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08. Audit-Fiscal Year Ended 6/30/96CITY OF KALISPELL, MONTANA TABLE OF CONTENTS Fiscal Year Ended June 30, 1996 Page Organization Independent Auditor's Report 2 General Purpose Financial Statements Combined Balance Sheet - All Fund Types, Account Groups, and Discretely 3 Presented Component Unit Combined Statement of Revenues, Expenditures, and Changes in Fund Balances - All. 4 Governmental Fund Types Combined Statement of Revenues, Expenditures, and Changes in Fund Balances - 5 -6 Budget and Actual - General, Special Revenue, Debt Service, and Capital Projects Fund Types Combined Statement of Revenues; Expenses, and Changes in Retained Earnings - All 7 Proprietary Fund Types and Discretely Presented Component Unit Combined Statement of Cash Flows - All Proprietary Fund Types and Discretely 8 Presented Component Unit Notes to Financial Statements Independent Auditor's Report on Supplemental Information 9-33 34 Supplemental Schedules Significant Provisions of Sewer Revenue Bonds Ordinances and Required 35 - 36 Information Schedule of Insurance Policies 37 Schedule of Assets, Liabilities, and Fund Equity - Sewer Fund 38 Schedule of Revenues, Expenses and Changes in Retained Earnings - Sewer Fund 39 Schedule of Cash Flows - Sewer Fund 40 Revenue Bond Requirements mc 41 CITY OF KALISPELL, MONTANA TABLE OF CONTENTS - cont. Supplemental Schedules - cont. r= Schedule of Federal Financial Assistance 42 Independent Auditor's Report on Compliance Based on an Audit of General Purpose 43 Financial Statements Performed in Accordance With Government Auditing Standards Independent Auditor's Report on the Internal Control Structure Based on an Audit of 44-45 General Purpose Financial Statements Performed in Accordance With Government Auditing Standards Independent Auditor's Report on the Internal Control Structure Used in Administering 46-48 Federal Financial Assistance Programs Independent Auditor's Report on Compliance with Specific Requirements Applicable 49 to Major Federal Financial Assistance Programs Independent Auditor's Report on Compliance With the General Requirements 50 Applicable to Federal Financial Assistance Programs Independent Auditor's Report on Compliance With Specific Requirements Applicable 51 to Nonmajor Federal Financial Assistance Program Transactions Independent Auditor's Report on Other Compliance, Financial, and Internal Accounting 52-53 Control Matters Independent Auditor's Report on Prior Audit Report Recommendations 54 9re CITY OF KALISPELL, MONTANA ORGANIZATION Fiscal Year Ended June 30, 1996 Mr. Douglas Rauthe Mr. Gary Nystul Mr, Norbert Donahue Mr. Jim Atkinson Mr. Dale Haarr Mr. Alan Thelen Mr, Glen Neier Mr. Addison Clark Mrs. Amy Robertson Ms. Heidi Ulbricht Mr. Ted Waggener Mr. Robert Babb Mr, Michael Baker Mr. Lawrence Gallagher CITY COUNCIL Member CITY FFI IAL -I- Mayor Mr. Cliff Collins Mr. Lauren Granmo Mr. M, Duane Larson Ms. Pamela Kennedy Acting City Manager Attorney Police Chief Finance Director City Judge :Fire Chief Public Works Director Parks Director Planning, Economic, and Community Development Director Nordwiek, Denning & Downey CERTIFIED PUBLIC ACCOUNTANTS 3801 S. Russell • Misroula, IfT 59801 •593-8174 1103 S. Hain • Kalispell, Aff 59901 • 756-6879 INDEPENDENT AUDITOR`S REPORT City Manager, Mayor and City Council City of Kalispell Kalispell, Montana We have audited the general-purpose financial statements of the City of Kalispell, Montana, as of and for the year ended June 30, 1996, 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; Government 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 perforin 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 general-purpose financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the general-purpose financial statements referred to above present fairly, in all material respects, the financial position of the City as of June 30, 1996, 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. In accordance with Government Anditing Standards, we have also issued reports dated March 14, 1997, on our consideration of the City's internal control structure and on its compliance with laws and regulations. f��rrrdsvic6x, �ennirz� cutct �LJnwnec� March 14, 1997 -2- Stan Nordwick, CP4 • Robert K. Denning, CPA - Kin¢ lei. Downey, CPQ • Nancy S. Everson, CPA g mgr.-ooNrMru�rna Psonn Prnt3' m'. mci-�©nc�Nr��P. cc�enmC7 co cp ren m'.�. r� rnm MM Nna arm, V rnz ❑ Nr�mnPcoco Po]P P W mI-, 6� V 1� M ncoNOcOn c�t-�i r�<ri ca �.-CD. ITS r 4: �D-[� �©IX3_r a1 {�'N N: rte.-c,�i=�rim€�"o a=r: v: [+i N viv EO to 41 mr� V� Pmo P k7 i� tly-P ,- � Z .:m m E. t� Mini a;E Fg .--v,-aoNnrinu�rna �Ntn rnm��nnchNrv.r�, �NNn mWm cnnowCO7,crma nNQ3 n6CJi oOV3 PrnC� P,-- mM mN MN top! Pob n'm:f' .mN- cOPomNW �rr �Prnrt�'3 v(E�D rnt0 nlP0 m n"F mQr� : NPO1 'M•tl-i - r.�n M0 viii N W %Yp r M NMl'�h� DC7 <U'. p �, i � J p � � ..•: rt v. ti d o rn. 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Nati: ONr°l c ai_ M �, ry i0 ri cv cC, m mc'i WiL n "V,-M�. cS�� . Mcn-N N N, r; aa3N rn mmmmm II� r-- NI, � m�Mm M! 6� {AWN mc� mW WN. m 6 W X m rs m 4 m '} ET 5 t5 n m W U C N N C y 9 C Q W rn 20 1 v as a'S smog c0 -ro z° ma�+mo�romr mSQ UoE Na ac:Z-6a ;a2c m m f6L idA c n +ia�iaa� o m c p o 0 o q? n d � E O 3` eQ.. O= TS O N E m p 5 o N C m a s m 3`xmi IFE^uc� 3°y 3aQm °u� 3am-°'cv, `mm�Qm�mam °'mum aar- °mmo-`° C CL y vt y y N Y, d Q3 H N D: G m a d m H y m NZ ° Z -8- CITY OF KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS June 30, 1996 1. Sum nary of Significant Accounting Policies The following is a summary of the City's significant accounting policies: Reporting Entity The City is a primary government as defined by GASB Cod. Sec, 2100. This statement defines the financial reporting entity as the primary government, as well as its component units, which are legally separate organizations for which the elected officials of the primary government are financially accountable. The Governmental Accounting Standards Board has set forth criteria to be considered in determining financial accountability. These criteria include appointing a voting .majority of an organization's governing body and (1) the ability of the City to impose its will on that organization or (2) the potential for the organization to provide specific financial benefits to, or impose specific financial burdens on the City. As required by generally accepted accounting principles, these financial statements present the City of Kalispell and its component unit. The component unit is included in the City's reporting entity because of the significance of its operational or financial relationship with the City, as described above. The discretely presented component unit, the Kalispell Parking Commission, is a legally separate organization of the City, but the City is financially accountable. The City appoints the governing body of the Parking Commission. The Parking Commission runs a variety of metered and leased parking areas downtown which are owned by the City. They also issue tickets for parking violations in the parking district downtown. The component unit is reported in a separate column to emphasize it is legally separate from the City. Fund Accounting 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 types of funds and account groups are maintained by the Citv: Governrnental_Funds General Fund - Used to account for all financial resources except those required to be accounted for in other funds. N Summa of Significant Accounting Policies - cont. Special Revenue_Funds - Used to account for the proceeds of special revenue sources (other than expendable trusts or for major capital projects) that are legally restricted to expenditures for specific purposes. Capital Projects Funds - Used 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 SMke Funds - Used to account for the accumulation of resources for, and the payment of, general long-term debt principal, interest and related costs. Proprietar __Funds Enterprise Funds - Used 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 Service Funds - Used to account for the financing of goods or services provided by one department or agency to other departments or agencies of the City, on the cost reimbursement basis. Fiduciary Funds Trust and Agency Funds - Used 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 Cry - Used to account for the fixed assets of the City which are not accounted for in proprietary funds. General Long -Term Debt Account Grouri - Used to account for all long-term debt of the City except that accounted for in the proprietary funds. -10- I . Summary of Significant Accounting Policies - cont. Basis of Accounting and Measurement_ Focus Governmental fund types use the flow of current financial resources and the modified accrual basis of accounting. 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 recorded real and personal property taxes and assessments levied for the current year as revenue. Taxes and assessments receivable remaining unpaid at year-end and not expected to be collected soon enough thereafter to be available to pay obligations of the current year were recorded as deferred revenue, with a corresponding reduction in revenues, as required by generally accepted accounting principles. In addition, prior period delinquent taxes and assessments collected in the current period were recorded as revenue in the current period as required by generally accepted accounting principles. 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. _Proprietary funds are accounted for on the flow of economic resources measurement focus and use the accrual basis of accounting. Under the accrual basis of accounting, revenues are recorded when earned and expenses when incurred. 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. Anon -binding management budget is adopted for the Enterprise and Internal Services Funds. The final budget is legally enacted by the City on the second Monday in August after holding public hearings as required by State statutes. -11- Summary of Significant Accounting Policies - cant. 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. The City recognized certain commitments related to purchase orders and executory contracts as expenditures for budgetary purposes. In addition, a reserve for encumbrances was established for the commitments to indicate that these amounts will not be available for the ensuring year's budget, but will be used to liquidate portions of the current year's budget. Encumbrances All appropriations, except for construction in progress, lapse at the end of the fiscal year. The City utilizes an encumbrance accounting in certain instances, as described in the preceding note. Encumbrance accounting enables the City to record purchase orders, contracts, and other commitments for the expenditure of monies in order to reserve that portion of the applicable appropriation. Encumbrances at year-end are reflected as reservations of fund balances since they do not constitute expenditures or liabilities. Fixed Ass 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. 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: -12- Summary of Significant Accounting Policies - cont. 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 No interest was capitalized for the year ended June 30, 1996. 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. Enterprise Aceount Receivable Reserves for estimated uncollectible accounts receivable are maintained for the water, sewer and ambulance enterprise funds. Accounts receivable are reported as net of uncollectible accounts. Reserves for uncollectible accounts on .lune 30, 1996, were as follows: Water $ 4,136 Sewer 9,192 Ambulance 50,000 Total $7 1(Rventards 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 inventories in the Water Enterprise Fund were valued at a combination of cost and replacement cost on the FIFO basis. Inventories were expensed on the purchase method. yacation. and 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-term 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 -terra liability in the proprietary funds. The expenses were recorded when the liability was incurred as required by generally accepted accounting principles. -13- 1. Summa of Si nificant Accountin Policies - cont. Long -Term Debt Unmatured general long-term debt of the City, including special assessment debt for which the government is obligated in some manner, is recorded in a separate, self -balancing set of accounts, the General Long -Term Debt Account Group. Long-term 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 Transactions Interfund transactions consisting of identified services performed for other funds or costs billed to other funds are treated as expenditures in the fund receiving the services and as revenue in the fund performing the services. Transactions which constitute reimbursements of a fund for expenditures or expenses initially made from it which are properly applicable to another fund are recorded as expenditures in the reimbursing fund and as reductions of expenditures in the fund that is reimbursed. Advances between funds are accounted for in the appropriate Interfund receivable and payable accounts. Application of FASB to Pro rn ietaa Funds In. September 1993, GASB issued Statement No. 20 which requires proprietary activities to apply all applicable GASB pronouncements as well as FASB pronouncements, APB opinions and Accounting Research Bulletins issued on or before November 30, 1989, unless these conflict with or contradict GASB pronouncements. Governments have an option of whether or not to apply FASB pronouncements issued after that date to their proprietary activities. In accordance with GASB 20, management has elected not to apply FASB pronouncements issued after November 30, 1989. -14- 1. Summary of Significant Accounting Policies - cont. CashEquivalents The City considers for purposes of the statement of cash flows all investments of the proprietary fund types, except for investments in sidewalk and curb bonds and the certificate of deposit in. the amount of $30,000 held for the Parking Commission Fund, to be cash equivalents. Total Columns on_Combined Statements 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 operation or cash flows 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. 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 assessment 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 5f6 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, 1996, were within the legal limits. The tax levies were based upon a taxable valuation of $20,224,154. Current tax collections for the year ended June 30, 1996, were approximately 75% of the amount levied. -15- Deficit Fund Balances The following funds had deficit fund balances at June 30, 1996: The deficits in the debt service funds were caused by a short --fall in anticipated revenue and will be eliminated as delinquent assessments are collected. The deficit in the Capital Projects Fund will be eliminated upon the sale of sidewalk and curb warrants. 4. Budget Varianus Significant unfavorable budget to actual variances occurred in the taxes revenues source of the General Fund and the Special Revenue Fund in the amount of $125,833 and $297,363, respectively. The variances resulted because the County withheld tax revenue because of the Albright court case. A significant favorable variance in the intergovernmental revenue source of the General Fund in the amount of $146,779 was a result of increased gaming revenue. An unfavorable budget to actual variance in the intergovernmental revenue source of the Special Revenue Fund in the amount of $305,521 was a result of not drawing down grant funds for projects still in construction. for Housing and ISTEA programs. A significant favorable budget to actual expenditure variance occurred in the capital outlay expenditure category of the Special Revenue Fund in the amount of $1,820,651. The variance resulted primarily because of tax increment projects that were not completed. A significant favorable budget to actual variance occurred in the housing and development expenditure category in the amount of $608,634. The variance primarily resulted because various projects were still in progress and had not been completed. 5. Cash and Investments The City maintains a cash and investment pool for all funds under the control of the City Treasurer. Cash and investments may include cash and cash items; demand, time, savings, and fiscal agent deposits; investments in the State Short -Term Investment Pool (STIP); repurchase agreements and registered warrants; U.S. government treasury bills, notes, bonds, and other treasury obligations such as state and local government series; general obligations of certain agencies of the United States; and U. S. government security money market fund if the fund meets certain conditions. -16- Amount Debt Service Funds: 1.987 Sidewalk & Curb $ 4,442 1991 Sidewalk & Curb 513 $ 4,955 Capital Project Funds: 1996 Sidewalk & Curb Construction $-520 The deficits in the debt service funds were caused by a short --fall in anticipated revenue and will be eliminated as delinquent assessments are collected. The deficit in the Capital Projects Fund will be eliminated upon the sale of sidewalk and curb warrants. 4. Budget Varianus Significant unfavorable budget to actual variances occurred in the taxes revenues source of the General Fund and the Special Revenue Fund in the amount of $125,833 and $297,363, respectively. The variances resulted because the County withheld tax revenue because of the Albright court case. A significant favorable variance in the intergovernmental revenue source of the General Fund in the amount of $146,779 was a result of increased gaming revenue. An unfavorable budget to actual variance in the intergovernmental revenue source of the Special Revenue Fund in the amount of $305,521 was a result of not drawing down grant funds for projects still in construction. for Housing and ISTEA programs. A significant favorable budget to actual expenditure variance occurred in the capital outlay expenditure category of the Special Revenue Fund in the amount of $1,820,651. The variance resulted primarily because of tax increment projects that were not completed. A significant favorable budget to actual variance occurred in the housing and development expenditure category in the amount of $608,634. The variance primarily resulted because various projects were still in progress and had not been completed. 5. Cash and Investments The City maintains a cash and investment pool for all funds under the control of the City Treasurer. Cash and investments may include cash and cash items; demand, time, savings, and fiscal agent deposits; investments in the State Short -Term Investment Pool (STIP); repurchase agreements and registered warrants; U.S. government treasury bills, notes, bonds, and other treasury obligations such as state and local government series; general obligations of certain agencies of the United States; and U. S. government security money market fund if the fund meets certain conditions. -16- Cash and investment - cant. The composition of cash and investments on June 30, 1996, was as follows; Primary Component Reporting Government _ Unit Entity Cash on hand $ 825 $ 80 $ 905 Demand Deposits Savings Deposits Certificates of Deposit Sidewalk and Curb Warrants State Short -Term Investment Pool (STIP) Deferred Compensation Total 77,518 24,543 102,061 15,157 - 15,157 112,969 32,525 145,494 78,815 - 78,815 10,614,145 - 10,614,145 320 972 - 320.972 $11.220.401 $� 5 7.148 $11,277 X49 Deposits - at year end, the carrying amount of the City's deposits was $92,675 and the bank balance was $116,669. These deposits include demand and savings deposits. Of the bank balances, $115,1.57 was covered by federal depository insurance and $1,512 was covered by securities held in the pledging financial institution's trust department or agent in the City's name. Deposits belonging to the Parking Commission, a component unit of the City, were completely covered by federal depository insurance. Montana statutes require that the City obtain securities for the uninsured portion of the deposits as follows: 1. Securities equal to 50% of such deposits if the institution in which the deposits are made has a net worth to total assets ratio of 6% or more, or 2. Securities equal 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 amount of collateral held for the City deposits at June 30, exceeded the amount required by State statutes. The State statutes do not specify in whose custody or name the collateral is to be held. The City held no investments subject to risk categorization as of June 30, 1996. Governmental Accounting Standards Board (GASB) Technical Bulletin No. 94-1 requires disclosures about certain types of investments. As noted above, the City invests in the State Short -Term Investment Pool. The pool portfolio included approximately 20% of asset- backed securities and 26% of variable rate securities as of June 3 0, 1996, based on unaudited financial statements provided by the Montana Board of Investments. The City's investment in STIP amounts to less than 0.023% of total STIP investments. Asset-backed Securities are collateralized by non -mortgage assets pledged by the insurer. Asset-backed securities have one or more forms of credit enhancement to raise the quality of the security. Examples of credit enhancement include, but are not limited to, letter of credit, reserve fund, or senior/subordinate arrangements. -17- I Cash and .investments - cont. Variable Rate Floain -Rat Securities provide many advantages of short-term bonds because they are designed to minimize the investor's interest rate risk. As with variable rate loans issued by banks, the interest rate paid by the issuer of these securities will usually remain at or .near par because their interest rates are reset to maintain a current market yield. STIP's floating rate securities float to either the 91 day U.S. treasury bill or the London Interbank Offering Rate (LIBOR), which is similar to the European federal funds rate. Amounts invested by the City in STIP may be redeemed at any date at the carrying value on that date. Audited financial statements for the State of Montana's Board of Investments are available at 555 Fuller Avenue in Helena, Montana. Fixed Assets A summary of changes in general fixed assets follows: A summary of proprietary fund type property, plant, and equipment at .lune 30, 1996, follows: July 1. _1995 Additions DeIgtion June 30 1996 Land $ 1,732,432 $ 141,227 $ - $ 1,873,659 Buildings 4,556,597 59,315 - 4,615,912 Improvements other than Construction in progress 68,670 - - buildings 1,364,352 105,012 - 1,469,364 Machinery and equipment 2,504,253 238,425 (195,214) 2,547,464 Construction work in progress 63,748 27,882 63,74Q 27,882 Total $1 $__L2 I 861. $ 58 $ 10 534 281 A summary of proprietary fund type property, plant, and equipment at .lune 30, 1996, follows: -18- Enterprise Internal Funds Service Component Unit Land $ 245,369 $ - $ - Machinery and equipment 1,210,423 235,340 11,510 Construction in progress 68,670 - - Source of supply 347,709 - - Pumping plant 596,599 - - Treatment plant 14,109,390 - - Transmission and distribution 13,547,237 - - General plant 1,178,408 - - Storm sewer system 3,424770 - - Total. $ 34,728,575 $ 2335,340 $ 11,510 Less accumulated depreciation 110,200,5001 �(108JL4, (3 103) Net $ 24,528,075 $__126_3.86 $ 8,407 -18- T Long -Term Debt Interest Bonds Outstanding Annual The following is a summary of long-term debt transactions of the City for the fiscal year ended June 30, 1996: Issued June 30. 1996 Payment Pool -Refunding 4/93 2.8-5.1% 7yrs Balance $ 215,000 varies Balance July 1. 995 Additions_ Reductions June 30, 1996 General Obligation Bonds (1)$ 265,000 $ - $ (50,000) S 215,000 Revenue Bonds (2) 3,565,000 1,060,000 (160,000) 4,465,000 State Revolving Fund Loan(2) 3,564,000 - (144,000) 3,420,000 Special Assessment Bonds (1) 144,234 331,823 (28,243) 447,814 Urban Renewal Bonds (1) 1,290,000 - (140,000) 1,150,000 Contracts/Loans (1) 305,268 - (20,527) 284,741 Compensated Absences (1,2,3)7 35.545('7.6161 840,706 $ 9,946,279 $ $ 550 386 $ 10.823,261 (1) Reported in general long-term debt account group (2) Reported in Enterprise Fund (3) Reported in proprietary component unit Bonded_ Debt Bonds payable at June 30, 1996, were comprised of the following individual issues: Issue Interest Bonds Outstanding Annual purpos Dom_ _Rate Term Issued June 30. 1996 Payment Pool -Refunding 4/93 2.8-5.1% 7yrs $385,OOQ $ 215,000 varies General obligation bonds of the City are secured by the general credit and revenue raising powers of the City. $15,203 was available in the Debt Service Fund to service the general obligation bonds. 2. Revenue Bonds The significant provisions of the bond ordinances relating to the issuance of the Water and Sewer System Revenue Bonds and the financial statements and other schedules required by those ordinances are presented as supplemental information on pages 35 - 41. -19- Issue Interest Bonds Outstanding Annual Purpos Date Rate Term l2aUed June 30, 1.996 Pav enm ,I 1996 Water Bonds 6/96 varies 15yrs $1,060,000 $ 1,060,000 varies 1986 Storm Sewer 6/86 7.0% 20yrs 1,300,000 955,000 varies 1991 Sewer Refunding 4/91 varies 20yrs 2,815,000 2,450,000 varies Total Revenue Bonds $5 1'75,000 $ 4S Q00 The significant provisions of the bond ordinances relating to the issuance of the Water and Sewer System Revenue Bonds and the financial statements and other schedules required by those ordinances are presented as supplemental information on pages 35 - 41. -19- 7. Long -Term Debt - cant. 3. 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 frorn tax increment revenue generated by the area. The City has irrevocably pledged and appropriated tax increment revenue to the payment of the Series 1985 Bonds which have a first lien on all tax increment revenue generated by the area. The series 1985 Bonds do not constitute a general obligation of the City or pledge the ad valorem taxing power of the City. Although the long -terra 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 group as required by generally accepted accounting principles. At June 30, 1996, there was $1,640,082 available in the Tax Increment Special Revenue Fund to service these bonds. -20- Outstanding Issue Interest Bonds June 30, Annual Purpose Date Rate Term Issued 1996 Payment Tax Increment 12/85 6.25-9.5% 16 yrs $ 100,000 $1 I SQ 000 varies Outstanding Issue Interest Bonds June 30, Pu� roose Date Rate Term Issued 1996 Special Assessment Bonds: SID 337 -Sewer 12/01/86 7.74% 15 yrs. $11.0,000 $ 60,000 SID 341 -Sewer 09/41/95 6.06% 15 yrs. 100,000 100,000 SID 342 -Sewer 11/01/95 6.34% 15 yrs. 209,000 209,000 Special Assessment Warrants: 1988 Sidewalk and Curb 01/09/89 12.0% 8 yrs. 34,758 7,411 1989 Sidewalk and Curb 01/03/90 10.5% 8 yrs. 15,818 4,000 1990 Sidewalk and Curb 01/15/91 10,0% 8 yrs. 14,600 5,500 1991 Sidewalk and Curb 02/41/92 8.0% 8 yrs. 3,360 2,252 1992 Sidewalk and Curb 01/02/93 7.0% 8 yrs. 9,103 7,000 1993 Sidewalk and Curb 01/04/94 6.0% 8 yrs. 5,112 3,650 1994 Sidewalk and Curb 12/31/86 8.5% 8 yrs. 28,513 24,256 1995 Sidewalk and Curb 01/02/96 8.5% 8 yrs. 22,823 22,823 Meridian Sidewalk 1.0/01/90 11.0% 8 yrs. 7,322 1,922 Total $56 409 $ 447.814 -20- 7. Long -Term Debt - cont. 4. Special Assessment Bonds and Warrants Special assessment bonds and warrants are secured by a lien on the assessed properties. The primary source of repayment is the assessments levied against the benefiting properties. However, the City is liable, to an extent, for repayment of these special assessment bonds. The City is authorized by State law to establish and has established a revolving fund to ensure the payment of debt service on the bonds in the event that assessed property owners default. $73,167 was available in the special assessment debt service funds to service the special assessment bonds and warrants. Loans/Contracted Debt An agreement with Northwest Montana Human Resources provides that rent proceeds from the Courtyard Apartments are to be used to make payments on the $271,000 loan from the State Board of Housing. See note 21 on joint venture agreements. State Revolving Fund In November 1991, the City entered into an agreement with the State Revolving Fund (SRF) to borrow funds to partially finance the construction of a wastewater treatment plant facility. This obligation is to be repaid from the operating income of the Sewer Fund. Interest Amount Outstanding Purpose Rate Term Borrowed June 30J996 Wastewater Treatment Plant 4% 20 yrs. $3 9I�3 425 $ 3,420 000 Compensated Absences Payable Compensated absences payable, which represent vacation, sick leave and compensatory time earned by employees which is payable upon termination, were as follows: Enterprise Fund $ 125,240 General Long Term Debt 712,769 Proprietary Component Unit 2,697 Total $ 84 -21- Origination Interest Due Principal Outstanding Pur o e Date Rate Term Date Amount Jane 30, 1996 Sweeper 1117192 varies 5 yr 2/15197 $ 80,770 $ 18,223 Courtyard Apts 3101195 6% 30yr 2101/25 271,000 266,518 Total $351,770 $ 284,741 An agreement with Northwest Montana Human Resources provides that rent proceeds from the Courtyard Apartments are to be used to make payments on the $271,000 loan from the State Board of Housing. See note 21 on joint venture agreements. State Revolving Fund In November 1991, the City entered into an agreement with the State Revolving Fund (SRF) to borrow funds to partially finance the construction of a wastewater treatment plant facility. This obligation is to be repaid from the operating income of the Sewer Fund. Interest Amount Outstanding Purpose Rate Term Borrowed June 30J996 Wastewater Treatment Plant 4% 20 yrs. $3 9I�3 425 $ 3,420 000 Compensated Absences Payable Compensated absences payable, which represent vacation, sick leave and compensatory time earned by employees which is payable upon termination, were as follows: Enterprise Fund $ 125,240 General Long Term Debt 712,769 Proprietary Component Unit 2,697 Total $ 84 -21- 7, Long -Term Debt - cont. Requirements to amortize debt The annual requirements to amortize all long-term debt outstanding, except compensated absences payable, as of June 30, 1996, including interest payments of $4,790,084 are as follows: Total $241.946 $566.628 $6.993.403 $1,578.355 $538.636 $4.704.500 $104.171 $14.772,639 S. State -Wine Ret irement_Plans Substantially all full-time City employees are eligible for one of three retirement plans: Montana Public Employees' Retirement System (PERS); Municipal Police Officer's Retirement System (MPORS); and the Firefighters' Unified Retirement System (FURS). The plans are established by State law and administered by the State of Montana. The plans are cost-sharing multiple -employer defined benefit plans that provide retirement, disability and death benefits to plan members and beneficiaries. The City had a total payroll of $3,978,084 for fiscal year 1996, of which $3,678,978 was covered by PERS, MPORS, or FURS. Contribution rates for the plans are required and determined by State law. The contribution rates, expressed as a percentage of covered payroll for the fiscal year ended June 30, 1996, were: PERS MPORS FURS Urban 6.7% 7.8/9110.5% Special Employer Year Ending G.G. SID Revenue Renewal Contract SRF Assessment June 30. 1996 Bond Bonds Da 1~-_ 3o d Debt Loan Warrants Totals 1997 $ 60,418 $ 59,495 $ 514,935 $ 257,595 $ 37.720 $ 285.320 $ 28372 $ 1,243,855 1998 63,168 45.760 518,049 258,945 19,497 285,260 18,635 1,209,314 1999 60,555 44,330 517,254 258,765 19,497 284,960 14,.588 1,199,949 2000 5705 42,868 510,474 262,025 19,497 285,400 11,795 1,189,864 2001 - 41,353 513,148 258,225 19,497 285,580 11,484 1,129,287 2002-2006 - 165,944 2,548,131 282,800 97,485 1,425,600 19,297 4,539,257 2007-20I1 - 166,878 1,871,412 - 97,485 1,424,820 - 3,5602595 2012-2016 - - - - 97,485 427,560 - 525,045 2017-2021 - - - - 97,485 - - 97,485 2022-2026 - - - - 77.988 - 77.988 Total $241.946 $566.628 $6.993.403 $1,578.355 $538.636 $4.704.500 $104.171 $14.772,639 S. State -Wine Ret irement_Plans Substantially all full-time City employees are eligible for one of three retirement plans: Montana Public Employees' Retirement System (PERS); Municipal Police Officer's Retirement System (MPORS); and the Firefighters' Unified Retirement System (FURS). The plans are established by State law and administered by the State of Montana. The plans are cost-sharing multiple -employer defined benefit plans that provide retirement, disability and death benefits to plan members and beneficiaries. The City had a total payroll of $3,978,084 for fiscal year 1996, of which $3,678,978 was covered by PERS, MPORS, or FURS. Contribution rates for the plans are required and determined by State law. The contribution rates, expressed as a percentage of covered payroll for the fiscal year ended June 30, 1996, were: The Retirement System issues a publicly available financial report that includes financial statements and required supplementary information for all three plans. That report may be obtained by writing to Public Employees Retirement Division, P.O. Box 200131, Helena, MT 59620-0131 or by calling 1-406-444-3154. -22- PERS MPORS FURS Employee 6.7% 7.8/9110.5% 7.80% Employer 6.7% 14.36/0 14.36% The Retirement System issues a publicly available financial report that includes financial statements and required supplementary information for all three plans. That report may be obtained by writing to Public Employees Retirement Division, P.O. Box 200131, Helena, MT 59620-0131 or by calling 1-406-444-3154. -22- State -Wide Retirement Plans - cont. The City's contributions for the years ending June 30, 1994, 1995, and 1996, as listed below, were equal to the required contributions for each year. PERS MPQRS FURS 1994. $ 140,333 $ 111,088 $ 87,261 1995 142,036 121,329 92,979 1996 155,808 127,379 1.06,795 9. Lpeal RetiremCnt Plans Deferred Compensation Plans 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. In addition, the City Manager participated in the International City Manager's Association (LMCA) Retirement System. This plan was also created in accordance with Internal Revenue Code Section 457. To be eligible to participate in the ICMA Retirement Corporation deferred compensation plan the individual must be employed by a local government which has appointed the corporation to administer its deferred compensation plan. The plan permits participating employees to defer a maximum of 25 percent of their total salary or $7,500 per year, whichever is less. All amounts of compensation deferred under the plans, 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 creditors. 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 trustees with no specific restrictions on the investment options. The deferred compensation plan assets of $320,972 were recorded in an agency fund at June 30, 1996, as required by generally accepted accounting principles. -23- 10. Post Employment Health Insurance Benefits Terminated employees may remain on the City's health insurance plan for up to 18 months if they pay the monthly premiums. This benefit is required under federal C.O.B.R.A. law. Retirees may remain on the City's health plan as long as they wish, provided they pay the monthly premiums. State law requires the City to provide this benefit. There are no other post -employment benefits provided by the City. No cost can be estimated for the above benefits, although there is the probability that there are higher medical costs for retirees which would result in additional costs to the insurance program. 11 12. Amounts Due From and Due to Other Governments The amounts due from and due to other governments consist of the following: Due from Flathead County: General Fund $ 33 831 Debt Service Fund $ 1,127 Special Revenue Fund: Comprehensive Insurance $ 6,876 Retirement 7,524 Health Insurance 11,002 Tax Increment 269,448 Study Commission 79 Drug; Enforcement 11,317 Due from State: Gas Tax 23,135 ISTEA 46,123 Lawrence Park 2,485 $377.989 Amounts Due From and To Other Funds Due from other funds and due to other funds consist of the following: Receivable Fund Payable fund Amount General Sidewalk and Curb Construction $ 4,520 SID Revolving 1987 Sidewalk and Curb 3,825 SID Revolving 1991 Sidewalk and Curb 522 $ 8,867 Advances to and from Funds Advances to and from funds consisted of the following: Advance to: Advance From: Data Processing $12,763 General $12,763 Ambulance 25,000 Sewer 25,000 Total $37 763 $37.763 -24- 13. Restricted Cash/Investment The following restricted cash/investments were held by the City as of June 3 0, 1996. These amounts are reported within the cash/investment account on the Combined Balance Sheet. Special Revenue Funds: Tax Increment - Bond Reserve $ 123,046 Debt Service Funds: Reserved for Advance to Internal Service Fund Reserved for Debt Service $ 88.370 Enterprise Funds: Water - Sinking and Interest $ 2,025 Water - Bond Reserve 106,000 Water - Replacement 609,629 Water - Capital Improvement 954,000 Sewer - Replacement 1,270,589 Sewer - Sinking and Interest 2,912 Sewer - Contingency 637,312 Sewer - Capital Improvement 1,197,448 Sewer - Operating Reserve 92,000 Sewer - Storm Maintenance 529,757 Ambulance - Replacement and Depreciation 32,736 Garbage - Replacement and Depreciation _ 127.768 $5 562.176 1.4, Fund Equity Reserved fund balances/retained earnings of the City at June 30, 1996, consisted of: General Fund: Reserved for Encumbrances $ 88,01.7 Reserved for Advance to Internal Service Fund 12,763 Total Special Revenue Funds: Tax Increment Fund Reserved for Encumbrances $ 100,441 Reserved for Bond Contingency 123,046 Gas Tax Fund Reserved for Encumbrances 179,000 ISTEA Fund Reserved for Encumbrances 53.259 Total $ 455,746 Debt Service Funds: Reserved for Debt Service $ 88 3 70 Capital Projects Funds: SID 342 Construction Fund Reserved for Encumbrances $ 4.420 -25- 14 15 Fund Equity - cont. Enterprise Funds: Water Fund Reserved for Replacement and Depreciation Reserved for Sinking and Interest Reserved for Capital Improvements Reserved for Inventory Reserved for Revenue Bond Sewer Fund Reserved for Replacement and Depreciation Reserved for Sinking and Interest Reserved for Capital Improvements Reserved for Capital Improvements Reserved for Advance Reserved for Operations Reserved for Storm Sewer Ambulance Fund Reserved for Replacement and Depreciation Garbage Fund Reserved for Replacement and Depreciation Total Designated Unreserved Fund Balances: Special Revenue Funds: Community Development Fund Designated for interest Subsidy Designated for Courtyard Apartments UDAG Loan Repayment Fund Designated for Interest Subsidy Changes in Contributed Capital A schedule of changes in contributed capital is presented below: $ 609,629 2,025 954,000 136,779 106,000 1,191,774 2,912 637,312 1,276,263 25,000 92,000 565,455 32,736 127,768 $5.759,653 $ 6,402 4,825 3,929 $ 15,156 Data Water Sewer Processin Total Contributed Capital -July 1, 1995 $2,365,927 $10,234,041 $ - $12,599;968 Add: Developers Contributions 338,930 Grant - Tax Increment Contributions - Deduct: Disposition of hydrants 1,679 Depreciation on assets acquired by grants 52,338 Contributed Capital -June 30, 1996 $2.650 840 -26- 670,722 - 1,009,652 - 10,000 10,000 20,235 - 20,235 - - 1,679 5872. 1.572 562.782 $1010426 $ 8428 $]3.075,394 16. Restatements During the current fiscal year, the following adjustments relating to prior year transactions were made to the following funds: Fun Amount Reason for Adjustment_ General $ (6,972) To correct salary distribution Tax Increment 1,000 To correct revenue Gas Tax (880) To correct expenditures Sewer 26.760 To correct revenue Sewer 6,972 To correct expenses 17. Residual Equi , Transfers The City made equity transfers from the Tax Increment Fund of $20,235 for the 1st. Ave. East storm sewer project and from the SID 342 Capital Project Fund of $43,467 for Corporate Way storm sewer which were recorded as contributions in the Sewer Fund. $10,000 from Sewer Sid 341 was transferred to the SID Revolving Fund and SID 341 per the bond ordinance from the Sewer fund. Fund makin Tr nsfer Fund receiving Transfer Amount S.I.D. Revolving (3) General Fund(1) $ 30,572 Sewer Fund(5)(a) SID Revolving (3) 5,000 Sewer Fund(5)(a) SID 341 Debt Service (3) 5,000 SID 342 Capital Project (4) Debt Service Funds (3) 26,197 SID 342 Capital Project (4) Sewer Fund (5)(a) 43,467 Tax Increment Fund (2) Sewer Fund (5)(a) 20,235 Fund tvoes and total net transfers (1) General Fund $ 30,572 (2) Special Revenue Funds (20,235) (3) Debt Service Funds 5,625 (4) Capital Project Funds (69,664) (5) Enterprise Funds 63,702 (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. -27- 18. Segment Information for Enterprise Funds The City maintains four enterprise funds which provide water, sewer, garbage and ambulance services. Segment information for June 30, 1996, was as follows: 19. 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. 20. Risk Management The City faces a considerable number of risks of loss, including a) damage to and loss of property and contents, b) employee torts, c) professional liability, i.e., errors and omissions, d) environmental damage, e) workers compensation, i.e. employee injuries, and f) medical insurance costs of employees. A variety of methods is used to provide insurance for these risks. Commercial policies, transferring all risks of loss, except for relatively small deductible amounts are purchased for property and content damage and professional liabilities. The City participates in two state-wide public risk pools operated by the Montana Municipal Insurance Authority, for workers compensation and for tort liability coverage. Employee medical insurance is provided through a privately -administered, self-insured plan. And, given the lack of coverage available, the City has no coverage for potential losses from environmental damages. Water Sewer Ambulance Garbag Total Operating Revenue $ 939,884 $ 2,237,085 $ 455,779 $387,589 $ 4,020,337 Depreciation Expense 200,651 988,527 22,492 41,767 1,253,437 Operating Income 95,128 70,856 44,778 97,057 307,819 Net Income (Loss) 153,998 (113,867) 46,947 102,805 189,883 Current Capital: Contributions 338,930 690,957 - - 1,029,887 Plant, Property & Equipment: Additions 395,112 843,457 75,591 16,125 1,330,285 Deletions 38,038 - 24,830 - 62,868 Net Working Capital 703,786 462,407 195,194 129,636 1,491,023 Total Assets 8,111,097 22,673,353 313,710 585,730 31,683,890 Long-term Liabilities: Payable from Operating Revenues 1,086,253 6,874,735 52,824 21,428 8,035,240 Total Equity $6,994,946 $15,753,629 $ 259,059 $563,400 $23,571,034 19. 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. 20. Risk Management The City faces a considerable number of risks of loss, including a) damage to and loss of property and contents, b) employee torts, c) professional liability, i.e., errors and omissions, d) environmental damage, e) workers compensation, i.e. employee injuries, and f) medical insurance costs of employees. A variety of methods is used to provide insurance for these risks. Commercial policies, transferring all risks of loss, except for relatively small deductible amounts are purchased for property and content damage and professional liabilities. The City participates in two state-wide public risk pools operated by the Montana Municipal Insurance Authority, for workers compensation and for tort liability coverage. Employee medical insurance is provided through a privately -administered, self-insured plan. And, given the lack of coverage available, the City has no coverage for potential losses from environmental damages. 20. Risk Management - cont. In 1986 the City joined together with other Montana cities to form. the Montana Municipal Insurance Authority which established a workers' compensation plan and a tort liability plan. Both public entity risk pools currently operate as common risk management and insurance programs for the member governments, The liability limits for damages in tort action are $750,000 per claim and $1.5 million per occurrence with a $7,500 deductible per occurrence. State tort law limits the City's liability to $1.5 million. The City pays an annual premium for its employee injury insurance coverage, which is allocated to the employer funds based on total salaries and wages. The agreements for formation of the pools provide that they will be self-sustaining through member premiums. The tort liability plan and workers' compensation program issued bonds in the amount of $4.41 million and $7.610 million, respectively, to immediately finance the necessary insurance reserves. All members signed a contingent note for a pro rata share of this liability in case operating revenues were insufficient to cover the debt service. The City's share is $201,445 for liability and $281,715 for workers' compensation. Based on the plans's current financial position, the City doesn't expect to make any payments on these notes. Separate financial statements are available from the Montana Municipal Insurance Authority. In October 1993, the City established an internal service fund for the City's self insured health insurance plan. The plan is administered by Blue Cross/Blue Shield of Montana. The City pays premiums recommended by Blue Cross into the City Health Fund_ The claims are submitted weekly by Blue Cross and paid out of this fund. The City pays the total monthly premium for all full-time employees and their dependents. Vision is optional and paid by the employee. The plan pays 80% of the medical claims after the $100 deductible for each employee and covered dependent has been satisfied, up to total of $200 maximum family deductible. Generic prescriptions drugs are 100% covered. Dental claims are paid 100% if the dentist is a participating Blue Cross dentist, otherwise 80% of the claims are paid. A stop -loss policy has been purchased to cover any claims which exceed $75,000 per individual or aggregate claims of 115% of claims projected by Blue Cross. No individual reached the stop loss amount nor did the City total reach the projected amount. A reconciliation of claims payable follows: Claims payable, June 30, 1996 $ 40,439 Claims incurred 627,214 Claims paid (554,565 Claims payable, June 30, 1996 $ 113,088 -29- 21. Joint Ventures Joint ventures are independently constituted entities generally created by two or more governments for a specific purpose. City -County Health Deartent - 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 -Council Health Board. The Board consists of seven members, six of whom are appointed by the Board of County Commissioners. The County taxed the property owners directly for the City's contribution for the fiscal year ended June 30, 1996, at an equivalent rate of mills. The operation is accounted for in the County Health Fund and is included in the financial statements of Flathead County. Hunt -Wide AdministratLve..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 of the interlocal agreement in the proportion to the expected benefits that each party shall receive during the ensuring fiscal year. The financial activities of the CAB are accounted for by Flathead County, The City's contribution for CAB for fiscal year ended June 30, 1996, was $73,465, Courlyard AIIartmcnrIh3ICStMontana Human Resources The City entered into an agreement with Northwest Montana Human Resources (N WMIIR) for a joint venture construction project of the Courtyard Apartments. The City owns 16 units of the apartment complex built with Home Grant and CDGB funds. N VMBR built 16 units also. The agreement provides for the management of the housing complex for low income housing. All operations and maintenance of the housing complex are managed by Northwest Montana Human Resources. NWMHR maintains a trust fund in the City's name to record the revenues and expenses of the housing complex. As of June 30, 1996, the equity in the fund was $33,371. The debt payments on the mortgage are paid from the proceeds of the rents by NWMIIR. The principal. balance is recorded on the City's books in the Long-term Debt Group of Accounts. The original amount of the loan was $271,000. The balance as of June 30, 1.996, was $266,518. -30- 22. Loans Receivable On June 20, 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, 1996, was $2,727,002 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 calls for monthly principal and interest payments of $27,807 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 Ineremment 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 a rate paid on U.S. Treasury bills as of the 1. 5th 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 $25,869 was recorded in the Tax Increment Fund as of Tune 30, 1996. The City entered into a community development program which includes funding from a community development block grant, to make available to eligible applicants (low -to moderate income residents) a loan for at least one-half of the required rehabilitation cost. These funds from the City, together with loans from the First Federal Savings Bank (now Glacier Bank) of Montana, the lender, must provide the total funds required for the purchase and rehabilitation of the housing unit. At the time the bank loans are closed with the borrower, the proceeds of the City's loan will be deposited into the borrower's construction account at First Federal. The City's loan is secured by the property, and filed in a third lien position. Repayment of the City loan will not begin until 30 days after the Lender's loan (second lien) for construction of the unit has been paid off. The City's loan is interest free until such time as repayment begins. The maximum amount of a private lender loan cannot exceed $20,000 per property with a ten year pay back. In addition, when an owner -occupant is unable to afford a private lender loan at the pre -determined interest rate agreed to by the City and lender, he or she may qualify for City financing. The City may provide a direct loan of up to $25,000 with a varying interest rate (as low as zero percent) or with a longer amortization period (maximum of fifteen years) or a deferred loan to be repaid simultaneously, at a later date, with a balloon payment, or to be released at the end of ten years. The City had $356,507 recorded as loans receivable as of June 30, 1996, in the Community Development Loan Revolving Fund. Housing loans leveraged with Tax Increment Funds are recorded in the Tax Increment Fund in the amount of $37,092. The above mentioned loans are offset with deferred revenue accounts. -31- 23. Significant Commitment Significant construction contracts and other commitments entered into but incomplete at fiscal year-end included the following: General Fund $ 20,528 Big Timber Construction - Lawrence Parr 67,489 A-1 Paving Overlay contract Total 88,017 Tax Increment Fund 31,979 Lilienthal & Schuman Chamber Building 56,915 Pack & Co. Chip seal contract 11,547 A-1 Paving Overlay contract Total 100.441 Gas Tax ]Fund 179.000 A-1 Paving Overlay contract ISTEA Fund 53,259 Pack & Co. Dream Trail - Woodland Park SID 342 Construction 8,940 Sandon Construction Corporate Way SID Total $ 429.657 24. Pending Litigation The following is a list of litigation pending against the City and the amount of damages claimed by the Plaintiff. The potential of loss to the City that would be material to the financial statements is remote. The City has liability insurance which may cover all or part of the damages requested, if the decisions are for the plaintiffs. Damages Case Requeste Cervantes vs. City of Kalispell $ 180,000 Jackson vs. City of Kalispell 75,000 Lence vs. City of Kalispell 90,000 25, City Court Contracts Receivable Contracts receivable for the City Court have been recorded as an asset in the General Fund. The contracts receivable are offset with deferred revenue as required by generally accepted accounting principles. The receivables estimated as collectible are $240,460. 26. ®ther Receivables The Community Development Loan Fund, a special revenue fund, is due $5,510 from Pacific Power Company. This amount is included in Other Receivables on the Combined Balance Sheet. -32- 27. Wastoyater TreatmentI n h Evergreen The City of Kalispell entered into an Interlocal Agreement with Evergreen Sewer District Number 1 for treatment of district sewage at the City's plant. The City bills Evergreen monthly for debt service at 22% of the principle and interest due for the plant. The City also bills for maintenance and operation and replacement costs per the agreement based on metered flows. The City and Evergreen were in dispute over the rate being charged per the agreement. As of June 30, 1996, the Evergreen Sewer District and the City of Kalispell resolved the differences in the agreement and the City no longer has a delinquent balance recorded. One of the items agreed to is that the Evergreen Sewer District has an equity interest in the replacement account carried on the City's books. The balance of the account as of June 30, 1996, is $508,886 of which Evergreen' s interest is $74,084. The City of Kalispell has sole responsibility for the use of these funds. The Evergreen Sewer District also has posted a Surety Fund witb D. A. Davidson in the amount of $100,000 as required by the agreement. 28. Component Unit - Kalispell Parking Commission The Kalispell City Council passed Resolution 4103, a resolution of intention to create Special Parking District Number 2 on June 21, 1993. Also passed was Resolution 4104, a resolution of intention to provide for funding the cost of maintaining, operating, repairing, and improving Special Parking Maintenance District Number 2 and Resolution 4105, a resolution declaring the need for a Parking Commission to function in the City of Kalispell and declaring a jurisdictional area wherein said Parking Commission is authorized to function. The Mayor and City Council appointed the Board of Directors composed of City residents who operate businesses within the district. It is the intention of the City of Kalispell that the downtown business community manage the parking for the downtown. district. The Parking Commission began operation on February 1, 1994. The City transferred $53,000 in fiscal year 1994 to the Parking District as start up money, no further City funds have been given to the District. It is intended that the Parking Commission be operated as a Proprietary type fund and has been classified as such in the City's financial statements. -33- Nordwiek, Denning & Downey CERTIFIED PUBLIC ACCOUNTANTS 2801 S. Mussell • Missoula, MT 59861 • 543-8174 1103 .S. Main • Kali.spell,11T 59901 • 756-6879 INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTAL INFORMATION AND SCHEDULES City Manager, Mayor and City Council City of Kalispell Kalispell, Montana We have audited the general-purpose financial statements of the City of Kalispell, Montana, as of and for the year ended June 30, 1996, and have issued our report thereon dated March 14, 1997. 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; Government Auditing Standards-, issued by the Comptroller General of the United States; and Office of Management and Budget (OMB) Circular A-1.28, Audits of State and Local Gowrnments. 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 general-purpose financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Our audit was made for the purpose of forming an opinion on the general-purpose financial statements taken as a whole. The accompanying supplemental information schedules as listed in the table of contents for the year ended June 30, 1996, including the Schedule of Federal Financial Assistance, are presented for purposes of additional analysis and are not a required part of the general-purpose financial statements. The information in these schedules has been subjected to the auditing procedures applied in the audit of the general-purpose financial statements and, in our opinion, is fairly presented in all material respects in relation to the general-purpose financial statements taken as a whole. P tor^ Lick, 'Anninrg and -1 bownety March 14, 1997. -34 - Stan ;vordwiek, CPA • Robert K. Denning, CP • Kim M. Dorney, CPA • A"ancy S. Everson, CPA SIGNIFICANT PROVISIONS OF SEWER REVENUE BONDS ORDINANCES AND REQUIRED INFORMATION The City will establish a separate revenue bond account into which will be paid each month an amount equal to but not less than the sum of one-sixth of the interest due within the next six months and one -twelfth of the principal due within the next twelve months with respect to all Bonds secured by the ordinance and payable from that account, and into which shall be paid each month additional net revenue equal to one -sixtieth of the maximum amount of principal and interest to fall due within any subsequent fiscal year on all such bonds until a reserve equal to such maximum amount of principal and interest is established, which reserve shall thereafter be maintained. Reserve Bond Balance Maximum Requirement Deficit balance Total $637,312 694,945 $ 57-633 The City was not in compliance with this requirement as of June 30, 1996, however, the balance in this account was increased in the next fiscal year. 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 Covera Sewer Service Charges $1,838,465 Storm Sewer Assessment 234,647 Miscellaneous and Hookup Fees 163,974 Total Operating Revenue $2,237,086 Less: Operating Expense (Before Depreciation) 1,177703 Available for Debt Service $1,059,383 Maximum Debt Service 694,945 Coverage 152° The City shall maintain an Operating Reserve equal to one month's operating expenses. The term "operating expenses" shall mean current expenses, paid or accrued, of operation, maintenance and current repair of the system and its facilities, and shall include administrative expenses of the City relating solely to the system, premiums for insurance on the properties, labor and the cost of materials and supplies used for current operation and for maintenance, and charges for the accumulation of appropriate reserve for current expenses which are not recurrent monthly but may reasonably be expected to be incurred in accordance with sound accounting practices. Such expenses shall not include any allowance for depreciation or renewals or replacements of capital assets of the system and shall not include any portion of the salaries and wages paid to any officer or employee of the City, except such portion as shall represent reasonable compensation for the performance of duties necessary to the operation of the system. -35- Operating expenses for fiscal year ended June 30, 1996, of $1,177,703 divided by 12 = $98,142. The Sewer Operating Reserve balance of $92,000 was under funded by $6,142. However, the City increased the reserve to $100,000 during the next fiscal year and should be in compliance with this requirement. 4. The City shall, within 120 days after the close of each fiscal year, cause to be prepared and supply to the original purchaser or purchasers of Bonds issued hereunder and the bank or banks designated as agent for the payment of principal of and interest thereon a financial report with respect to the system of such fiscal year as prepared by an independent certified public accountant. The City did not comply with this provision. 5. The audit report shall include the following: a. a statement in detail of the income and expenditures of the system for the fiscal year, identifying capital expenditures and separating them from operating expenditures; b. a balance sheet as of the end of the fiscal year; c, the number of premises connected to the system at the end of the fiscal year; d, the amount on hand in account of the Sewer System Fund at the end of the fiscal year; e, a list of the insurance policies and fidelity bonds in force at the end of the fiscal year, setting out as to each the amount thereof, the risks covered thereby, the name of the insurer or surety and the expiration date of the policy or bonds; and f. a determination that the report shows full compliance by the City with the provisions of this ordinance during the fiscal year covered thereby, including proper segregation of the capital expenditure from operating expenses, maintenance of the required balance in the Revenue Bond account, and the receipt of net revenue during the fiscal year at least equal to 125% of the maximum amount of principal and interest payable from the Revenue Bond Account in any subsequent fiscal year; or if the report should reveal that the revenues have been insufficient for compliance with this ordinance, or that the methods used in accounting for such revenues were contrary to any provision of this authorizing ordinance, the report of audit shall include full explanation thereof, together with the recommendations for such change in rates or accounting practices or in the operation of the system as may be required. The following are the required disclosures which are not contained elsewhere in the audited financial statements. Number of premises connected to the system at the end of the fiscal year: 5465 Amount of cash on hand in each account of the Sewer System at the end of the fiscal year: Unrestricted Cash S 871,372 Sewer Operating Reserve 92,000 Sewer Capital Improvement 1,197,448 Replacement and Depreciation 1,270,589 Sewer Sinking and Interest 2,912 Sewer Contingency 637,312 Total $4071,633 -36- Schedule of Insurance Policies June 30, 1996 Flathead Association of Independent Insurance Agents I. 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 519197. A $5,000 public employees blanket faithful performance bond expires June 30, 1996, with an additional indemnity for city accountant, city court judge, assistance finance director, city court clerk, personnel specialist, and city water department cashiers of $7,500 each. 2. property Insurance: Blanket building policy with $19,769,258 limit and a $1,000 deductible per event. Boiler and machinery policy with $21,419,799 and a $1,000 deductible. Expires 2/16/97. Montana Municipal Insurance Authority 3. Liability Insurance: $750,000 per occurrence which arises or derives from injury to or death of a single person or damage to property of a single person regardless of number of persons or entities claiming damages. $1,500,000 per occurrence not covered as stated above. A $2,500 deductible applies. Expires July 1, 19W CITY OF KALISPELL, MONTANA SEWER FUND SCHEDULE OF ASSETS, LIABILITIES, AND FUND EQUITY June 30, 1996 ASSETS Cash/investments Taxes/assessments receivable Other receivables Advance to other funds Fixed assets (Net of accumulated depreciation) TOTAL ASSETS LIABILITIES AN_D..._FUND_._E.QUITY ............................... . Liabilities: Short-term payables Long-term liabilities Total Liabilities Fund Equity, Contributed capital Retained earnings; Reserved Unreserved Total Fund Equity TOTAL LIABILITIES AND FUND EQUITY IRP -11 $ 4,071,633 44,995 120,786 25,000 18,410,938 $ 22,673,353 $ 44,989 6,874,735 ..................................... 6.919,724 10,416,126 3,790,716 1,546,787 15,753,629 $ 22,673,353 CITY OF KALISPELL, MONTANA SEWER FUND SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN RETAINED EARNINGS Fiscal Year Ended .lune 30, 1996 Operating Revenues: Charges for services Miscellaneous revenues Special assessments Total Operating Revenues Operation Expenses: Personal services Supplies Purchased services Fixed charges Losses/bad debt expenses Depreciation Building materials Total Operating Expenses Operating Income Non -Operating Revenues (Expenses): Interest Debt service interest expense Total Non -Operating Revenues (Expenses) Net Income Add depreciation on fixed assets acquired by contributions Increase in Retained Earnings Retained Earnings - July 1, 1995 Restatements Retained Earnings -.lune 30, 1996 -39- $ 1,844,211 168,228 234,647 2.237.086 493,880 54,733 398,618 201,459 1,520 988,527 27,493 ........................ ................. ............. .__._... 2.166.230 204,775 {389,498) (184.723) 113.86 395,005 4,908,766 33,732 $ 5,337,503 CITY OF KALISPELL, MONTANA SEWER FUND SCHEDULE OF CASH FLOWS Fiscal Year Ended June 30. 1996 Cash flows from Operating Activities: (155,749) Cash received from customers $ 1,865,304 Cash received from assessments 204,802 Cash received from hookups 158,228 Cash received from other operating 5,746 Cash payments to suppliers (683,366) Cash payments to employees -(476,942) Net cash provided by operating activities 1,073,772 Cash flows from Capital and related financing activities Acquisition and construction of capital assets (155,749) Principal paid on revenue bonds and contracts (304,000) Interest paid on revenue bonds and contracts (389,498) Net cash used for capital and related financing activities (849,247) Cash flows from investing activities: Interest on investments 204,775 Advance to other funds net of repayments (25,000) Purchase of sidewalk and curb warrants (22,822) Redemption of sidewalk and curb warrants 18,243 Net cash used in investing activities 175,198 Net increase in cash and cash equivalents 399,721 Cash and cash equivalents at beginning of year 3,593,097 Cash and cash equivalents at end of year $ 3,992,818... Reconciliation of operating income to net cash provided by operating activities: Operating Income Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation Bad debt expense Prior period adjustment Change in assets and liabilities: Increase in accounts receivable increase in assessments receivable Decrease in accounts payable Decrease in short-term contract Increase in compensated absences payable Total Net cash provided by operating activities Noncash, investing, capital, and financing activities: Developers contributed $670,772 in fixed assets to the Sewer Fund, and the Tax Increment District contributed $20,235. -40- $ 70,856 988,527 1,520 33,732 79 (29,845) (1,063) 9,966 $ ....... 1,073,772 REVENUE BOND REQUIREMENTS Significant provisions of the 1996 Water System Revenue Bonds are as follows. Debt Service Account Monthly an amount equal to not less than 1/6 of the interest due within the next 6 months and 1/12 of the principal to become due within the next twelve months shall be credited to the debt service account. Reserve Accoun The City shall keep in the reserve account an amount equal to the lesser of 10% of the original principal or the maximum amount of principal and interest requirements. Property InsuLrance The City will cause all buildings, properties, fixtures, and equipment to be kept insured in amounts that are ordinarily carried. Liability Insu_rn The City Will carry insurance against liability of the City and its employees. Rates and Charges Net revenues of each fiscal year after June 30, 1996, will be at least equal to 125% of the maximum principal and interest requirements for all future fiscal years. The City complied with the above revenue bond requirements. -41- -42- m E c qW 7 ID v1_ in' tNO. CVO y Q N. C7 P m- N N 6 Cn LL � I P m v C a m v m !9 G v c c 0 0 m c+ rn Co p d N C � a lu a C n o o 'i N 7� 0 2 0 (o o P O nC9Z ulG] coo u 6m 'wmwiz rn LL g (D a n m � L v � WOO M r9'iN coo CD u� v C H mV � i L SV f�i W W coo N N N w cLL � C (V 61 w � m � H � N 'U N O a nE o �h� c 4 W QQ Q .s 2 Lu Lu Lu O F- F- }- ._ o o' j= E. u m ' rn yr w a . D � Q ai o. ¢ 4 2 m e n, > n > E m � u E a cL m o x a 4 U " ^ ° c c c C O c o E v 'u 'k5 'u p c V !i1 L[3 LLE E [f �U` � n m c c C gEU) u) cfi E a a a a o o M u y p Y3 R. .c � m Qo'u, arra m w w m m m ciq w � a scv m `z e» 6 a=° Im w �' 3 3 Q= °mc o� crn �rnO aaa. h', E N, Lj 91 ^ .N E o V 6. H xm L N O CmSSZ � m ro m D N;m � Q _ UJ m aC U3' fk. 1L- uj m az m m m u oNEEEµmE m c o moo° rno00�n05a C 2c m ©Ea �rfi azax5.cvv-ma0' 66oui a-� a Umaci a a""mmm W ar xmq O a41 a tlaaxcJ O yr ern 55'm Nan o w F- -42- Nordwick, Denning & Downey CERTIFIED PUBLIC ACCOUNTANTS 2801 S. Russell • Missoula, Afl' 59801 •543-8174 1103S. Main • Kalispell, MT59901 • 756-6879 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE BASED ON AN AUDIT OF GENERAL PURPOSE FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENTAUDITlNGSTANDARDS City Manager, Mayor and City Council City of Kalispell Kalispell, Montana We have audited the general-purpose financial statements of the City of Kalispell, Montana, as of and for the year ended June 30, 1996, and have issued our report thereon dated March 14, 199. 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 pian and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Compliance with laws, regulations, contracts, and grants applicable to the City is the responsibility of the City's management. As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we performed tests of the City's compliance with certain provisions of laws, regulations, contracts, and grants. However, the objective of our audit of the general-purpose financial statements 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 disclosed no instances of noncompliance that are required to be reported herein under Government Auditing Standards. This report is intended for the information of the City Council, management, State Department of Commerce, and appropriate state and federal agencies. However, this report is a matter of public record and its distribution is not limited. B lor(Ltuict, _2)Vnn4nV cuz� �LJocuvae�s March 14, 1997 -43- Stan Rlordwick, CPA • Robert K Denning, CPA • Kim h1 Downey, CPA • Nancy S_ Everson, CPA Nordwick, Denning & Downey CERTIFIED PUBLIC ACCOUNTANTS 2801 S. Russell • Missoula, MT 59801 •543-8174 1103S. ,l -fain • Kalispe11, 1fT 59901 • 756-6879 INDEPENDENT AUDITOR'S REPORT ON THE INTERNAL CONTROL STRUCTURE BASED ON AN AUDIT OF GENERAL PURPOSE FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH. GOVERNMENT AUDITING STANDARDS City Manager, Mayor and City Council City of Kalispell Kalispell, Montana We have audited the general-purpose financial statements of the City of Kalispell, Montana, as of and for the year ended June 30, 1996, and have issued our report thereon dated March 14, 1997. 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. 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: a 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. 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. Stan Nordwickl. CPA • Robert K. Denning, CPA • Kim M Downey, CPA • Nancy S Everson, CPA In planning and performing our audit of the general-purpose financial statements of the City for the year ended June 30, 1996, we obtained an understanding of the internal control structure. With respect to the internal control structure, 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 in order to determine our auditing procedures for the purpose of expressing our opinion on the general-purpose financial statements and not to provide an opinion on the internal control structure. Accordingly, we do not express such an opinion. Our consideration of the internal control structure would not necessarily disclose all matters in the internal control structure that might be material weaknesses under standards established by the American Institute of Certified Public Accountants. A material weakness is a condition in which the design or operation of one or more of the 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 may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control structure and its operation that we consider to be material weaknesses as defined above. We noted other matters involving the internal control structure and its operation that we have reported to the management of the City in our Independent Auditor's Report of Other Compliance, Financial and Internal Control Matters on pages 52 and 53 of this audit report. This report is intended for the information of the City Council, management, State Department of Commerce, and appropriate state and federal agencies. However, this report is a matter of public record and its distribution is not limited. { fordcu 4 ),"ninv fm �oeurze March 14, 1997 -45- Nordwick, Denning & Downey CERTIFIED PUBLIC ACCOUNTANTS 2801 S. Russell • Allissoula, Alff 59801 •543-8174 1103 S. _Main • Kalispell, MT 59901 • 756-6879 INDEPENDENT AUDITOR'S REPORT ON THE INTERNAL CONTROL STRUCTURE USED IN ADMINISTERING FEDERAL FINANCIAL ASSISTANCE PROGRAMS City Manager, Mayor and City Council City of Kalispell Kalispell, Montana We have audited the general-purpose financial statements of the City of Kalispell, Montana, as of and for the year ended June 30, 1996, and have issued our report thereon dated March 14, 1997. We have also audited the compliance of the City of Kalispell, Montana, with requirements applicable to major federal financial assistance programs and have issued our report thereon dated March 14, 1997. We conducted our audits in accordance with generally accepted auditing standards; Government 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 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 federal financial assistance program. In planning and performing our audits for the year ended June 30, 1996, we considered the City's internal control structure in order to determine our auditing procedures for the purpose of expressing our opinions on the City's general-purpose financial statements and on the compliance of the City with requirements applicable to major programs, and to report on the internal control structure in accordance with OMB Circular A-128. This report addresses our consideration of internal control structure policies and procedures relevant to compliance with requirements applicable to federal financial assistance programs, We have addressed internal control structure policies and procedures relevant to our audit of the general- purpose financial statements in this audit report on pages 44 and 45. 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: ,0 ;?tan Nordivick, CP4 • Robert K. Denning, CPA • Kim Af Downey, CPA • A7ancy S. Everson, CPA ■ 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; irregularities, or instances of noncompliance 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 classified the significant internal control structure policies and procedures used in administering federal financial assistance programs into the following categories. Accounting Controls: Cash receipts Purchasing/exp enditures Payroll Fixed assets General Requirements: Political activity Civil rights Cash management Federal financial reports Allowable costs/cost principles Drug -Free Workplace Act Administrative requirements Davis -Bacon Act Claims for Advances and Reimbursements Amounts Claimed or Used for Matching Specific Requirements: Types of services Eligibility Matching, level of effort, earmarking Reporting Special requirements Cost allocation 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. -47- During the year ended June 30, 1996, the City expended 50.7 percent of its total federal financial assistance 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 aforementioned major program. 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. Our consideration of the internal control structure policies and procedures used in administering federal financial assistance would not necessarily disclose all matters in the internal control structure that might constitute material weaknesses under standards established by the American Institute of Certified Public Accountants. A material weakness is a condition in which the design or operation of one or more of the internal control structure elements does not reduce to a relatively low level the risk 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. We noted no matters involving the internal control structure and its operation that we consider to be material weaknesses as defined above. This report is intended for the information of the City Council, management, State Department of Commerce, and appropriate state and federal agencies. However, this report is a matter of public record and its distribution is not limited. i�or�wic�� aLieranin� an� �owner�. March 14, 1997 -48- Nordwick, Denning & Downey CERTIFIED PUBLIC ACCOUNTANTS 2801 &Russell • Missoula, A f 59801 •543-8174 1103 S. Main • Kalispell, Mf 59901 • 756-6879 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR FEDERAL FINANCIAL ASSISTANCE PROGRAMS City Manager, Mayor and City Council City of Kalispell Kalispell, Montana We have audited the general-purpose financial statements of the City of Kalispell, Montana, as of and for the year ended June 30, 1996, and have issued our report thereon dated March 14, 1997. We have also audited the City's compliance with the requirements governing types of service allowed or unallowed, matching, special tests and provisions related to the completion of an environmental review record, and claims for advances and reimbursements 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, 1996. The management of the City is responsible for the City's compliance with those requirements. Our responsibility is to express an opinion on compliance with those requirements based on our audit. We conducted our audit of compliance with those requirements in accordance with generally accepted auditing standards, Government Auditing Standards, issued by the Comptroller General of the United States, and Office of Management and Budget 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, .matching, special tests and provisions related to the completion of an environmental review record, and claims for advances and reimbursements that are applicable to its major federal financial assistance program for the year ended June 30, 1996. This report is intended for the information of the City Council, management, State Department of Commerce, and appropriate ;state and federal agencies. However, this report is a matter of public record and its distribution is not limited. Yordwich; 2)enninrg and Awney March 14. 1997 EP2 Stun rvordwick, CPA= Robert K. Denning, CPA• Kim !YL Downey, CPA Nancy S. Everson, CPA Nordwick, Denning & Downey CERTIFIED PUBLIC ACCOUNTANTS 2801 S. Russell • Missoula, MT 59801 •593-8174 1103 S. llain • ,Kalispell, MT 59901 • 756-6879 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH THE GENERAL REQUIREMENTS APPLICABLE TO FEDERAL FINANCIAL ASSISTANCE PROGRAMS City Manager, Mayor and City Council City of Kalispell Kalispell, Montana We have audited the general-purpose financial statements of the City of Kalispell, Montana, as of and for the year ended June 30, 1996, and have issued our report thereon dated March 14, 1997. We have applied procedures to test the City's compliance with the following requirements applicable to its federal financial assistance programs, which are identified in the Schedule of Federal Financial Assistance, for the year ended June 30, 1996: ■Political activity ■Drug -Free Workplace Act ■Civil rights RAdministrative requirements ■Cash management zFederal financial reports mAllowable costs ■Davis -Bacon Act 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 Governments. 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 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 second 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 the City Council, management, State Department of Commerce, and appropriate state and federal agencies. However, this report is a matter of public record and its distribution is not limited. f 7",Lac-Anninci and _2JE1wnvc March 14, 1997 -50- Stan Nordwick, CPA • Robert K Denning, CPA • Kim M. Downey, CPA • Nancy S. Everson, CPA Nordwick, Denning & Downey CERTIFIED PUBLIC ACCOUNTANTS 2801 S. Russell • iVlissoula, Aff 59801 • 543-8174 1103 S. Wain • Kalispell, ,SIT 59901 • 755-6879 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO NONMAJOR FEDERAL FINANCIAL ASSISTANCE PROGRAM TRANSACTIONS City Manager, Mayor and City Council City of Kalispell Kalispell, Montana We have audited the general-purpose financial statements of the City of Kalispell, Montana, as of and for the year ended June 30, 1996, and have issued our report thereon dated March 14, 1997. in connection with our audit of the general-purpose financial statements of the City of Kalispell, and with our consideration of the City's control structure used to administer federal financial assistance programs, as required by Office of Management and Budget Circular A-128, Audits of State and focal Governments, we selected certain transactions applicable to certain nonmajor federal financial assistance programs for the year ended June 30, 1996. 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 the City had not complied, in all material respects, with those requirements. This report is intended for the information of the Commerce, and appropriate state and federal agencies and its distribution is not limited. f lorctwi4, -Anning as Awvne y March 14, 1997 City Council, management, State Department of . However, this report is a matter of public record -51- Stan Nordwick, CPA • Robert K Denning, CPA • Kim Al. Downey, CPA • Nancy S. Everson, CPA Nordwick, Denning & Downey CERTIFIED PUBLIC ACCOUNTANTS 2801 S. Fussell -Missoula, AfT 59&01 • 543-8174 1103 S. Main • Kalispell, AIT 59901 • 756-6879 INDEPENDENT AUDITOR'S REPORT ON OTHER COMPLIANCE, FINANCIAL, AND INTERNAL ACCOUNTING CONTROL MATTERS City Manager, Mayor and City Council City of Kalispell Kalispell, Montana Immaterial instances of noncompliance along with findings relating to financial or accounting matters, as well as our recommendations, are presented below. Also, other matters involving the internal control structure and its operation that are not considered to be reportable conditions under standards established by the American Institute of Certified Public Accountants are disclosed below for your information, along with our recommendations for improvement where applicable. Assessments Recon ili tion The assessments receivable were not reconciled to assessments receivable balances reported to the City by the County. Recommendation The City should reconcile assessments receivable to balances reported by the County as of June 30th each year. Courtyard Apartments The City owns sixteen units of the Courtyard Apartments. The financial activity for the rental of these units was not recorded in the City's financial statements. The unrecorded activity was not material to the financial statements. Recommendation The City should record in their accounting records its share of the revenues and expenditures relating to the Courtyard Apartments, City Court The following internal control weaknesses were noted in the City Court: 1. A manual system of tracking contracts receivable is used in the City Court. 2, Receipts are issued by the City Court but actual payments are made to cashiers in the finance office. The City Court did not reconcile receipts issued with collections recorded by the finance office on a daily basis. -52- Stan Nordwick, CPA * Rohert K. Benning, CPA • Kim.U. Downey, CPA • Nancy S. Everson, CPY1 Recommendation The following procedures should be implemented to strengthen internal control procedures in the City Court: 1. Internal and management controls over the contracts receivable functions of the court would be greatly improved by upgrading the current manual system to a computerized system.. 2. The City Court should reconcile collections received by the finance office to receipts issued by the Court on a daily basis. i l 'Li -4, 2)ennin y canal 2)ownc y March 14, 1997 -53- Nordwick, Denning & Downey CERTIFIED PUBLIC ACCOUNTANTS 2801 S. Russell • Missoula, MT 59801 •543-8174 11033. Main - Kalispell. MT 59901 • 756-6879 INDEPENDENT AUDITOR'S REPORT ON PRIOR AUDIT REPORT RECOMMENDATIONS City Manager, Mayor and City Council City of Kalispell Kalispell, Montana The prior audit report contained four recommendations. Of those recommendations, two were implemented and two were partially implemented. The following recommendations were repeated in this audit report: • Courtyard Apartments ■ City Court Receivables lordwi4, Anning and Awney March 14, 1997 _S4_ Stan 1Vordwich-, CPA • Robert K Denning, CPA • him M Downey, CPA • Nancy S Everson, CPA