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05. Audit-Fiscal Year Ended 6/30/93CITY OF KALISPELL, MONTANA TABLE OF CONTENTS Applicable to Major Federal Financial Assistance Programs Page Fiscal Year Ended June 30, 1893 Organization 1 Independent Auditor's Report 2 - 3 Financial Statements 4 Combined Balance Sheet - All Fund Types and Account Groups 5 Combined Statement of Revenues, Expenditures, and Changes 6 in Fund Balances - All Governmental Fund Types Combined Statement of Revenues, Expenditures, and Changes 7 - 8 in Fund Balances - Budget and Actual - General, Special Revenue, Debt Service, and Capital Projects Fund Types Combined Statement of Revenues, Expenses, and Changes 9 in Retained Earnings - All Proprietary Fund Types Combined Statement of Cash Flows - All Proprietary Fund Types 10 Notes to Financial Statements 11 -30 Independent Auditors Report on Supplemental Information 31 and Supplemental Schedules Independent Auditor's Report on Supplemental Information 32 Supplemental Schedules 33 Schedule of Federal Financial Assistance 34 Significant Provisions of Sewer Revenue Bond Ordinances and 35-37 Required Information Schedule of Assets, Liabilities and Fund Equity - Sewer Fund 38 Schedule of Revenues, Expenses and Changes in Retained 39 Earnings - Sewer Fund Schedule of Cash Flows - Sewer Fund 40 Independent Auditor's Report on Compliance Based on an Audit of 41 General Purpose Financial Statements Single Audit Combined Report on Internal Control Structure 42-44 Single Audit ©pinion on Compliance With Specific Requirements 45 Applicable to Major Federal Financial Assistance Programs CITY OF KALISPELL, MONTANA TABLE OF CONTENTS - coat. Pace Single Audit Report on Compliance With the General Requirements 46 Applicable to Federal Financial Assistance Programs Single Audit Report on Compliance With Specific Requirements Applicable 47 to Nonmajor Federal Financial Assistance Program Transactions Independent Auditor's Report on Other Compliance, Financial, and 48 Internal Accounting Control Matters Independent Auditor's Report on Prior Audit Report Recommendations 49 Mr. Douglas Rauthe Mr. Gary Nystul Ms. Barbara Moses Mr. Jim Atkinson Mr. M. Duane Larson Mr. Bruce Williams Mr. Glen Neier Mr. Addison Clark Mrs. Amy Robertson Mrs. Francis Willis CITY OF KALISPELL, MONTANA ORGANIZATION Fiscal Year Ended June 30 9 993 Mayor CITY C NCIL Members Mr. Cliff Collins Mr. Fred Buck Mr. Lauren Granmo Ms. Pamela Kennedy CITY OFFICIAL M City Manager Attorney Chief of Police Finance Director City Judge CITY OF KALISPELL, MONTANA INDEPENDENT AUDITOR'S REPORT Fiscal Year Ended June 30, 1993 m Nordwick, Denning & Downey CERTIFIED PUBLIC ACCOUNTANTS 2801 S. Russell • Missoula, MT 59801 • 543-8174 1103 S. Main • Kalispell, MT 59901 • 756-6879 INDEPENDENT AUDITOR'S REPORT To the Honorable City Manager, Mayor and City Council City of Kalispell Kalispell, MT 59901 We have audited the general purpose financial statements of the City of Kalispell, Montana, as of and for the year ended .tune 30, 1993, as listed in the table of contents. These general purpose financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these general purpose financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards; Govemment Auditing Standards, issued by the Comptroller General of the United States; and Office of Management and Budget (OMB) Circular A-128, Audits of State and Local Governments. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the general purpose financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the general purpose financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. in our opinion, the general purpose financial statements referred to above present fairly, in all material respects, the financial position of the City of Kalispell, Montana, at June 30, 1993, and the results of its operations and the cash flows of its proprietary fund types for the year then ended in conformity with generally accepted accounting principles. June 17, 1994 -3- (r. 4"NING +k'[�M'NORDWICK, ( D DOWNS Certified Public Accountants Scan Nordauick, CPA * Robert K. Denning CPA* Kim M. Doumey CPA • Nancy S. Hamilton CPA CITY OF KALISPELL, MONTANA FINANCIAL STATEMENTS Fiscal Year Ended June 30, 1993 Q 0 csgq5cm�cd as ggN o wi ci O Y O c37 Nn lNi N ct] M r C!3 f•] co 6 c4 od co Qcd cr) Ir OO m w 4o k6 69 to ♦ r > > o E ♦ ♦ , p CLT O W m �f ni O N N co Q 69 H3 H EH r m m �m O a n x a m co m m e9 69 �U) r „ Q y 15 O z 2Q � r U LL d9 QST iAco cl) t» a» v9 w a © co Ncli Nm C C V O w» M co `a r N z i r Q y �Q W (c�'777i?pD €rE1 rp `'3 O (`p co c'7 3Sl r O O u�'3 N ih d � i ci a � co � � F+ sQ O i`] t[y i � N yp yj pp 4.9 w .w ff3 V [D r �a yT 69 to C)l co yF O n It] � W4 �4 p cornu m o c r rn m nN zN N N N LL Q VS £9 ER !A H34R EA r � N � 'V' 533 i17 L7 3�. 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UN 0 J z LLl ilt Ui Ui 1W Q � F- Z m 2 O u LL w z w w LC Q 0M 0( w nr�so cfl��i O � Nco v LL cotw 0)� N � m $�cnty �mrn C14 U') co th 69 M C44- 0) CO m� 3�i�-Nor pCSDt*TC... t O � LL C t tC) N N a) "I M IC CD CD U, K1 CC3 CJ€�e�!' r r .s• all ti t tipj cD C3 a0 ug 4A c°) try O t-- v cn " us v N (1 �s N C? tp ifi ffi 4A cLO 0� N tU r CD CN Q, 4, 6, NVr �tmrcor� MMS- t-Cnv_ r� y4 64 6a ti��rn 1 t�i"p eft r. a, co Eta N to (h c7 l(] N �^^ m r f� t,0�1 6, co rN-0) NCV I ) cat -m a4 E4 0, co C\l ' ' ovn vcn LQ jjCn N Ce) Ld r v -7- m C G C� 3 0 tl ID t= c m 9 E �s E m o €w m m u D 0 Acu m tm r_m t�0 di s~ 15 0 x CD @m W fl LZ 3 W EA qQ3 €11 ® (9tLC3U � m ro (D X w 0 00 x to -7- 5 3 � m � O EFi 6ppA 6©©4 Mm O fl. ��pp qQ3 (app m ' CL+— N tr6 to M N colo 0 r e m m N N N 6, 44 6-'* bl), 64 E CL C u 0 0 CD Q w0 (.i., tK �m r 69 E# 44 3 1 00 C'1 C6 fh �S3 to g tppj r CO �6�pp3 r r 64 01 64 64 H3 N 64 5 3 � m � O Mm O fl. mIDt� rn m ' C N v� +^.� mQ �zs colo 0 e m m r �rj .ice U '•C� m � 0 `m ) c m c o 0. m w E CL C u 0 0 CD Q w0 (.i., tK 5 C O v J Q a z Q wQ to �- LU z U �..i W � O ra cs J z Z Y } LU r� cc as w VLLI 0 Lai z w LLo CU z= °ulZ t UJ LuLIN J Z� u, LU >4 W� o� �-W Z LU141 20 uj H a ILI rLI z m c� U) m m C 40 m ID m � •� fA C 3 m i O -U Z Lu ID D LL c) , o � •� a > Q rn v z 691 I AR. 60 O Ci w h V 0) 0 �P V 0. Q cn , r C3 C3 Gi F-• y3 t9 iL 3 O i F l 1 i 1 CQ m N c L6 Ln OD 29 6, m o i t ! r (O C O rn V u_ 0) r z 4n,LL LL 64 V _ mry a m � us co N .- w r w69� 6"* a Y 1 i 1 § lV V m U) m m C 40 m ID m � •� fA C 3 m i O -U Z Lu ID D LL 9 z M G o a Z, O c o E U U CD C C p co E m 3 m aam�•� o © a m,0.0 m o ul C C .4." 3 _'•'• y Z m u1 •- X U' a -a.0 mi lz o x w C3 00 uJ a.* c) , o � Q rn v I AR. 60 O Ci tY O h ED 0) 69 bR w cn , r C3 C3 Gi O a L6 69- O i 1 O p4 C+3 CQ N c L6 Ln OD 29 6, 1 i t ! h h V 0) r 64 Y L�69. 9 z M G o a Z, O c o E U U CD C C p co E m 3 m aam�•� o © a m,0.0 m o ul C C .4." 3 _'•'• y Z m u1 •- X U' a -a.0 mi lz o x w C3 00 uJ a.* % 1 C6 031 44 60 - to 73 a� u � C L4CC o � rn v O Ci tY O h ED 0) 69 bR aR K3 , 1 f C3 0 O Ps 69- O i 1 O p4 C+3 CQ L6 Ln OD 29 1 1 V 0) r 64 % 1 C6 031 44 60 - to 73 a� u � C L4CC CITY OF KALISPELL, MONTANA COMBINED STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN RETAINED EARNINGS ALL PROPRIETARY FUND TYPES Fiscal Year Ended June 30, 1993 Operating Revenues: Charges for services Miscellaneous revenues Special assessments Internal services Total Operating Revenues Operating Expenses: Personal services Supplies Purchased services Fixed charges Losses/bad debt expenses Depreciation Total Operating Expenses Operating income (loss) Non -Operating Revenues (Expenses): Interest Debt service interest expense Loss on sale of fixed assets Total Non -Operating Revenues (expenses) Net income before extraordinary items Extraordinary loss on disposal of asset Net income (loss) Add depreciation on fixed assets acquired by capital grants increase in retained earnings Retained earnings - July 1, 1992 - As previously reported Restatements Retained earnings - July 1, 1992 - as restated Retained earnings - June 30, 1993 See accompanying Notes to Financial Statements $ 122,628 $ 3,347 $ 125,975 (438,381) (2,907) (441,288) (22,843) (17,910) (40,753) $ _ (338,596) $ 17,470 $ (356,066) $ 47,758 $ 116,700 $ TOTALS (138,730) - (MEMORANDUM PROPRIETARY FUND TYPES $ ONLY) $ 25,728 Internal _ __--_ Enterprise 458,301 Service $ June 30, 1993 $ $ 2,873,068 $ - $ 2,873,068 86,162 27,950 - - 86,162 219,980 $ 8,433,186 - 6,260 219,980 - $ 8,800,515 562,034 122,960 562,034 $ 3,179,210 $ 562,034 $ 3,741,244 $ 962,214 $ - $ 962,214 160,315 3,044 163,359 405,511 402,424 807,935 353,569 4,077 357,646 40,310 - 40,310 870,937 18,319 889,256 $ 2,792,856 $ 427,864 $ 3,220,720 $ 386,354 $ 134,170 $ 520,524 $ 122,628 $ 3,347 $ 125,975 (438,381) (2,907) (441,288) (22,843) (17,910) (40,753) $ _ (338,596) $ 17,470 $ (356,066) $ 47,758 $ 116,700 $ 164,458 (138,730) - (138,730) $ (90,972) $ 116,700 $ 25,728 458,301 _ __--_ 458,301 $ 357,329 $ 116,700 $ 484,029 $ 8,461,136 $ 6,260 $ 8,467,396 27,950 - (27,950) $ 8,433,186 $ 6,260 $ 8,439,446 $ 8,800,515 $ 122,960 $ 8,923,475_ 91 CITY OF KALISPELL, MONTANA COMBINED STATEMENT OF CASH FLOWS ALL PROPRIETARY FUND TYPES Fiscal Year Ended .tune 30, 1993 Noncash investing, capital, and financing activities: 1. The difference between the beginning and ending due from EPA in the amount of $137,377 was recorded as contributed capital in the Sewer Fund. 2. The City wrote off a wastewater treatment plant in the amount of $1,164,278. The undepreciated cost of $138,730 was recorded as a loss in the Sewer Fund and contributed capital was reduced by $292,472. 3. The Water Fund and the Internal Service Fund disposed of obseiete equipment. The undepreciated cost was recorded as a loss of $22,843 in the Water Fund and $17,910 in the Internal Service Fund. See accompanying Notes to Financial Statements -10- TOTALS (MEMORANDUM PROPRIETARY FUND TYPES ONLY) Internal Enterprise Service June 30, 1993 Cash Flows from Operating Activities: Cash received from customers $ 2,815,914 $ 67,328 $ 2,883,242 Cash received from assessments 219,735 - 219,735 Cash payments to suppliers for goods and services (902,442) (406,917) (1,309,359) Cash payments to employees for services (977,547) - (977,547) Cash from other operating revenues 86,162 494,706 580,868 Net Cash Provided by Operating Activities $ 1,241,822 $ 155,117 $ 1,396,539 Cash Flows from Capital and Related Financing Activities: Acquisition and construction of capital assets $ (1,991,889) $ (54,986) $ (2,046,875) Principal paid on revenue bonds and contracts (190,856) (18,182) (209,038) Interest paid on revenue bonds and contracts (360,433) (2,274) (362,707) Proceeds from interfund loan advance - 41,929 41,929 Capital contributed by developers 25,E - 25,E Capital contributed by city 105,025 - 105,025 Capital grants 1,408,756 - 1,408,756.. Net Cash Used for Capital and Related Financing Activities $ (1,004,397) $ (33,513) $ (1,037,910) Cash Flows from Investing Activities: Interest on investments $ 122,628 $ 3,316 $ 125,944 Purchase of sidewalk and curb warrants (9,103) - (9,103) Redemption of sidewalk and curb warrants 13,468 - 13,468 Net Cash provided by investing activities $ 126,993 $ 3,316 $ 130,309 _ Net Increase in Cash and Cash Equivalents $ 364,418 $ 124,920 $ 489,338 Cash and Cash Equivalents at July 1, 1992 3,298,828 6,945 3,305,173 Cash and Cash Equivalents at June 30, 1993 $ 3,663,246 $ 131,865 $ 3,795,111 Reconciliation of Operating Income to Net Cash Provided by Operating Activities: Operating income $ 386,354 $ 134,170 $ 520,524 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 870,937 18,319 889, 256 Provision for uncollectable accounts (27,950) - (27,950) Change in assets and liabilities: Decrease in accounts receivable 11,106 - 11,106 Increase in assessments receivable (245) - (245) Decrease in inventory 16,953 - 16,953 Increase in accounts payable - 9,003 9,003 Increase in compensated absences (15,333) -(15.333) Increase in prepaid expenses - (6,375) (6,375) Net Cash Provided by Operating Activities $ 1,241,822 $ 155,117 $ 1,396,939_ Noncash investing, capital, and financing activities: 1. The difference between the beginning and ending due from EPA in the amount of $137,377 was recorded as contributed capital in the Sewer Fund. 2. The City wrote off a wastewater treatment plant in the amount of $1,164,278. The undepreciated cost of $138,730 was recorded as a loss in the Sewer Fund and contributed capital was reduced by $292,472. 3. The Water Fund and the Internal Service Fund disposed of obseiete equipment. The undepreciated cost was recorded as a loss of $22,843 in the Water Fund and $17,910 in the Internal Service Fund. See accompanying Notes to Financial Statements -10- CITY OF KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS June 30, 1993 SumMaa of Significant Accounting Policies The fallowing is a summary of the City's significant accounting policies: Reporting Enti The City is governed by an elected Mayor and City Council. The general purpose financial statements include all funds, account groups, boards, commissions, and authorities which meet the criteria embodied in GASB Cod. Sec. 2100, "Defining the Reporting Entity." Such criteria are manifestation of oversight responsibility (financial interdependency, selection of governing authority, designation of management, ability to significantly influence operations, and accountability for fiscal matters), scope of public service (benefit to the City and/or its residents, conducted within the geographic boundaries of the City, and generally available to its citizens), and special financing relationships. Fund Accou The accounts of the City are organized on the basis of funds and account groups, each of which is considered a separate accounting entity. The operations of each fund are accounted for within a separate set of self -balancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures, or expenses, as appropriate. The following funds and account groups are maintained by the City: GOVERNMENTAL,. FUNDS General Fund - to account for all financial resources except those required to be accounted for in Other funds. Special Revenue Funds - to account for the proceeds of special revenue sources (other than for major capital projects) that are legally restricted to expenditures for specific purposes. Capital Projects_ Funds - to account for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by proprietary funds). Debt Service Funds - to account for the accumulation of resources for, and the payment of, general long-term debt principal, interest, and related costs. PROPRIETARY FUNDS Enter rise Funds - to account for operations (a) that are financed and operated in a manner similar to private business enterprises - where the intent of the governing body is that costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or (b) where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. Internal ServiceFund - to account for the financing of goods or services provided by one department or agency to other departments or agencies of the City, on a cost reimbursement basis. -11- Summary of Significant Accounting Policies - coni, FIDUCIARY FUNDS Trust and Agency Funds - to account for assets held by the City in a trustee capacity or as an agent for individuals, private organizations, other governments, and/or other funds. These may include (a) expendable trust funds, (b) nonexpendable trust funds, (c) pension trust funds and (d) agency funds. FIXED ASSETS AND LONG-TERM LIABILITIES General Fixed Assets Account Group - to account for the fixed assets of the City which are not accounted for in the proprietary funds. Gener� al Long -Term ©ebt Account Group - to account for all long-term debt of the City except that accounted for in the proprietary funds. Basis of Accounting and Measurement Focus The modified accrual basis of accounting is followed by all governmental funds. Under the modified accrual basis of accounting, revenues are recorded when susceptible to accrual, that is when they become both measurable and available. Available means when collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. In applying the susceptible to accrual concept under the modified accrual basis, the following revenue sources are deemed both measurable and available: earnings on investments, real estate and personal property taxes, assessments, federal and state grants and subsidies, and charges for current services. Revenue sources not susceptible to accrual include licenses and permits, fines and forfeitures and certain other miscellaneous revenues, which are not considered measurable until received. The City records 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. The measurement focus of governmental fund accounting is on decreases in net financial resources (expenditures) rather than expenses. Most expenditures are measurable and are to be recorded when the related liability is incurred except for unmatured principal and interest on general and special assessment long-term debt which are reported only when due, cost of accumulated unpaid vacation and sick leave which are reported as expenditures in the period in which they will be liquidated with available financial resources rather than in the period earned by employees, and inventory costs which are reported as expenditures when purchased rather than when consumed. Allocations of cost, such as depreciation and amortization, are not recognized in the governmental funds. The accrual basis of accounting is utilized by the proprietary funds. Under the accrual basis of accounting, revenues are recorded when earned and expenses when incurred. 12- ummary_Of Si nif9cant Accounting Policies - cont. The accounting and reporting treatment applied to a fund is determined by its measurement focus. All governmental funds are accounted for on a spending or "financial flow" measurement focus. This means that only current assets and liabilities are generally included in their balance sheets. Govemmental fund type operating statements present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. All proprietary funds are accounted for on a cost of services or "capital maintenance" measurement focus. This means that all assets and liabilities (whether current or noncurrent) associated with this activity are included on their balance sheets. Their reported fund equity (net total assets) is segregated into contributed capital and retained earnings components. Proprietary fund type operating statements present increases (revenues) and decreases (expenses) in net total assets. Budgets and Budgetary Accounting An annual appropriated operating budget is adopted each fiscal year for the General Fund, Special Revenue Funds, Debt Service Funds, and Capital Projects Funds on the modified accrual basis. A non-binding management budget is adopted for the enterprise and internal services funds. The final budget is legally enacted by the City Council on the second Monday in August, after holding public hearings as required by State statutes. The operating budgets cannot be increased except for a public emergency which could not have been reasonably foreseen at the time of adoption of the budget. Budget appropriation transfers may be made between the general classifications of salaries and wages, maintenance and operation and capital outlay. Encumbrances All appropriations, except for construction in progress, lapse at the end of the fiscal year. The City does not utilize a formal encumbrance accounting system. Fixed Assets All purchased fixed assets are valued at cost where historical records are available and at estimated historical cost where no historical records exist. Donated fixed assets are valued at their estimated fair market value on the date received. The costs of normal maintenance and repairs that do not add to the value of the assets or materially extend asset lives are not capitalized. Improvements are capitalized and, in proprietary funds, depreciated over the remaining useful lives of the related fixed assets. General fixed assets are not capitalized in the funds used to acquire or construct them. Instead, capital acquisition and construction are reflected as expenditures in governmental funds, and the related assets are reported in the general fixed assets account group. Assets in the general fixed assets account group are not depreciated. -13- SufflnLary of Significant Accqun_. Aing Policies - cant Public domain ("infrastructure") general fixed assets consisting of roads, bridges, curbs and gutters, streets and sidewalks, drainage systems, and lighting systems are not capitalized, as these assets are immovable and of value only to the government. Fixed assets purchased or acquired by proprietary fund types are recorded in the individual fund making the purchase. Any fixed assets donated specifically for an enterprise fund are also recorded in that individual fund. Depreciation on proprietary fund fixed assets is provided over their estimated useful lives on the straight-line method. The useful lives of these assets have been estimated as follows: Buildings 20 - 50 years Improvements other than buildings 10 - 50 years Machinery and equipment 5 - 20 years Vehicles and heavy equipment 5 - 20 years Sewer lines and pump stations 10 - 50 years Interest is capitalized on proprietary fund assets acquired with tax-exempt debt. The amount of interest to be capitalized is calculated by offsetting interest expense incurred from the date of the borrowing until completion of the project with interest earned on invested proceeds over the same period. Taxes and Assessments 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. Enterpn'se Accounts Receivable Reserves for estimated uncollected accounts receivable are maintained for the water, sewer and ambulance enterprise funds. Accounts receivable are reported as net of uncollectable accounts. The reserves for uncollectables on June 30, 1983, were as follows: Water $ 3,804 Sewer 7,187 Ambulance 19 11 Total $ X0.372 Inventories Inventories of materials and supplies for governmental fund types are expensed at the time of purchase. Inventories of materials and supplies on hand are not maintained. Inventories were not, however, considered material. Materials and supplies inventory in the Water Enterprise Fund was valued at a combination of cost and replacement cost. Inventories are offset by a reserve of equity. Vacation and Sick Leave Liabilities incurred because of unused vacation and sick leave accumulated by employees which is payable upon termination are included in the financial statements. The liability for unused vacation and sick leave for governmental fund employees is recorded in the general long-terrn debt account group. Expenditures for these liabilities are recognized when paid. The liability for unused vacation and sick leave for proprietary fund employees is recorded as a long-term liability in the proprietary funds. The expenses were recorded when the liability was incurred as required by generally accepted accounting principles. -14- Summar' r_af Sion cant A�ccountinc Policies - cont. Lone, Term. Debt Unmatured general long-term debt of the City, including special assessment dent for which the government may be obligated in some manner, is recorded in a separate, self -balancing set of accounts, the General Long -Term Debt Account Group. Long -terra debt of the proprietary funds, including enterprise -related special assessment debt, is reported as a liability in the specific fund making the debt service payments. For more information on the long-term debt of the City, see Note 7. Contributed Capital Enterprise Fund contributions from grants, customers, special improvement districts and other outside sources restricted for capital acquisition or construction are reported as contributed capital. Depreciation on assets acquired from contributions is reflected in the statement of revenue, expenses, and changes in retained earnings. The amount of depreciation applicable to assets acquired through contribution from grants, entitlements, and shared revenues is transferred to the related contribution account instead of retained earnings. Enterprise Fund resources received from grants, entitlements, or shared revenues which may be utilized for operations or for either operations or capital acquisition or construction are reported as "non-operating" revenues. Interfund Timnsactiona Interfund transactions consisting of identified services performed for other funds or costs billed to other funds are treated as expenditures in the fund receiving the services and as revenue in the fund performing the services. Transactions which constitute reimbursements of a fund for expenditures or expenses initially made from it which are properly applicable to another fund are recorded as expenditures in the reimbursing fund and as reductions of the expenditures in the fund that is reimbursed. Advances between funds are accounted for in the appropriate interfund receivable and payable accounts. Cash and Cash Equivalents The City considers for purposes of the statement of cash flows, all investments of the proprietary fund types with an original maturity date of three months or less to be cash equivalents. Total g;olumnj_on Combined Staten3ents Total columns on the Combined Statements are captioned Memorandum Only to indicate that they are presented only to facilitate financial analysis. Data in these columns do not present financial position, results of operations, or changes in financial position in conformity with generally accepted accounting principles. Neither is such data comparable to a consolidation. Interfund eliminations have not been made in the aggregation of this data. -15- 2. Property Taxes Property tax levies are set in August in connection with the budget process, and are based on taxable values listed as of January 1 for all property located in the City. Taxable values are established by the State Department of Revenue based on market values. A revaluation of all property is required to be completed on a periodic basis. Taxable value is defined by State statute as a fixed percentage of market value. Real property taxes and special assessments are generally billed in October and are payable 50% by November 30 and 50% by May 31. After these dates, taxes and assessments become delinquent and become a lien on the property. Personal property is assessed and personal property taxes are billed throughout the year, with a significant portion generally billed in May, June and July. Personal property taxes are based on levies set during the prior August. These taxes become delinquent 30 days after billing. Taxes and assessments that become delinquent are charged interest at the rate of 5/6 of 1 % per month plus a penalty of 2%. Real property on which taxes and assessments remain delinquent and unpaid may be sold at tax sales. In the case of personal property, the property is to be seized and sold after the taxes become delinquent. The City is permitted by State statutes (and its charter) to levy taxes up to certain fixed limits for various purposes. The taxes levied by the City for the year ended June 30, 1993, were within the legal limits. The tax levies were based upon a taxable valuation of $16,644,525. Current tax collections for the year ended June 30, 1993, were approximately 85% of the amount levied. 3. Deficit Fund Balances The Airport Special Revenue Fund had a deficit fund balance of $485 at June 30, 1993. The deficit, once at $202,431, has been steadily decreasing and should be eliminated in the next fiscal year. The following Debt Service Funds had deficit fund balances at June 30, 1993: 1984 Sidewalk and Curb $ 6,768 1985 Sidewalk and Curb $ 7,375 1986 Sidewalk and Curb $ 1,623 1987 Sidewalk and Curb $ 5,060 1988 Sidewalk and Curb $ 5,247 1990 Sidewalk and Curb $ 614 1991 Sidewalk and Curb $ 267 S.I.D. Number 335 $ 1,497 S.I.D. Number 336 $ 1,306 S.I.D. Number 337 $ 297 These deficits were caused by a short -fall in anticipated revenue and will be eliminated as delinquent assessments are collected or as loans are made from the Revolving f=und. The 1993 Sidewalk and Curb Capital Projects Fund had a deficit fund balance of $2,147 at June 30, 1993. This deficit was caused by the assessments being billed in the year subsequent to the construction and will be eliminated when the assessments are collected. -16- 4. Budget OverdraftsNariances S ecial Revenue Funds A significant favorable budget to actual variance occurred in the taxes/special assessments revenue source in the amount of $516,732. The variance was primarily due to the release of protested taxes. A significant unfavorable budget to actual variance occurred in the intergovernmental revenue source in the amount of $205,170. The variance was primarily due to the City budgeting for E.D.A. grant proceeds which were not received because the project cost less than projected. Significant favorable budget to actual variances existed in the housing and community development and capital outlay expenditure categories in the amounts of $270,068 and $1,031,743, respectively. The City did not begin or complete as many street projects as were anticipated in the Tax Increment Fund budget. Capital,Pro° cts Funds A significant unfavorable budget to actual variance existed in the charges for services revenue source in the amount of $45,939 due to collections of charges for services for sidewalks and curbs were less than anticipated. A significant favorable budget to actual variance existed in the capital outlay expenditure category in the amount of $39,490 because anticipated expenditures were not made. 5. C sh d Invest eats The City maintains a cash and investment pool for all funds under the control of the City Treasurer. In addition, investments are separately held for several of the funds. Cash and investments may include cash and cash items; demand, time, savings and fiscal agent deposits; investments in the State Short -Term Investment Pool (S.T.I.P.); direct obligations of the United States Government and securities issued by agencies of the United States; and repurchase agreements. The composition of cash and investments on June 30, 1993, was as follows: Petty Cash $ 800 Cash in Banks: Demand Deposits 183,558 Time Deposits 95,893 State Short -Term Investment Pool (S.T.I.P.) 6,023,500 Repurchase Agreement 1,500,000 Sidewalk and Curb - Bands 65,904 Variable Annuity Life Insurance Company (VALIC): Deferred Compensation Plan 1.76.400 Total per Balance Sheet $ $ 046.055 Deposits - At year end, the carrying amount of the City's deposits was $279,451, and the bank balance was $325,776. These deposits include demand, time, and savings deposits. of the Bank balance, $199,434 was covered by Federal Depository Insurance and $126,342 was uninsured and uncollateralized. This uninsured and uncollateralized portion includes $126,342 which was covered by collateral held by the financial institutions or by their trust departments or agents, but not in the City's name. -17- 5. Cash and Investments - coat. 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%. The 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, 1993, equaled or exceeded the amount required by State statutes. Investments - As noted above, statutes authorize the City to invest in direct obligations of the United States Government and securities issued by agencies of the United States, repurchase agreements, and the State Short -Term Investment Pool (S.T.I.P.). These investments are in addition to time and savings deposits, which are included in deposits above. The City's investments are categorized below to give an indication of the level of risk assumed by the City at June 30, 1993. Category 1 - Includes investments that are insured, registered, or for which the securities are held by the City or its agent in the City's name. to 0 2 -Includes uninsured and unregistered investments for which the securities are held by the financial institution's, broker's or dealers trust department or agent in the City's name. Category 3 - Includes uninsured and unregistered investments for which the securities are held by the financial institution, broker or dealer,or by its trust department or agent but not in the City's name. ate o Carrying Market 1 2 3 Valug� Value Repurchase Agreements $1.500.000 $ 1,500,000 $ 1,500,000 Investment in State Short -Term Investment Pool (S.T.I.P.) 6.023.500 6.023.500 Total Investments $ 7.523.5(30 $ 7 _523 In addition, funds placed in a deferred compensation plan by City employees were held and invested by the Variable Annuity Life Insurance Company (VAL.IC). Funds in the plan at June 30, 1993, amounted to $176,400. 6. Fixed Assets A summary of changes in general fixed assets follows: Balance Balance July 1. 1992 Additions Deletions June 30, 1993 Land $ 1,590,610 $ $ $ 1,590,610 Buildings 3,268,515 25,000 3,293,515 improvements Cather Than Buildings 1,075,780 5,869 1,081,649 Machinery and Equipment 2,024,787 174,299 13,193 2,185,893 Construction Work in Progress 0 32,916 32,916 Total $ 7.959,692 $ 23$,084 $ 13.193 $ 8.184,583 -18- 6. Fixed Asset* - cant. A summary of proprietary fund type property, plant, and equipment at June 30, 1993, follows: Bonded Debt Bonds payable at June 30, 1993, are comprised of the following individual issues: 1. General obligaU n l3on�4 Internal _Enterorise Service Land $ 245,369 $ Storm Sewer 3,238,681 Serial Machinery and Equipment 979,244 98,406 Construction Work in Progress 64,851 7 yrs 2000 Source of Supply 347,709 5.1% Pumping Plant 596,599 Treatment Plant 13,929,926 Transmission and Distribution 9,473,419 General Plant 940.888 Total $ 29,816,686 $98,406 Less Accumulated Depreciation .§.738,084 28089 Net $ 2a,978,§02 $70 317 7. Lgn!g -TernvDM The following is a summary of long-term debt transactions of the City for the fiscal year ended June 30, 9993: Balance Balance July 1 1992 6ddifions Reuctigns June 30.1 993 General Obligations Bonds (1) $ 385,000 $ 385,000 $ 415,000 $ 355,000 Revenue Bonds (2) 4,065,000 215,000 3,850,000 Special Assessments Bonds (1) 182,357 9,103 35,468 155,992 Urban Renewal Bonds (1) 1,635,000 105,000 1,530,000 Loans/Contracts (2)(3) 159,074 20,300 138,774 Compensated Absences 529,655 96,389 628,044 Payable (1) (2) State Revolving Fund Loan (2) 3.913.425 78,025 3.835.000 Total $ 10.869.511 $ 49€iM $ 869.193 $ (1) Reported in general long-term debt account group. (2) Reported in enterprise fund. (3) Reported in internal service fund. Bonded Debt Bonds payable at June 30, 1993, are comprised of the following individual issues: 1. General obligaU n l3on�4 Final Outstanding Annual Issue Interest Term of Maturity Bonds June 30, Serial Purr�ose to Rate 8and _ Bate-- lssued 1992 Payment Refunding Bond - Pool 4/93 2.8- 7 yrs 2000 $ 385.E $53 5.t)00 varies 5.1% General obligation bonds of the City are secured by the general credit and revenue -raising powers of the City. $4,806 is available in the Debt Service Funds to service the general obligation bonds. -19- 7. Lona -Term Debt - cont, 2. Revenue Bonds S.J.D. Final Outstanding Annual Issue Interest Terre of Maturity Bonds June 30, Serial Purpose Date Raj@� Bond Date Issued 1993 Pent 1976 Sewer Plant 111176 6.75% 20 yrs. 1996 $ 445,000 $ 165,000 varies 1986 Storm Sewer 611186 7.0% 20 yrs. 2006 1,300,000 1,090,000 varies 1991 Sewer System 12/31186 9.0% 8 yrs. 1994 20,987 5,988 varies Refunding Bonds 4115191 varies 20 yrs. 201182. 15.000 2.595,000 varies Total 111189 12.0°/6 8 yrs. 1996 $ 4.560.000 $ 3 85. 0.004 varies Revenue Bonds are directly related to and expected to be paid from the Sewer Fund. The significant provisions of the bond ordinances relating to the issuance of Sewer System Revenue Bonds and the financial statements and other schedules required by those ordinances are presented as supplemental information on pages 35 - 40. 3. Special Assessment Bond S.J.D. Final Outstanding Issue Interest Terra of Maturity Bonds June 30, Annual Purpose ate Rate Bond Date Issued1_ _.993 Payment S.I.D. No. 337 12/1186 7.74% 15 yrs. 2002 $ 110,000 $ 80,000 varies 1985 Sidewalk and Curb 1213185 10.0% 8 yrs. 1993 44,600 4,600 varies 1986 Sidewalk and Curb 12/31186 9.0% 8 yrs. 1994 20,987 5,988 varies 1987 Sidewalk and Curb 12131187 12.0% 8 yrs. 1995 31,275 7,275 varies 1988 Sidewalk and Curb 111189 12.0°/6 8 yrs. 1996 37,411 20,411 varies 1989 Sidewalk and Curb 113190 10.5% 8 yrs. 1998 15,818 10,000 varies 1990 Sidewalk and Curb 1115191 10.0% 8 yrs. 1999 14,600 10,900 varies Meridian Sidewalk and 1011190 11.0% 8 yrs. 1998 7,322 4,623 varies Curb 1991 Sidewalk and Curb 2192 8.0% 8 yrs. 2000 3,360 3,092 varies 1992 Sidewalk and Curb 112193 7.0% 8 yrs. 2001 9 1 3 9.103 varies Total $ 294 4 6 $155 9 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 may be 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 are in default. At .lune 30, 1993, material delinquent special assessments recievable were as follows: S.I.D. No. 337 $ 21.853 4, Tax Increment Urban Renewal Bonds In December 1985, the City issued $2,100,000 in Tax Increment Urban Renewal bonds pursuant to Title 7, Chapter 15, Parts 42 and 43, MCA, and pursuant to the bond resolution adopted by the Kalispell City Council. These Series 1985 Bonds are considered to be special obligations of the City payable solely from tax increment generated by the area. The City has irrevocably pledged and appropriated the tax increment to the payment of the Series 1985 Bonds which have a first lien on all -20- 7. Lona -Term Debt - cont, 4. Tax Increment Urban Renewal Bonds tax increment revenue generated by the area. The Series 1985 Bonds do not constitute a general obligation of the City or pledge the ad valorem taxing power of the City. Although the long-term liability created by the issuance of the bonds is considered a fund -specific liability, it is reported as a liability in the general long-term debt account group as required by generally accepted accounting principles. At June 30, 1993, there was $138,377 available in the Tax Increment Special Revenue Fund to service these bonds. (1) Reported in general long-term debt account group. (2) Reported in Enterprise Fund. (3) Reported in Internal Service Fund. Compgnsated Absences Pa le Compensated absences payable, which represent vacation and sick leave earned by employees which is payable upon termination, were as follows: Enterprise Fund $ 100,986 General Long -Term Debt Account Group 525,058 Total $ 82_�`t State Revolving Fund In November 1991, the City entered into an agreement with the State Revolving Fund (SRF) to borrow up to $4,717,000 to create a wastewater treatment plant and compost facility. This obligation is to be repaid from the operating income of the Sewer Fund. As of June 30, 1993, $3,913,425 has been borrowed from the SRF. Interest Amount Outstanding Rate Term Borrow d June 301 1993 SRF Loan 4% 20 yrs. $3,913,425 $3,835,000 Requirements to Amortize Debt The annual requirements to amortize all long-term debt outstanding, except compensated absences payable, as of June 30, 1993, including interest payments of $5,446,137 are as follows: -21- Final Outstanding Issue Interest Term of Maturity Bonds June 30, Annual Purpose Date Rate Date Issued 1993 Payment Tax Increment 12/85 6.25-9.5% 16 yrs 7/1/2002 $ 2.100,0fl0 $ 1 530.000 varies LoanklContracted Debt Origination Interest Due Principal Outstanding PMroose Date Rate Term Date_ Amount June 30. 1993 Computer(3) 8117/90 varies 5 yrs. 8115195 $ 71,014 $ 39,329 Sweeper (1) 1/17192 varies 5 yrs. 2/15/97 80,770 66,566 Ambulance (2) 5/1/92 varies 3 yrs. 8/15/95 38.975 -,22.879 Total $ 19(1.759 $ M 774 (1) Reported in general long-term debt account group. (2) Reported in Enterprise Fund. (3) Reported in Internal Service Fund. Compgnsated Absences Pa le Compensated absences payable, which represent vacation and sick leave earned by employees which is payable upon termination, were as follows: Enterprise Fund $ 100,986 General Long -Term Debt Account Group 525,058 Total $ 82_�`t State Revolving Fund In November 1991, the City entered into an agreement with the State Revolving Fund (SRF) to borrow up to $4,717,000 to create a wastewater treatment plant and compost facility. This obligation is to be repaid from the operating income of the Sewer Fund. As of June 30, 1993, $3,913,425 has been borrowed from the SRF. Interest Amount Outstanding Rate Term Borrow d June 301 1993 SRF Loan 4% 20 yrs. $3,913,425 $3,835,000 Requirements to Amortize Debt The annual requirements to amortize all long-term debt outstanding, except compensated absences payable, as of June 30, 1993, including interest payments of $5,446,137 are as follows: -21- 7. Lona -Term Debt - cont. A nual Requirements to Amortize an -Term debt June 30._ 1993 Advance„ Refunding of Long -Term Debt On September 8, 1992, the City issued $385,000 in general obligation bonds with an average interest rate of 5.45% to advance refund $385,000 of outstanding Series 1985 general obligation bonds with an average interest rate of 9.095°/x. The City advance refunded the Series 1985 general obligation bonds to reduce its total debt service payments over the next 7 years by approximately $66,728 and to obtain an economic gain (difference between the present values of the debt service payments of the old and new debt) of $52,334. 8. State-Wi a Retirement Plans All City employees participate in one of the following cost sharing multiple -employer retirement plans. All of the retirement plans also provide death and disability benefits, with amounts determined by the State of Montana. Public E 1 s' Ret" m t System (PEM All employees other than police officers and firemen, that work more than the equivalent of 120 working days per fiscal year are required by State law to participate in the Public Employees' Retirement System (PERS). Employees who retire (1) at or after age 60 with five years of creditable service, (2) at or after age 65 regardless of years of service, or (3) with 30 or more years of creditable service are entitled to a retirement benefit, payable monthly for the life of the member and/or beneficiary. The benefit amount is the number of years of creditable service divided by 56, and multiplied by the final compensation. The final compensation is a member's highest average annual compensation during any three consecutive years of membership service. Benefits fully vest after five years of service. Vested employees may retire at age 50 or with 25 years of service and receive reduced benefits. Municipal Police Officers' "e lrement Sy1tem (W.ORS City police officers are covered under the Municipal Police Officers' Retirement System (MPORS). A member may retire with a retirement benefit after completing at least ten years of membership service and reaching age 50, or twenty years of membership service regardless of age. The retirement benefit, payable monthly for life, is based on the following formulas: For members hired prior to July 1, 1977: 50% X Base Salary + 1 % X Years of Service over 20 (Maximum benefit is 60% of Final Average Salary) -22- General Special Urban State Year Ending Obligation Revenue Assessment Contracted Renewal Revolving June 30,_ Bonds Bonds Bonds Debt Bonds Fund Loan Totals 1994 $ 60,828 $ 403,827 $ 40,862 $ 48,001 $ 256,085 $ 285,084 $ 1,094,687 1995 59,297 389,614 31,379 48,937 256,195 284,720 1,080,142 1996 62,543 404,973 31,989 34,764 260,195 285,140 1,079,604 1997 60,417 446,497 31,221 18,839 257,595 285,320 1,059,889 1998 63,167 410,686 21,226 258,945 285,260 1,039,284 1999-2004 118,360 2,029,486 56,709 1,061,815 1,425,540 4,691,910 2005-2009 1,753,442 1,425,980 3,179,422 2010-2014 803.565 l,Z82,400 2.085.965 Total $ 424 61 $ 6.612.090 $ 213 386 $ 7 50.541 $ 2 35. 0.830 $ 5 55 559.444 $ 15.310.903 Advance„ Refunding of Long -Term Debt On September 8, 1992, the City issued $385,000 in general obligation bonds with an average interest rate of 5.45% to advance refund $385,000 of outstanding Series 1985 general obligation bonds with an average interest rate of 9.095°/x. The City advance refunded the Series 1985 general obligation bonds to reduce its total debt service payments over the next 7 years by approximately $66,728 and to obtain an economic gain (difference between the present values of the debt service payments of the old and new debt) of $52,334. 8. State-Wi a Retirement Plans All City employees participate in one of the following cost sharing multiple -employer retirement plans. All of the retirement plans also provide death and disability benefits, with amounts determined by the State of Montana. Public E 1 s' Ret" m t System (PEM All employees other than police officers and firemen, that work more than the equivalent of 120 working days per fiscal year are required by State law to participate in the Public Employees' Retirement System (PERS). Employees who retire (1) at or after age 60 with five years of creditable service, (2) at or after age 65 regardless of years of service, or (3) with 30 or more years of creditable service are entitled to a retirement benefit, payable monthly for the life of the member and/or beneficiary. The benefit amount is the number of years of creditable service divided by 56, and multiplied by the final compensation. The final compensation is a member's highest average annual compensation during any three consecutive years of membership service. Benefits fully vest after five years of service. Vested employees may retire at age 50 or with 25 years of service and receive reduced benefits. Municipal Police Officers' "e lrement Sy1tem (W.ORS City police officers are covered under the Municipal Police Officers' Retirement System (MPORS). A member may retire with a retirement benefit after completing at least ten years of membership service and reaching age 50, or twenty years of membership service regardless of age. The retirement benefit, payable monthly for life, is based on the following formulas: For members hired prior to July 1, 1977: 50% X Base Salary + 1 % X Years of Service over 20 (Maximum benefit is 60% of Final Average Salary) -22- 8. S t -Wi a Retirement Plan - cont, 2. For members hired after July 1, 1977: 2.5% X Final Average Salary (FAS) X + 1% X FAS X Years of Service over 20 (Maximum benefit is 60% of FAS) Firefighters' unified Retirement S�stemLURS-) City firefighters are covered under the Firefighters Unified Retirement System (FURS). A member may retire with a service retirement after both completing ten years of membership service and attaining minimum service retirement age of 50. The retirement benefit, payable monthly for life, is based on the following formulas: For members hired before July 1, 1981: 50% X Final Monthly Compensation (FMC) + 1 % X Years of Service over 20 X FMC (Maximum benefit is 60% of FMC) 2. For members hired on or after July 1, 1981: 2% X Years of Service (30 years maximum) X Final Average Salary (FAS) (Maximum benefit is 60% of FAS) For members hired prior to July 1, 1981, benefits are calculated based on FMC which is the regular monthly salary (excluding overtime, holiday pay, shift differentials, compensatory time payments, and payments in lieu of sick leave) last received by the member. For members hired on or after July 1, 1981, benefits are calculated based on FAS which is the average of the member's regular monthly pay during the last 36 months of service. The City's total payroll for the fiscal year was $3,704,241. Required employee, employer, and State contribution rates and the covered payroll amounts for each plan are as follows: The City's contribution requirement for the fiscal year ended June 30, 1993, were as follows: PERS PERS MPC7RS FURS_ Covered Payroll $1,941,478 $703,721 $ 623,456 Employee 6.55% 6.00 - 8.7% 6.00% Employer 6.55% 13.92% 13.02% State 15.66% 23.27% The City's contribution requirement for the fiscal year ended June 30, 1993, were as follows: PERS MPORS FURS Employer $ 127,167 $ 98,958 $ 81,174 Employees 127.167 55.538 37.407 Total $ 254.334 $ 15a,42f2 $ 11, 581 The contribution requirement compared to total contribution requirements for all participating employers was less than 1% for P.E.R.S. and approximately 6% for both M.P.©.R.S. and F. U, R. S. The "pension benefit obligation" is a standardized disclosure measure of the present value of pension benefits, adjusted for the effects of projected salary increases, estimated to be in the future as a result of employee service to date. The measure, which is the actuarial present value of a plan's projected benefits, is intended to help users assess a plan's funding status on a going-concem basis, assess progress made in accumulating sufficient assets to pay benefits when due, and make comparisons among various pension plans and employers. The plans do not make separate measurements of assets and pension benefit obligation for individual employers. The pension benefit obligation for the City's plans, as a whole were as follows: -23- w W State -Wide Retirement Plans - cont. PER Pension Benefit obligation Net Assets Available (At Cost) Unfunded Pension Benefit Obligation Years Needed to Amortize Past Service Costs $ 1,405,884,112 $ 1,107,748,782 $ 298,135, 330 21.76 MPORS- $ 54,204,779 $ 47,433,416 $ 36,771,363 26.19 FURS $ 106,653,768 $ 46,760,524 $ 59,893,244 33.54 This information was determined through an actuarial update at June 30, 1993, and an actuarial valuation at June 30, 1992. Ten year historical trend information is presented in the June 30, 1993, annual report. All information can be obtained from the Montana Department of Administration. Local RetLrSMent Plans Deferred Compgrisation Plan The City offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The plan, available to all City employees, permits them to defer a portion of their salary until future years. Participation in the plan is optional. The deferred compensation is not available to employees until termination, retirement, death or unforeseeable emergency. All amounts of compensation deferred under the plan, all property and rights purchased with those amounts, and all income attributable to those amounts, property or rights are (until paid or made available to the employee or other beneficiary) solely the property and rights of the City (without being restricted to the provisions of benefits under the plan), subject only to the claims of the City's general creel#ors. Participants' rights under the plan are equal to those of general creditor of the City in an amount equal to the fair market value of the deferred account for each participant. It is the opinion of the City's legal counsel that the City has no liability for losses under the plan but does have the duty of due care that would be required of an ordinary prudent investor. The City believes that it is unlikely that it will use the assets to satisfy the claims of general creditors in the future. Investments are managed by the plan's trustee with no specific restrictions on the investment options. The plan assets of $176,400 were recorded in an agency fund at June 30, 1993, as required by generally accepted accounting principles. Amounts Due From and Due To Other Govemmentrt The amounts due from and due to other governments consist of the following: Due From Other Governments: General Fund: Due from flathead County $ 72.739 Special Revenue Fund: Due from flathead County $ 533.331 Debt Service Fund: Due from Flathead County $ 10.71 Enterprise Fund: Due from E.P.A $ 15 2.934. -24- 11. Amounts Due f=rom and To Other Funds Due from other funds and due to other funds consist of the fallowing: Receivable Fund General Fund General Fund S.I.D. Revolving Fund S.I.D. Revolving Fund S.I.D. Revolving Fund S.I.D. Revolving Fund S.I.D. Revolving Fund S.I.D. Revolving Fund S.I.D. Revolving Fund S.I.D. Revolving Fund S.I.D. Revolving Fund S.I.Q. Revolving Fund Payable _Fund Amount G.O. Bond $ 2,206 Sidewalk and Curb Construction 650 1984 Sidewalk and Curb 6,631 1985 Sidewalk and Curb 5,443 1986 Sidewalk and Curb 900 1987 Sidewalk and Curb 3,447 1988 Sidewalk and Curb 4,812 1990 Sidewalk and Curb 815 1991 Sidewalk and Curb 437 S.I . D. 335 1,574 S.I I. D. 336 1,183 S.I.D. 337 3.124 Total $ 31.122 12. Restrigftd CashfinvestMents The following restricted cash/investments were held by the City as of .lune 30, 1993. These amounts are reported within the cash/ investment account on the Combined Balance Sheet. Description Amount Special Revenue Fund: Tax Increment Fund: Sinking and Interest $ 123,046 interest Subsidy - Commercial Loans 15,331 Community Development Fund: Rehabilitation - Interest Subsidy 92,277 UDAG Repayment Fund: Interest Subsidy 3,615 Total Special Revenue Funds $ 234.269 Enterprise Fund: Water - Investment $ 500 Water - Replacement and Depreciation 204,000 Sewer - Replacement and Depreciation 186,110 Sewer - Reserve for Operations 70,000 Sewer - Construction 33,706 Sewer - Contractor Retainage 148,346 Sewer - Sinking and Interest 166,968 Sewer - Contingency 731,162 Sewer - Capital Improvement 813,093 Sewer - Storm Sewer 277,344 Ambulance - Replacement and Depreciation 26,866 Solid Waste - Replacement and Depreciation 87,597 Total Enterprise Funds $72. 45.381 Trust and Agency Funds: VALIC 457 Deferred Compensation Fund $ 176.400 -25- 13 14 Fund Eui 15. Restatements During the current fiscal year, the following adjustments relating to prior years' transactions were made to the fund balance and retained earnings accounts. Fund Amount Reason for Adjustment Special Revenue Fund: Airport $ (2,568) To record credit owed on airport lease for work performed in prior years UDAG Loan repayment 2,294 To correctly record reimbursement CDBG X2.,2941 recorded in the wrong fund in the Total $ prior year Enterprise Funds: Water (11,680) To write-off accounts receivable Sewer (16,270) Total $ 27 960 16. Residual Equity Transfers Residual equity transfers are made to transfer the remaining equity balance of a discontinued fund to another fund. Transfers made during the year consist of the following: Fund Making Transfer Fund Receivina Transfer Amount UDAG Loan Repayment (2) Community Development (2) $ 38,209 S.I.D. No. 328 (3) S.I.D. Revolving (3) $ 7,000 S.I.D. Revolving (3) General Fund (1) $ 40,000 S.I.D. Revovling (3) 1983 Sidewalk and Curb (3) $ 1,445 S.I.D. Revolving (3) S.I.D. No. 313 (3) $ 1,264 S.I.D. Revolving (3) S.I.D. No. 333 (3) $ 53,936 S.I.D. Revolving (3) S.I.D. No. 334 (3) $ 3,879 S.I.D. Revolving (3) Light No. 2 (3) $ 1,793 EISA Grant (2) Water Fund (4) $ 66,480 (a) Tax Increment (2) Sewer Fund (4) $ 38,545 (a) (1) General Fund $ 40,004 (2) Special Revenue Fund $ (105,025) (3) Debt Service Fund $ (40,000) (4) Enterprise Fund $ 105,025 a. The transfers to the enterprise funds were recorded as contributed capital. Therefore, residual equity transfers in and out do not net to zero on the financial statements. 17. Segment Information For Enterprise Funds The City maintains four enterprise funds which provide water, sewer, solid waste and ambulance services. Segment information for the year ended June 30, 1993, was as follows: Solid Total Water Sewer Waste Ambulance Enterprise E and nd Fund EMA ur�rls operating Revenues $ 821,828 $ 1,730,005 $264,346 $363,031 $ 3,179,210 Depreciation Expense $ 152,677 $ 654,551 $ 46,201 $ 17,508 $ 870,937 operating income or (Loss) $ 99,089 $ 236,761 $ (4,376) $ 54,880 $ 386,354 Net Income or (Loss) $ 85,324 $ (238,048) $ 3,460 $ 54,692 $ (90,972) current Capital: contributions $ 91,480 $ 1,584,678 $ $ $ 1,676,158 plant, Property and Equipment: .Additions $ 290,293 $ 1,239,417 $155,743 $ 12,510 $ 1,697,963 Deletions $ 38,965 $ 1,180,274 $ $ $ 1,219,239 -27- 17. Se meat Infer ation 1=or rater rise funds -cont. solid Total Water Sewer Waste Ambulance Enterprise Fund Fund Fund Fund Funds Net Working Capital $ 462,273 $ 815,595 $153,254 $218,554 $ 1,649,676 Total Assets $4,470,303 $22,683,749 4567,498 $295,815 $28,017,365 Long -Term Liabilities: Payable from Operating Revenue $ 24,396 $ 7,717,611 $ 22,327 $ 54,530 $ 7,818,864 Total Equity $4,423,813 $14,457,479 $536,977 $236,526 $19,654,795 18. County Provided Services The City 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. No service charges have been recorded by the City or the County. 19. Joint Ventures Joint ventures are independently constituted entities generally created by two or more governments for a specific purpose. 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 City of Kalispell levied 3.75 mills in support of the City -County Health Department for the fiscal year ended June 30, 1993. County -Wide Administrative Board The City of Kalispell along with Flathead County, the City of Columbia Falls, and the City of Whitefish, participate in a County -wide Administrative Board (CAB) that was established by an interlocal agreement in December, 1979. The CAB was formed for the purpose of coordinating all land use planning, subdivision reviews and approval, and zoning application and enforcement in Flathead County, as well as to assist in annexation by the cities. The Board consists of four members, the Mayor of each of the three cities and the Chairman of the Flathead County Board of County Commissioners. The CAB is financed by a tax levied by each of the parties to the interlocal agreement in proportion to the expected benefits that each party shall receive during the ensuing fiscal year. The financial activities of the CAB are accounted for by Flathead County. The City's share of CAB's assets, liabilities, and equity was not readily available. Insurance Coy ra e The City joined with other Montana cities and towns to form a self-insurance pool (named the Montana Municipal Insurance Authority) offering workers' compensation and liability coverages. Initial liability limits of $1,500,000 per participant, and Workers' Compensation coverage of $5,000,000 in excess of $500,000 for each accident and aggregate coverage of $5,000,000 in excess of $3,033,532 were obtained through the insurance pool. The Authority is governed by a Board of Directors consisting of thirteen officials from participating cities and towns. At June 30, 1993, the Authority had one hundred and four members in its liability program and eighty-six members in its Workers' Compensation program. -28- 19. Joint Ventures -cont. in August of 1986, the pool issued $6.25 million in tax exempt bonds to fund the liability program's reserves. Also, in September of 1990, the pool issued $7,385,000 in tax exempt bonds to fund the Workers' Compensation program's reserves. The City signed a note with the Authority for $241,773 and $281,715, respectively, its pro rata share of the debt, of the Liability and Workers' Compensation programs, in order to help secure the bonds. Most of the debt service on the bonds is expected to be paid through interest earnings on bond proceeds and other funds of the Authority. The City has, therefore, elected not to record this potential liability as a long-term liability in its accounting records and report it as such in its financial statements. Audited financial statements for the Liability Insurance Program and the Workers' Compensation Program for the fiscal year ending June 30, 1993, disclosed the following. 20. Pending if ation The following is a list of litigation pending against the City and the amount of damages claimed by the Plaintiff. The City Attorney has made no evaluation as to the outcome of each case. The City has liability insurance which may cover all or part of the damages requested. ase Cervantes vs City of Kalispell Damages Requested $180,000 21. Significant CongsbMetion Commitments and/or Other Col3fingencies S.I.Q. Number 337 is a special improvement district debt service fund and is accounted for and reported within the debt service funds. This fund is in an unfavorable financial position as of June 30, 1993. The fund had assets of only $61,271 compared to total liabilities of $83,124. For the purpose of disclosure and to reflect the financial position of the District, assets include cash, delinquent assessments receivable and deferred assessments receivable (assessments to be levied in future years). Liabilities include amounts owed to the special improvement district revolving fund and outstanding special assessment bonds payable (the bonds payable are reported in the general long-term debt account group). -29- Liability Workers' Insurance Compensation Assets $ X4.755,390 $ 15.910.984 Current Liabilities $ 549,051 $ 556,948 Long -Term Debt 5,252,809 6,890,000 Unpaid Claims Liabilities 4,846,000 8,464,000 Fund Balances 4.107.530 - Total Liabilities and Fund Balance $ 14,755.390 $ 15.91t1s984 Revenues $ 3,467,995 $ 4,703,164 Expenses 2.616.069 4,195,262 Excess Revenue (Expense) $ 851,926 $_09 .902 20. Pending if ation The following is a list of litigation pending against the City and the amount of damages claimed by the Plaintiff. The City Attorney has made no evaluation as to the outcome of each case. The City has liability insurance which may cover all or part of the damages requested. ase Cervantes vs City of Kalispell Damages Requested $180,000 21. Significant CongsbMetion Commitments and/or Other Col3fingencies S.I.Q. Number 337 is a special improvement district debt service fund and is accounted for and reported within the debt service funds. This fund is in an unfavorable financial position as of June 30, 1993. The fund had assets of only $61,271 compared to total liabilities of $83,124. For the purpose of disclosure and to reflect the financial position of the District, assets include cash, delinquent assessments receivable and deferred assessments receivable (assessments to be levied in future years). Liabilities include amounts owed to the special improvement district revolving fund and outstanding special assessment bonds payable (the bonds payable are reported in the general long-term debt account group). -29- 21. Significant Construction C mmitments and/or Other Contingencies - cont. In the event that sufficient resources are not available in the debt service fund to meet the bond principal and interest obligations, the City may be responsible for loaning money to this special improvement district debt service fund to pay such obligations from the special improvement district revolving fund. The revolving fund would, however, then have alien on all unpaid assessments of the special improvement district debt service fund and on all money thereafter coming into the fund. The bonds remaining unpaid at June 30, 1993, for the S.I.D. Number 337 was $80,000. The bonds mature on December 1, 2002. 22. Loans Receivable on June 29, 1984, the City entered into an agreement with Kalispell Center Limited Partnership (KCLP) whereby funds received by the City under an Urban Development Action Grant were loaned to KCLP to help fund the Kalispell Center Mall project. The total amount loaned to KCLP was $3,336,928. The balance of the loan receivable at June 30, 1993, was $2,958,286 and is recorded in the Urban Development Action Grant Loan Repayment Fund, a Special Revenue Fund. Loan repayments to the City began in April 1987. The repayment schedule calls for monthly principal and interest payments of $27,806.79 on the first day of each month. The term of the loan is 25 years. Interest accrues at 9% per annum for the remaining years of the loan. A loan was made from the Tax Increment Special Revenue Fund to the 2nd Avenue West Professional Building, a partnership, in the amount of $67,000 on December 30, 1985. The loan was made for the purpose of acquiring real property for development as a parking lot. The term of the loan is fifteen years and for years 6 through 15 the interest rate will accrue at the rate paid on U.S. Treasury bills as of the 15th day of January of the year in which the payments are due. The current repayment schedule calls for a monthly principal and interest payment of $496 each month. The balance of the loan receivable of $39,645 was recorded in the Tax Increment Fund. The City entered into a community development program which includes funding from a community development block grant, to make available to eligible applicants (low -to - moderate income residents) a loan for at least one-half of the required rehabilitation cost. These funds from the City, together with loans from the First Federal Savings Bank of Montana, the lender, must provide the total funds required for the purchase and rehabilitation of the housing unit. At the time the bank loans are closed with the borrower, the proceeds of the City's loan will be deposited into the borrowers' construction account at First Federal. The City's loan is secured by the property, and filed in a third -lien position. Repayment of the City loan will not begin until 30 days after the Lenders' loan (second lien) for construction of the unit has been paid off. The City`s loan is interest free until such time as repayment begins. The maximum amount of a private lender loan cannot exceed $20,000 per property with a ten year pay back. In addition, when an owner -occupant is unable to afford a private lender loan at the pre -determined interest rate agreed to by the City and lender, he or she may qualify for City financing. The City may provide a direct city loan of up to $25,000 with a varying interest rate to as low as zero percent or with a longer amortization period (maximum of fifteen years) or a deferred loan to be repaid simultaneously, at a later date, with a balloon payment, or to be released at the end of ten years. The City had $371,689 recorded as loans receivable as of June 30, 1993, in the Tax Increment Fund and Community Devleopment Fund. W CITY OF KALISPELL, MONTANA INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTAL INFORMATION ,r SUPPLEMENTAL SCHEDULES Fiscal Year Ended June 30, 1993 -31- Nordwick, Denning & Doumey CERTIFIED PUBLIC ACCOUNTANTS 2801 S. Russell • Missoula, MT 59801 • 543-8174 1103 S. Main • KahspeR, MT 59901 • 756-6879 INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTAL INFORMATION To the Honorable City Manager, Mayor and City Council City of Kalispell Kalispell, MT 89901 We have audited the general purpose financial statements of the City of Kalispell, Montana, for the year ended June 30, 1993, and have issued our report thereon dated June 17, 1994. These general purpose financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these general purpose financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards; Govemment Auditing Standards, issued by the Comptroller General of the United States; and Office of Management and Budget (OMB) Circular A-128, Audits of State and Local Governments. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the general purpose financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting amounts and disclosures in the general purpose financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Our audit was made for the purpose of forming an opinion on the general purpose financial statements of the City of Kalispell, Montana, taken as a whole. The accompanying supplemental information as listed in the table of contents for the year ended June 30, 1993, including the Schedule of Federal Financial Assistance are presented for purposes of additional analysis and is not a required part of the general purpose financial statements. The information in these schedules has been subjected to the auditing procedures applied in the audit of the general purpose financial statements and, in our opinion, is fairly stated in all material respects in relation to the general purpose financial statements taken as a whole. June 17, 1994 -32- r g NORDWICK, DENNING D DOWNS Certified Public AccountaWts Stan Nordwiek, CPA • Robert K. Benning CPA Kim M. Downey CPA • Nancy S. Hamilton CPA CITY OF KALISPELL, MONTANA SUPPLEMENTAL SCHEDULES Fiscal Year Ended June 30, 1993 -33- LU Q z H Q � z Q oz C Q W Lu >- LJ.. W U 0 LL. T^0 N LL 111 wm C X Lu D � m � 0 4.;; Z 1t5 N 0 LL E LL A 0 toll 44 44 L+f 0 to tff tH 'Y h CO tR Ce) 69 9 ad N 64 m N tH N W9, LQ 0 to 01 EQQ�k N vi to h (�o LC7 4Q¢r1 O N Off tf} per)pp CD 44 N co h h !if 41 C E y m 'Q C C =Q m r= Q7 Q } w N N 6 N (` r�..E 0. 0 a v Eti N {L c EQ© y v �75 ea o c� O t m �c� ix $' E s E a � .0 v L o .k+ y U �}j W' Q U Eao = U �' %- N d &r8 Li O O J N L� 'C V OE �7 N N 00 rA "' _ i1Yj i53 W O 9. p W C �_ S - 9 "�"3' po W U� ro col O m w ca _ i 4A 7 r.,. Q Vi ... o 3 Ui ^'� .-. �y W i ... 3ti .`= W L4 C3 u% to C.3 m (n %.] I.L. Cti CL •`-" R CA -34- SIGNIFICANT PROVISIONS OF SEWER REVENUE BOND ORDINANCES AND REQUIRED INFORMATION The City will establish a separate revenue bond account into which will be paid each month an amount equal to but not less than the sum of one-sixth of the interest due within the next six months and one -twelfth of the principal due within the next twelve months with respect to all Bonds secured by the ordinance and payable from that account, and into which shall be paid each month additional net revenue equal to one -sixtieth of the maximum amount of principal and interest to fall due within any subsequent fiscal year on all such bonds until a reserve equal to such maximum amount of principal and interest is established, which reserve shall thereafter be maintained. No exceptions were noted. 2. Rates and charges will be made and kept sufficient to provide gross income and revenues adequate to pay promptly the reasonable and current expenses of operating and maintaining the system and to produce in each fiscal year net revenues in excess of such current expenses, equal to 125% of the maximum amount of principal and interest payable from the Revenue Bond Account in any subsequent fiscal year. Cash Flow Coverage Sewer Service Charges $ 1,437,343 Storm Sewer Assessments 219,980 Miscellaneous and Hookup Fees 72,682 Total Operating Revenue $ 1,730,005 Less: Operating Expense (Before Depreciation) 839„3 Available for Debt Service $ 891.312 Maximum Debt Service $ 711,314 Coverage _ X25:3!//, 3. The City shall maintain an Operating Reserve equal to one month's operating expenses. The term "operating expenses" shall mean current expenses, paid or accrued, of operation, maintenance and current repair of the system and its facilities, and shall include administrative expenses of the City relating solely to the system, premiums for insurance on the properties, labor and the cost of materials and supplies used for current operation and for maintenance, and charges for the accumulation of appropriate reserve for current expenses which are not recurrent monthly but may reasonably be expected to be incurred in accordance with sound accounting practices. Such expenses shall not include any allowance for depreciation or renewals or replacements of capital assets of the system and shall not include any portion of the salaries or 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. Operating expenses for fiscal year ended June 30, 1993, of $838,693 divided by 12 $69,891. The Sewer Operating Reserve balance of $70,000 is adequate. 4. The City shall, within 120 days after the close of each fiscal year, cause to be prepared and supply to the original purchaser or purchasers of Bonds issued hereunder and the bank or banks designated as agent for the payment of principal of and interest thereon a financial report with respect to the system for such fiscal year as prepared by an independent certified public accountant. The City did not comply with this provision. -35- 5 The audit report shall include the following: a. a statement in detail of the income and expenditures of the system for the fiscal year, identifying capital expenditures and separating them from operating expenditures; b. a balance sheet as of the end of the fiscal year; C. the number of premises connected to the system at the end of the fiscal year; d. the amount on hand in each account of the Sewer System Fund at the end of the fiscal year; e. a list of the insurance policies and fidelity bonds in force at the end of the fiscal year, setting out as to each the amount thereof, the risks covered thereby, the name of the insurer or surety and the expiration date of the policy or bonds; and f. a determination that the report shows full compliance by the City with the provisions of this ordinance during the Fiscal year covered thereby, including proper segregation of the capital expenditure from operating expenses, maintenance of the required balance in the Revenue Bond account, and the receipt of net revenue during fiscal year at least equal to 125% of the maximum amount of principal and interest payable from the Revenue Bond Account in any subsequent fiscal year; or if the report should reveal that the revenues have been insufficient for compliance with this ordinance, or that the methods used in accounting for such revenues were contrary to any provision of this authorizing ordinance, the report of audit shall include full explanation thereof, together with the recommendations for such change in rates or accounting practices or in the operation of the system as may be required. The fallowing are the required disclosures which are not contained elsewhere in the audited financial statements: Number of premises connected to the system at the end of the fiscal year: 4593 Amount of cash on hand in each account of the Sewer System at the end of the fiscal year. Sewer Operating $ 682,067 Sewer Capital Improvement 813,093 Sewer Revenue Reserve 665,758 Construction Fund 33,706 Replacement and Depreciation 186,110 Sewer Revenue Bond Account 166,968 Sewer Operating Reserve 70,000 Storm Sewer Maintenance Reserve 277;344 Sewer CD Retainage 148,346 Sewer Bond Reserve Investments 65,404 Total $ 3,108 796 Schedule of Insurance Policies June 30, 1993 Flathead Association of Independent Insurance Agents 1. St. Paul Property and Liability Insurance provided the fidelity bond coverage. A public official bond in the amount of $50,000, for the finance director expires 519194. A $10,000 public employees blanket faithful performance bond expires 6130193. 2. Property Insurance: Blanket building policy with $19,097,819 limit and a $1,000 deductible per event. Boiler and machinery policy with $2,000,000 limit and a $250 deductible. Business interruption policy with a $9,000 limit of loss and $3,000 limit monthly indemnity. Expires 8!1193. -36- Montana Municipal Insurance Authority: 3. Liability Insurance: $750,000 per occurrence which arises or derives from injury to or death of a single person or damage to property of a single person regardless of number of persons or entities claiming damages. $1,500,000 per occurrence not covered as stated above. A $2,500 deductible applies. Expires 711194. -37- CITY OF KALISPELL, MONTANA SEWER FUND SCHEDULE OF ASSETS, LIABILITIES, AND FUND EQUITY .tune 30, 1993 ASSETS CashAnvestments Assessments receivable Other receivables Due from other governments Interest receivable Fined assets (net of accumulated depreciation) TOTAL ASSETS LIABILITIES AND FUND EQUITY Liabilities: Short-term payables Long-term payables Total Liabilities Fund Equity: Contributed capital Retained earnings: Reserved Unserved Total Fund Equity TOTAL LIABILITIES AND FUND EQUITY -38- $ 3,108,795 20,319 105,309 512,934 3,625 18,932,766 $ 22,683,749 $ 508,659 7,717,611 $ 8,226,270__ $ 10,159,091 2,702,109 1,596,279 $ 14,457,479 $ 22,683,749 CITY OF KALISPELL, MONTANA SEWERFUND SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN RETAINED EARNINGS Fiscal Year Ended June 30, 1993 Operating Revenues: Charges for services $ 1,437,525 Miscellaneous 72,500 Special assessments 219,980 Total Operating Revenues $ 1,730,005 Operating Expenses: Personal services $ 378,073 Supplies 49,547 Purchased services 230,345 Building materials 13,899 Fixed charges 163,882 Losses/bad debt expenses 2,947 Depreciation 654,551 Total Operating Expenses $ 1,493,244 Operating income $ 236,761 Non -Operating Revenues (Expenses): Interest $ 100,562 Debt service interest expense (436,641) Total Non -Operating Revenues (Expenses) $ 336,079 Net Income before extraordinary items $ (99,318) Extraordinary loss on disposal of asset (138,730) Net Loss $ (238,048) Add depreciation on fixed assets acquired by capital grant 440,486 Increase in Retained Earnings $ 202,438 Retained Earnings - July 1, 1992 $ 4,112,220 Restatements (16,270) Retained Earnings - June 30, 1993 $ 4,298,388 -39- CITY OF KALISPELL, MONTANA SEWER FUND SCHEDULE OF CASH FLOWS Fiscal Year Ended June 30, 1993 Cash Flows from Operating Activities: Cash received from customers $ 1,445,918 Cash received from assessments 216,062 Cash received from hookups 72,500 Cash payments to suppliers for goods and services (457,673) Cash payments to employees for services 371,455 Net Cash Provided by Operating Activities $ 905,352 Cash Flows from Capital and Related Financing Activities: Acquisition and construction of capital assets $ (1,526,163) Principal paid on revenue bonds and contracts (215,425) Interest paid on revenue bonds and contracts (358,372) Contributed capital from city 38,545 Capital grants 1,408,756 Net Cash Used for Capital and Related financing Activities $ (652,659) Cash Flows from Investing Activities: Interest on investments $ 96,937 Purchases of investments (9,103) Redemption of sidewalk and curb warrants 13,468 Net Cash Provided by Investing Activities $ 101,302 Net Increase in Cash and Cash Equivalents $ 353,995 Cash and Cash Equivalents at July 1, 1992 2,540,551 Cash and Cash Equivalents at .lune 30, 1993 $ 2,894,546 Reconciliation of Operating Income to Net Cash Provided by Operating Activities: Operating income $ 236,761 Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities: Depreciation 654,551 Provision for uncollectable accounts (16,270) Change in Assets and Liabilities: Decrease in accounts receivable 27,610 Increase in assessments receivable (3,918) Increase in compensated absences 6,618 Net Cash Provided by Operating Activities $ 905,352 Noncash investing, capital, and financing activities: 1. The difference between the beginning and ending due from EPA in the amount of $137,377 was recorded as contributed capital in the Sewer Fund. 2. The City wrote off a wastewater treatment plant in the amount of $1,164,278. The undepreciated cost of $138,730 was recorded as a loss in the Sewer Fuad and contributed capital was reduced by $292,472. M1 Nordwick, Denning & Downey CERTIFIED PUBLIC ACCOUNTANTS 2801 S. Russell • Missoula, MT 59801 • 543-8174 1103 S. Main • Kalispell, MT 59901 • 756-6879 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE BASED ON AN AUDIT OF GENERAL PURPOSE FINANCIAL STATEMENTS To the Honorable City Manager, Mayor and City Council City Of Kalispell Kalispell, MT 59991 We have audited the general purpose financial statements of the City of Kalispell, Montana, as of and for the year ended June 30, 1993, and have issued our report thereon dated June 17, 1994. We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the general purpose financial statements are free of material misstatement. Compliance with laws, regulations, contracts, and grants applicable to the City is the responsibility of the Citys management. As part of obtaining reasonable assurance about whether the general purpose financial statements are free of material misstatement, we performed tests of the City's compliance with certain provisions of laws, regulations, contracts, and grants. However, our objective was not to provide an opinion on overall compliance with such provisions. Accordingly, we do not express such an opinion. The results of our tests indicate that, with respect to the items tested, the City complied, in all material respects, with the provisions referred to in the preceding paragraph. With respect to items not tested, nothing carne to our attention that caused us to believe that the City had not complied, in all material respects, with those provisions. We noted certain immaterial instances of noncompliance that we have reported to the management of the City in our Independent Auditor's Report on Other Compliance, Financial, and Internal Accounting Control Matters on page 48 of this audit report. This report is intended for the information of management, However, this report is a matter of public record and its distribution is not limited. June 17, 1994 -41- �;WN&NORDWICK, DENNING7IND Certified Public Accountants Scan Nordwick, CPA • Robert K. Denning CPA* Kim M. Downey CPA 9 Nancy S. Hamilton CPA Nordwick, Denning & Downey CERTIFIED PUBLIC ACCOUNTANTS 2801 S. Russett • Missoula, MT 59801 • 543-8174 1103 S. Main * Kalispell, MT 59901 • 756-5879 SINGLE AUDIT COMBINED REPORT ON INTERNAL CONTROL STRUCTURE To the Honorable City Manager, Mayor and City Council City of Kalispell Kalispell, MT 59901 We have audited the general purpose financial statements of the City of Kalispell, Montana, as of and for the year ended June 30, 9993, and have issued our report thereon dated June 97, 1994. We have also audited compliance with requirements applicable to major federal financial assistance programs and have issued our report thereon dated June 17, 1994. We conducted our audit in accordance with generally accepted auditing standards; Govemment Auditing Standards, issued by the Comptroller General of the United States; and Office of Management and Budget (OMB) Circular A-128, Audits of State and Local Govemments. Those standards and OMB Circular A-128 require that we plan and perform the audit to obtain reasonable assurance about whether the general purpose financial statements are free of material misstatement and about whether the City complied with laws and regulations, noncompliance with which would be material to a major federal financial assistance program. In planning and performing our audit for the year ended June 30, 1993, we considered the City's internal control structure in order to determine our auditing procedures for the purpose of expressing our opinion on the City's general purpose financial statements and on its compliance with the requirements applicable to major federal financial assistance programs and not to provide assurance on the internal control structure. The management of the City is responsible for establishing and maintaining an internal control structure. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of internal control structure policies and procedures. The objectives of an internal control structure are to provide management with reasonable, but not absolute, assurance that: ■ Assets are safeguarded against loss from unauthorized use or disposition. ■ Transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of general purpose financial statements in accordance with generally accepted accounting principles. ■ Federal financial assistance programs are managed in compliance with applicable laws and regulations. Because of inherent limitations in any internal control structure, errors or irregularities may nevertheless occur and not be detected. Also, projection of any evaluation of the structure to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the effectiveness of the design and operation of policies and procedures may deteriorate. For the purpose of this report, we have classed the significant internal control structure policies and procedures in the following categories: -42- Stan Nordwick, CPA • Robert K. Denning CPA* Kim M. Downey CPA • Nancy S. Hamilton CPA SINGLE AUDIT COMBINED REPORT ON INTERNAL CONTROL STRUCTURE - cont. Accounting Controls: Budgets Cash receipts Billing/accounts receivable Tax/assessment revenue and related receivables Purchasing/expenditures Payroll General Requirements: Political activity Davis -Bacon Act Civil rights Cash management Relocation assistance and real property acquisition Federal financial reports Allowable costs/cost principles Drug -Fres Workplace Act Administrative requirements Claims for Advances and Reimbursements Amounts Claimed or Used for Matching Cash disbursements Material/supply inventories Short -terra liabilities Fixed assets/depreciation Cash/investments Long-term debt Laws/regulations Specific Requirements: Types of services Eligibility Matching, level of effort, earmarking Reporting Special requirements Costs allocations For all of the internal control structure categories listed above, we obtained an understanding of the design of relevant policies and procedures and whether they have been placed in operation, and we assessed control risk. During the year ended June 30, 1993, the City expended 86% of its total federal financial assistance programs under a major federal financial assistance program. We performed tests of controls, as required by OMB Circular A-128, to evaluate the effectiveness of the design and operation of internal control structure policies and procedures that we considered relevant to preventing or detecting material noncompliance with specific requirements, general requirements, and requirements governing claims for advances and reimbursements and amounts claimed or used for matching that are applicable to the City`s major federal financial assistance program, which is identified in the accompanying schedule of federal financial assistance. Our procedures were less in scope than would be necessary to render an opinion on these internal control structure policies and procedures. Accordingly, we do not express such an opinion. We noted certain matters involving the internal control structure and its operation that we consider to be reportable conditions under standards established by the American Institute of Certified Public Accountants. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control structure that, in our judgement, could adversely affect the entity's ability to record, process, summarize and report financial data consistent with the assertions of management in the general purpose financial statements or to administer federal financial assistance programs in accordance with applicable laws and regulations. -43- SINGLE AUDIT COMBINED REPORT ON INTERNAL CONTROL STRUCTURE - cont. SEGREGATION OF DUTIES The Assistant Finance Director was involved with cash collections, depositing, reconciling and posting cash receipts. Internal control procedures should not allow a person to perform incompatible functions, functions that allow an individual to both perpetuate and conceal errors or irregularities in the normal course of his or her duties. Recommendation The duties of the Assistant Finance Director should be segregated to eliminate total control of the cash functions. Another individual, such as the Finance Director should review daily receipts and compare receipts to deposits. A material weakness is a reportable condition in which the design or operation of the specific internal control structure elements does not reduce to a relatively low level the risk that errors or irregularities in amounts that would be material in relation to the general purpose financial statements being audited or that noncompliance with laws and regulations that would be material to a federal financial assistance program 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 structure would not necessarily disclose all matters in the internal controls structure that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses as defined above. However, we believe that the reportable condition described above is not a material weakness. This condition was considered in determining the nature, timing and extent of the procedures to be performed in our audit of City's general purpose financial statements for the year ended June 30, 1993, and this report does not affect our report thereon dated June 17, 1984. This report is intended for the information of management. However, this report is a matter of public record and its distribution is not limited. June 17, 1994 -44- wteijxN ` "i, NORDWICK, C3ENNIN AND DOWI4-Y Certified Public Accountants Nordwick, Denning & Doumey CERTIFIED PUBLIC ACCOUNTANTS 2801 S. Russel{ • Missoula, MT 59801 • 543-8174 1143 S. ,Main + Kalispell, MT 59901 • 756-6879 SINGLE AUDIT OPINION ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR FEDERAL FINANCIAL ASSISTANCE PROGRAMS To the Honorable City Manager, Mayor and City Council City of Kalispell Kalispell, MT 59901 We have audited the general purpose financial statements of the City of Kalispell, Montana, as of and for the year ended .lune 30, 1993, and have issued our report thereon dated June 17, 1994. We have also audited the City's compliance with the requirements governing types of services allowed or unallowed; eligibility; matching; reporting; special tests and provisions related to construction grants for wastewater treatments works; claims for advances and reimbursements; and amounts claimed or used for matching that are applicable to its major federal financial assistance program, which is identified in the accompanying schedule of federal financial assistance, for the year ended June 30, 1993. The management of the City is responsible for the City's compliance with these requirements. Our responsibility is to express an opinion on compliance with those requirements based on our audit. We conducted our audit in accordance with generally accepted auditing standards; Government Auditing Standards, issued by the Comptroller General of the United States; and OMB's Circular A-128, Audits of State and Local Governments. Those standards and OMB Circular A-128 require that we plan and perform the audit to obtain reasonable assurance about whether material noncompliance with the requirements referred to above occurred. An audit includes examining, on a test basis, evidence about the City's compliance with those requirements. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the City complied, in all material respects, with the requirements governing types of service allowed or unallowed; eligibility; matching, level of effort, or earmarking; reporting; special tests and provisions related to construction grants for wastewater treatment works; claims for advances and reimbursements; and amounts claimed or used for matching that are applicable to its major federal financial assistance program for the year ended June 30, 1993. This report is intended for the information of management. However, this report is a matter of public record and its distribution is not limited. June 17, 1994 -45- NARD�'DENNIN ND DOWNa Certified Public Accountants Stan Nordwick, CPA - Robert K. Denning CPA* Kim M. Downey CPA 0 Nancy S. Hamilton CPA Nordwick, Denning & Downey CERTIFIED PUBLIC ACCOUNTANTS 2801 S. Russell Missoula, MT 59801 * 543-8174 1103 S. Main Kalispell, MT 59901 • 756-6879 SINGLE AUDIT REPORT ON COMPLIANCE WITH THE GENERAL REQUIREMENTS APPLICABLE TO FEDERAL FINANCIAL ASSISTANCE PROGRAMS To the Honorable City Manager, Mayor and City Council City of Kalispell Kalispell, MT 59901 We have audited the general purpose financial statements of the City of Kalispell, Montana, as of and for the year ended June 30, 1993, and have issued our report thereon dated June 17, 1994. We have applied procedures to test the City's compliance with the following requirements applicable to its major federal financial assistance program, which is identified in the Schedule of Federal Financial Assistance, for the year ended June 30, 1993: • Political activity ■ Drug -Free Workplace Act ■ Davis -Bacon Act ■ Administrative requirements ■ Civil rights ■ Federal financial reports ■ Cash management Our procedures were limited to the applicable procedures described in the Office of Management and Budget's Compliance Supplement for Single Audits of State and Local Govemments. Our procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on the Citys compliance with the requirements listed in the preceding paragraph. Accordingly, we do not express such an opinion. With respect to the items tested, the results of those procedures disclosed no material instances of noncompliance with the requirements listed in the first paragraph of this report. With respect to items not tested, nothing came to our attention that caused us to believe that the City had not complied, in all material respects, with those requirements. This report is intended for the information of management. However, this report is a matter of public record and its distribution is not limited. June 17, 1994 -46- NORDVVICtC, ENNINGf�I ND DOWN Certified Public Accountants Stan Nordwick, CPA 0 Roberi K. Denning CPA* Kim M. Downey CPA • Nancy S. Hamilton CPA Nordwick, Denning & Doumey CERTIFIED PUBLIC ACCOUNTANTS 2801 S. Russell • Missoula, MT 59801 + 543-8174 1103 S. Main • Kalispell, MT 599071 • 756-5879 SINGLE AUDIT REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO NONMAJOR FEDERAL FINANCIAL ASSISTANCE PROGRAM TRANSACTIONS To the Honorable City Manager, Mayor and City Council City of Kalispell Kalispell, MT 59901 We have audited the general purpose financial statements of the City of Kalispell, Montana, as of and for the year ended .June 30, 1993, and have issued our report thereon dated June 17, 1994. In connection with our audit of the general purpose financial statements of the City for the year ended June 30, 1993, and with our consideration of the Citys control structure used to administer federal financial assistance programs, as required by Office of Management and Budget Circular A-128, Audits of State and Local Govemments, we selected certain transactions applicable to certain nonmajor federal financial assistance programs for the year ended June 30, 1993. As required by OMB Circular A-128, we have performed auditing procedures to test compliance with the requirements governing types of services allowed or unallowed that are applicable to those transactions. Our procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on the City's compliance with these requirements. Accordingly, we do not express such an opinion. With respect to the items tested, the results of those procedures disclosed no material instances of noncompliance with the requirements listed in the preceding paragraph. With respect to items not tested, nothing came to our attention that caused us to believe that City had not complied, in all material respects, with those requirements. This report is intended for the information of management. However, this report is a matter of public record and its distribution is not limited. June 17, 1994 _47_ NORDWICk, DENNINGt�+ND DOWN Certified Public Accountants Stan Nordwick, CPA • Robert K. Denning CPA* Kim M. Dournn CPA • Nancy S. Hamilton CPA Nordwick, Denning & Downey CERTIFIED PUBLIC ACCOUNTANTS 2801 S. Russell • Missoula, MT 59801 • 543-8174 1103 S. Main • Kalispell, MT 59901 • 756-6879 INDEPENDENT AUDITORS REPORT ON OTHER COMPLIANCE, FINANCIAL, AND INTERNAL ACCOUNTING CONTROL MATTERS To the Honorable City Manager, Mayor and City Council City of Kalispell Kalispell, MT 59901 Immaterial instances of noncompliance along with findings relating to financial or accounting matters, as well as our recommendations, are presented below. EXCEEDING BUDGETARY AUTHORITY A budget had not been adopted for the Community Development Fund, a special revenue fund and several debt service funds had budget overdrafts. Section 7.6-4235 (2) states in pari: "...the council and every other municipal official shall be limited in the making of expenditures or incurring of liabilities to the amount of such detailed appropriations,.." RecommendaVon The City should limit expenditures or incurring liabilities to the amount of such detailed appropriations of each fund. if a budget should require an amendment, the provisions of Section 7-6-4252, MCA, should be followed prior to the incunfng of an liability. Further, a budget should be adopted for each governmental fund maintained by the City. June 17, 1994 -48- NORDWICK, DENNIN AND DO NgY Certified Public Aunts Stan Noi, wick, CPA a Robert K. Denning CPA Kim M. Downey CPA • Nancy $. Hamilton CPA Nordwick, Denning & Downey CERTIFIED PUBLIC ACCOUNTANTS 2801 S. Russell • Missoula, MT 59801 • 543-8174 1103 S. Main • Kalispell, MT 59901 • 756-6879 INDEPENDENT AUDITORS REPORT ON PRIOR AUDIT REPORT RECOMMENDATIONS To the Honorable City Manager, Mayor and City Council City of Kalispell Kalispell, MT 59901 The prior audit report contained four recommendations. Of those recommendations, two were implemented and two were not implemented. The recommendations that have been repeated in this audit report are under the following headings: ■ Segregation of Duties rr Exceeding Budgetary Authority June 17, 1994 -49- NORDWICK, DENN NVAND DOWNY Certified Public Accountants Stan Nordwick, CPA • Robert K. Denning CPA* Kim M. Downey CPA 0 Nancy S. Hamilton CPA