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11. Audit-Fiscal Year Ended 6/30/99City of Kalispell, Montana Fiscal Year Ended June 30, 1999 AUDIT REPORT Denning, Downey & Associates, P.C. CERTIFIED PUBLIC ACCOUNTANTS CITY OF KALISPELL, MONTANA TABLE OF CONTENTS Fiscal Year Ended June 30, 1999 Pe Organization I Independent Auditor's Report 2 General Purpose Financial Statements Combined Balance Sheet - All Fund Types, Account Groups, and Discretely 3 - 4 Presented Component Unit Combined Statement of Revenues, Expenditures, and Changes in Fund Balances - All 5 Governmental Fund Types Combined Statement of Revenues, Expenditures, and Changes in Fund Balances - 6 - 7 Budget and Actual - General, Special Revenue, Debt Service, and Capital Projects Fund Types Combined Statement of Revenues, Expenses, and Changes in Retained Earnings - All 8 Proprietary Fund Types and Discretely Presented Component Unit Combined Statement of Cash Flows - All Proprietary Fund Types and Discretely 9 Presented Component Unit Notes to the Financial Statements 10-33 Independent Auditor's Report on Supplemental Information and Schedules 34 Supplemental Schedules Significant Provisions of Water and Sewer Revenue Bonds Ordinances and Required 35-36 Information Schedule of Assets, Liabilities, and Fund Equity - Sewer Fund 37 Schedule of Revenues, Expenses, and Changes in Retained Earnings - Sewer Fund 38 Statement of Cash Flows - Sewer Fund 39 CITY OF KALISPELL, MONTANA TABLE OF CONTENTS - cont. Single Audit Section Schedule of Expenditures of Federal Awards Paye 40 41 Independent Auditor's Report on Compliance and on Internal Control Over Financial 42-43 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 44-45 Major Program and Internal Control Over Compliance in Accordance With OMS Circular A-133 Schedule of Findings and Questioned Costs 46-48 Independent Auditor's Report on Other Compliance, Finanacial, and Internal 49 Accounting Control Matters Independent Auditor's Report on Prior Audit Report Recommendations 50 William E. Boharski Gary Nystul Ron Van Natta Norbert Donahue Dale Haarr Chris Kukulski Glen Neier Frank Garner Ted Waggener Amy Robertson Heidi Ulbricht James Hansz Michael Baker CITY OF KALISPELL, MONTANA ORGANIZATION Fiscal Year Ended June 30, 1999 CITY COUNCIL Members CITY OFFICIA 5 -1- Mayor Jim Atkinson John Graves M. Duane Larson Douglas Scam' City Manager Attorney Acting Police Chief Fire Chief Finance Director City Judge Public Works Director Parks Director Denning, Downey & Associates, P.C. CER TI AILD P UBLIC ACCO UNTANTS No. 4 Sunset Plaza, Suite 1031 Kalispell, AfT 59901 • 756-6879 INDEPENDENT AUDITOR'S REPORT City Manager, Mayor, and City Council City of Kalispell Kalispell, Montana We have audited the general-purpose financial statements of the City of Kalispell, Montana, as of and for the year ended June 30, 1999, 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 perforin 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, 1949, 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 GovertimentAuditing Sta3idards, we have also issued our report dated March 8, 2000, 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 perfonxied 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. �t� �r2r2i�, �otVnet� cixd"6docialed, P C , March 8, 2000 -2- Robert K Denning, CPA • Kim Af.. Downeh, CPA W Cs � a v i x a G C a Q C F O J a LQ r � z F o cl ^ 1 C � a N J W W q x a r m z 4 � N n z e r ra" iE n - a u ❑� � N � s � G3 PE b RP �� r ti v ri,,.0 J l N tJ � '� � M � � � � ✓' �i -4- o N c r cr n c x rn o x o o iv � o (v N 72 2 K � � b z _ y ,✓ i � Nt C N N H ri aL R M G � as ss s J r � t�- S � r rL W � r~` z ij M fi Vr Z m ,aWO -4- U >. 72 -4- U /3 N ..,• v o, � »• <t N � m m v_ v_ -w in a �a t� a h h � � �� w iS `o F F � cn R W V ✓� h � � � � • i i i i i i i y1 00 e GO a V 43 �± n v~i ch -i N M N Q V' N tD T x Q m_ vNi O W N c0 ti � H b Q U � � T N -o15 ti =9 v j5 /3 \ \ m \ a / } � ! ) § - 2 ) \ }{\ )( E\3K §(\ }k / ) §{7)\\{) �6 (\ \iE � ! ) § - 2 \ }{\ )( (\ \iE B f \ } � @ u 2 ] 2 -- ) -\ � _ ) � . >a)(`® /\ !t\}){ =}2\))3& \f//Z -- -8- m - � ±/f§± - - \ \\ \ \ - � \)/)//RI® - ±/f§± - - J>j;\)(} \)/)//RI® - CITY OF KALISPELL, MONTANA DOTES TO THE FINANCIAL STATEMENTS June 30, 1999 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 the 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, and Basis of Presentation 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 numbers of funds are maintained consistent with legal and managerial requirements. Account groups are a reporting device to account for certain assets and liabilities of the governmental funds not recorded directly in those funds. -10- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1999 The City of Kalispell has the following fund types and account groups: Governmental funds are used to account for the City's general government activities. Governmental fund types use the flow of current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual. (i.e., when they are "measurable and available"). "Measurable" means the amount of the transaction can be determined and "available" means collectible within the current period or soon enough thereafter to pay liabilities of the current period. The City considers all revenues available if they are collected within 60 days after year-end. Expenditures are recorded when the related fund liability is incurred, except for unatured interest on general long-term debt which is recognized when due, and certain compensated absences and claims and judgements which are recognized when the obligations are expected to be liquidated with expendable available financial resources. Real and personal property taxes (excluding motor vehicle taxes), special assessments, charges for current services, and interest earnings are susceptible to accrual. Other receipts and taxes become measurable and available when cash is received by the City and are recognized as revenue at that time. The City recorded real and personal property taxes and assessments levied for the current year as revenue. Taxes and assessments receivable remaining unpaid at year-end and not expected to be collected soon enough thereafter to be available to pay obligations of the current year were recorded as deferred revenue, with a corresponding reduction in revenues, as required by generally accepted accounting principles. In addition, prior period delinquent taxes and assessments collected in the current period were recorded as revenue in the current period as required by generally accepted accounting principles. Entitlements and shared revenues are recorded at the time of receipt or earlier if the susceptible to accrual criteria are met. Expenditure driven grants are recognized as revenue when the qualifying expenditures have been incurred and all other grant requirements have been met. Governmental funds include the following fund types: The general fund is the City's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. The special revenue funds account for revenue sources that are legally restricted to expenditures for specific purposes. The debt service funds account for the servicing of general long-term debt and special assessment debt not being financed by proprietary funds, and for which the City is obligated in some manner for payment. The capital projects funds account for the acquisition of fixed assets or construction of major capital projects not being financed by proprietary funds. -11- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1999 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 in a trustee capacity or 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. This fund is 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, 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 interflznd 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/froze other funds." Advances between funds are offset by a fund balance reserve account in applicable governmental funds to indicate they are not available for appropriation and are not expendable available financial resources. -12- CITY Of KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1999 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, 1999, were based upon a taxable valuation of $21,218,457. 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, 1999, were as follows: Water $ 4,787 Sewer Ambulance 10,941 90,000 $105,728 3. Inventories and Prepaid Items Inventories of materials and supplies are valued at cost in the proprietary funds. The costs of inventories in governmental fund types are recorded as expenditures when purchased. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items. 4. Fixed Assets Fixed assets used in governmental fund types of the City are recorded in the general fixed assets account group at cost or estimated historical cost if purchased or constructed. Donated fixed assets are recorded at their estimated fair value at the date of donation. Assets in the general fixed assets account group are not depreciated. Interest incurred during construction is not capitalized on general fixed assets. -1.3- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1999 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: 5. Deferred Revenues Deferred revenue results when asset recognition criteria have been met and when revenue recognition criteria have not been met. These pertain to the net uncollected property tax and other receivables and are classified as "Deferred Revenues" on the combined balance sheet. 6. Compensated Absences It is the City's policy and state law to permit employees to accumulate a limited amount of earned but unused vacation benefits, which will be paid to employees upon separation from City service. Employees are allowed to accumulate and carry over a maximum of two times their annual accumulation of vacation, but no more than. 90 days into the new calendar year. There is no restriction on the amount of sick leave that may be accumulated. Upon separation, employees are paid 100 percent of accumulated vacation and 25 percent of accumulated sick leave. The liability associated with governmental fund -type employees is reported in the general. long-term debt account group, while the liability associated with proprietary fund -type employees is recorded in the respective fund. -14- Years Buildings 20-50 Improvements other than buildings 10-50 Machinery and equipment 5-20 Vehicles and heavy equipment 5-20 Sewer lines and pump stations 10-50 5. Deferred Revenues Deferred revenue results when asset recognition criteria have been met and when revenue recognition criteria have not been met. These pertain to the net uncollected property tax and other receivables and are classified as "Deferred Revenues" on the combined balance sheet. 6. Compensated Absences It is the City's policy and state law to permit employees to accumulate a limited amount of earned but unused vacation benefits, which will be paid to employees upon separation from City service. Employees are allowed to accumulate and carry over a maximum of two times their annual accumulation of vacation, but no more than. 90 days into the new calendar year. There is no restriction on the amount of sick leave that may be accumulated. Upon separation, employees are paid 100 percent of accumulated vacation and 25 percent of accumulated sick leave. The liability associated with governmental fund -type employees is reported in the general. long-term debt account group, while the liability associated with proprietary fund -type employees is recorded in the respective fund. -14- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1999 7. Lang -Term Obligations The City reports long-term debt of governmental funds at face value in the general long-term debt account group. Certain other governmental fund obligations not expected to be financed with current available financial resources are also reported in the general long-term debt account group. Long-term debt and other obligations financed by proprietary funds are reported as liabilities in the appropriate funds. For governmental fund types, bond premiums and discounts, as well as issuance costs are recognized during the current period. Bond proceeds are reported as an other financing source net of the applicable premium or discount. Issuance costs, even if withheld from the actual net proceeds received, are reported as debt service expenditures. For proprietary fund types, bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Issuance costs are reported as deferred charges. 8. Fund Equity Reservations of fund balance represent amounts that are not appropriable or are legally segregated for a specific purpose. Reservations of retained earnings are limited to outside third -party restrictions. Designations of fund balance represent tentative management plans that are subject to change. The proprietary funds contributed capital represents equity acquired through capital grants and capital contributions from developers, customers or other funds or governments 9. Interfund Transactions Interfund transactions consisting of identified services performed for other funds or costs billed to other funds are treated as expenditures in the fund receiving the services and as revenue in the fund performing the services. Transactions which constitute reimbursements of a fund for expenditures or expenses initially made from it which are properly applicable to another fund are recorded as expenditures in the reimbursing fund and as reductions of expenditures in the fund that is reimbursed. 10. Memorandum Only -Total Columns Total columns on the general-purpose financial statements are captioned "Memorandum Only" to indicate that they are presented only to facilitate financial analysis. Data in these columns do not present financial position, results of operation, or cash flows in accordance with generally accepted accounting principles. Neither is such data comparable to a consolidation. Interfund eliminations have not been made in the aggregation of this data. -15- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1999 II. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Budgets and Budgetary Accounting 1. Budget Process An operating budget is adopted each fiscal year for the General Fund, Special Revenue Funds, Debt Service Funds, and Capital Projects Funds on the modified accrual basis of accounting. The appropriated budget is prepared by fund, function, and for the General Fund and certain other funds, by department. A management budget is adopted for the Enterprise and Internal Service Funds, on the accrual basis of accounting. A 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 ensuing year's budget, but will be used to liquidate portions of the current year's budget. Encumbrances All appropriations, except for construction in progress, lapse at the end of the fiscal year. The City utilizes an encumbrance accounting system in certain instances, as described in the preceding mote. Encumbrance accounting, which is an extension of the budgetary accounting in the General, Special Revenue, and Capital Projects Funds, enables the City to record purchase orders, contracts, and other commitments for the expenditure of monies in order to reserve that portion of the applicable appropriation. Encumbrances at year-end are reflected as reservations of fund balances since they do not constitute expenditures or liabilities. -16- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1999 2. Deficit Fund Balances The following funds had deficit fund balances at June 30, 1999: Special Revenue Funds: Airport TIF $ 5,102 Affordable Housing Grant 198,408 Debt Service Funds: 1990 Sidewalk and Curb 157 1993 Sidewalk and Curb 238 1994 Sidewalk and Curb 53 1996 Sidewalk and Curb 148 SID 337 605 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 sale of lots in the Airport Tax Increment Fund will enable this fund to repay the UDAG Fund. The deficit in the Affordable Housing Grant was the result of a short-term loan from the UDAG Fund. The City hopes to eliminate this deficit in the next year from the sale of lots in Teton Terrace and Woodland Court. 3. Budget OverdraftsNariances Significant favorable budget to actual variances existed in the Special Revenue Funds in the Taxes revenue source in the arnount of $137,850 due to increased valuation in the Tax increment districts. A significant unfavorable variance in the General Fuad fines and forfeitures revenue source was a result of a police slowdown. An unfavorable variance appears in Special Revenue Funds intergovernmental revenue source for grant revenue for the ISTEA project. This is due to timing, the fiscal year ends in the middle of construction season. A significant favorable budget to actual expenditure variance exists in the General Fund capital outlay classification primarily because the budget for the fire truck, $250,000 was carried forward to fiscal year 2000. Favorable variances exist in the Tax Increment Capital Improvements and Redevelopment budgets in the Downtown Tax Increment Fund (TIF) due to projects yet to be completed; Downtown TIF debt had a positive variance of $4,527,990 for the same reason, funds were not borrowed to do these projects. ISTEA funds were unexpended and carried over, causing a positive variance which was classified as capital outlay. -17- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1999 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 Loan Bank; and U.S. government security money market funds if the fund meets certain conditions. The composition of cash and cash equivalents on June 30, 1999, was as follows: Primary Component Reporting Government Unit Entity Cash on Hand $ 47,435 $ 150 $ 47,585 Cash in Banks: Demand Deposits 143,239 27,781 171,020 Savings Deposits 53,023 10,000 63,023 Bidders Bonds 55,390 - 55,390 Bonds/Warrants 52,008 - 52,008 State Short -Term Investment Pool (STIP) 13,548,634 - 13,548,634 Total $13,899,729 $ 37,931 $13,9660 Deposits — at year-end, the carrying amount of the City's deposits was $246,469, and the bank balance was $404,689. These deposits include demand, savings, and time deposits. Of the bank balances, $159,773 was covered by Federal Depository Insurance or collateral held by the City or its agent in the City's name, and $244,916 was covered by securities held by the pledging financial institution's trust department or agent in the City's name. The $37,931 belonging to the Parking Commission, a component unit of the City, was completely covered by Federal Depository Insurance. Montana statutes require that the City obtain securities for the uninsured portion of the deposits as follows: 1. securities equal to 50% of such deposits if the institution in which the deposits are made has a net worth to total assets ratio of 6% or more, or 2. securities equal to 100% of the uninsured deposits if the institution in which the deposits are made has a net worth to total assets ratio of less than 6%. The amount of collateral held for City deposits as June 30, 1999, exceeded the amount required by State statutes. The City held no investments subject to risk categorization as of June 30, 1999. -18- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1999 Governmental Accounting Standards Board (GASB) Technical Bulletin No. 94-1 requires governmental entities participating in an investment pool to disclose certain types of securities held in the pool. As noted above the City invests in the Short -Term Investment Pool managed by the State of Montana. This pool contains two types of investments required to be disclosed, which are Asset-backed Securities and Variable Rate (Floating Rate) securities. Amounts (unaudited) invested by STIP in each type as of ,Tune 30, 1999, were as follows: Category I % Asset-backed $ 269,844,350 21.57 Variable Rate 333,231,691 26.63 other Securities 648,175,721 51.80 Total $ 1,251,251,762 100.00 Amounts invested by the County in STIP may be redeemed at any date at the carrying value on that date. Audited financial statements for the State of Montana's Board of Investments are available at 555 Fuller Avenue in Helena, Montana. B. Interfund Receivables and Payables The composition of interfund balances as of June 30, 1999, were as follows: Due from Special Revenue Funds: Receivable Fund Payable Fund Affordable Housing Fund UDAG Amount $ 198,228 (Note: Sales of lots will enable this fund to repay the UDAG Fund for the short-term cash flow). Due from Debt Service: Receivable Fund Amount Payable Fund Amount 1990 S & C Fund $ 578 SID Revolving Fund $ 4,746 1991 S & C Fund 35 1992 S & C Fund 164 1993 S &: C Fund 385 1994 S & C Fund 282 1995 S & C Fund 466 1996 S & C Fund 612 1997 S & C Fund 364 SID 337 1,860 SID and S&C Total $ 4,746 -19 CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1999 C. Operating Transfers The following is an analysis of operating transfers in and out during the fiscal year ended June 30, 1999: From To Amount General Fund Drug Enforcement Fund (Special Revenue) $ 12,000 General Fund COPS Grant (Special Revenue) 1,036 General Fund Universal Police (Special Revenue) 2_ 0,484 Total $ 33,520 D. Fixed Assets A summary of changes in general fixed assets was as follows: The City Council approved a new capitalization policy for fixed assets, Resolution #4452. The policy establishes a minimum cost of $2,000.00 and an expected life of five years. Additions do not include capital outlay expenditures for public domain or infrastructure asset acquisitions. The new policy was implemented this fiscal year. Financial Accounting Standards Board (FASB) Statement No. 34 — Capitalization of Interest — requires that interest expenditures incurred during construction of assets be capitalized. During fiscal year 1999, no interest costs were capitalized. -20- Balance Balance July L 1998 Land $ 1,976,353 Buildings 4,702,195 Improvements other than 2,463,839 Buildings 1,557,504 Machinery and Equipment 2,704,921 Construction work in progress 2,316,413 Total $..13.,257,386�_. The City Council approved a new capitalization policy for fixed assets, Resolution #4452. The policy establishes a minimum cost of $2,000.00 and an expected life of five years. Additions do not include capital outlay expenditures for public domain or infrastructure asset acquisitions. The new policy was implemented this fiscal year. Financial Accounting Standards Board (FASB) Statement No. 34 — Capitalization of Interest — requires that interest expenditures incurred during construction of assets be capitalized. During fiscal year 1999, no interest costs were capitalized. -20- Balance Additions Deletions .lune 30, 1999 $ 160,000 $ 531,667 $ 1,604,686 2,463,839 - 7,166,034 1,703,723 4,086 3,257,141 402,415 188,521 2,918,815 2 3� , 16,413) _ - $2,413.564 $ 724,274 $ 14,946,676 The City Council approved a new capitalization policy for fixed assets, Resolution #4452. The policy establishes a minimum cost of $2,000.00 and an expected life of five years. Additions do not include capital outlay expenditures for public domain or infrastructure asset acquisitions. The new policy was implemented this fiscal year. Financial Accounting Standards Board (FASB) Statement No. 34 — Capitalization of Interest — requires that interest expenditures incurred during construction of assets be capitalized. During fiscal year 1999, no interest costs were capitalized. -20- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June') 0. 1999 A summary of proprietary fund type property, plant, and equipment at June 30, 1999, follows: Land Machinery and equipment Construction in progress Source of supply Pumping plant Treatment plant Transmission and distribution General plant Storm sewer system Total Less Accumulated Depreciation Net Fixed Assets E. Lang -Term Debt Enterprise Internal Component Unit Funds Service Parkiru; Comm. $ 248,063 $ - $ 37,107 1,503,199 283,285 655,000 - 163,008 - 937,570 - 347,709 - - 1,408,148 - - 14,560,139 - - 16,517,646 - - 1,281,400 - - 3,921.311 - - $39,950,623 $ 283,285 $ 37,107 13,951,667 196,926 20,736 $25.998,956 $ 86,359 $ 16,371 Changes in Long -Term Debt Liabilities - During the year ended June 30, 1999, the following changes occurred in reported liabilities: (1) G.O. Bonds (2) Revenue Bonds (2) SRF Loan - WWTP (1) Assessments (1) urban Renewal Bonds (1) Contract Debt/loans (1,3,4) Compensated Absences Total Balance July 1, 1998 Additions $ 110,000 $ _ 4,040,000 - 3,114,000 - 354,597 1,687 835,000 - 259,087 - 831,285 115.93.5 $_9,54369 $_117,622 (1) Reported in the general long-term debt account group (2) Reported in the enterprise fund (3) Reported in internal service fund (4) Reported on proprietary component unit -21- Balance Reductions June 30, 1999 $ 55,000 $ 55,000 255,000 3,785,000 162,000 2,952,000 68,204 288,080 180,000 655,000 4,063 255,024 9,650 937,570 $ 733,9.1.7 $� 8,927,674 CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS Jane 30, 1999 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, 1999, were as follows: 1. G.O. Bonds General obligation bonds of the City are secured by the general credit and revenue raising powers of the City. $19,857 is available in the Debt Service Fund to service the general obligation bonds. 2. Revenue Bonds Issue Interest Term of Final Bonds Outstanding Annual Purpose Date Rate Bonds Maturity Issued June 30, 1999 Payment Pool - refunding 4/93 2.8-5.1% 7 yrs 2000 $ 385000 $ 55,000 varies General obligation bonds of the City are secured by the general credit and revenue raising powers of the City. $19,857 is available in the Debt Service Fund to service the general obligation bonds. 2. Revenue Bonds The significant provisions of the bond ordinances relating to the issuance of the Water and Sewer System Revenue Bonds and the financial statements and other schedules required by those ordinances are presented as supplemental information in this audit report. 3. State Revolving Fund In November 1991, the City entered into an agreement with the State Revolving Fund (SRF) to borrow funds to partially finance the construction of a wastewater treatment plant facility. This obligation is to be repaid from the operating income of the Sewer Fund. Interest Amount Outstanding Rate Term Borrowed June 30. 1999 SRF Doan 4% 20 yrs $ 3,913,425 $ 2,952,000 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 benefited properties. However, the City is liable, to an extent, for repayment of these special assessment bonds. The City is authorized by State law to establish a revolving fund to ensure the payment of debt service on the bonds in the event that assessed property owners default. -22- Issue Interest Term of Final Bonds Outstanding Annual Purpose Date Rate Bonds Maturity Issued June 30, 1999 Payment 1996 Water Bonds 6196 5.5% 15 yrs 2011 $1,060,000 S 910,000 varies 1991 WWTP-ref. 4!91 7.18% 20 yrs 2011 2,815,000 2,095,000 varies 1998.Sewer-ref, 5/97 5.08% 9 yrs 2006 925,000 780,000 varies Total Revenue Bonds $4,800,000 . $ 3,785,000 The significant provisions of the bond ordinances relating to the issuance of the Water and Sewer System Revenue Bonds and the financial statements and other schedules required by those ordinances are presented as supplemental information in this audit report. 3. State Revolving Fund In November 1991, the City entered into an agreement with the State Revolving Fund (SRF) to borrow funds to partially finance the construction of a wastewater treatment plant facility. This obligation is to be repaid from the operating income of the Sewer Fund. Interest Amount Outstanding Rate Term Borrowed June 30. 1999 SRF Doan 4% 20 yrs $ 3,913,425 $ 2,952,000 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 benefited properties. However, the City is liable, to an extent, for repayment of these special assessment bonds. The City is authorized by State law to establish a revolving fund to ensure the payment of debt service on the bonds in the event that assessed property owners default. -22- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1999 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, Paris 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 -terra debt account group as required by generally accepted accounting principles. At June 30, 1999, there was $1,613,269 available in the Tax Increment Special Revenue Fund to service these bonds. Issue Interest Term of Final Bonds Outstanding Annual Purpose Date Rate Bonds Maturity Issued June 30, 1.999 Payment Tax Increment 12/85 6.25-9.5% 16 yrs 7/1102 82,100,000 S___655000 varies 5. Loans/Contracted Debt Origination Interest Due Principal Balance Purr oSe Date Rate Term Date Amount June 30, 1999 General Long -Terra Debt Group of Accounts: Board of /-lousing 4/93 6% 30 yrs 2/l/25 $ 271.000 $ 255,024 The Board of Housing is paid from the proceeds of the rents on the Courtyard Apartments per the agreement with Northwest Montana Hunan Resources. -23- Issue Interest Term of Final Bonds Outstanding Annual Pur ose Date Rate Bonds Maturity Issued June 30, 1999 Pavment SID 337 -sewer 1211186 7.74% 15 yrs 2002 S 110,000 S 30,000 varies SID 341 -sewer 9/1/95 6.06% 15 yrs 2011 100,000 85,000 varies SID 342 -sewer 11/1/95 6.34% 15 yrs 2011 209,000 120,000 varies 1991 Walk and Curb 2/1/92 8.0% 8 yrs 2000 3,360 1,133 varies 1992 Walk and Curb 112193 7.0% 8 yrs 2001 9,103 4,000 varies 1993 Walk and Curb 114194 6,0% 8 yrs 2002 5,112 11460 varies 1994 Wali: and Curb 12131/86 8.5% 8 yrs 2003 28,513 14,000 varies 1995 Walk and Curb 1/2/96 8.5% 8 yrs 2004 22,823 14,260 varies 1996 Walls and Curb 112/97 8.5% 8 yrs 2005 12,148 9,110 varies 1997 Walk and Curb 1011190 8.0% 8 yrs 2006 8.572 7,430 varies 1998 Walk and Curb 10/1190 7.75% 8 yrs 2007 _ 1,687 1.,687 varies Total Revenue Bonds $_510 318 S 288,080 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, Paris 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 -terra debt account group as required by generally accepted accounting principles. At June 30, 1999, there was $1,613,269 available in the Tax Increment Special Revenue Fund to service these bonds. Issue Interest Term of Final Bonds Outstanding Annual Purpose Date Rate Bonds Maturity Issued June 30, 1.999 Payment Tax Increment 12/85 6.25-9.5% 16 yrs 7/1102 82,100,000 S___655000 varies 5. Loans/Contracted Debt Origination Interest Due Principal Balance Purr oSe Date Rate Term Date Amount June 30, 1999 General Long -Terra Debt Group of Accounts: Board of /-lousing 4/93 6% 30 yrs 2/l/25 $ 271.000 $ 255,024 The Board of Housing is paid from the proceeds of the rents on the Courtyard Apartments per the agreement with Northwest Montana Hunan Resources. -23- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1999 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 $ 4,586 Enterprise Fund 148,495 General Long -Term. Debt Account Group 784,489 Total $ 937,570 8, Requirements to Amortize Debt The annual requirements to amortize all long-term debt outstanding, except compensated absences payable, as of June 30, 1999, were as follows: Annual Requirements to Amortize Long -Term Debt June 30, 1999 For Fiscal G.D. Year Ended Bonds 2000 $ 57,805 2001 - 2002 - 2003 - 2004 - 2005-2009 - 2010-2014 - 2015-20I9 - 2020-2024 - Total $ 57,805 $5,398,800 $ 3,848,960 960 $ 484,029 $ 803,050 $ 497,149 $1 1,089,793 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), and Municipal Police Officer's Retirement System (MPORS), and the Firefighters' Unified Retirement System (FURS). The plans are established by State law and administered by the State of Montana. The plans are cost-sharing multiple -employer defined benefit plans that provide retirement, disability and death benefits to plan members and beneficiaries. The City had a total payroll of $4,834,103 for the fiscal year ended June 30, 1999, of which $4,233,469 was covered by PERS, MPORS, or FURS. Component Unit payroll was $37,518 for the Parking Commission. Contribution rates are required and determined by State law. The contribution rates, expressed as a percentage of covered payroll for the fiscal year ended June 30, 1999, were: PERS MPORS FURS Employer 6.70% 14.41% 14.36% Employee 6.80% 7.8-11.00% 9.5-10.7% State .10% -24- Urban Revenue SRF Renewal Contracted Bonds Loan Assessments Bonds Debt Total $ 505,800 $ 285,400 $ 58,844 $ 262,025 $ 22,165 $ 1,192,039 504,960 285,580 56,906 258,225 22,129 1,127,800 503,460 284,480 52,621 282,800 23,913 1,147,274 501,330 285,120 44,762 - 19,497 850,709 502,790 285,440 38,472 - 19,497 846,199 2,135,768 1,425,680 166,824 - 97,487 3,825,759 744,692 997,260 65,600 - 97,487 1,905,039 - - - - 97,487 97,487 - - - - 97.487 97.487 $5,398,800 $ 3,848,960 960 $ 484,029 $ 803,050 $ 497,149 $1 1,089,793 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), and Municipal Police Officer's Retirement System (MPORS), and the Firefighters' Unified Retirement System (FURS). The plans are established by State law and administered by the State of Montana. The plans are cost-sharing multiple -employer defined benefit plans that provide retirement, disability and death benefits to plan members and beneficiaries. The City had a total payroll of $4,834,103 for the fiscal year ended June 30, 1999, of which $4,233,469 was covered by PERS, MPORS, or FURS. Component Unit payroll was $37,518 for the Parking Commission. Contribution rates are required and determined by State law. The contribution rates, expressed as a percentage of covered payroll for the fiscal year ended June 30, 1999, were: PERS MPORS FURS Employer 6.70% 14.41% 14.36% Employee 6.80% 7.8-11.00% 9.5-10.7% State .10% -24- CITY OF KALISPELL, MONTANT A NOTES TO THE FINANCIAL STATEMENTS June 30, 1999 The Public Employees Retirement System issues a publicly available financial reports that include financial statements and required supplementary information. That report may be obtained by writing to: Public Employees Retirement Division, P.O. Box 200131, Helena, Montana 59620-0131; or by calling 1-406-444-3154. The City's contributions for the years ended June 30, 1997, 1998, and 1999, as listed below, were equal to the required contributions for each year. PERS MPORS 1997 160,259 $ 132,598 1998 158,377 135,930 1999 164,843 141,716 G. Post Employment Benefits Terminated employees may remain on the City's health insurance plan for up to I8 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. H. Amounts Due From and Due to Other Governments The amounts due from and due to other governments consisted of the following: Due From Other Governments: Component FURS Unit - PERS 109,921 $ 4,276 112,195 3,990 116.362 2.743 Terminated employees may remain on the City's health insurance plan for up to I8 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. H. Amounts Due From and Due to Other Governments The amounts due from and due to other governments consisted of the following: Due From Other Governments: Due from County: General Fund $ 201,357 Comprehensive Insurance Fund 26,798 Retirement Fund 40,439 Health Insurance Fund 51,964 Tax Increment Fund 319,438 Tax Increment Westside 25,958 Tax Increment Airport 549 Light Maintenance Fund 7,306 Decorative Lights 598 Street Maintenance Fund 37,329 SID Funds 6,428 G.O. Bond Fund 7,304 Solid Waste 56,848 Storm Sewer Maintenance 34,107 Drug Enforcement 11,864 -25- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1999 Due from State: Tax Increment Airport $ 37,780 ISTEA 9,643 Total Due From Other Governments $ 875,710 Due From Other Organizations: Due from other funding — Samaritan $ 30,623 Due from Pacific Power 10,069 Due from developers 12,500 Total Due From Other Organizations $—.-5.3,192 I. Restricted Cash/Investments The following restricted cash/investments were held by the City as of June 30, 1999. Soecial Revenue Funds: Community Development — Rehab. Interest Subsidy $ 3,258 Community Development — Courtyard Reserve 15,829 Tax Increment — Bond Reserve 123,046 Special Revenue Funds Total $ 142133 Debt Service Funds: Reserved for Debt Service $ 64,199 Entemrise Funds: Water — Sinking and Interest $ 2,524 Water — Bond Reserve 106,000 Water — Replacement 783,227 Sewer — Replacement 1,977,140 Sewer — Sinking and Interest 1,154 Sewer— Capital Improvement 1,101,440 Sewer — Operating Reserve 106,500 Sewer — Storm Sewer 555,942 Sewer — Reserve for Revenue Bond 686,437 Ambulance — Designated for Replacement 48,430 Garbage — Designated for Replacement 127,939 Enterprise Funds Total $5,496,733 A enp ey Funds: Bidders Bonds $ 55,390 Internal Service Fund: Data Processing — Designated for Replacement $ 41,357 -26- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1999 J. Fund Equity Reserves and/or designations of the City at June 30, 1999, consisted of Special Revenue Funds: Tax Increment — Reserve for Bond Contingency $ 123,046 Community Development — Rehab. Interest Subsidy 3,258 Community Development — Courtyard Reserve 15,829 Special Revenue Funds Total $ 142,133 Debt Service Funds: Reserved for Dent Service $ 78,111 Entemrise Funds: Water — Reserve for Revenue Bond $ 106,000 Water — Reserve for Sinking and Interest 2,524 Water — Reserve for Replacement 783,227 Water — Reserve for Inventory Supplies 115,293 Sewer — Reserve for Operations 106,500 Sewer — Reserve for Replacement - Sanitary 835,250 Sewer — Reserve for Revenue Bond 686,437 Sewer — Reserve for Sinking and Interest 1,154 Sewer -- Reserve for Capital Improvement/WWTP 1,153,448 Sewer — Reserve for Replacement/WWTP 1,089,881 Sewer — Reserve for Storm Sewer 596,984 Ambulance — Designated for Replacement 48,430 Garbage — Designated for Replacement 127,940 Enterprise Funds Total $S 653,068 Internal Service Fund: Data Processing — Designated for Replacement $ 43,57 K. Cbanges in Contributed Capital A schedule of changes in contributed capital is presented below: Contributed Capital - July 1, 1998 Add: Contributions Deduct: Depreciation on assets acquired by grants/contributions Contributed Capital - June 30, 1999 Water sewer Data Proc. Total $3,068,284 $10,192,124 $ 27,089 $13,287,497 323,509 524,217 - 847,726 73.030 530,349 14,253 617,632 $3318,763 $10,185,992. $ 12,836 $13.5].7,591 -27- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1999 L. Restatements During the current fiscal year, adjustments relating to prior year transactions were made to the following funds: Fund Amount Reason for Adjustment Ambulance Courtyard Fund $ (7,282) Previous expenditures booked were $ 973,603 $ 2,438,464 incorrect/unaudited $ 420,116 Water (8,613) Change in fixed asset policy - expensed assets Sewer Fund (10,446) Change in fixed asset policy -- expensed assets Ambulance (3,534) Change in fixed asset policy - expensed assets Garbage (11,657) Change in fixed asset policy - expensed assets Central Data Processing (15,429) Change in fixed asset policy - expensed assets M. Residual Equity Transfers Residual equity transfers are made to transfer the remaining equity balance of a discontinued fund to another fund. Fund making transfer Fund receiving transfer Amount Fund lypes and total net transfers SID Revolving Fund General Fund $ 12,461 (1) General Fund $ 12,461 Meridian S & C SID Revolving 301 (2) Debt Service (12,461) 1989 S & C SID Revolving 2,776 An equity transfer of $203,189 from. the Tax Increment Special Revenue funds is recorded in the Enterprise funds as contributed capital for the assets constructed with Urban Renewal funds. N. Segment Information For .Enterprise Funds The City maintains four enterprise funds which provide water, sewer, garbage, and ambulance services. Segment information for the year ended June 30, 1999, is as follows: -28- Water Sewer Ambulance Garbage Total Operating revenues $ 973,603 $ 2,438,464 $ 545,556 $ 420,116 S 4,377,739 Depreciation expense 242,828 1,076,369 22,479 61,145 1,402,821 Operating income (loss) (60,120) 202,762 32,346 20,037 195,025 Net income (loss) 4,269 263,973 39,996 41,191 349,429 Current capital contributions 323,509 524,217 - - 847,726 Property, plant, and equipment: Additions 353,573 1,124,353 74,594 55,673 1,608,193 Deletions 48,181 73,600 - - 121,781 Net increase in cash and cash equivalents 86,004 364,091 (47,503) 85,761 488,353 Total Assets 8,959,484 23,408,952 432,836 868,679 33,669,950 Long-term Liabilities: Payable from Operating Revenues 973,540 5,998,426 23,433 39,565 7,034,964 Total Equity $7,985,944 $17,410,526 S 409,402 $ 829,113 $26,634,985 -28- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1999 O. Services Provided by Other Governments 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. P. Joint Ventures Joint ventures are independently constituted entities generally created by two or more governments for a specific purpose. L 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, 1999, 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 and the Chairman of the Flathead County Board of County Commissioners. The Board consists of four members: the Chairman of the Flathead County Board of County Commissioners and the Mayor of each of the three cities. 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 operations for the CAB are accounted for by Flathead County. The City's contributions for the CAB for the fiscal year ended June 30, 1999, was $71,672. -29- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1999 3. Courtyard Apartments/Northwest Montana Human Resources The City entered into an agreement with Northwest Montana Human Resources (NWMHR) for a joint venture construction project of the Courtyard Apartments. The City owns 16 units of the apartment complex built with Home Grant and CDBG Funds. NWMHR has built 16 units also. The agreement provides for the management of the housing complex for low income housing. All operations and maintenance of the housing complex are managed by Northwest Montana Human Resources. NWMHR maintains a trust fund in the City's name to record the revenues and expenses of the housing complex. As of June 30, 1999, the equity in the fund was $49,765. The debt payments on the mortgage are paid from the proceeds of the rents by NWMHR. The principal balance is recorded on the City's books in the Long - Term Debt Group of Accounts. The original amount of the loan was $271,000. The balance as of June 30, 1999, was $255,024. Q. 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, 1999 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 -lass" 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. R. 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. S. Loans Receivable A Tax Increment Fund Loan was made to the 2nd Avenue West Professional Building, a partnership, in the amount of $67,000 on December 30, 1985. Interest will accrue at the rate of 5% for the first five years. For years 6 through 15, the interest rate will accrue at the rate paid on U.S. Treasury Bills as of the 15" day of January of the year in which said payments are due. The loan is authorized pursuant to Title 7, Chapter 15, Parts 42 and 43, MCA, and an ordinance #933 enacted by the City of Kalispell creating the Kalispell Downtown. Redevelopment Plan. The City is authorized to eliminate and prevent the spread of blight by encouraging the redevelopment of land by private enterprise. The loan is for the acquisition of real property for development as a parking lot. Original Loan amount $67,000 Balance at June 30, 1999 9,639 On March 1, 1999, the City entered into a loan with the Center Street Plaza for $70,529. The terra of the loan is 15 years at a rate of 3%. The balance at June 30, 1999, was $69,593. -31- Damages Potential Case Requested of Loss Grey vs. City of Kalispell $ 50,000 Unknown Storm vs. City of Kalispell Not Stated Remote Broad vs. City of Kalispell Not Stated Remote NuPac vs. City of Kalispell 70,000 Remote KPA vs. City of Kalispell 40,000 Possible S. Loans Receivable A Tax Increment Fund Loan was made to the 2nd Avenue West Professional Building, a partnership, in the amount of $67,000 on December 30, 1985. Interest will accrue at the rate of 5% for the first five years. For years 6 through 15, the interest rate will accrue at the rate paid on U.S. Treasury Bills as of the 15" day of January of the year in which said payments are due. The loan is authorized pursuant to Title 7, Chapter 15, Parts 42 and 43, MCA, and an ordinance #933 enacted by the City of Kalispell creating the Kalispell Downtown. Redevelopment Plan. The City is authorized to eliminate and prevent the spread of blight by encouraging the redevelopment of land by private enterprise. The loan is for the acquisition of real property for development as a parking lot. Original Loan amount $67,000 Balance at June 30, 1999 9,639 On March 1, 1999, the City entered into a loan with the Center Street Plaza for $70,529. The terra of the loan is 15 years at a rate of 3%. The balance at June 30, 1999, was $69,593. -31- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1999 The City entered into a community development program, which includes funding from a community development block grant, to make available to eligible applicants (Iow-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 $237,702 recorded as loans receivable as of June 30, 1999, 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 $35,900. 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." T. City Court Contracts Receivable Contracts receivable for the City Court have been recorded as an asset in the General Fund. The contracts receivable are offset with deferred revenue as required by generally accepted accounting principles. The receivables estimated as collectible are $172,938 U. 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 metered flows. Evergreen Sewer District has an equity interest in the replacement account carried on the City's books. The balance of the account as of June 30, 1999, was $1,089,881 of which Evergreen's interest was $135,779. The City of Kalispell has sole responsibility for the use of these funds. -32- CITY OF KALISPELL, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 1999 V. Component Unit - Kalispell Parking Commission The Kalispell City Council passed Resolution 4103, a resolution of intention to create Special Parking District Number 2, on .Tune 21, 1993. Also passed was Resolution 4104, a resolution of intention to provide for funding the cost of .maintaining, operating, repairing, and improving Special Parking Maintenance District Number 2, and Resolution 4105, a resolution declaring the need for a Parking Commission to function in the City of Kalispell and declaring a jurisdictional area wherein said Parking Commission is authorized to function. The Mayor and City Council appointed the Board of Directors composed on City residents who operate businesses within the district. It is the intention of the City of Kalispell that the downtown business community manage the parking for the downtown district. The Parking Commission began operation on February 1, 1994. The City transferred $53,000 in fiscal year 1994 to the Parking District as start-up money, no further City funds have been given to the District. It is intended that the Parking Commission be operated as a proprietary type fund and has been classified as such in the City's financial statements. -33- Denning, Downey & Associates, P.C. CERTIFIED PUBLIC ACCOUNTANTS No. 4 Sunset Plaza, Suite 101 - Kalispell, ;LIT 59901 - 756-6879 INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTAL INFORMATION AND SCHEDULES City Manager, Mayor, and City Council City of Kalispell Kalispell, Montana We have audited the general-purpose financial statements of the City of Kalispell, Montana, as of and for the year ended June 30, 1999, and have issued our report thereon dated March 8, 2000. 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, 1999, 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. ,2)ennin y,-Awney ctrtd �f�5�3cict eb, P.C... March 8, 2000 _34_ Robert K Denning, CPA -Kim M. Downey, CPA SIGNIFICANT PROVISIONS OF WATER AND SEWER REVENUE BONDS ORDINANCES AND REQUIRED INFORMATION 1. The City will establish a separate sewer revenue bond account into which will be paid each month an amount equal to but not less than the sum of one-sixth of the interest due within the next six months and one -twelfth of the principal due within the next twelve months with respect to all Bonds secured by the ordinance and payable from that account, and into which shall be paid each month additional net revenue equal to one -sixtieth of the maximum amount of principal and interest to fall due within any subsequent fiscal year on all such bonds until. a reserve equal to such maximum amount of principal and interest is established, which reserve shall thereafter be maintained. Total Reserve Bond Balance $686,437 Maximum Requirement 686.437 Balance $ 2. Sewer 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 FlowCoverage Sewer Service Charges $2,1.88,211 Storm Sewer Assessment 249,926 Miscellaneous and Hookup Fees 327 Total Operating Revenue 2,438,464 Less: Operating Expense (Before Depreciation) 1,159,333 Available for Debt Service 1,279,131 Maximum Debt Service 686,437 Coverage 186% 3. The City shall maintain an Sewer Operating Reserve equal to one month's operating expenses. The term "operating expenses" shall mean current expenses, paid or accrued, of operation, maintenance and current repair of the system and its facilities, and shall include administrative expenses of the City relating solely to the system, premiums for insurance on the properties, labor and the cost of materials and supplies used for current operation and for maintenance, and charges for the accumulation of appropriate reserve for current expenses which are not recurrent monthly but may reasonably be expected to be incurred in accordance with sound accounting practices. Such expenses shall not include any allowance for depreciation or renewals or replacements of capital assets of the system and shall not include any portion of the salaries and wages paid to any officer or employee of the City, except such portion as shall represent reasonable compensation for the performance of duties necessary to the operation of the system. -3 5- Operating expenses for fiscal year ended June 30, 1999, of $1,159,333 divided by 12 = $96,611. The Sewer Operating Reserve balance is $105,500. 4. The City shall, within 120 days after the close of each fiscal year, cause to be prepared and supply to the original purchaser or purchasers of Bonds issued hereunder and the bank or banks designated as agent for the payment of principal of and interest thereon a financial report with respect to the system of such fiscal year as prepared by an independent certified public accountant. The City did not comply with this provision. 5. Water Bond Cash Flows 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. The debt service reserve account contains $108,524. Cash plow Coverage Water Service Charges Miscellaneous Revenue Total Operating Revenue Less: Operating Expense (before Depreciation) Available for Debt Service Maximum Debt Service Coverage -36- $ 957,475 16,128 973,603 790.895 182,708 107,977 CITY OF KALISPELL, MONTANA SCHEDULE OF ASSETS, LIABILITIES, AND FUND EQUITY June 30, 1999 ASSETS Cash/investments $ 5,110,968 Taxes/assessments receivable 26,985 Accounts receivables 157,215 Due from County 34,107 Due from developers 12,500 Fixed assets (Net of accumulated depreciation) 18,067,177 TOTAL ASSETS $ 23,408,952 LIABILITIES AND. FUND EQUITY Liabilities: Short-term payables $ 115,478 Long-term liabilities 5,882,948 Total Liabilities 5,998,426 Fund Equity: Contributed capital 10,185,992 Retained earnings: Reserved 4,469,654 Unreserved 2,754,880 Total Fund Equity17,410,526 TOTAL LIABILITIES AND FUND EQUITY $ 23,4081_952 -37- CITY OF KALISPELL, MONTANA SEWER FUND SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN RETAINED EARNINGS Fiscal Year Ended June 30, 1999 Operating Revenues: Charges for services $ 2,188,538 Special assessments249,926 _..................____- Total Operating Revenues 2,438,464 Operation Expenses: 263,973 Personal services 535,376 Supplies 54,548 Purchased services 363,514 Fixed charges 205,503 Losses/bad debt expenses 392 Depreciation 1,076,369 Total Operating Expenses 2,235,702 Operating Income 202,762 Non -Operating Revenues (Expenses): Hookup fees 89,344 Interest 292,895 Debt service interest expense (3.21,028) Total Non -Operating Revenues (Expenses) 61,211 Net Income 263,973 Add depreciation on fixed assets acquired by contributions 530,348 Increase in Retained Earnings 794,321 Retained Earnings - July 1, 1998 6,440,659 Restatements (10,446) Retained Earnings - June 30, 1999 $ 1,224,534 No CITY OF KALISPLL, MONTANA SEWER FUND - STATEMENT OF CASH FLOWS Fiscal Year Ended June 30, 1999 Cash flows from Operating Activities: Cash received from customers S 1161,986 Cash received from assessments 208,469 Cash payments to suppliers (632,382) Cash payments to employees (531,893) Cash from other revenue sources 327 Net cash provided by operating activities (25,833) Cash flows from Capital and related financing activites: Acquisition and construction of capital assets Principal paid on revenue bonds and contracts Interest paid on revenue bonds Cash received from hookups reserved for replacement Cash received from receivable hookup fees Net cash used for capital and related financing activities Cash flows from investing activities: Interest on Investments Advance to other funds net of repayments Purchase of Sidewalk and Curb warrants Proceeds of redemption of S & C Warrants Net cash used in investing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash. and cash equivalents at end of year (571,715) (362,000) (321,028) 89,344 12,500 292,895 5,000 (1,687) 14,275 Reconciliation of operating income to net cash provided by operating a.ctivites: Operating Income Adjustments to reconcile operating income to net cash provided by operating acitivities: Depreciation $ 17076,369 Change in assets and liabilities: Increase in accounts receivable (25,833) Increase in assessments receivable (41,457) Decrease in accounts payable (8,817) Increase in compensated absences payable 3,483 Net cash provided by operating activities 1,206,507 (1,152,899) 310,483 364,091 4,694,868 5,058,959 202,762 1,003,745 $ 1,206,507 Non-cash transactions: Assets were contributed by developers of $422,715 and $92,852 from Tax Increment Districts. See accompanying Notes to the Financial Statements -39- SINGLE AUDIT S.EC'T'ION -40- -41- � N M ° Cil C s4 V3 cr a� m m O O? h n m Q_ lik m P N m GQ v o O w� N i, r .- u'i 4© N n N n M 7 rs. x lii 4R b? Co vl o a vi n rn �n in Q Q a p y EA r M a N N O O L() N P Cs h O N tti h n r itk M N N i13 O O O] W V' �fR O �Y P O Y rc- n h rt O O ff3 � Q = 61 0 Ol 4s m W IL � b? V3 00 � OI .0 M r (O m 63 � r a rt} O c•I I!J M iii m �i3 r ' • r r r Q3 C] n N P3 C] N O m f� LL m j ..I aMa o0o morncan000m ui G Q Z n rn N O Z a © ui a s O O C7 4i T n P Z W Q m 1`6 R 3 m o a '- O O O C, N a C1 m e m t(3 O cT3 .r o Q sfl N n ID Z 4ll p LL v Os E o 4 Q 0 0 LL Li. J L 6 V3 J LU 4 a Q C Q E lJJ »% Q r O O Q n w } m n rn� N x 0, _ m O x Mx P c n m B a vui L«' x CD m r O O N LL CDMZ) m' m� www W u]QO000 cd? U O U OU i1. 0.F 0. WF--. or m W u. m m m Ul n LL O P O W h S 0 N c Q m N N P w aim n m m m NN of in u� rn ui rn a o o ui doa000000 °c a E p � E r1i sii n, r13 �R O �fl d N Cl! N V' Q Q N N N N N s➢ rD <➢ N 00000 P P a P c O (7 U Z a- .- .- .- N N N N N N N N N n N � � E u c o o U a O p p pLL m m m e 14 o p L L a o ro -c o a d u E 2 _ o El w° E E m m m a n n a=_ DE O C] O o LL d :.cz ` CL m n v a. — a T o 0 az 'E- i 0 a. LL w ° O H ¢ q o 3 3 o c c m m p—, U E m a, O E E E 7 E uv, n J U ti d I Q O tL ( F- -41- Denning, Downey >& Associates, P.C. CERTIFIED PUBLIC ACCOUNTANTS No. 4 Sunset Plaza, Suite 101 • Kalispell, W 59901 • 736-6879 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDI' OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENTAUDITINGSTANDARDS 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 Tune 30, 1999, and have issued our report thereon dated March 8, 2000. 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 Standardv. Internal Control Over financial Reporting In planning and performing our audit, we considered the City's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters conning to our attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in our judgement, could adversely affect the City's ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements. The reportable conditions are described in the accompanying Schedule of Findings and Questioned Costs as items 99-1 and 99-2. A .material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, of the reportable conditions described above, we consider item 99-2 to be a material weakness. -42- Robert K Denning, CPA • Kim M. Downey, CPA This report is intended solely for the information and use of the City Council, management, the Montana Department of Commerce, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. c March. S, 2000 -43- Denning, Downey & Associates, P.C. CERTIFIED PUBLIC ACCOUNTANTS No. 9 Sunset Plaza, .Suite 101 - Kalispell, X17'59901 • 736-6879 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 City Manager, Mayor, and City Council City of Kalispell Kalispell, Montana Compliance We have audited the compliance of the City of Kalispell, Montana, with the types of compliance requirements described in the US. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended June 30, 1999, 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, 1999. Internal n r l Qver Co=liance 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. -44- Robert K Denning, CPA • Kim At. Downey, CPA Our consideration of the internal control over compliance would not necessarily disclose all matters in the internal control that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that noncompliance with applicable requirements of laws, regulations, contracts and grants that would be material in relation to a major federal. program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses. This report is intended solely for the information and use of the City Council, management, the Montana Department of Commerce, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. �lJenniru�� _owney and -A ociate.1, I .C. March 8, 2000 -45- CITY OF KALISPELL, MONTANA SCHEDULE OF FINDINGS AND QUESTIONED COSTS Fiscal Year Ended lune 30, 1999 Section I - Summary of Auditor's Result, Financial Statenien Type of auditor's report issued Unqualified Internal control over financial reporting: Material weakness identified? Yes Reportable condition identified not considered to be material weaknesses? Yes Noncompliance material to financial statements noted? No Federal Awards Internal Control over major programs: Material weakness identified? No Reportable condition identified not considered to be material weaknesses? None reported Type of auditor's report issued on compliance for major programs: Unqualified Any audit findings disclosed that are required to be reported in accordance with Circular A-133, Section .510(a)? No Identification of major programs: CFDA Number Name of Federal Program or Cluster 14.228 U.S. Department of Housing and Urban Development - Community Development Block Grant (CDBG) - Housing and Public Facilities 14,239 U.S. Department of Housing and Urban Development - Home Investment Partnerships Program (HOME) Dollar threshold used to distinguish between Type A and Type B programs: $ 300,000 Auditee qualified as low-risk auditee? Yes -46- SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Section H - Financial Statement Findings 99-1 City Court Receivables Statement of Condition: The City uses a manual card system for tracking court receivables. The system is not self balancing, it does not provide aged receivables reports or summaries of whom have not made payments as agreed upon. Criteria: A good system of internal controls should include at a minimum the preparation of aged receivables and be self balancing to ensure that all receivables are collected or monitored. Effect: The City is unable to adequately monitor court receivables. Cause: The City has always used a manual card system for court receivables. Recommendation: The City should use an accounting system that monitors court receivables. 98-2 Kalispell Parking Commission Statement of Condition: 1. Accounts receivable for the parking commission were not adjusted for an allowance for bad debt. 2. Compensated absences were calculated incorrectly, Criteria: 1. Generally accepted accounting principles require that accounts receivables should be reported at net realizable value. 2. State statutes require that only 25% of the total accumulated sick leave hours should be used when calculating the entity's compensated absences. Effect: 1. Accounts receivable were overstated by $9,752. 2. Compensated absences were overstated by $1,834. Recommendation: 1. Accounts receivable should be reported net of an allowance for bad debt. 2. The Kalispell Parking Commission should only use 25% of the total sick leave hours when calculating compensated absences. -47- SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Section III - Federal Award Findings and Questioned Cost There were no matters reported. -48- Denning, Downey & Associates, P. C. CERTIFIED PUBLIC ACCO UNTANTS No. 4 Sunset Plaza, Suite 101 • Kalispell, 14T59901 • 736-6879 INDEPENDENT AUDITOR'S REPORT ON OTHER COMPLIANCE, FINANCIAL, AND INTERNAL ACCOUNTING CONTROL MATTERS City Manager, Mayor, and City Council City of Kalispell Kalispell, Montana There were no other compliance, financial, or internal accounting control matters. CCi�s rn J � J/7 i cC.ierznin�� .�✓oWYtef� and�36ocLGi�e3� !f✓ . March 8, 2000 -49- Rohert K. Denning, CPA • Kim M. Downey, CPA Deming, Downey & Associates, P. C". CERTIFIED PUBLIC ACCOUNTANTS No. 4 Sunset Plaza, Suite 101 • Kalispell, ;VT 59901 • 756-6879 INDEPENDENT AUDITOR'S REPORT ON PRIOR AUDIT REPORT RECOMMENDATIONS City Manager, Mayor, and City Council City of Kalispell Kalispell, Montana The prior audit report contained two recommendations. The actions taken on each are as follows: ■ City Court Receivables • Kalispell Parking Commission ' LNnniny �Lir�uine� and �e3ocia�e3 P.C.C.,. March 8, 2000 -50- Robert K. Denning, CPA • Kim M Downey, CPA `fiction Repeated Partially implemented