Increase) in Assessments Receivable (9,295) (L6,395) (25,6913) Decrease (lucrease) in haventory (24,061) (24,061) Increase (Decrease) in Accounts Payable 22,849 25,0=11 404 1,595 49,989 Increase (Decrease) in Compensated Absences 6,517 8,527 12,893 2,394 30,331 Net Cash Provided (Used) by Operating Activities $ 371,766 $ 1,233,471 S (62,294) $ 128,078 S 1,721,021 Disclosure of Accounting, Policy: For purposes of the statement of cash flows, the Enterprise Funds consider all highly liquid invtstments (including restricted assets) with a nu{turity of three months or less when purchased to be cash equivalents. See accompanying Notes to the Financial Stataments -23- CITY OF KALISPELL, FLATHEAD COUNTY, MONTANA FIDUCIARY FUNDS STATEMENT OF FIDUCIARY NET ASSETS For the Year Ended June 30, 2003 Agency Funds ASSETS Cash and short-term investments $ 215,589 Total assets $ 215,589 LIABILTIIES Accounts payable 215,589 Total liabilities $ 215,589 See accompanying Notes to the Financial Statements -24- CITY OF KALISPELL FLATHEAD COUNTY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2003 I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The City complies with generally accepted accounting principles (GAAP). GAAP includes all relevant Governmental Accounting Standards Board (GASB) pronouncements. In the government -wide financial statements and the fund financial statements for the proprietary funds, Financial Accounting Standards Board (FASB) pronouncements and Accounting Principles Board (APB) opinions issued on or before November 30, 1989, have been applied unless those pronouncements conflict with or contradict GASB pronouncements, in which case GASB prevails. For enterprise funds GASB statement Nos. 20 and 34 provide the City the option of electing to apply FASB pronouncements issued after November 30, 1989. The City has elected not to apply those pronouncements. The City adopted the provisions of GASB 434 for its fiscal year ended June 30, 2003. Other GASB statements are required to be implemented in conjunction with GASB statement 34. Therefore the City is implementing the following statements for the year ended June 30, 2003: Statement 33 Accounting and Financial Reporting for Nonexchange Transactions, Statement 36 Recipient Reporting for Certain Shared Nonexchange Revenues, Statement 37 Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments, Statement 38 Certain .Financial Statement Note Disclosures. A. Financial Reporting Entity In determining the financial reporting entity, the City complies with the provisions of GASB statement No, 14, The Financial Reporting Entity, and includes all component units of which the City appointed a voting majority of the units' board; the City is either able to impose it's will on the unit or a financial benefit or burden relationship exists. Primary Government The City is a political subdivision of the State of Montana governed by an elected Mayor and Council duly elected by the registered voters of the City. The City utilizes the manager form of government. 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. Discretely Presented Component Units Discretely presented component units are separate legal entities that meet the component unit criteria described above but do not meet the criteria for blending. The City has the following discretely presented component units: -25- CITY OF KALISPELL FLATHEAD COUNTY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2003 Kalispell Parking Commission The Kalispell City Council passed Resolution 4103, a Resolution of intention to create Special Parking District #2 on .Tune 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 #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 of City residents who operate businesses within the district. It is the intention of the City of Kalispell that the downtown business community manages the parking for the downtown district. The Parking Commission opened their doors on February 1, 1994. The City transferred $53,000 in Fiscal 1994 to the 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. Tri City Plannin, On June 30, 2001 Flathead County pulled out of the County -wide Administrative Board (CAB) which funded the Flathead Regional Development Office (FRDO). The CAB was a Joint Venture between the County, and the Cities of Kalispell, Whitefish, and Columbia Falls. The CAB created FRDO for the purpose of coordinating all land use planning, reviewing and approving subdivisions, and zoning and enforcement in Flathead County. FRDO also assisted in annexations by the cities. On July 1, 2001 the Tri City Planning Office was created by interlocal agreement between the three cities that were served by FRDO. The purpose of the Tri City Planning Office is to perform the functions of FRDO as they relate to the cities, namely to provide long range and current land use planning services. The Tri City Planning Board is made up of the City Managers, representing the Mayor and City Council, of the three cities. The City of Kalispell serves as the administrative agent at the pleasure of the Board. The employees are paid through the City of Kalispell payroll system and are included in its self insured health program. Cost of operating the office is split between the cities, proportionate to their expected benefit. Some costs of operating are recovered through planning fees. B. Basis of Presentation, Measurement Focus and Basis of Accounting. Government -wide Financial Statements: Basis of Presentation The Government -wide Financial Statements (the Statement of Net Assets and the Statement of Activities) display information about the reporting government as a whole and its component units. They include all funds of the reporting entity except fiduciary fiends. The statements distinguish between governmental and business -type activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other non-exchange revenues. Business -type activities are financed in whole or in part by fees charged to external parties for goods or services. -26- CITY OF KALISPELL FLATHEAD COUNTY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2003 Eliminations have been made to minimize the double -counting of business type activities. The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the City's governmental activities. Direct expenses are those that are specifically associated with a program or function. The City charges indirect expenses to programs or functions. The types of transactions reported as program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or activity and 2) operating grants and contributions, and 3) capital grants and contributions. Revenues that are not classified as program revenues, including all property taxes, are presented as general revenues. Certain eliminations have been made as prescribed by GASB 34 in regards to inter -fund activities, payables and receivables. All internal balances in the Statement of Net Assets have been eliminated except those representing balances between the governmental activities and the business -type activities, which are presented as internal balances and eliminated in the total primary government column. In the Statement of Activities, internal service fund transactions have been eliminated; however, those transactions between governmental and business -type activities have not been eliminated. Measurement Focus and Basis of Accounting On the government -wide Statement of Net Assets and the Statement of Activities, both governmental and business -type activities are presented using the economic resources measurement focus and the accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized when earned and expenses are recorded when the liability is incurred regardless of the timing of the cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. The City generally applies restricted resources to expenses incurred before using unrestricted resources when both restricted and unrestricted net assets are available. -27- CITY OF KALISPELL FLATHEAD COUNTY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2003 Fund Financial Statements: Basis of Presentation Fund financial statements of the reporting entity are organized into funds, each of which is considered to be separate accounting entities. Each fund is accounted for by providing a separate set of self -balancing 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 is maintained consistent with legal and managerial requirements. Funds are organized into three categories: governmental, proprietary, and fiduciary. An emphasis is placed on major funds within the governmental and proprietary categories. Each major fund is displayed in a separate column in the governmental funds statements. All of the remaining funds are aggregated and reported in a single column as non -major funds. A fund is considered major if it is the primary operating fund of the City or meets the following criteria: a. Total assets, liabilities, revenues, or expenditures/expenses of that individual governmental or enterprise fund are at least 10 percent of the corresponding total for all funds of that category or type; and b. Total assets, liabilities, revenues, or expenditures/expenses of that individual governmental or enterprise funds are at least 5 percent of the corresponding total for all governmental and enterprise funds combined. Major Funds: The City reports the following major funds: General Fund - This is the City's primary operating fund and it accounts for all financial resources of the City except those required to be accounted for in other funds. Tax Increment Fund — A special revenue fund that was established in 1.985 to account for $2,100,000 of urban renewal bond revenue. Community Development Loan Revolving Fund -- A special revenue fund that is used to account for the lending and repayment of monies loaned to businesses and individuals for projects approved by the City's Community Development department. Urban Development Action Grant Find — A special revenue fund that is used to account for certain Community Development loans and the majority of the department's expenses. Special Improvement District 343 -- A debt service fund established in fiscal year 2001, to account for the -resources accumulated and payments made for principal and interest on the 20 year bond sold to reconstruct Sunnyview Drive. -28- CITY OF KALISPELL FLATHEAD COUNTY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2003 Pool Construction Fund — A capital project fund established in fiscal year 2002 to account for revenues and expenses associated with the construction of a new aquatic facility and skateboard park at Woodland Park. Water Fund —An enterprise fund that accounts for the activities of the City's water distribution operations. Fewer Fund - An enterprise fund that accounts for the activities of the City's sewer collection and treatment operations and includes the storm sewer system. Ambulance Fund An enterprise fund that accounts for the activities of the City's ambulance service. Measurement Focus and Basis of Accounting These statements are reported using the 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 unrnatured interest on general long-term debt which is recognized when due, and certain compensated absences and claims and judgments which are recognized when the obligations are expected to be liquidated with expendable available financial resources. General capital asset acquisitions are reported as expenditures in governmental funds and proceeds of general long-terin debt and acquisitions under capital leases are reported as other financing sources. 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. -29- CITY OF KALISPELL FLATHEAD COUNTY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2003 Under the terms of the City's grant agreements, certain programs are funded by specific cost -reimbursement grants and general revenues. Generally, the City applies cost - reimbursement funds first to finance such programs with remaining costs paid for with general revenues. C. Budgets and Budgetary Accounting 1. Budget Process An annual appropriated operating budget is adopted each fiscal year for the General Fund, Special Revenue Funds, Enterprise Funds, Debt Service Fund, 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. The final budget is legally enacted by the City Council, on the second Monday in. August after holding public hearings as required by State statues. Budget appropriation transfers may be made between the general classifications of salaries and wages, maintenance and operation and capital outlay. Reported budget amounts represent the originally adopted budget as amended by resolution of the City Councils. It is management's responsibility to see that the budget is followed to the budgetary line item. 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 approved two budget resolutions during fiscal year 2003. D. Assets, Liabilities, and Equity 1. Cash, Cash Equivalents, and Investments The City's cash and cash equivalents are considered to be cash on hand, demand, time deposits, bidder bonds, bonds and warrants, and investments with the State of Montana's short -terra investment pool (STIP). The cash resources of the individual fiends are combined to form a pool of cash and investments which is managed by the City Treasurer. -30- CITY OF KALI,SPELL FLATHEAD COUNTY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2003 Investments are carried at cost, which does approximate fair value as described in Note 3, A, except for investments in STIP and particular bonds, which are reported at fair value. For purposes of the statement of cash flows, the enterprise and internal services funds consider all funds (including restricted assets) held in the City's cash management pool to be cash equivalents. 2. Receivables and Payables Transactions between funds that are representative of lendingiborrowing 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. 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. A reserve for estimated uncollected accounts receivable is maintained .for the Water Fund, Sewer Fund and the Ambulance Fund. The reserve balances are as follows for June 30, 2003: Water Sewer Ambulance Total $ 6,387 12,605 156,864 $-1:75 856 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). After three years, the City may exercise the lien and take title to the property. Special assessments are either billed in one installment due November 30 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. -31- CITY OF KALISPELL FLATHEAD COUNTY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2003 The tax levies for the .fiscal year ended June 30, 2003, were based upon a taxable valuation of 523,858,317. 3. Inventories and Prepaid Items With the exception of some small Water Department Investors, inventories of materials and supplies are expensed at the time of purchase. Inventories of materials and supplies on hand are not maintained. Inventories were not, however, considered ..material. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items. 4. Restricted Assets Certain proceeds of the City's enterprise fund revenue bonds, as well as certain resources set aside for their repayment, are classified as restricted assets on the balance sheet because their use is limited by applicable bond covenants. The "revenue bond operations and maintenance" account is used to report resources set aside to subsidize potential deficiencies from the City's operation that could adversely affect debt service payments. The "revenue bond construction" account is used to report those proceeds of revenue bond issuances that are restricted for use in construction. The "revenue bond current debt service" account is used to segregate resources accumulated for debt service payments over the next twelve months. The "revenue bond future debt service" account is used to report resources set aside to slake up potential future deficiencies in the revenue bond current debt service account. The "revenue bond renewal and replacement" account is used to report resources set aside to meet unexpected contingencies or to fund asset renewals and replacements. 5. Capital 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. Fixed assets with a value of $5,000 or greater are capitalized. Assets in. the general fixed assets account group are not depreciated. Interest incurred during construction is not capitalized on general fixed assets. Property, plant, and equipment of the government are recorded at cost. Property, plant, and equipment donated are recorded at their estimated fair value at the date of donation. -32- CITY OF KALISPELL FLATHEAD COUNTY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2003 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 as projects are constructed. Interest incurred during the construction phase of 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 are recorded in the individual fund making the purchase. Any fixed assets donated specifically for a fund are also recorded in that individual fund. Depreciation on 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 10-50 Machinery, Vehicles and Equipment 5-20 Sewer lines and pump stations 10-50 6. 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. 7. 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 Governmental Activities column of the Statement of Net Assets, while the liability associated with proprietary fund -type employees is recorded in the respective fund. 8. Long -Term Obligations The City reports long-term debt of governmental funds at face value in the Governmental Activities column of the Statement of Net Assets. Certain other governmental fund obligations not expected to be financed with current available financial resources are also reported in the Governmental Activities column of the Statement of Net Assets. Long-term debt and other obligatiozis financed by proprietary funds are reported as liabilities in the appropriate funds. -33- CITY OF KALISPELL FLATHEAD COUNTY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2003 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, evert if withheld from the actual net proceeds received, are reported as debt service expenditures. 9. 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. 10. Interfund Transactions Interfund transactions consisting of identified services performed for other funds or costs billed to other funds are treated as expenditures in the fiend 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. Advances between funds are accounted for in the appropriate interfund receivable and payable accounts. H. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Deficit Fund Balances/ Retained Earnings Fund Name Amount Reason for Deficit Permissive Health Levy S (2,859) Uncollected Tax Revenue Pool GO Bond $ (28,897) Did not receive budgeted revenue 1994 S&C $ (983) Did not receive budgeted revenue 1996 S&C $ (108) Did not receive budgeted revenue 1997 S&C $ (357) Did not receive budgeted revenue Employee Health Fund S(98,694) Timing difference between premium payments and payroll deductions -34- How will deficit be eliminated Collect Taxes Receivable of 527,000 Collect delinquent taxes Collect delinquent assessments Collect delinquent assessments Collect delinquent assessments Deduct balances from employees paychecks CITY OF KKALISPELL FLATHEAD COUNTY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2003 DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS A. Cash and Cash Equivalents Investment Income Income from pooled investments is allocated to the individual funds based on the fund month end cash balance in relation to total pooled investments. Cash. Composition 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; U.S. government treasury bills, notes, bonds, and other treasury obligations such as state and local government series; general obligations of certain agencies of the Unites[ States such as Federal Home Loan Bank; and U.S. government security money market funds if the fund meets certain conditions. Total City's composition of cash, deposits and investments at fair value on June 30, 2003, are as follows: Interest rates range from I% to 6% and maturity dates range from 6 months to five years. Deposits The City's deposit balance at year end was $301,290 and the bank balance was $261,065. The City's deposits at year-end for the Primary Government and Investment Trust Funds are as follows: Bank Balance Insured (FDIC) 1.00,000 Collateralized: securities held by the Pledging financial instition's trust Department or agent in the City's name. 161,065 Total Deposits S 261,065 -3 S- Total Cash on Hand $ 1,525 Cash in Banks: Demand Deposits 301,290 Investment in Courtyard 12,492 Bidder Bonds 2,750 Bonds/Warrants 26,142 State Short -Term Investment Pool (STIP) 20,060,769 Total $..ZOT404-3908 Interest rates range from I% to 6% and maturity dates range from 6 months to five years. Deposits The City's deposit balance at year end was $301,290 and the bank balance was $261,065. The City's deposits at year-end for the Primary Government and Investment Trust Funds are as follows: Bank Balance Insured (FDIC) 1.00,000 Collateralized: securities held by the Pledging financial instition's trust Department or agent in the City's name. 161,065 Total Deposits S 261,065 -3 S- CITY OF KALISPELL FLATHEAD COUNTY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2003 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 at June 30, 2003, equaled or exceeded the amount required by State statutes. Categorized Risk Investments - as noted above, statutes authorize the City to invest in the State Short - Term Investment Pool (STIP); repurchase agreements; registered warrants of the County or of municipalities or school districts located in the county; U.S. government treasury bills, 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. These investments are in addition to the demand, time, credit union and savings deposits, which are included in deposits above. The City investments are categorized below to give an indication of the level of risk assumed by the City at June 30,200-31. Statement No. 3 of the Governmental Accounting Standards Board requires government entities to categorize investments held at year end to give an indication of the level of risk assumed by the entity. Category I includes investments that are insured or registered or for which the securities are held by the City or its agent in the City's name. Category 2 includes uninsured and unregistered investments for which the securities are held by the counterparty's trust department or agent in the City's name. Category 3 includes uninsured and unregistered investments for which the securities are held by the counterparty or its trust department or agent, but not in the City's name. SID Bonds Cate9ory 1 2 3 $ 26,142 Investments not subject to categorization Investment in State Short -Term Investment Pool (5T1P) Total investments Carrying Market Value Value $ 26,142 $ 26,142 20,06(3,769 _2C} 063.769 $20-086,917 S 20 089x91_..7.. 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. _36_ CITY OF KALISPELL FLATHEAD COUNTY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2003 Amounts (unaudited) invested by STIP in each type as of June 30, 2003 were as follows Amounts invested by the City in STIP may be redeemod 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, 2003, were as follows: Due to/from other funds: Receivable Fund 1994 S&C 1996 S&C 1997 S&C Total Pa able Fund SID Revolving SID Revolving SID Revolving Advances to/from other .funds: Receivable Fund Paable Fund General Ambulance C. Operating Transfers Amount $ 1,545 261 646 $_...�_�4_52 Amount S_,U5 000 The following is an analysis of operating transfers in and out during Fiscal Year 2003: From Category 1 % Asset-backed 733,397,874 51.63 Variable Rate 631,005,520 44.43 Other Securities 56,000,000 3.94 Total $1_,420,403,294 1,00.00 Amounts invested by the City in STIP may be redeemod 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, 2003, were as follows: Due to/from other funds: Receivable Fund 1994 S&C 1996 S&C 1997 S&C Total Pa able Fund SID Revolving SID Revolving SID Revolving Advances to/from other .funds: Receivable Fund Paable Fund General Ambulance C. Operating Transfers Amount $ 1,545 261 646 $_...�_�4_52 Amount S_,U5 000 The following is an analysis of operating transfers in and out during Fiscal Year 2003: From To Amount General Police Resource S 11,880 General Drug .Enforcement 24,395 General COPS Grant 1,111 General FEMA Grant 11,270 General Fire Construction 54,050 Parks in Lieu ISTEA 12,624 SID Revolving SID 337 12,847 SID Revolving 1992 S&C 211 1994 S&C 1993 S&C 60 SID 343 (Debt) General 18,146 SID 343 Constriction SID 343 (Debt) 88,855 Total $ 2353449 37- CITY OF KALISPELL FLATHEAD COUNTY, MONTANA NOTES TO THE FINANCIAL STATEMENTS .lune 30, 2003 D. Fixed Assets A summary of changes in governmental capital assets was as follows: The following is a summary of proprietary fund type fixed assets as of June 30, 2003: Enterprise Internal Service Land Balance $ - Buildings Balance - July 1, 2002 Additions Deletions June 30, 2003 Land $ 1,923,354 S 270,168 - S 2,193,522 Other Capital Assets: 767,838 - Pumping Plant 1,691,977 Buildings 9,637,683 324,953 - 9,962,636 Improvements Other than Buildings 3,970,630 3,255,296 - 7,225,926 Machinery and Equipment 3,314,841 271,644 - 3,586,485 Construction Work in Progress 1,502,347 900,240 (1,183,097) _12I9,490 Total other Capital Assets at historical cost $20,348,855 $ 5,022,301 $(1,183,097) $ 24,188,059 Less Accumulated Depreciation5 2� 10 100 77( 3,726) - (5,983,826) Total 51.5.,.1.38,755_ $4, , 5 S(t..1...8..3 09..7.._$ 18,204 23 The following is a summary of proprietary fund type fixed assets as of June 30, 2003: Enterprise Internal Service Land $ 221,513 $ - Buildings 316,731 - Improvements Other Than. Buildings Machinery and Equipment 1,724,216 308,204 Construction Work in Progress 344,762 - Source of Supply 767,838 - Pumping Plant 1,691,977 - Treatment Plant 14,716,854 - Transmission and Distribution 20,579,859 - Storm Sewer Supply 4,426,048 - General Plant 1,653_,010 - Total S 46,442,808 $ 308,204 Less Accumulated Depreciation(19,312,347) (234,540) Total $... 27,130,461_ $-,-,_73 664 General fixed assets depreciation expense was charged to functions as follows: Governmental Activities: General Government $ 283,074 Public Safety 131,767 Public Works 87,723 Culture and Recreation 160,287 Housing and Community Development 35,206 Total governmental activities depreciation expense S 698.057 -38- CITY OF KALISPELL FLATHEAD COUNTY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2003 E. Long -Term Debt Changes in Long -Terni Debt Liabilities - During the year ended June 30, 2003, the following changes occurred in liabilities reported in long-term debt (including Component Units): Additions Deletions $ - $ - 13,364 489,176 46,704 140 278 $689,5.2.2 184,814 620,826 190,000 70,122 S 1,065,762 Balance June 30. 2003 $ 3,675,000 1,496,140 5,865,364 2,235,000 1,036,884 606 ,79Q $14_,915,.1..7.8 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, 2003 were as follows: Origination Interest Due Principal Annual Balance Purpose Date Rate Term Date Amount Pavment lune 30, 2003 Aquatic Facility -2002 GO 4/15/02 2.0-4.9% 20 yrs 2022 $ 3,675,000 varies $ 3,675,000 Special Assessment Debt - Special assessment bonds are secured by a lien on the assessed properties. The primary source of repayment is the assessments levied against the benefiting 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 and has established a revolving fund to ensure the payment of debt service on the bonds in the event that assessed property owners default. Origination Balance Bond Jul 1 2002., General Obligation Bonds(1) $ 3,675,000 Special Assessment Bond (1) 1,667,590 Revenue Bonds (1)(2) 5,997,014 Contracted Debt (2) 2,425,000 Compensated Absences(1)(2)(3) 990,180 Intercap Loans (1) ,536,634 Total $1529.1,.,41.8 (i) Long-term debt account group 15 yrs. (2) Reported in Enterprise Fund $ 100,000 (3) Reported in Component Unit $ 40,000 Additions Deletions $ - $ - 13,364 489,176 46,704 140 278 $689,5.2.2 184,814 620,826 190,000 70,122 S 1,065,762 Balance June 30. 2003 $ 3,675,000 1,496,140 5,865,364 2,235,000 1,036,884 606 ,79Q $14_,915,.1..7.8 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, 2003 were as follows: Origination Interest Due Principal Annual Balance Purpose Date Rate Term Date Amount Pavment lune 30, 2003 Aquatic Facility -2002 GO 4/15/02 2.0-4.9% 20 yrs 2022 $ 3,675,000 varies $ 3,675,000 Special Assessment Debt - Special assessment bonds are secured by a lien on the assessed properties. The primary source of repayment is the assessments levied against the benefiting 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 and has established a revolving fund to ensure the payment of debt service on the bonds in the event that assessed property owners default. Origination Interest Bond Due Bonds Annual Balance Purr ose Date Rate 'T'erm Date Amount Payment June 30, 2003 SID 341 -sewer 9101195 6.06% 15 yrs. 2011 $ 100,000 varies $ 40,000 SID 342 -sewer 11/01/95 6.34% 15 yrs. 2011 209,000 varies 75,000 SID 343 -sewer 6/12,101 3.6-5.5% 20 yrs. 2021 1,581,500 varies 1,355,000 1995 Walk & Curb 1/02,'96 8.5% 8 yrs_ 2004 22,823 varies 2,852 1996 Walk & Curb 1102/97 8.5% 8 yrs. 2005 12,148 varies 3,037 1997 Walk & Curb 10/01%98 8.0% 8 yrs, 2006 8,572 varies 2,143 1998 Walk & Curb 1101/99 7.75% 8 yrs. 2007 1,687 varies 843 1999 Walk & Curb 1/01/00 8.50% 8 yrs. 2008 1,769 varies 1,106 2000 Walk & Curb 1102/01 9.50% 8 yrs. 2009 2,315 varies 1,737 2001 Walk & Curb 1!02102 5.00% 8 yrs. 2010 1,209 varies 1,058 2002 walk & Curb 1/02103 4.25% 8 yrs. 2011 13.364 varies 13,364 Total Special Assessment Bonds $,,!3954,387 $1 496 14€1 39 CITY OF KALISPELL FLATHEAD COUNTY, MONTANA NOTES TO THE FINANCIAL STATEMENTS .lune 30.2003 Revenue bonds are directly related to and expected to be paid from the Proprietary Fund, The 2000 Westside Tax Inc. bonds are accounted for in GLTDAG. Significant_ provisions of Series 2000 Westside Urban Renewal Tax Increment Bond Reserve Account The City shall. keep in the reserve account an amount equal to the maximum amount of principal and interest due on all outstanding bonds of the Westside Tax Increment District in the then current or any future fiscal year. O/S Bond Max Principal and Debt Due in any future fiscal year $339,350 City's .Reserve $327,811 Si -niLieant provisions of the 1996 2001 and 2003 Water System Revenue Bonds are as follows: Debt Service Account Monthly an amount equal to not less than 1/6 of the interest due within the next six months and 1112 of the principal to become due within the next twelve months shall be credited to the debt service account. The debt service account was zero as of June 30, 2003, as all debt service payments were made as of the end of the .fiscal year, leaving no accrued interest or principal balance. Reserve Account 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 in the current or any subsequent fiscal year. The maximum amount of principal and interest was the lesser of the two options for the 2001 bond resulting in a reserve requirement of 56,820. 10% of the original principal balance was the lesser of the two options for the 1996 bond resulting in a reserve requirement of 106,000. 10% of the original principal balance was the lesser of the two options for the 2003 bond resulting in a reserve requirement of 48,922. As of June 30, 2003, the debt service reserve account contains $134,252. The SRF loan reserve account contains $100,468. The Board of Investments reserve account contains 48,922. -40- Issue Interest "Perm of Final Bonds, Outstanding Pumose Date Rate Bonds Maturi Issued June 30, 2042 2001 Water Bonds 6/01 4.00°/ 20 yrs. 2021 $ 761,000 $ 707,000 2000 Solid Waste 3/01 4.75% 5 yrs. 2006 159,265 106,177 1996 Water Bonds 6/96 5.5% 15 yrs. 2011 1,060,000 670,000 2002 Swr/WWTP Refund 4102 3.51% 9 yrs. 2011 2,355,000 1,990,000 2000 Westside Tax Increment 3/00 6.21% 10 yrs. 2010 2,500,000 1,903,011 2002 Water Bonds 12/02 3.15-4.53% 10 yrs. 20139-70500 489,176 Total Revenue Bonds $7,&05.765 $ 5.,865,364 Significant_ provisions of Series 2000 Westside Urban Renewal Tax Increment Bond Reserve Account The City shall. keep in the reserve account an amount equal to the maximum amount of principal and interest due on all outstanding bonds of the Westside Tax Increment District in the then current or any future fiscal year. O/S Bond Max Principal and Debt Due in any future fiscal year $339,350 City's .Reserve $327,811 Si -niLieant provisions of the 1996 2001 and 2003 Water System Revenue Bonds are as follows: Debt Service Account Monthly an amount equal to not less than 1/6 of the interest due within the next six months and 1112 of the principal to become due within the next twelve months shall be credited to the debt service account. The debt service account was zero as of June 30, 2003, as all debt service payments were made as of the end of the .fiscal year, leaving no accrued interest or principal balance. Reserve Account 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 in the current or any subsequent fiscal year. The maximum amount of principal and interest was the lesser of the two options for the 2001 bond resulting in a reserve requirement of 56,820. 10% of the original principal balance was the lesser of the two options for the 1996 bond resulting in a reserve requirement of 106,000. 10% of the original principal balance was the lesser of the two options for the 2003 bond resulting in a reserve requirement of 48,922. As of June 30, 2003, the debt service reserve account contains $134,252. The SRF loan reserve account contains $100,468. The Board of Investments reserve account contains 48,922. -40- CITY OF KALISPELL FLATHEAD COUNTY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2003 Property Insurance The City will cause all buildings, properties, fixtures, and equipment to be Dept insured in amounts that are ordinarily carried. The City complied with this requirement. Liability Insurance The City will carry insurance against liability of the City and its employees. The City complied with this requirement. Rates and Charges Net revenues will be at least equal to 125% of the maximum principal and interest requirements for all future fiscal years. 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 Water Service Charges S 1,354,417 Miscellaneous revenue 3,734 Total Operating Revenue $ 1,358,151 Less: Operating Expense (before Depreciation) 977,175 Available for Debt Service 5380 9i6 Maximum Debt Service $ 162,820 Coverage 234% 2002 Sewer Revenue Bonds Ordinances and Required Information Debt Service Account Monthly an amount equal to not less than 1/6 of the interest due within the next six months and 1112 of the principal to become due within the next twelve months shall be credited to the debt service account. The debt service account was zero as of June 30, 2003, as all debt service payments were made as of the end of the fiscal year, leaving no accrued interest or principal balance. -41 CITY OF KALISPELL FLATHEAD COUNTY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2003 Reserve Account The City shall keep in the reserve account an amount equal to the lesser of 10% of the original principal, the maximum amount of principal and interest in the current or any subsequent fiscal year, or 125% of the average debt service payable in any fiscal year. 10% of the original principal was the lesser of the two options for the 2002 bond resulting in a reserve requirement of 235,500. As of June 30, 2003, the debt service reserve account contains $650,550. Cash plow Coverage FY03 Sewer Service Charges S 2,520,938 Miscellaneous Revenue 2,246 Storm Sewer Assessments 273,142 Total Operating Revenue $ 2,796,326 Less. Operating Expense (before Depreciation) 1,564,318 Available for Debt Service $ 1,232.008 Maximum Debt Service $ 365,230 Coverage 337% 1. 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, or 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. 2. 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 is not in compliance with this requirement. -42- CITY OF KALISPELL FLATHEAD COUNTY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2003 Significant provisions of the 2001 Solid Waste SystemRevenue Bands Debt Service Account Monthly an amount equal to not less than 1/6 of the interest due within the next six months and 1/12 of the principal to become due within the next twelve months shall be credited to the debt service account. Total Required City's Reserve $ 21,043 $ 24,095 Reserve Account 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. Total Required Reserve $15,927 City's Reserve $16,000 Rates and Charges Net revenues will be at least equal to 125% of the maximum principal and interest requirements for all future fiscal years. 125% of Maximum Debt $ 37,879 Net Revenues $137,236 State Revolving Fund Loan: 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, 2003 Sewer -SRF Loan 4% 20 yrs. $__3,913.425 S 2,235,____ -43- CITY OF KALISPELL FLATHEAD COUNTY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2003 1. Loans/Contracted Debt Original Origination Interest Due Principal Balance PuTose Date Rate 'Perm Date Amount June 30. 2002 *Board of Housing 3/01/1995 6.0% 30yrs 2/01/2025 $ 271,000 $ 236,107 BOT: Road Grader 2/25/2000 5,6% 7 yrs 2/15/2007 122,382 74,206 BOL Fire Truck 2/15/2000 5.6% 5 yrs 2/15/2005 87,603 37,182 BOL Bm Trk/Lf Ldr 1/26/2001 4.75% 5 yrs 2/15/2006 88,950 55,767 BOI: Plow Trucks 5/16/2003 2.85% 5 yrs 8/15/2008 99,390 99,390 BOL Aerator & TSS Truck 5/16/2003 2.85% 5 yrs 8/15/2008 40,888 40;888 Enterprise Funds: BOI: John Deere Loader 3/10/2000 4.75% 7yrs 2/15/2007 103,000 63 250 Total Loans X813,2 13 $ 606E i9_0 BOI — Board of Investments Intercap Loan Program *The Board of Housing loan is paid from the proceeds of the rents on the Courtyard Apartments per the agreement with NW Montana Human Resources. 2. Compensated Absences Payable Compensated absences payable, which represent vacation and sick leave earned by employees which is payable upon termination, were as follows: Enterprise Fund S 200,661 Tri -City Planning 45,796 Parking Commission 2,664 General Long -Term Debt Account Group 787,764 Total -44- CITY OF KALISPELL FLATHEAD COUNTY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2003 3. Requirements to Amortize Debt The annual requirements to amortize all long-term debt outstanding, except Compensated Absences, as of June 30, 2003, were as follows: For Fiscal Year Ended 2004 2005 2006 2007 2008 2000-2013 2014-2018 2019-2023 Total Continued.' For Fiscal Year Ended 2004 2005 2006 2007 2008 2000-2013 2014-2018 2019-2023 Total G.O. Bonds Principal $200,000 1.30,000 135,000 140,000 145,000 845,000 1,050,000 1,030,000 $ .6.75,000 Contracted Loans / Debt Principal $ 315,648 309,934 302,407 293,376 268,212 1,219,757 56,392 76,064 F. State -Wide Retirement Plans Contracted Loans / Debt Interest $ 110,895 100,734 89,373 78,061 67,087 175,292 41,095 21.423 S .- 683.962 Revenue Bonds Principal $ 687,192 726,213 748,203 657,172 659,633 2,028,952 227,000 131,000 Revenue Bonds Interest $ 259,749 234,556 203,484 170,239 138,957 252,107 50,880 7.960 $1,.,31,7,,9.34 All full-time City employees are covered under one of the following retirement plans: Montana Public Employees Retirement System (PERS), Municipal Police Officer's Retirement System (MRORS), and 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, with amounts determined by the State. -45- Special Special G.O. Assessment Assessment Bonds Bonds Bonds Interest Principal Interest $166,025 $ 197,986 $ 73,711 160,475 129,632 71,212 154,463 113,043 65,975 148,388 114,544 61,822 I42,088 82,332 57,580 606,888 405,603 230,876 403,745 400,000 130,400 128,995 53,000 17,600 $ 9I04067 $ A96,140 $ 709.178 Contracted Loans / Debt Interest $ 110,895 100,734 89,373 78,061 67,087 175,292 41,095 21.423 S .- 683.962 Revenue Bonds Principal $ 687,192 726,213 748,203 657,172 659,633 2,028,952 227,000 131,000 Revenue Bonds Interest $ 259,749 234,556 203,484 170,239 138,957 252,107 50,880 7.960 $1,.,31,7,,9.34 All full-time City employees are covered under one of the following retirement plans: Montana Public Employees Retirement System (PERS), Municipal Police Officer's Retirement System (MRORS), and 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, with amounts determined by the State. -45- CITY OF KALISPELL FLATHEAD COUNTY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2003 Contribution rates are required and determined by State law. The contribution rates, expressed as a percentage of covered payroll for the fiscal year ended .lune 30, 2003, were: The State contribution qualifies as an on -behalf payment. Publicly available financial reports that include financial statements and required supplementary information may be obtained for the plans by writing or calling Public Employees Retirement Division, P.O. Box 200131, Helena, Montana 59620-0131 Phone: 1-406-444-3154 The County's contributions for the years ended June 30, 2003, 2002, and 2001, as listed below, were equal to the required contributions for each year. 2001 2002 2003 G. Post Employment Benefits PERS PERS MPORS FURS Employer 6.80% 14.41% 14.36% Employee 6.90% 9.00% 9.5%-10.7% State 0.10% 29.37% 32.61% The State contribution qualifies as an on -behalf payment. Publicly available financial reports that include financial statements and required supplementary information may be obtained for the plans by writing or calling Public Employees Retirement Division, P.O. Box 200131, Helena, Montana 59620-0131 Phone: 1-406-444-3154 The County's contributions for the years ended June 30, 2003, 2002, and 2001, as listed below, were equal to the required contributions for each year. 2001 2002 2003 G. Post Employment Benefits PERS MPORS FURS $194,590 $167,019 $128,806 $212,574 $179,112 $136,878 $223,773 5177,642 $138,246 Terminated employees may remain on the County's health insurance plan for up to IS months if they pay the monthly premiums. This benefit is required under the federal COBRA law. Retirees may remain on the County's health plan to age 65, provided they pay the monthly premiums. State law requires the County 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. The County had 50 retired employees and no terminated employees participating in the plan as of June 30, 2003. -46- CITY OF KALISPELL FLATHEAD COUNTY, MONTANA NOTES TO THE FINANCIAL STATEMENTS .Tune 30, 2003 H. Amounts Due From Other Governments The amounts due from and due to other governments consisted of the following: Fund Entity Due From A.rn.ount General State of Montana $ 2,653 General Flathead County 310,613 Airport Tax Flathead County 33,740 Health Levy Flathead County 27,000 Compensated Insurance Flathead County 32,999 Retirement Flathead County 36,766 Health Insurance Flathead County 58,913 Light Maintenance Flathead County 17,462 Dec. Light Maintenance Flathead County 947 Street Maintenance Flathead County 77,585 Urban Forestry Flathead County 13,639 Resource Grant Dept. of Justice 12,722 Drug Enforcement Dept. of Justice 6,515 Second Ave W. Other Funding 75,620 Pool GO Bond Flathead County 37,000 Westside TIF Flathead County 29,446 1994 S&C Flathead County 561 1995 S&C Flathead County 410 1996 S&C Flathead County 152 1997 S&C Flathead County 289 SID 341 Flathead County 701 SID 343 Flathead County 78,138 Water Board of Investments 35,298 Water State Department of Natural Resources 65405 Water Verizon 10,000 Storm Seger Flathead County 42,198 Solid Waste Flathead County 69,528 Total S_ 1.017300 -47- CITY OF KALISPELL FLATHEAD COUNTY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2003 I. Restricted Cash/Investments The following restricted cash/investments were held by the City as of June 30, 2003. These amounts are reported within the cash/investment account on the Combined Balance Sheet, Enterprise Funds Water Sewer Garbage Westside TIF J. Restatements Bond Reserve $ 106,000 SRF Loan Reserve 56,820 Board of Investments Reserve 48,922 Operating Reserve 130,360 Bond Contingency 235,500 Bond Reserve 15,927 Sinking & Interest 21,043 Bond Reserve 327,811 Enterprise Total $ 942383 During the current fiscal year, the following adjustments relating to prior years' transactions were made to fund balance and retained earnings accounts. Fund Amount Reason for Adjustment General $ 46,681 Reclassify employee loans from deferred revenue Special Revenue: Airport $ 13,891 Interest revenue from Airport Tax Increment fund Airport $ 2,150 Past due debt recorded as receivable Downtown TIF $ 22,141 Inventory to Water Fund Airport TIF $ (13,891) Interest revenue to Airport fund Enterprise: Water $3,278,737 Closed contributed capital equity accounts Sewer $9,147,469 Closed contributed capital equity accounts Solid Waste $ (41,795) Asset write-off changed policy Conr onent Units: Tri -City Planning $ 107,392 Settlement with Flathead County Parking Commission $ (9,334) Write-off old accounts receivable -48- CITY OF KALISPELL FLATHEAD COUNTY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2003 K. Segment Information For Enterprise Funds The City maintains four enterprise funds which provide water, sewer, garbage, and ambulance services. Selected segment information for the year ended June 30, 2003, is as follows: Water Sewer Garbage Ambulance Total Operating revenues $ 1,358,151 $ 2,796,326 $568,150 $1,202,258 $ 5,924,885 Depreciation expense $ 318,035 $ 1,141,773 $ 82,020 $ 49,675 $ 1,591,503 Operating income (loss) $ 62,941 $ 90,236 $ 55,215 $ (30,101) $ 178,291 Property, plant and equipment Additions $ 1,305,206 $ 911,986 $174,822 $ - $ 2,392,014 Deletions $ 237,446 $ 409,944 $559,470 $ - $ 1,206,860 Net working capital $ 1,113,661 $ 7,950,651 $293,485 $ 252,095 $ 9,609,892 Total Assets $11,710,689 $24,721,565 $999,570 $ 399,570 $37,831,394 Long-term Liabilities: Payable from Operating Revenues $ 1,937,686 $ 4,328,785 $143,839 $ 165,954 $ 6,576,264 Total Equity $ 9,694,914 $20,135,827 $846,475 $ 211,261 $30,888,477 L. .Taint Ventures Joint ventures are independently constituted entities generally created by two or more governments for a specific purpose which are subject to joint control, in which the participating governments retain 1) an ongoing financial interest or 2) an ongoing financial responsibility. 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 Department is financed, in addition to revenue generated by providing health services, by the City and the County levying an identical mill levy, up to 5 mills, in order that all property within the City of Kalispell and all property in Flathead County outside the City limits are taxed equally. The operation is accounted for in the County Health Fund and is included in the general purpose financial statements of Flathead County within the Special Revenue Fund -49- CITY OF KALISPELL FLATHEAD COUNTY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2003 2. Courtyard Apartments/Northwest Montana Human Resources The City entered into an agreement with Northwest Montana Human. Resources for a joint venture construction project of the Courtyard Apartments. The City owns 16 units of the apartment complex built with Home Grant and CDGB 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, 2003 the equity in the fund was $42,618. 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. The original amount of the loan was $271,000. The balance as of June 30, 2003 is $236,107. M. 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. N. Risk Management The City faces a 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 and professional liabilities. The City participates in two statewide public risk pools operated by the Montana Municipal Insurance Authority, for workers' compensation and for tort liability coverage. 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 Worker's Compensation and Liabihty 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 - _50_ CITY OF KALISPELL FLATHEAD COUNTY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2003 sustaining through member premiums. The tort liability plan and workers' compensation program issued bonds in the amount of 54.41 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 revenue was insufficient to cover the debt service. The City's share is $200,090 for liability and $201,697 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. 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 $300 deductible for each employee and covered dependent has been satisfied, up to a total of $600 maximum family deductible. Generic prescription drugs are 100% covered. Dental claims are paid 1.00% 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 that exceed $75,000 per individual or aggregate claims of 115% of claims projected by Blue Cross. Claims Payable, June 30, 2002 S 40,688 Claims Incurred 1,705,292 Claims Paid 1,621,461 Claims Payable, June 30, 2003 $ 124,519 O. Pending Litigation The following is a list of litigation pending against the County and the amount of damages claimed by the Plaintiff. The County Attorney has made no evaluation as to the outcome of each case. The County has liability insurance which may cover all or part of the damages requested. -51- Damages Potential Case Requested of Loss NuPac v. City of Kalispell $70,000 Remote White v. City of Kalispell Unknown Unknown Olson v. City of Kalispell $1,000 Possible Glick v. City of Kalispell $3,000,000 Remote Cameron v. City of Kalispell Unknown Possible Burgert b. City of Kalispell, et. al. Unl�mown Remote Kruckenberg v. City of Kalispell Unknown Unknown Holthausen v. Hanchett/City of Kalispell $3,500 Unknown West North v. City of Kalispell Unknown Unknown -51- REQUIRED SUPPLEMENTAL INFORMATION TAX INCREMENT ACTUAL AMOUNTS VARIANCE BUDGETED AMOUNTS (BODGEI ARY WITH FINAL 011nnIAL EMAL BA81S1 See Note A BTI on 2,535,887 2,539,612 2,539,612 50,113 50,113 42,791 (7,322) 25,000 25,000 CITY OF KALISPFLL, FLATHEAD COUNTY, MONTANA (18,$44) BUDGETARY COMPARISON SCHEDULE -2,611,000 2,614,725 For Fiscal Year Idi&d June 30, 2003 UENERALRUND ACTUAL AMOUNTS VARIANCE 13UAGETEU AMOUNTS (BUDGE'CARY WITH PTNAL QBIQINAL PiNAi BAS1S�eeNo - auD&j Fludget ry Fund Balance, ltd? 1, 2002 1,235,$0'7 1,228,215 1,228,275 Resources (inflows); - Taxesandassessments 2,134,249 2,134,249 2,115,245 (19,004) Limns" and permits 115,665 115,865 149,104 33,239 Intetgoveinmental 1,883,785 2,585,285 2,498,686 (86,599) Charge., for services 655,874 691,874 693,544 1,670 Pines and forfeitures 400,000 400,000 453,%92 53,892 Miscellanewls 82,233 78,233 68,470 (9,763) Investtnent earnings 100,000 100,000 85,638 (14,362) Proceeds of long teem debt 49,000 49,000 40,888 (8,112) 'transfers in - - - Proceeds from sale of fixed asset, Anounts available for appropriation 6,656,813 7,382,721 7,333,682 (49,039) Charges to Appropriatio.S (outflows): (3-ral Govenvnent 1,124,923 1,154,538 1,113,424 41,114 Public Safety 2,883,960 3,619,354 3,495,649 123,705 Public Works 575,900 575,900 562,189 13,711 Culture and Recreation 679,469 719,493 749,069 (29,576) Horsing and Comnamly Development - - - - Miscellaneuus 2,255 2,255 2,254 1 Capital outlay 188,706 188,706 147,029 41,677 Debt service 39,730 39,730 25,739 13,991 Transfers out 120,879 103,095 102,706 389 Total Charges to appropriations 5,515,822 6,403,071 6,198,059 205,012 Budgetary Fund Balance, June 30, 2003 1,040,991 979,650 1,135,623 155,973 TAX INCREMENT ACTUAL AMOUNTS VARIANCE BUDGETED AMOUNTS (BODGEI ARY WITH FINAL 011nnIAL EMAL BA81S1 See Note A BTI on 2,535,887 2,539,612 2,539,612 50,113 50,113 42,791 (7,322) 25,000 25,000 6,456 (18,$44) -2,611,000 2,614,725 2,589,859 (25,666 180,000 179,709 2,431,000 2,430,466 - 825 179,709 1,870,925 559,541 825 - 2,611,000 2,611,000 2,051,459 559,541 3,725 537,400 533,675 In W Budgetary Fund Balance, July I, 2002 Resources (inflows): Taxes and aesessunents Licenses and pto-an IntergoverumQ11ta€ Charges £or services Pines and forfeitures Miscellaneous Io-rrnent earnings Proceeds of 1-9 wml debt Transfers in Proceeds from sa(a of fixed assets Amounts available for appropriation Charges to Appropriations (outflows): General Goyetument Public Safety Public Works Qtlum, and Recreation Housing and Comtuunity ]llevelopmont Miscellaneous Capital outlay Debt service Transfers out Total Charges to appropriations BudgetaryFwtd Balance, June 30, 2003 CITY OF I{ALISPELL, FLATHFAI7 COUNTY, MONTANA BUDGETARY COMPARISON SCPIEDULE For Fiscal Year Ended Iune 30, 7003 COMMUNITY DEVELOPMENT LOAN REVOLVING ACTUAL AMOUNTS VARIANCE BUDGETED AMOUNTS (B13DGETARY WITH FINAL QII011SAL LL`AL BASIS)-', fN B1i1:F.T 399,790 399,790 399,790 UDAG ACTUAL. AMOUNTS VARIANCE BUDGETED AMOUNTS (BUDGETARY WITH nNAI„ (}].UMNAL >71 .L BASIS Xatg-A LLLL GL^'I'. 875,404 877,107 877,107 - 6,899 6,899 - - 900 900 - - _ _ 527,231 52-7,231 533,544 6,413 16?,649 167,649 153,506 (14,143) 148,960 1,075,881 927,021 941,233 14,212 1,043,053 1,044,756 1,030,613 (14,143 130,000 301,263 130,000 301,263 18,646 275,878 111,354 25,385 431,263 431,263 294,524 136,739 644,619 495,758 646,709 150,951 424,131 424,131 308,103 116,028 424,131 424,137 308,103 116,028 618,922 62065 722,510 101,885 CITY OF V-ALJSFELL, FLATHEAD COUNTY. MONTANA BUDGETARY COMPARISON SCHEDULE BUDGET -TO -GAAP RECONCILIATION Note A - Explanation of Differences behveen Budgetary Inflows and Outflows and GAAP Revenues and Expenditures Sourcestinflows of resources Actual amounts (budgetary basis) "available for appropriation" from the budgetary comparison schedule Differences - budget to GAAP The fund balance at the beginning of the year is a budgetary resource but is not a current year revenue for financial reporting purposes Proceeds from fang term debt are inflows of budgetary resource but are not revenues for financial reporting purposes Total revenues as reported on the statement ofrevenucs, expenditures, and changes in fund balances- governmental fonds Uses/outflows of resources Actual arnuunts(budaetary basis) "total charges to appropriations" from the budgetart comparison schedule Transfers to other funds are ou€flows ofbudyetary resources but are not expenditures for financial mportiug purposes Total expenditures as reported on the statement of revenues, expenditures, and changes in fund balances - governmental funds -54- GENERAL TAX INCREMENT CO-MMUNITY DEV- UDAG FUN -D MND FUND FUND 7,333,682 2,588,859 941,233 030,613 (1,228,215) (2,539,612) (399,790) (877,107) (40,888) 6,064,579 49,2.47 541,443 153,506 6,198,059 2.052,459 (102,706) 294,524 30,103 6,(x95,353 2,451,459 294,524 308,103 SINGLE AUDIT SECTION This page intentionally left blank Federal Grantor/Pass 'through Gran1'or/1'roeram FillC U.S. Department.1`11 sina and Urban Devclooment Passed thru the Afonranu Department: of Camra erce Community Developrneat Block Grant (2) Community Development Block Grant (1) Total U. S. Department of Hensing and Urban Development U, S. Densrtnrent of Justice Direct Community Oriented Policing Services -In School Award Community Oriented Policing Service, .In School Award f assed through fie, Momana Baterd afCrvo, Control Community Oriented Policing Sae -vices - Equipment Improvement Passed 11 -ugh Flathead Cantly Drug Control and Systems Giant- Formula Grant 'Total U. S. Department of Justice U l7h U.S.Dq-tr ent of Transportation Direct: Federal Aviation Administration Project Passed rhru the Montana Department of7---pmts -, Coummutty Transportation Enhancement P€ograru(CTEP) Community Transportation Enhancement Program(CTEP) Highway Traffic Safety -Kalispell Occupant Protection Highway Traffic Safety -Kalispell Occupant Protection Total U. S. Department of Transportation Department of Environmental Quality Passed througDt d4orttana Deparnnenr of Namrol Resoerrees mrd Canservation.� Renewable Re-- Project Planning Grant Feder al Eater --enc• Management Age Dv ecl. FEMA Orant Total Federal Assistance N - Not Avai €zbic or N a Applicable CITY OF KALISPELL, FLATHEAD COUNTY, MONTAN SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For Fiscal Year Ended June 30, 2003 Federal Pass -'through Program or Beginning Ending CFDA Grantor's Award Balance Federal Federal Balance Number Number Amount July 1, 1002 Revenue Other E, lumditures dnne30 2003 14.228 M2001-SG300117 S 428,000 3 - $ 363,469 S - $ 363,469 $ - 14.228 M"7-CDRG-OIHR-02 S 500,000 1,743 196,222 197,965 $ 1,743 S 559,691 $ - S 561,434 $ - 16.710 1999SIIWX0€64 $ 125,000 $ 9,608 $ 37,500 $ 11,880 $ 57,192 $ 1,796 16.710 2001SHWX0464 5 125,000 - 4'7,714 - 47,714 - 16.710 01-KO7-81299 $ 9,999 - 9,990 - 9,990 - 16.579 N/A. N/A 35,676 24,395 55,050 5,02 t $ 9,608 $ 130,880 $ 36,275 $ 169,946 $ 6,817 20.106 DOT-FAOINM-2001 $ 126,000 $ - $ 34,531 $ - $ 34,531 $ - 20,205 STPE6799(15) $167,140 (36,975) 53,647 - €6,672 - 20.205 STPE6799(23) $98,260 (1,401) - - - (1,461) 20.600 01-03-07-03 $ 20,000 - 8,245 - 8,245 20.600 02-03-07-06 $ 7,000 1,579 1,579 S (38,376) $ 98,002 $ S 61,027 S (1,401) 68.808 106-020078 S 10,000 $ - $ 5,149 $ 5,649 $ 85.554 EMW-2002-FG-06515 5 101,432 $ - $ 26,685 $ 14,120 $ 30,253 $ 10,552 $ (27,025) $ 820,907 $ 50,395 $ 828,309 5 15,968 CITY OF KALISPELL FLATHEAD COUNTY, MONTANA NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Fiscal Year Ended June 30, 2003 .Basis of Presentation The accompanying Schedule of .Expenditures of Federal Awards includes the federal grant activity of City of Kalispell, Flathead County, Montana, and is presented on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non -Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in preparation of, the general-purpose financial statements. -56- Denning, Downey & Associates, P.C. CERTIFIED PURLIC A CCOUNTANTS 1740 U.J. Hwy 93 Smeth - Suiie 101 Kalispell, NIT 59901 REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Mayor and City Council City of Kalispell Flathead County Kalispell, Montana We have audited the financial statements of City of Kalispell, Flathead County, Montana, as of and for the year ended June 30, 2003, and have issued our report thereon dated February 13, 2004. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in. Government Auditing Standards, issued by the Comptroller General of the United States. Compliance As part of obtaining reasonable assurance about whether the City of Kalispell'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 Reporting In planning and performing our audit, we considered the City of Kalispell's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the general purpose 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 judgment, could adversely affect the City of Kalispell's ability to record; process, summarize and report financial data consistent with the assertions of management in the financial statements. A reportable condition is described in the accompanying schedule of findings and questioned costs as item 03-1. -57- Robert K. Denning, CPA - Kira M Downey, CPA 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 general purpose 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 consider the reportable condition described above to be a material weakness. This report is intended solely for the information and use of the Mayor and City Council, management, others within the organization, the Montana Department of Administration, 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. February 13, 2004 -58- Denning, Downey & Associates, P.G. CERTIFIED PUBLICACCOUNTANTS 1740 U.S. Hwy 93 South _ Suite 101 Kalispell, HT 59901 REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 Mayor and City Council City of Kalispell Flathead County Kalispell, Montana Compliance We have audited the compliance of City of Kalispell, Flathead County, Montana, with the types of compliance requirements described in the U.S. Office of Management and .Budget (OMB) Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended June 30, 2003. 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 auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments and Non -Profit Organization. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether the 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, 2003. -59- Robert K. Denning CPA - Kim M. Downey, CPA Internal Control Over Compliance 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. 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 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 for the information of Mayor and City Council, management, the Montana Department of Administration, 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. 6/,L/" 1 a, -,L iu O—Pfi s February 13, 2004 -60- CITE' OF KAL.ISPELL FLATHEAD COUNTY, MONTANA SCHEDULE OF FINDINGS AND QUESTIONED COSTS Fiscal Year Ended June 30, 2003 Section. J -- Summary of Auditor's Results Financial Statements Type of auditor's report issued Unqualified Internal control over financial reporting: Material weakness(es) identified? No Reportable condition(s) identified not considered to be material weaknesses Yes Noncompliance material to financial statements noted? No Federal Awards Internal control over major programs: Material weakness(es) identified? No Reportable condition(s) 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 Ary133, Section .510(a)? No Identification of major programs: CFDA Number Name of Federal. Program or Cluster 14.228 Community Development Block Grant Dollar threshold used to distinguish between Type A and Type B programs: S 300,000 Auditee qualified as low-risk auditee? No -61- SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Section II — Financial Statement Findings 03-1 City Court Condition.: The City Court changed software systems in February 2003. 1. Of the current outstanding contracts/suspensions/warrants, approximately 213 were entered into the new database as of June 30, 2003. The City is still working on the remaining 113. 2. The new accounting system cannot print a time -pay report that includes total fines and fees assessed. 3. The Court does not always issue warrants and summons on a timely basis. Criteria: Generally Accepted Accounting Principles (GAAP) require the timely and accurate reporting of financial information. Effect: The system of recording transactions on a timely basis is not meeting the needs of the users. Recommendation: We recommend that the City Court update the accounting system for all current outstanding contracts/suspensions/warrants. We also recommend that the City request the software be modified so that time -pay reports include all related transactions. Section III -- Federal Award Findus and ,Questioned Costs No federal award findings or questioned costs were reported. -62 - Denning, Downey & Associates, P. C. CERTIFIED PUBLIC ACCOUNTANTS 1740 U.S. Hwy 93 South - Suite 101 Kalispell, :LIT 59901 REPORT ON OTHER COMPLIANCE, FINANCIAL, AND INTERNAL ACCOUNTING CONTROL MATTERS Mayor and City Council City of Kalispell Flathead County Kalispell, Montana There were no other compliance, financial, or internal accounting control matters reported. 6" 7 a.'j, C P'qsr pe, February 13, 2003 -63- Robert K Denning, CP,4 - Kim M Downey, CPA Denning, Downey & Associates, P.C. CERTIFIED PUBLIC ACCOUNTANTS 1740 U.S. Hwy 93 South - Suite 101 Kalispell, MT 59901 REPORT ON PRIOR AUDIT REPORT RECOMMENDATIONS Mayor and City Council City of Kalispell Flathead County Kalispell, Montana The prior audit report contained four recommendations. The action taken on each recommendation is as follows: Recommendation Action Taken Parking Commission Receivables Implemented City Court Receivables Repeated Exceeding Budget Authority Implemented On -Behalf Payments Implemented a.� February 13, 2004 -64- Robert K. Denning CPA - Kint M. Downey, CPA