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09. Audit-Fiscal Year Ended 6/30/97City of Kalispell, Montana Fiscal Year Ended June 30, 199" Denning, Downey CERTIFIED PUBLIC CITY OF KALISPELL, MONTANA TABLE OF CONTENTS Fiscal Year Ended June 30,1997 Paye Organization I 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 the Financial Statements 9-33 Independent Auditor's Report on Supplemental Information and Schedules 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 41 -1- CITY OF KALISPELL, MONTANA TABLE OF CONTENTS - cont. Single Audit Section Schedule of Expenditures of Federal Awards Page 42 43 Independent Auditor's Report on Compliance and on Internal Control Over Financial 44-45 Reporting Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards Independent Auditor's Report on Compliance With Requirements Applicable to Each 46-47 Major Program and Internal Control Over Compliance in Accordance With OMB Circular A-133 Schedule of Findings and Questioned Costs MIMI' Independent Auditor's Report on Other Compliance, Finanacial, and Internal 50 Accounting Control Matters Independent Auditor's Report on Prior Audit Report Recommendations 51 CITY OF KALISPELL, MONTANA Mr. Douglas Rauthe Mr, Gary Nystul Mr. Norbert Donahue Mr. Dale Haarr Mr. M. Duane Larson Mr. Clarence Krepps Mr. Glen Neier Mr. Addison Clark Ms. Amy Robertson Ms, Heidi Ulbricht Mr, Tad Waggener Mr. Iames Hansz Mr. Michael Baker Mr. Lawrence Gallagher ORGANIZATION Fiscal Year Ended June 3)0, 1997 CITY COUNCIL CITY OFFICIAL BE Mayor Mr. Cliff Collins Mr, Lauren Granmo Mr. Jim Atkinson Ms. Pamela Kennedy City Manager Attorney Chief of Police Finance Director City Judge Fire Chief Public Works Director Parks Director Planning, Economic, and Community Development Director Denning, Downey & Associates, D.C. CERTIFIED PUBLIC ACCOUNTANTS No. 4 Sunset Plaza, .suite 101 - Kalispell, MT 59901 • 756-6879 521112 S. 2nd St. W. - Missoula, MT 59801 • 543-8174 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, 1.997, as listed in the table of contents. These general-purpose financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these general-purpose financial statements based on our audit_ We conducted our audit in accordance with generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the general-purpose financial statements referred to above present fairly, in all. material respects, the financial position of the City as of June 30, 1997, 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 Auditing Standards, we have also issued our report dated May 18, 1998, on our consideration of the City's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grants. Our audit was performed for the purpose of forming an opinion on the general-purpose financial statements of the City, taken as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of'States, Local Governments, and Non -Profit Organizations, and is not a required part of the general-purpose financial statements. Such information has been subjected to the auditing procedures applied in the audit of the general-purpose financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the general-purpose financial statements taken as a whole. 'Anning, 2)ownery a d May 18, 1998 -2- Rohert K. Denning, CPA • Kim M. Downey, GPA � cv�m°in��omr nmin�_ �m�imn �u`�i �(cnppmmm' r"' hN�i no�mi n C'1 PNIt)n PNO+.N [f3. lO V3 �1•_ SC?M W PYN�'SmN P 6rO fT'i-O k�lti hl. Z} SQA DRi uSmN W M1T W 3+l tip„ Rio V�tl f+i Cq�rc1 Ali mN mm0 61 �f1 P. 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R) G N¢ w (� .wy ?�T m N U C 5 c m as Si a� th 6 y` N C c N N 'y (� y()1„ 'D a 0(u N Cb �'� d G N Vi c U (D of �' .T7 C LL y .O A, C j -0 .� 7 "') 3 7 N N Fla r ¢ a {p u) y c m E O C W C C a c n o p t c m m u o cn =°2: m n `� o �'o c c c v w2 a °a)i m. oy-Q � � (v a0-U3,'-c�'o t�m 0 m" m NxmcE ro � m m � cN5 n.P nc°), m N E4 w tll } C y a 0 E N x m c °) Q N c (p O O U U Tl c c p p o O $ c cv " a� w cr rr rm E oo p m 0-1- Q- C7 ev p (fJ -9 E E -°O O-, o c E -a O m-9- p 0 O 'm O .5 C L L C = 'U p C N n m C C C C C .Q C C 'V3 L p ;O m D d> N Omm (4 p) cin U N C v ONca p C 2 m 3 'C CML EQ - 43 ° �U wE m m m -.N LL m EN (D c CO c" m ?O V cc 3 ('�U C C C[}Q C C C C Nva. �.0_ �<[Q» 41 mF... mfl- dl N m m U3 p17., ci UCi¢ z 0 Z U U z z U U co Z am CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 199' I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of the City's significant accounting policies: A. Reporting Entity The City is governed by an elected Mayor and City Council. The City is considered a primary government because it is a general purpose local government. Further, it meets the following criteria: (a) It has a separately elected governing body (b) It is legally separate and (c) It is fiscally independent from the State and other local governments. The accompanying general-purpose financial. statements include all funds, account groups, agencies, boards, commissions and authorities which meet the criteria for inclusion in the City's financial report. These criteria include financial accountability, appointment of a majority of the secondary government and the financial benefit or burden derived by the primary government from a secondary government. As required by generally accepted accounting principles, these financial statements present the City of Kalispell and its component unit. The component unit is included in the City's reporting entity because of the significance of its operational or financial relationship with the City, as described above. The discretely presented component unit, the Kalispell Parking Commission, is a legally separate organization of the City, but the City is financially accountable. The City appoints the governing body of the Parking Commission. The Parking Commission runs a variety of metered and leased parking areas downtown which are owned by the City. They also issue tickets for parking violations in the parking district downtown. The component unit is reported in a separate column to emphasize it is legally separate from the City. B. Measurement Focus, Basis of Accounting The accounts of the City are organized and operated on the basis of funds and account groups. A fund is an independent fiscal and accounting entity with a self -balancing set of accounts. fund accounting segregates funds according to their intended purpose and is used to aid .management in demonstrating compliance with finance -related legal and contractual provisions. The minimum number of funds are maintained consistent with legal and managerial requirements. Account groups are a reporting device to account for certain assets and liabilities of the governmental funds not recorded directly in those fiends. The City of Kalispell has the following fund types and account groups: -9- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 Governmental funds are used to account for the City's general government activities. Governmental fund types use the flaw of current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual.. (i.e., when they are "measurable and available"). "Measurable" means the amount of the transaction can be determined and "available" means collectible within the current period or soon enough thereafter to pay liabilities of the current period. The City considers all revenues available if they are collected within 60 days after year-end. Expenditures are recorded when the related fund liability is incurred, except for unmatured interest on general long-term debt which is recognized when due, and certain compensated absences and claims and judgements which are recognized when the obligations are expected to be liquidated with expendable available financial resources. Ileal and personal property taxes (excluding motor vehicle taxes), special assessments, charges for current services, and interest earnings are susceptible to accrual. Other receipts and taxes become measurable and available when cash is received by the City and are recognized as revenue at that time. The City recorded real and personal property taxes and assessments levied for the current year as revenue. Taxes and assessments receivable remaining unpaid at year-end and not expected to be collected soon enough thereafter to be available to ,pay obligations of the current year were recorded as deferred revenue, with a corresponding reduction in revenues, as required by generally accepted accounting principles. In addition, prior period delinquent taxes and assessments collected in the current period were recorded as revenue in the current period as required by generally accepted accounting principles. Entitlements and shared revenues are recorded at the time of receipt or earlier if the susceptible to accrual criteria are met. Expenditure driven grants are recognized as revenue when the qualifying expenditures have been incurred and all other grant requirements have been met. Governmental funds include the following fund types: The general fund is the City's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The special revenue funds account for revenue sources that are legally restricted to expenditures for specific purposes. The debt service funds account for the servicing of general long-term debt and special assessment debt not being financed by proprietary funds, and for which the City is obligated in some manner for payment. The capital project funds account for the acquisition of fixed assets or construction of major capital projects not being financed by proprietary funds. -10- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 Proprietary funds are accounted for on the flow of economic resources measurement focus and use the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred. The City has elected .not to apply FASB pronouncements issued after November 30, 1989. The enterprise funds are used to account for those operations that are financed and operated in a manner similar to private business or where the City Council has decided that the determination of revenues earned, costs incurred and/or net income is necessary for management accountability. The internal service funds are used to account for operations that provide services to other departments or agencies of the government, or to other governments, on a cost - reimbursement basis. Fiduciary funds account for assets held by the government as an agent on behalf of others. The agency funds are custodial in nature and do not present results of operations or have a measurement focus. Agency funds are accounted for using the modified accrual basis of accounting. These funds are used to account for assets that the City holds for others in an agency capacity. Account Groups. The general fixed assets account group is used to account for fixed assets not accounted for in proprietary funds. The general long-term debt account group is used to account for general long-term debt and certain other liabilities that are not specific liabilities of proprietary funds. C. Assets, Liabilities, and Equity 1. Cash Equivalents, and Investments The City considers for the purposes of the statement of cash flows, all investments of the proprietary fund types, except for investments in sidewalk and curb warrants to be cash equivalents. Investments are carried at cost which approximates market value. 2. Receivables and Payables Transactions between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either "interfund receivables/payables" (i.e., the current portion of interfund loans) or "advances to/from other funds" (i.e., the non-current portion of interfund loans). All other outstanding balances between funds are reported as "due to/from other funds." Advances between funds are offset by a fund balance reserve account in applicable governmental funds to indicate they are not available for appropriation and are not expendable available financial resources. -11- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 An allowance for uncollectible accounts was not maintained for real and personal property taxes and special assessments receivable. The direct write-off method is used for these accounts. Property tax levies are set on or before the second Monday in August, in connection with the budget process. Real property (and certain attached personal property) taxes are billed within ten days after the third Monday in October and are due in equal installments on November 30 and the following May 31. After those dates, they become delinquent (and a lien upon the property). Special assessments are either billed in one installment due November 30 or two equal installments due November 30 and the following May 31. Personal property taxes (other that those billed with real estate) are generally billed no later then the second Monday in July (normally in May or June), based on the prior November's levies. Personal property taxes, other than mobile homes, are due thirty days after billing. Mobile home taxes are billed in two halves, the first due thirty days after billing; the second due September 30. The tax billings are considered past due after the respective due dates and are subject to penalty and interest charges. The tax levies for the fiscal year ended June 30, 1997, were based upon a taxable valuation of $20,799,501. Reserves for estimated uncollectible accounts receivable are maintained for the water, sewer, and ambulance enterprise funds. Accounts receivable are reported as net of uncollectible accounts. Reserves for uncollectible accounts on June 30, 1997, were as follows: Water $ 4,360 Sewer 10,008 Ambulance 60,000 Total $ 7 3. Inventories and Prepaid Items Inventories of materials and supplies are valued at cost in the proprietary funds. The costs of inventories in governmental fund types are recorded as expenditures when purchased; therefore, the inventory asset amount is not available. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items. 4. Fixed Assets Fixed assets used in governmental fund types of the City are recorded in the general fixed assets account group at cost or estimated historical cost if purchased or constructed. Donated fixed assets are recorded at their estimated fair value at the date of donation. Assets in the general fixed assets account group are not depreciated. Interest incurred during construction is not capitalized on general fixed assets. -12- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 Property, plant, and equipment in the proprietary funds of the government are recorded at cost. Property, plant, and equipment donated to these proprietary fund type operations are recorded at their estimated fair value at the date of donation. The City records contributions to enterprise funds from city, federal, and state sources for property acquisitions as contributed capital. Public domain ("infrastructure") general fixed assets (e.g. roads, bridges, curbs and gutters, and other assets that are immovable and of value only to the government) are not capitalized. Major outlays for capital assets and improvements are capitalized in proprietary funds as projects are constructed. Interest incurred during the construction phase of proprietary fund fixed assets is reflected in the capitalized value of the asset constructed, net of interest earned on the invested proceeds over the same period. Fixed assets purchased or acquired by proprietary fund types are recorded in the individual fund making the purchase. Any fixed assets donated specifically for an enterprise fund are also recorded in that individual fund. Depreciation on proprietary fund fixed assets is provided over their estimated useful lives on the straight-line method. The useful lives of these assets have been estimated as follows: Years Buildings 20-50 Improvements other than buildings 10-50 Machinery and equipment 5-20 Vehicles and heavy equipment 5-20 Sewer lines and pump stations 10-50 5. Deferred Revenues Deferred revenue results when asset recognition criteria have been met and when revenue recognition criteria have not been met. These pertain to the net uncollected property tax and other receivables and are classified as "Deferred Revenues" on the combined balance sheet. b. Compensated Absences It is the City's policy and state law to permit employees to accumulate a limited amount of earned but unused vacation benefits, which will be paid to employees upon separation from City service. Employees are allowed to accumulate and carry over a maximum of two times their annual accumulation of vacation, but no more than 90 days into the new calendar year. There is no restriction on the amount of sick leave that may be accumulated. Upon separation, employees are paid 100 percent of accumulated vacation and 25 percent of accumulated sick leave. The liability associated with governmental fund -type employees is reported in the general long-term debt account group, while the liability associated with proprietary fund -type employees is recorded in the respective fund. -13- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 7. Long -Term Obligations The City reports long -terns debt of governmental funds at face value in the general long-term debt account group. Certain other governmental fund obligations not expected to be financed with current available financial resources are also reported in the general long-term debt account group. Long-term debt and other obligations financed by proprietary funds are reported as liabilities in the appropriate funds. For governmental fund types, bond premiums and discounts, as well as issuance costs, are recognized during the current period. Bond proceeds are reported as an other financing source net of the applicable premium or discount. Issuance costs, even if withheld from the actual net proceeds received, are reported as debt service expenditures. For proprietary fund types, bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Issuance costs are reported as deferred charges. 8. Fund Equity Reservations of fund balance represent amounts that are not appropriable or are legally segregated for a specific purpose. Reservations of retained earnings are limited to outside third -party restrictions. Designations of retained earnings represent tentative management plans that are subject to change. The proprietary funds contributed capital represents equity acquired through capital grants and capital contributions from developers, customers or other funds or governments. 9. Interfund Transactions Interfund transactions consisting of identified services performed for other funds or costs billed to other funds are treated as expenditures in the fund receiving the services and as revenue in the fund performing the services. Transactions which constitute reimbursements of a fund for expenditures or expenses initially made from it which are properly applicable to another fund are recorded as expenditures in the reimbursing fund and as reductions of expenditures in the fund that is reimbursed. 10. Memorandum Only- Total Columns Total columns on the general-purpose financial statements are captioned "Memorandum Only" to indicate that they are presented only to facilitate financial analysis_ Data in these columns do not present financial position, results of operation, or cash flows in accordance with generally accepted accounting principles. Neither is such data comparable to a consolidation. Interfund eliminations have not been made in the aggregation of this data. -14- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 H. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A, Budgets and Budgetary Accounting 1. Budget Process An operating budget is adopted each fiscal year for the General Fund, Special Revenue Funds, Debt Service Funds, and Capital Projects Funds on the modified accrual basis of accounting. The appropriated budget is prepared by fund, function, and for the General fund and certain other funds, by department. A non-binding management budget is adopted for the Enterprise and Internal Services Funds. The final budget is legally enacted by the City Council, on the second Monday in August after holding public hearings as required by State statutes. Budget appropriation transfers may be made between the general classifications of salaries and wages, maintenance and operation and capital outlay. The City Council may amend a final budget when shortfalls in budgeted revenues require reductions in approved appropriations to avert deficit spending; when savings result from unanticipated adjustments in projected expenditures; when unanticipated state or federal monies are received; or when a public emergency occurs which could not have been foreseen at the time of adoption. The procedure to amend the budget in total can be made only after the City prepares a resolution, notice is published of a public hearing, and a public hearing is held in accordance with state law. The City recognized certain commitments related to purchase orders and executory contracts as expenditures for budgetary purposes. In addition, a reserve for encumbrances was established for the commitments to indicate that these amounts will not be available for the ensuring year's budget, but will be used to liquidate portions of the current year's budget. 2. Deficit Fund Balances The following funds had deficit fund balances at June 30, 1997: Special Revenue Funds: Airport Tax Increment $ 32,978 Affordable Housing 1,472 Debt Service Funds: 1987 Sidewalk and Curb 3,790 1990 Sidewalk and Curb 114 1991 Sidewalk and Curb 599 1994 Sidewalk and Curb 751 1995 Sidewalk and Curb 1,430 Capital Projects Funds: 1997 Sidewalk and Curb 14,106 -15- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 The two Special Revenue Funds anticipate the sale of land which will offset costs associated with both projects. The deficits in the Debt Service Funds were caused by a shortfall in anticipated revenue and will be eliminated as delinquent assessments are collected. The deficit in the Capital Projects Fund will be eliminated upon the sale of Sidewalk and Curb Warrants at the end of the construction season. 3. Budget OverdaraftsNariances Significant favorable budget to actual variances existed in the General Fund and the Special Revenue Funds in the taxes revenue source in the amount of $149,685 and $158,879, respectively, due to the return of tax revenue withheld by the County for protested taxes due to the Albright lawsuit in the prior year. A significant favorable variance in the General Fund intergovernmental revenue source was a result of increased gaming revenue and corporation tax; and an unfavorable variance appears in the Special Revenue Fund intergovernmental revenue source for grant revenue for the housing project. This is due to recording the infrastructure and the grant contribution in the Enterprise Funds for the assets constructed. The grants were received and construction recorded in the Special Revenue Fund until close-out to the Enterprise Funds, III. DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS A. Cash and Cash Equivalents The City maintains a cash and investment pool for all funds under the control of the Finance Director. Pooled investments are reported on the Combined Balance Sheet as Cash/Investments. Cash and investments may include cash and cash items; demand, time, savings, and fiscal agent deposits; investments in the State Short -Term Investment Pool (STIP); repurchase agreements; registered warrants of the City or of municipalities or school districts located in the City; U.S. government treasury bills, notes, bonds and other treasury obligations such as state and local government series; general obligations of certain agencies of the United States such as Federal Home Land Bank; and U. S. government security money market funds if the fund meets certain conditions. -16- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 The composition of cash and cash equivalents on June 30, 1997, was as follows: Deposits - At year-end, the carrying amount of the City's deposits was $177,165, and the bank balance was $252,147. These deposits include demand and time deposits. Of the bank balance, $155,977 was covered by Federal Depository Insurance or collateral held by the City or by its agent in the City's name, and $96,170 was covered by securities held by the pledging financial institution's trust department or agent in the City's name. The $27,377 belonging to the Parking Commission, a component unit of the City, was completely covered by Federal Depository Insurance. Montana statutes require that the City obtain securities for the uninsured portion of the deposits as follows: 1. securities equal to 50% of such deposits if the institution in which the deposits are made has a net worth to total assets ratio of 6% or more, or 2. securities equal to 100% of the uninsured deposits if the institution in which the deposits are trade has a net worth to total assets ratio of less than 6%. State statutes do not specify in whose custody or name the collateral is to be held. The amount of collateral held for City deposits as June 30, 1997, equaled or exceeded the amount required by State statutes. The City held no investments subject to risk. categorization. Governmental Accounting Standards Board (GASB) Technical Bulletin No. 94-1 requires governmental entities participating in an investment pool to disclose certain types of securities held in the pool. As noted above, the City invests in the Short -Term Investment Pool managed by the State of Montana. This pool contains two types of investments required to be disclosed, which are Asset-backed Securities and Variable Rate(Floating Rate) Securities. -17- Total Primary Component Reporting Governmen Unit Entity Cash on Hand $ 55,462 $ 86 $ 55,548 Cash in Banks: Demand Deposits 121,188 15,825 137,013 Time Deposits 55,977 11,466 67,443 VALIC - deferred compensation 418,565 - 41.8,565 Bidders Bonds 59,890 - 59,890 Bonds/Warrants 69,982 - 69,982 State Short -Term Investment Pool (STIP) 10 925.,98010 9_ ..............,2980 Total per Balance Sheet $11,707,044 $ $1_x._734,421 Deposits - At year-end, the carrying amount of the City's deposits was $177,165, and the bank balance was $252,147. These deposits include demand and time deposits. Of the bank balance, $155,977 was covered by Federal Depository Insurance or collateral held by the City or by its agent in the City's name, and $96,170 was covered by securities held by the pledging financial institution's trust department or agent in the City's name. The $27,377 belonging to the Parking Commission, a component unit of the City, was completely covered by Federal Depository Insurance. Montana statutes require that the City obtain securities for the uninsured portion of the deposits as follows: 1. securities equal to 50% of such deposits if the institution in which the deposits are made has a net worth to total assets ratio of 6% or more, or 2. securities equal to 100% of the uninsured deposits if the institution in which the deposits are trade has a net worth to total assets ratio of less than 6%. State statutes do not specify in whose custody or name the collateral is to be held. The amount of collateral held for City deposits as June 30, 1997, equaled or exceeded the amount required by State statutes. The City held no investments subject to risk. categorization. Governmental Accounting Standards Board (GASB) Technical Bulletin No. 94-1 requires governmental entities participating in an investment pool to disclose certain types of securities held in the pool. As noted above, the City invests in the Short -Term Investment Pool managed by the State of Montana. This pool contains two types of investments required to be disclosed, which are Asset-backed Securities and Variable Rate(Floating Rate) Securities. -17- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 Amounts (unaudited) invested by STIP in each type as of June 30, 1997, were as follows: Categoa 1 % Asset-backed $ 349,342,985 32.08 Variable Rate 356,987,428 32.78 Other Securities 382,757,21.6 3514 Total $1.089087,629 100.00 Amounts invested by the City in STIP may be redeemed at any date at the carrying value on that date. Audited financial statements for the State of Montana's Board of Investments are available at 555 Fuller Avenue in Helena, Montana. B. interfund Receivables and Payables The composition ofinterfund balances as of June 30, 1997, were as follows: Amounts due to and fr m other Funds: Amounts due to and from other funds consisted of the following: Receivable Fund Payable Fund Enterprise Fund: Special Revenue Fund: Sewer Fund $32,6-8-1 Airport Tax Increment Fund $32-M Capital Projects Fund: General Fund $1.4,106 S & C Construction Fund Debt Service Fund: Debt Service Fund: SID Revolving Fund $ 1987 S&C Fund 1990 S&C Fund 1991 S&C Fund 1994 S&C Fund 1995 S&C Fund S&C Total Amounts advanced to and from other Funds: Advance from General $4_,253 Advance from Enterprise: Ambulance $15,000 M Advance to Internal Service: Data Processing Advance to Enterprise: Sewer $14 $ 3,825 114 599 751 1,430 $6684 CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 C. Operating Transfers The following is an analysis of operating transfers in and out during the fiscal year ended June 30, 1997: From General Fund D. Fixed Assets TQ Drug Enforcement Fund A summary of changes in general fixed assets was as follows: Land Buildings Improvements Other Than Buildings Machinery and Equipment Construction Work in Progress Total Balance July 1. 1996 Additions $ 1,873,659 $ 334,775 4,615,912 81,367 1,469,364 12,724 2,547,464 82,942 27,8 72,740 $10.534.281 $ 584 548 Amount $=1=2 785 Balance Deletions June 30 1997 $ - $ 2,208,434 - 4,697,279 - 1,482,088 18,912 2,611,494 27.882 72,740 $4 $..11,072,035 The following is a summary of proprietary fund type property, plant, and equipment as of June 3 0, 1997: Land Machinery and Equipment Construction Work in Progress Source of Supply Pumping Plant Treatment Plant Transmission and Distribution General Plant Storm. Sewer System Total Less Accumulated Depreciation Net -19- Internal Component Enterprise Service Unit $ 248,063 $ - $ - 1,344,497 273,794 23,607 532,647 - - 347,709 - - 596,599 - - 14,114,581 - - 14, 943, 3 02 - - 1,211,380 - - 3,704„795 37,043,573 273,794 23,607 11,474176 162; 446 5,320 $25 5 $ 111,348 $ 18,287 -19- Is CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 Long -Term Debt Changes in Long Term Debt Liahilines - During the year ended June 30, 1997, the following changes occurred in reported liabilities: General Obligation Bonds (1) Revenue Bonds (2) SRF Loan-WWTP (2) Special Assessment Bonds (1) Urban Renewal Bonds (1) Contracted Debt/Loans (1) Compensated Absences (1,2,3) Total Balance Interest Term of Balance July 1, 1996 Additions Reductions June 30 1997 $ 215,000 $ - $ 50,000 $ 1.65,000 4,465,000 925,000 1,115,000 4,275,000 3,420,000 - 150,000 3,270,000 447,814 12,148 44,979 414,983 1,150,000 - 150,000 1,000,000 284,741 - 21,827 262,914 840.706 23,807 9,19458 5,319 $10,823,261 $ 960,955 $ 11 5 $10.243,216 (1) Reported in long-term debt account group (2) Reported in Enterprise Fund (3) Reported in Proprietary Component Unit General Obligation Bonds - The City issues general obligation bonds to provide funds for the acquisition and construction of major capital facilities. General obligation bonds are direct obligations and pledge the full faith and credit of the City. General obligation bonds outstanding as of June 30, 1997 were as follows: L G.O. Bonds Issue Interest Term of Final Bonds Outstanding Annual Pu ase Date Rate Bin Maturi Issued lune 30, 1997 Pavmen Pool - refunding 4193 2.8-5.1% 7 yrs 2000 $ 385,000 $ 165.000 varies General obligation bonds of the city are secured by the general credit and revenue raising powers of the City. $19,921 is available in the Debt Service Fund to service the general obligation bonds. 2. Revenue Bonds Issue Purlaase D= 1996 Water Bonds 6196 1991 WWTP-ref. 4191 1997 Sewer -ref. 5197 Total Revenue Bonds Interest Term of Final Rate Bonds M t ri 5.5% 15 yrs 2011 7.18% 20 yrs 2011 5.08% 9 yrs 2006 Bonds Outstanding Annual Issued June 30 1997 Pavzzaent $1,060,000 $ 1,015,000 varies 2,815,000 2,335,000 varies 925.000 925.000 varies $80000 $^ X4_,275,000 The significant provisions of the bond ordinances relating to the issuance of the Water and Sewer System Revenue Bonds and the financial statements and other schedules required by those ordinances are presented as ,supplemental information on pages 35 - 41. -20- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 3. State Revolving Fund In November 1991, the City entered into an agreement with the State Revolving Fund (SRF) to borrow funds to partially finance the construction of a wastewater treatment plant facility. This obligation is to be repaid from the operating income of the Sewer Fund, Interest Amount Outstanding Rate Term Borrowed June 30, 1997 SRF Loan 4% 20 yrs $ L912A425 $ 3.270.000 4. Special Assessment Bonds Special assessment bonds are secured by a lien on the assessed properties. The primary source of repayment is the assessments levied against the benefitted properties. However, the City is liable, to an extent, for repayment of these special assessment bonds. The City is authorized by State law to establish a revolving fund to ensure the payment of debt service on the bonds in the event that assessed property owners default. 5. Tax Increment Urban Renewal Bonds In December 1985 the City issued $2,100,000 in Tax Increment Urban Renewal Bonds pursuant to Title 7, Chapter 15, Parts 42 and 43, MCA, and pursuant to the Bond Resolution adopted by the Kalispell City Council. These Series 1985 Bonds are considered to be special obligations of the City payable solely from tax increment generated by the area. The City has irrevocably pledged and appropriated the tax increment to the payment of the Series 1985 Bonds which have a first lien on all tax increment revenue generated by the area. The Series 1985 Bonds do not constitute a general obligation of the City or pledge the ad valorem taxing power of the City. Although the long-term liability created by the issuance of the bonds is considered a fund -specific liability, it is reported as a liability in the general long-term debt account group as required by generally accepted accounting principles. At June 30, 1997, there was $2,529,962 available in the Tax Increment Special Revenue Fund to service these bonds. -21- Issue Interest Term of Final Bonds Outstanding Annual P=os Date Rate Bonds Matu Issued .1 n� Pa e Special Assessment Bonds: SID 337 - Seger 12/01/86 7.74% 15 yrs 2002 $ 110,000 $ 50,000 vanes SID 341 - Sewer 9101/95 6.06% 15 yrs 2011 100,000 95,000 varies SID 342 - Sewer 11/01/95 6.34% 15 yrs 2011 209,000 200,000 varies Special Assessment Warrants: 1989 Walk & Curb 113/90 M5% 8 yrs 1997 15,818 2,000 varies 1990 Walk & Curb 1115/91 10.0% 8 yrs 1998 14,600 3,700 varies 1991 Walk & Curb 211/92 8.0% 8 yrs 2000 3,360 11973 varies 1992 Walk & Curb 1/2/93 7.0% 8 yrs 2001 9,103 6,000 varies 1993 Walk & Curb 114/94 6.0% 8 yrs 2002 5,112 2,920 varies 1994 Walk & Curb 12/31/86 8.5% 8 yrs 2003 28,513 20,256 varies 1995 Walk & Curb 1/2/96 8.5% 8 yrs 2004 22,823 19,964 varies 1996 Walk & Curb 1/2/97 8.5% 8yrs 2005 12,148 12,148 vanes Meridian Walk 10/1/90 11.0% 8 yrs 1998 7.322 1.022 varies Total Special Assessment Bonds $ 537.799 $ 414,983 5. Tax Increment Urban Renewal Bonds In December 1985 the City issued $2,100,000 in Tax Increment Urban Renewal Bonds pursuant to Title 7, Chapter 15, Parts 42 and 43, MCA, and pursuant to the Bond Resolution adopted by the Kalispell City Council. These Series 1985 Bonds are considered to be special obligations of the City payable solely from tax increment generated by the area. The City has irrevocably pledged and appropriated the tax increment to the payment of the Series 1985 Bonds which have a first lien on all tax increment revenue generated by the area. The Series 1985 Bonds do not constitute a general obligation of the City or pledge the ad valorem taxing power of the City. Although the long-term liability created by the issuance of the bonds is considered a fund -specific liability, it is reported as a liability in the general long-term debt account group as required by generally accepted accounting principles. At June 30, 1997, there was $2,529,962 available in the Tax Increment Special Revenue Fund to service these bonds. -21- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 The Board of Housing is paid from the ,proceeds of the rents on the Courtyard Apartments per the agreement with Northwest Montana Human Resources. 7. Compensated Absences Payable Compensated absences payable, which represent vacation and sick leave earned by employees which is payable upon termination, were as follows: Proprietary Component Unit $ 1,119 Enterprise Fund 129,898 General Long -Term Debt Account Group _ .724,302 Total $ 855.319 8. Advance Refunding of Long -Term Debt The City issued $925,000 in revenue bonds with an average interest rate of 5.08% to advance refund $955,000 of outstanding revenue bonds with an average interest rate of 7.0%. None of the net proceeds of after payment of underwriter fees, insurance, and other issuance costs were invested at a materially higher yield for a temporary period. As a result, the revenue bonds are considered to be defeased and the liability for those bonds has been removed from the Enterprise Fund. The City advance refunded the revenue bonds to reduce its total debt service payments over the next nine years by approximately $58,338 and to obtain an economic gain (difference between the present values of the debt service payments of the old and new debt) of $69,632. -22- Issue Interest Term of final Bonds Outstanding Annual Puruose Date Rates Bonds Maturity Issued June 30. 1997 P_� Tax Increment 12/85 6.25-9.5% 16 yrs 7/1/02 $2.100,000 $ 1,000 000 varies 6. Loans/Contracted Debt Origination Interest Due Principle Outstanding Purpose Date __ Rate Tenn_ Date Am= ,1unQ 30. 1997 General Long -Term Debt Group of Accounts: Board of Housing 4193 6% 30 yrs 211125 $ 271,00.0, $ 262,9.1,4 The Board of Housing is paid from the ,proceeds of the rents on the Courtyard Apartments per the agreement with Northwest Montana Human Resources. 7. Compensated Absences Payable Compensated absences payable, which represent vacation and sick leave earned by employees which is payable upon termination, were as follows: Proprietary Component Unit $ 1,119 Enterprise Fund 129,898 General Long -Term Debt Account Group _ .724,302 Total $ 855.319 8. Advance Refunding of Long -Term Debt The City issued $925,000 in revenue bonds with an average interest rate of 5.08% to advance refund $955,000 of outstanding revenue bonds with an average interest rate of 7.0%. None of the net proceeds of after payment of underwriter fees, insurance, and other issuance costs were invested at a materially higher yield for a temporary period. As a result, the revenue bonds are considered to be defeased and the liability for those bonds has been removed from the Enterprise Fund. The City advance refunded the revenue bonds to reduce its total debt service payments over the next nine years by approximately $58,338 and to obtain an economic gain (difference between the present values of the debt service payments of the old and new debt) of $69,632. -22- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 9. Requirements to Amortize Debt The annual requirements to amortize all long; -term debt outstanding, except compensated absences payable, as of June 30, 1997, including interest payments of $4,072,313, are as follows: Year Ending G.O. SID SID Revenue June 30, 1997 Bond Bonds Warrants Bonds 1998 $ 63,1.68 $ 45,760 $ 21,611 $ 505,782 1.999 60,555 49,630 16,958 505,930 2000 57,805 42,868 14,042 505,800 2001 - 41,352 13,610 504,960 2002 - 39,812 10,972 503,460 2003-2007 - 160,268 12,151 2,387,060 2008-2012 - 133,280 - 1,497,520 2013-2017 - - - - 2018-2022 - - - - 2023-2025 - Total $_ 181528 $ 512,970 $ 89.344 $ 6,410,5.12 Urban Year Ending Renewal SRF Contracted June 30, 1997 Bonds Debt Totals 1998 $ 258,945 $ 285,260 $ 19,147 $ 1,200,023 1999 258,765 284,960 19,147 1,196,295 2000 262,025 285,400 19,147 1,187,437 2001 258,225 285,580 19,147 1,123,225 2002 262,800 284,480 19,147 1,121,021 2003-2007 - 1,425,600 97,485 4,082,564 2008-2012 - 1,425,1.00 97,485 3,153,385 2013-2017 - 142,800 97,485 240,285 2018-2022 - 97,485 97,485 2023-2025 58,491 58,421 Total $1.300,760 $4 41� $55 9 i 6 $13 4 F. State -Wide Retirement Plans Substantially all full-time City employees are eligible for one of three retirement plans: Montana Public Employees Retirement System (PERS), Municipal Police Officers' Retirement System (MPORS), and the Firefighters' Unified Retirement System (FURS). The plans are established by State law and administered by the State of Montana. The plans are cost-sharing multiple -employer defined benefit plans that provide retirement, disability and death benefits to plan members and beneficiaries. The City had a total payroll of $4,603,659 for the fiscal year ended June 30, 1997, of which $4,080,779 was covered by PERS, MPORS, or FURS. Component Unit payroll was $63,819 for the Parking Commission. -23- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 3 0, 1997 Contribution rates are required and determined by State law. The contribution rates, expressed as a percentage of covered payroll for the fiscal year ended June 30, 1997, were - PERS ere: ' R MPORS FURS Employee 6.70% 7.819/10.5% 7.8% Employer 6.70% 14.36% 14.36% The Public Employees Retirement System issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing to Public Employees Retirement Division, P.O. Box 200131, Helena, Montana, 58620-0131 or by calling 1-406-444-3154, The City's contributions for the years ended June 30, 1995, 1996, and 1997, as listed below, were equal to the required contributions for each year. PERS MPORS 1995 $137,702 $121,329 1996 137,702 127,379 1997 160,259 132,598 G. Post Employment Benefits Component FURS Ute- PERS $ 92,979 $ 4,309 106,795 4,045 109,921 4,276 Terminated employees may remain on the City's health insurance plan for up to 18 months if they pay the monthly premiums. This benefit is required under the federal COBRA law. Retirees may remain on the City's health plan to age 65, provided they pay the monthly premiums. State law requires the City to provide this benefit. No cost can be estimated for the above benefits, although there is the probability that there are higher medical costs for retirees which would result in additional costs to the insurance program. There are no other post -employment benefits provided by the City. H. Local Retirement Plans 1. Deferred Compensation Plans The City offers its employees a deferred compensation plan (VALIC) created in accordance with Internal Revenue Code Section 457. The plan, available to all City employees, permits them to defer a portion of their salary until future years. Participation in the plan is optional. The deferred compensation is not available to employees until termination, retirement, death or unforeseeable emergency. All amounts of compensation deferred under the plan, all property and rights purchased with those amounts, and all income attributable to those amounts, property or rights are (until paid or made available to the employee or other beneficiary) solely the property and rights of the City (without being restricted to the provisions of benefits under the plan), subject only to the claims of the City's general 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. -24- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 It is the opinion of the City's legal counsel that the City has no liability for losses under the plan but does have the duty of due care that would be required of an ordinary prudent investor. The City believes that it is unlikely that it will use the assets to satisfy the claims of general creditors in the future. Investments are managed by the plan's trustee with no specific restriction on the investment options. The plan assets of $418,565 for VALIC is recorded in an Agency fund at June 30, 1997, as required by generally accepted accounting principles. I. Amounts Due From and Due to Other Governments The amounts due from and due to other governments consisted of the following: Due From County for June Tax Collections: General Fund $ 160,079 Comprehensive Insurance Fund 32,025 Retirement Fund 35,961 Health Insurance Fund 47,378 Tax Increment fund 468,903 G.O. Bond .Fund 5,572 Total $ 749 918 Due From Other Governments: Lawrence Park - MDOT $ 54,000 County - Drug Enforcement Grant 7.766 Total $ Due From Other Entities: Due From Pacific Power $_.,.__I2 J. Restricted Cash/Investments The following restricted cash/investments were held by the City as of June 30, 1997. Special Revenue Funds: Community Development - Rehab. int. Subsidy Community Development - Courtyard Reserve Tax Increment - Bond Reserve UDAG Loan Repayment - interest Subsidy Special Revenue Funds Total Debt Service Funds: Reserved for Debt Service -25- $ 5,075 8,560 123,046 4-038 $ 140.719 CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 Enterprise Funds: Water - Sinking & Interest $ 2,524 Water - Bond Reserve 106,000 Water - Replacement 777,043 Water - Capital Improvement 256,423 Sewer - Replacement 1,533,916 Sewer - Sinking & Interest 1,422 Sewer - Contingency 686,437 Sewer - Capital Improvement 1,176,630 Sewer - Operating Reserve 100,000 Sewer - Storm Sewer 453,256 Ambulance - Replacement -designation 60,036 Garbage - Replacement -designation 78,112 Enterprise Funds Total $5 Agency Funds: Deferred Compensation - VALIC $ 418,565 Bidders Bonds 59.890 Agency Funds Total $_ 478.455 Internal Service Fund: Data Processing - Replacement -designation $ 40,805 K. Fund Equity Reserves and/or designations of the City at June 30, 1997, consisted of: General Fund: Reserve for Encumbrances $ 36,975 Reserved for Advance to Internal Service Fund 4.253 General Fund Total $ 41.228 Special Revenue Funds: Tax Increment - Reserve for Encumbrances $ 43,072 Tax Increment - Reserve for Bond Contingency 123,046 Community Development - Interest Subsidy 5,075 Community Development - Courtyard Reserve 9,550 Gas Tax - Reserve for Encumbrances 109,055 UDAG Loan Repayment - Interest Subsidy 4,038 Special Revenue Funds Total $ 29 _8-76 Debt Service Funds: Reserved for Debt Service $ 115,670 -26- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 Enterprise Funds: Water - Reserve for Revenue Bond $ 106,000 Water - Reserve for Sinking & Interest 2,524 Water - Reserve for Replacement 777,043 Water - Reserve for Inventory Supplies 118,598 Water - Reserve for Capital Improvements 205,756 Sewer - Reserve for Revenue Bond 686,437 Sewer - Reserve for Replacement - Sanitary 696,834 Sewer - Reserve for Advance 15,000 Sewer - Reserve for Operations 100,000 Sewer - Reserve for Sinking & Interest 1,422 Sewer - Reserve for Capital ImprovementlWWTP 2,045,394 Sewer - Reserve for Storm Sewer 443,714 Ambulance - Designated for Replacement 60,036 Garbage - Designated :for Replacement 78.,_1.12 Enterprise Funds Total $5 3.36,870 Internal Service Fund: Designated for Replacement L. Ganges in Contributed Capital A schedule of changes in contributed capital is presented below: Contributed Capital - July 1, 1996 Add: Capital grants Developers contributions Deduct: Depreciation on assets Contributed Capital - June 30, 1997 M. Restatements Data Water Sewer Processing Fund____ Fund Fund Total $2,650,840 $10,416,126 $ 8,428 $13,075,394 88,984 195,690 - 284,674 278,530 338,696 - 617,226 60,236 505,981 2.,096 568,313_ $2�95�18 $10 444 531 $ 6 332 $13 4�08�981 During the current fiscal year, the following adjustments relating to prior years' transactions were made to fund balance and retained earnings accounts. -27- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 EU -n -d Amount Courtyard Maintenance $ 32,091 SID Revolving (75) Sewer Fund 11,712 Solid Waste (3,045) N. Residual Equity Transfers Reason for Adjustment Book Maintenance Fund on City records Remove accrued interest receivable - fund closed Storm asset, materials expensed prior year Refund garbage fees prior years Residual equity transfers are made to transfer the remaining equity balance of a discontinued fund to another fund. Transfers made during the year consisted of the following: Fund Making Transfer Govt. Study Commission (2) Tax Increment Fund (2) Community Development (2) Fund Receiving Transfer General Fund (1) Sewer Fund (3) Courtyard Maintenance (2) Fun Tyyl2es and Total Nel Transfers (1) General (2) Special Revenue (3) Enterprise A_._Qunt $ 19,945 2,901 (a) 4,825 $ 19,495 (22,395) 2,901 (a) The City made an equity transfer from the Tax Increment Fund of $2,901 for the I" Avenue East storm sewer project to the Sewer Fund. The transfer to the Enterprise Fund was recorded as contributed capital. Therefore, equity transfers do not net to zero in the financial statements. O, Segment Information For Enterprise Funds The City maintains four enterprise funds which provide water, sewer, ambulance, and garbage services. Selected segment information for the year ended June 30, 1997, is as follows: -28- Water Sewer Ambulance Garbage Total Operating revenue $ 944,835 $ 2,361,607 $ 465,920 $ 411,181 $ 4,183,343 Depreciation expense 198,409 1,021,092 27,898 43,422 1,290,821 Operating income (loss) (713) 57,030 43,725 123,909 223,951 Net income (loss) 75,583 (103,715) 46,624 136,308 152,800 Current capital contributions 367,514 534,386 - - 901,900 Property, plant, and equipment: Additions 1,281,672 950,235 13,831 123,406 2,369,144 Deletions 19,035 31,948 - 3,163 54,146 Net working capital 1,699,804 4,466,184 274,319 3 14,5 96 6,754,903 Total Assets 8,589,000 22,980,415 347,473 829,628 32,746,516 Loan.g-term. Liabilities: Payable from Operating Revenues 1,047,732 6,578,305 38,522 25,339 7,689,898 Total Equity 7,436,043 16,196,012 305,683 696,664 24,634,402 -28- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 P. County Provided Services The City of Kalispell is provided various financial services by Flathead County. The County also serves as cashier and treasurer for the City for tax and assessment collections and other revenues received by the County which are subject to distribution to the various taxing jurisdictions located in the County. The collections made by the County on behalf of the City are accounted for in an agency fund in the City's name and are periodically remitted to the City by the County Treasurer. The County charges the City for fees associated with City Special Assessments. Q. Joint Ventures Joint ventures are independently constituted entities generally created by two or more governments for a specific purpose. 1. City -County Health Department The City -County Health Department is operated under an interlocal agreement between Flathead County and the City of Kalispell. The Department operates under the supervision and control of the City -County Health Board, The Board consists of seven members, six of whom are appointed by the Board of County Commissioners. The County taxed the property owners directly for the City's contributions for the fiscal year ended June 30, 1997, at an equivalent rate of mills. 2. County -Wide Administrative Board The City of Kalispell along with Flathead County, the City of Columbia Falls, and the City of Whitefish, participate in a County -wide Administrative Board(CAB) that was established by an interlocal agreement in December, 1979. The CAB was formed for the purpose of coordinating all land use planning, subdivision reviews and approval, and zoning application and enforcement in Flathead County, as well as to assist in annexation by the cities. The Board consists of four members, the Mayor of each of the three cities, and the Chairman of the Flathead County Board of County Commissioners. The CAB is financed by a tax levied by each of the parties to the interlocal agreement in proportion to the expected benefits that each party shall receive during the ensuing fiscal year. The financial activities of the CAB are accounted for by Flathead County. The City's contributions for the CAB for the fiscal year ended June 30, 1997, was $73,465. -29- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 3. Courtyard Apartments/Northwest Montana Human Resources The City entered into an agreement with Northwest Montana Human Resources (NWMHR) for a joint venture construction project of the Courtyard Apartments. The City owns 16 units of the apartment complex built with Home Grant and CDBG Funds. NWNHR has built 16 units also. The agreement provides for the management of the housing complex for low income housing. All operations and maintenance of the Dousing complex are managed by Northwest Montana Human Resources, NWM] R maintains a trust fund in the City's name to record the revenues and expenses of the housing complex. As of June 3 0, 1997, the equity in the fund was $44,924. The debt payments on the mortgage are paid from the proceeds of the rents by NWMHR. The principal balance is recorded on the City's books in the Long - Term Debt Group of Accounts. R. Risk Management The City faces considerable number of risks of loss, including (a) damage to and loss of property and contents, (b) employee torts, (c) professional liability, i.e., errors and omissions, (d) environmental damage, (e) workers' compensation, i.e., employee injuries, and (f) medical insurance costs of employees. A variety of methods are used to provide insurance for these risks. Commercial policies transferring all risks of loss, except for relatively small deductible amounts, are purchased for property and content damage, employees torts, and professional liabilities. Employee medical insurance is provided through a privately - administered, self-insured plan. Given the lack of coverage available, the City has no coverage for potential losses from environmental damages. Effective July 1, 1987, the City of Kalispell. joined with other Montana cities to form the Montana Municipal Insurance Authority, a self insurance pool offering Workers' Compensation and Liability Coverage. Both public entity risk pools currently operate as common risk management and insurance programs for the member governments. The liability limits for damages in tort action are $750,000 per claim and $1.5 million per occurrence with a $7,500 deductible per occurrence. State tort law limits the City's liability to $1.5 million. The City pays an annual premium for its employee injury insurance coverage which is allocated to the employer funds based on total salaries and wages. The agreements for formation of the pools provide that they will be self-sustaining through member premiums. The tort liability plan and Workers' Compensation program issued bonds in the amount of $4.41 million and $7.610 million, respectively, to immediately finance the necessary insurance reserves. All members signed a contingent note for a pro rata share of this liability in case operating revenues were insufficient to cover the debt service. The City's share is $201,445 for liability and $281,715 for Workers' Compensation to finance the necessary insurance reserves. Based on the plan's current financial position, the City doesn't expect to make any payment on these notes. Separate financial statements are available from the Montana Municipal Insurance Authority. -30- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 ;Health Insurance In October 1993, the City established an internal service fund for the City's self insured health insurance plan. The plan is administered by Blue Cross/Blue Shield of Montana. The City pays premiums recommended by Blue Cross into the City Health Fund. The claims are submitted weekly by Blue Cross and paid out of this fund. The City pays the total monthly premium for all full-time employees and their dependents. Vision is optional and paid by the employee. The plan pays 80% of the medical claims after the $100 deductible for each employee and covered dependent has been satisfied, up to total of $200 maximum family deductible. Generic prescriptions drugs are 100% covered. Dental claims are paid 100% if the dentist is a participating Blue Cross dentist, otherwise 80% of the claims are paid. A "stop -loss" policy has been purchased to cover any claims which exceed $75,000 per individual or aggregate claims of 115% of claims projected by Blue Cross. No individual reached the stop loss amount nor did the City total reach the projected amount. S. Pending Litigation The following is a list of litigation pending against the City and the amount of damages claimed by the Plaintiff. The City Attorney has made no evaluation as to the outcome of each case. The City has liability insurance which may cover all or part of the damages requested. Accordingly, no provision has been made in the financial statements for these contingent liabilities. T. 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, 1997, was $2,635,040 and is recorded in the Urban Development Action Grant Loan Repayment Fund, a Special Revenue Fund. Loan repayments to the City, a local source of revenue which the City is using to finance the ongoing Community Development Program, 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, deferred for the first year, accrued at 6% per annum for years two through four, and increased to 9% for the remaining 21 years. -31- Damages Bequeste Cervaate&-P-01y4alispell $ 180,000 J Pell 75,000 Lm" -vs -City af.Kalispell 90,000 Grey vs. City of Kalispell 50,000 Lincoln -vs: City of Ka6pell 0 - injunctive relief Storm vs. City of Kalispell 1,000,000 T. 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, 1997, was $2,635,040 and is recorded in the Urban Development Action Grant Loan Repayment Fund, a Special Revenue Fund. Loan repayments to the City, a local source of revenue which the City is using to finance the ongoing Community Development Program, 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, deferred for the first year, accrued at 6% per annum for years two through four, and increased to 9% for the remaining 21 years. -31- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 A loan was made from the Tax Increment Special Revenue Fund to the 2nd Avenue West Professional Building, a partnership, in the amount of $67,000 on December 30, 1985. The loan was made for the purpose of acquiring real property for development as a parking lot. The term of the loan is fifteen years, of which interest will accrue at the rate of 5% for the first five years and for years six through 15 the interest rate will accrue at a rate paid on U.S. Treasury bills as of the 15th day of January of the year in which the payments are due. The loan is authorized pursuant to Title 7, Chapter 15, Parts 42 and 43, MCA, and ordinance 4933 enacted by the City of Kalispell creating the Kalispell Downtown Redevelopment Plan. The City is authorized to eliminate and prevent the spread of blight by encouraging the redevelopment of land by private enterprise. The current repayment schedule calls for a monthly principal and interest payment of $496 each month. The balance of the loan receivable of $20,747 was recorded in the Tax Increment Fund as of June 30, 1997. 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 $309,808 recorded as loans receivable as of June 30, 1997, 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 $36,900. The above mentioned loans are offset with deferred revenue accounts. Uncollected taxes receivable in governmental funds are offset with deferred revenue accounts as explained in the "basis of accounting." -32- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 U. Significant Construction Commitments and/or Other Contingencies Encumbered Significant construction contracts and other commitments entered into but incomplete at fiscal year-end included the following: General Fund $ 36,975 Tax Increment Fund 43,072 Gas Tax Fund 88.415 Total $ 168,462 V. City Court Contracts Receivable A-1 Paving Overlay contract A-1 Paving Overlay contract A-1 Paving Overlay contract Contracts receivable for the City Court have been recorded as an asset in the General Fund. The contracts receivable are offset with deferred revenue as required by generally accepted accounting principles. The receivables estimated as collectible are $205,211. W. Wastewater Treatment Plant Agreement with 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 matered flows. Evergreen Sewer District has an equity interest in the replacement account carried on the City's books. The balance of the account as of June 30, 1997, was $837,082 of which Evergreen's interest was $144,482. The City of Kalispell has sole responsibility for the use of these funds. X. Component Unit -Kalispell Parking Commission The Kalispell City Council passed Resolution 4103, a resolution of intention to create Special Parking District Number 2, on June 21, 1993. Also passed was Resolution 4104, a resolution of intention to provide for funding the cost of maintaining, operating, repairing, and improving Special Parking Maintenance District Number 2, and Resolution 4105, a resolution declaring the need for a Parking Commission to function in the City of Kalispell and declaring a jurisdictional area wherein said Parking Commission is authorized to function. The Mayor and City Council appointed the Board of Directors composed on City residents who operate businesses within the district. It is the intention of the City of Kalispell that the downtown business community manage the parking for the downtown district. The Parking Commission began operation on February 1, 1994. The City transferred $53,000 in fiscal year 1994 to the Parking District as start-up money, no further City funds have leen 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- Denning, Downey & Associates, P. C. CERTIFIED PUBLIC ACCOUNTANTS No, 4 Sunset Plaza, Suite 101 -Kalispell, MT 59901 - 756-6879 521 112S. 2nd St. W. -Missoula, MT 59801 -543-8174 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, 1997, and have issued our report thereon dated May 18, 1998. These general- purpose financial statements are the responsibility of the City management. Our responsibility is to express an opinion on these general-purpose financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards and Government Auditing, Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the general-purpose financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting amounts and disclosures in the general purpose financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Our audit was made for the purpose of forming an opinion on the general-purpose financial statements taken as a whole. The accompanying supplemental information schedules as listed in the table of contents for the year ended June 30, 1997, 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. 'Anning, Downey and-Ai3ocial6,, P.C. May 18, 1998 -34- Robert K. Denning, CPA -Kim M. Downey, CPA SIGNIFICANT PROVISIONS OF SEWER REVENUE BONDS ORDINANCES AND REQUIRED INFORMATION The City will establish a separate revenue bond account into which will be paid each month an amount equal to but not less than the sum of one-sixth of the interest due within the next six months and one -twelfth of the principal due within the next twelve months with respect to all Bonds secured by the ordinance and payable from that account, and into which shall be paid each month additional net revenue equal to one -sixtieth of the maximum amount of principal and interest to fall due within any subsequent fiscal year on all such bonds until a reserve equal to such maximum amount of principal and interest is established, which reserve shall thereafter be maintained. Reserve Bond Balance Maximum Requirement Deficit balance _Total $686,437 686,437 $ 2. Rates and charges will be made and kept sufficient to provide gross income and revenues adequate to pay promptly the reasonable and current expenses of operating and maintaining the system and to produce in each fiscal year net revenues in excess of such current expenses, equal to 125% of the maximum amount of principal and interest payable from the Revenue Bond Account in any subsequent fiscal year. Cash Flow Coverage Sewer Service Charges $2,001,626 Storm Sewer Assessment 231,100 Miscellaneous and Hookup Fees 128,881 Total Operating Revenue 2,361,607 Less: Operating Expense (Before Depreciation) 1,283,482 Available for Debt Service 1,078,125 Maximum Debt Service 686,437 Coverage 157% 3. The City shall maintain an Operating Reserve equal to one month's operating expenses. The term "operating expenses" shall mean current expenses, paid or accrued, of operation, maintenance and current repair of the system and its facilities, and shall include administrative expenses of the City relating solely to the system, premiums for insurance on the properties, labor and the cost of materials and supplies used for current operation and for maintenance, and charges for the accumulation of appropriate reserve for current expenses which are not recurrent monthly but may reasonably be expected to be incurred in accordance with sound accounting practices. Such expenses shall not include any allowance for depreciation or renewals or replacements of capital assets of the system and shall not include any portion of the salaries and wages paid to any officer or employee of the City, except such portion as shall represent reasonable compensation for the performance of duties necessary to the operation of the system. -35- Operating expenses for fiscal year ended June 30, 1997, of $1,283,482 divided by 12 = $106,957. The Sewer Operating Reserve balance of $100,000 was underfunded by $6,957. However, the City increased the reserve to $107,000 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. S. 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 asks 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: 5508 Amount of cash on hand in. each account of the Sewer System at the end of the fiscal year: Unrestricted Cash $ 480,470 Sewer Operating Reserve 100,000 Sewer Capital Improvement 1,176,630 Replacement and Depreciation 1,987,172 Sewer Sinking and Interest 1,422 Bond Reserve 686,437 Total $4�43� 3 -36- Schedule of Insurance Policies June 30, 1997 Flathead Association of Independent Insurance Agents St. Paul Property and Liability Insurance provided the fidelity bond coverage. A public official bond in the amount of $50,000, for the finance director expires 5/9/98. A $5,000 public employees blanket faithful performance bond expires June 30, 1997, with an additional indemnity for city accountant, city court judge, assistance finance director, city court clerk, personnel specialist, and city water department cashiers of $7,500 each. 2. Property Insurance: Blanket building policy with $19,769,288 limit and a $1,000 deductible per event. Boiler and machinery policy with $21,419,799 and a $1,000 deductible. Expires 2116/98. Montana Municipal Insurance Authority 3. Liability Insurance: $750,000 per occurrence which arises or derives from injury to or death of a single person or damage to property of a single person regardless of number of persons or entities claiming damages. $1,500,000 per occurrence not covered as stated above. A $2,500 deductible applies. Expires July 1, 1997. _37_ CITY OF KALISPELL, MONTANA SEINER FUND SCHEDULE OF ASSETS, LIABILITIES, AND FUND EQUITY June 30, 1997 ASSETS Cash/investments $ 4,432,131 Taxes/assessments receivable 46,258 Accounts receivables 147,211 Due from other funds 31,682 Advance to other funds 15,000 Fixed assets (Net of accumulated depreciation)18,308,133 TOTAL ASSETS $ ..__22,98Qt415_ LIABILITIES AN FIL ND..EQUITY Liabilities: Short-term payables Long-term liabilities Total Liabilities Fund Equity: Contributed capital Retained earnings: Reserved Unreserved Total Fund Equity TOTAL LIABILITIES AND FUND EQUITY M. $ 206,098 6,578,305 6,784,403 10,444,531 3,988,801 1,762,680 16,196,012 $ __22,980,415 CITY OF KALISPELL, MONTANA SEWER FUND SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN RETAINED EARNINGS Fiscal Year Ended June 30, 1997 Operating Revenues: Charges for services $ 2,127,875 Miscellaneous revenues 2,632 Special assessments 231,100 Total Operating Revenues 2,361,607 Operation Expenses: Personal services 514,381 Supplies 54,484 Purchased services 467,748 Fixed charges 226,694 Losses/bad debt expenses 1,736 Depreciation 1,021,092 Building materials 18,439 Total Operating Expenses 2,304,574 Operating Income 57,033 Non -Operating Revenues (Expenses): Interest 227,006 Debt service interest expense (387,75 Total Non -Operating Revenues (Expenses) (160,748) Net Income (103,715) Add depreciation on fixed assets acquired by contributions 505,981 Increase in Retained Earnings402,266 Retained Earnings - July 1, 1996 5,337,503 Restatements 11,712 Retained Earnings - June 30, 1997 $ 5,7.5'1 481 -39- CITY OF KALISPELL, MONTANA -icjyi`j:4Z;lilIIkiI SCHEDULE OF CASH FLOWS Fiscal Year Ended June 30, 1997 Cash Flows from Operating Activities: Operating Income $ 57,033 Adjustments to reconcile operating income to net cash provided: (1,070,000) Depreciation 1,021,092 Changes in assets and liabilities: (150,000) Increase in taxes receivable (1,263) Increase in accounts receivable (26,425) Increase (decrease) in accounts payable 161,109 Increase (decrease) in compensated absences (1,430) Net Cash Provided by Operating Activities_.__.._ ... 1,210,116 Cash Flows from Capital and Related Financing Activities: Proceeds from revenue bonds 925,000 Principal paid on revenue bonds (1,070,000) Interest paid on revenue bonds (311,637) Principal paid on notes/loans (150,000) Interest paid on notes/loans (75,117) Acquisition and construction of capital assets (567,878) Contributions from capital grants 195,690 Net Cash Used for Capital and Related Financing Activities (1 054,942) Cash Flows from Non -Capital Financing Activities: Transfers to other funds(21,682) Cash Flows from Investing Activities: Purchase of sidewalk and curb warrants (12,148) Redemption of sidewalk and curb warrants 20,981 Interest on investments 227,006 Net Cash Provided from Investing Activities 235 839 Net decrease in cash and cash equivalents 369,331 Cash and cash equivalents at July 1, 1996 3,992,818 Cash and cash equivalents at June 30, 1997 . .......... $ 4,362,149 Non -Cash Transactions: Assets were contributed by developers of $338,696 -40- 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 Ar&oun 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. ProjjejU Insuranc The City will cause all buildings, properties, fixtures, and equipment to be kept insured in amounts that are ordinarily carried. Liability fnsuranfr, The City will carry insurance against liability of the City and its employees. Rates and Charges Net revenues will be at least equal to 125% of the maximum principal and interest requirements for all future fiscal years. The City complied with the above revenue bond requirements. -41- SINGLE AUDIT SECTION -42- m v m a c w r LL LL -43- ti tO 44 D W mm� U1'I M:M_ 4 eF a 6Ni m m,�' �', m «, Of Lo m ai ni ui m'. mi al N NN' R U1',, y0: CI x 3 N 7 � C l0 m 12 LWU)'I ma a E'',. N N V m c Q= 'aT t y I N 0 to OE, o ,e u o E w O m mjmW SJ U7 `. G o ww � 6m6�;m'., �� C� h mj D h �ll:ol_ N Nftli C C a a a a a. N N,IN.I M ice: t+]:71 a a u. O c G ,—Q In {l} o �ij va 12 C" , -. Z °' am' m o m E�20 H o c u c}i v 204 O. c C_: 3 E m a' O 9 L) + t` w m _� ° U u V° It" R Q M a O N a w -`-' °a N a 15 E a` m a E o a o'o E ` c } a U L C iE U D. b W Co m N N w E= ° oc t0N �".; m o M C 0 0 O N Qi Lo m m Q m W R D oo co v M � ° va �~ v m 0 °t Emus m � vasa rn E' F,. cci O_ .ca E W m E IL a E CC o u c a v -43- ti 44 D W mm� 4 a� a p LL ac LL 3 N 7 � C l0 m 12 ma a E'',. N N V m (U.� Z',,,, 'aT N 0 to OE, o E w O ww � _ � 4 C C a _ m CL CoH'H�r O c G ,—Q In {l} o �ij va 12 C" , -. Z °' — O rM m o m E�20 H o c u c}i v O. c C_: 3 E m a' O 9 L) + t` w m _� ° U u V° It" R Q M a O N a w -`-' °a N a 15 E a` m a E o a o'o E ` c } a U L C iE U D. b W Co m N N w E= N L cCC]m W S m tl tl tl tC an N mF�- �".; O tl []]U i CAN t5 m E ° pE W W R O N E N �o m y Q . o m g O� 3 ¢ m m �'' C,» � oa �~ v m 0 °t Emus m � vasa F,. cci O_ .ca E W m E O a E CC o u c a v MCI a W co0))WCL d �rn�v ° �ch � m Amo. wW ED}O En Wr�Q E W zap o�fl CES E E C%mx cam a d aEa� �e4s 'Ne� 404vj a L) 1 Ewc _ m `9 W v A° Do E E O O a CYl a L j -- .Njtl LL IL zi a �°- -43- Denning, Downey & Associates, P. C. CERTIFIED PUBLIC ACCOUNTANTS No. 4 Sunset Plaza, Suite 101 • Kalispell, M7' 59901 • 756-6879 521112 S. 2nd St. YY. • Missoula, MT 59801 •543-8174 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS City Manager, Mayor, and City Council City of Kalispell Kalispell, Montana We have audited the financial statements of the City of Kalispell, Montana, as of and for the year ended June 30, 1997, and have issued our report thereon dated May 18, 1998. We conducted our audit in accordance with generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Compliance As part of obtaining reasonable assurance about whether the City's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. Internal Control Over Financial Reportinu� In planning and performing our audit, we considered the City's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control over financial reporting. However, we noted a certain matter involving the internal control over financial reporting and its operation that we consider to be a reportable condition. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in our judgement, could adversely affect the City's ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements. The reportable condition is described in the accompanying Schedule of Findings and Questioned Costs as item 97-1. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we do not believe the condition reported above to be a material weakness. -44- Robert K. Denning, CP 9 • Kim M Downey, CPA This report is intended for the information of the City Council, management, State Department of Commerce, and federal awarding agencies and pass-through entities. However, this report is a matter of public record and its distribution is not limited. 2)ennin j,-Uownery and ✓ ,ociale6 P.C. May 18, 1998 -45- Denning, Downey & Associates, P.C. CERTIFIED PUBLIC ACCOUNTANTS No. 4 Sunset Plaza, .Suite 101 • Kalispell, MT 59901 • 755-6879 521 112S. 2nd St. W. • Alissoula, AIT 59801 • 543-8174 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 City Manager, Mayor, and City Council City of Kalispell Kalispell, Montana Compliance We have audited the compliance of the City of Kalispell, Montana, with the types of compliance requirements described in the U.S. Office ofManagement and Budget (DMB) Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended June 30, 1998. The City's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs is the responsibility of the City's management. Our responsibility is to express an opinion of the City's compliance based on our audit. We conducted our audit of compliance in accordance with generally accepted auditing standards; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion, Our audit does not provide a legal determination on the City's compliance with those requirements. In our opinion, the City complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the year ended June 30, 1998. Internal Control Over Compliance The management of the City is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered the City's internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing an opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133. -46- Robert K Denning, CPA • him M. Downey, CPA Our consideration of the internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that noncompliance with applicable requirements of laws, regulations, contracts and grants that would be material in relation to a major federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses. This report is intended for the information of the City Council, management, State Department of Commerce, and federal awarding agencies and pass-through entities. However, this report is a matter of public record and its distribution is not limited. �'benning,,-Awnety and-A3daciateb, 19 C,,. May 18, 1998 -47- CITY OF KALISPELL, MONTANA SCHEDULE OF FINDINGS AND QUESTIONED COSTS Fiscal Year Ended June 30, 1997 Section I - Summary of Auditor's Results r. Financial Statements Type of auditor's report issued Unqualified Internal control over financial reporting; Material weakness(es) identified? No Reportable condition(s) identified not considered to be material weaknesses? Yes Noncompliance material to financial statements noted? No Federal Awards Internal Control over major programs: Material weakness(es) identified? No Reportable condition(s) identified not considered to be material weaknesses? No Type of auditor's report issued on compliance for major programs: Unqualified Any audit findings disclosed that are required to be reported in accordance with Circular A-133, Section .510(a)? No Identification of major programs: CFDA Number Namg Qf Federal Program Qr!L_1.ustgr 11.228 U.S. Department of Housing and Urban Development - Community Development Block Grant Dollar threshold used to distinguish between Type A and Type B programs: $ 300;000 Auditee qualified as low-risk auditee? En No SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Section H - Financial Statement Findings 97-1 Parking Commission The following weaknesses were noted in the internal control structure of the Parking Commission: 1. There was no segregation of duties between cash receipting, recording, and depositing. 2, The financial information used to prepare the annual financial report was incorrect because of a change to an automated accounting system. Recommendation To improve the internal control structure of the Parking Commission, the following should be implemented: 1. Segregate the duties of receipting, recording, and depositing to the extent possible. 2. Establish procedures to ensure the financial information included in the annual financial report is an accurate accounting of the Parking Commission. Section III - ftderal Award Findings and Questioned !Costs There were no matters reported. -49- Denning, Downey & Associates, P.C. CERTIFIED PUBLIC ACCO UNTANTS No. 4 Sunset Plaza, Suite 101 • Kalispell, MT 59901 • 756-6879 521 112 .S, 2nd St. W. • Missoula, M7' 59801 * 543-8174 INDEPENDENT AUDITOR'S REPORT ON OTHER COMPLIANCE, FINANCIAL, AND INTERNAL ACCOUNTING CONTROL MATTERS City Manager, Mayor, and City Council City of Kalispell Kalispell, Montana There were no other compliance, financial, or internal accounting control matters. „Denning, -2)ow tey andt—V 3iociate3, P. C May 18, 1998 -50- Robert K Denning, CPA • Kim M. Downey, CPA Denning, Downey & Associates, P.C. CERTIFIED PUBLIC ACCOUNTANTS No. 4 Sunset Plaza, Suite 101 • Kalispell, W59901 • 756-6879 521112S, 2nd St. W, • Missoula, MI` 59801 •543-8,174 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 three recommendations. The actions taken on each are as follows: Action ■ Assessments Reconciliation Implemented ■ Courtyard Apartments Implemented ■ City Court Implemented _�benninq, �Glownsa� cx i fasnciute�, May 18, 1998 -51- Robert K. Denning, CPA • Kim M Downey, CPA