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14. Audit-Fiscal Year Ended 6/30/02CITY OF KALI3SPELL FLATHEAD COUNTY, MONTANA Fiscal Year Ended Jure 30, 2002 AUDIT REPORT Denning, Downey & Associates, P.C. CERTIFIED PUBLIC ACCOUNTANTS CITY OF KALISPELL FLATHEAD COUNTY, MONTANA Fiscal Year Ended .lune 30, 2002 TABLE OF CONTENTS Organization Independent Auditor's Report General Purpose Financial Statements 2-3 Combined Balance Sheet - All Fund Types and Account Groups 4 Combined Statement of Revenues, Expenditures, and Changes in Fund Balances - All Governmental Fund Types Combined Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual --- General, Special Revenue, Debt Service and Capital Projects Fund Types, and Discretely Presented Component Units 6-7 Combined Statement of Revenues, Expenses, and Changes in Retained Eaniings - All Proprietary Fund Types Combined Statement of Cash Flows - All Proprietary Fund Types 9 Notes to Financial Statements 10-37 Single Audit Section Schedule of Expenditures of Federal Awards 38 Notes to Schedule of Expenditures of Federal Awards 39 Report on Compliance and on Internal Control Over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 40-41 Report on Compliance with Requirements Applicable to Each Major Program and Internal Control Over Compliance in Accordance with OMB Circular A-133 42-43 Schedule of Findings and Questioned Costs 44-46 Report on Other Compliance, Financial, and Internal Accounting Control Matters 47 Report on Prior Audit Recommendations -1- 48 CITY OF KALISPELL FLATHEAD COUNTY, MONTANA ORGANIZATION Fiscal Year Ended June 30, 2002 Pamela. B. Kennedy Mayor CITY COUNCIL Donald Counsell Ward I Jim Atkinson Ward III Robert Hafferman Ward I Randy Kenyon Ward III Fred Leistiko Ward II M. Duane Larson Ward N Hank Olsen Ward II Jason Peters Ward N CITY OFFICIALS Chris Kukulski City Manager Charles Harball Attorney Frank Garner Police Chief Randy Brodehl Fire Chief Amy Robertson Finance Director Heidi Ulbricht City Judge James Hansz Public Works Director Michael Baker Parks Director ,Susan Moyer Community Development Director Rick Wills City Accountant -I- Denning, Downey & Associates, P. C'. CERTIFIED PUBLIC ACCOUNTANTS 1790 U.S' Hwy 93 South - Suite 101 Kalispell, W59901 INDEPENDENT AUDITOR'S REPORT Mayor and City Council City of Kalispell Flathead County Kalispell, Montana We have audited the accompanying general purpose financial statements of the City of Kalispell, Flathead County, Montana, as of and for the year ended June 30, 2002, 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 auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the general purpose financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the general purpose financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall general purpose financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the general purpose financial statements referred to above present fairly, in all material respects, the financial position of the City as of June 30, 2002, and the results of its operations and the cash flows of its proprietary fund types for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated February 4, 2003, on our consideration of the City of Kalispell's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. -2- .Robert K. Denning, CPA -.Kim M. Downey, CPA Our audit was performed for the purpose of forming an opinion on the general purpose financial statements taken as a whole. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the 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. 6A/X�7 , Q,c o�ca C P� s 2e . February 4, 2003 -3- mill '^3'a a y 5�cavo�,o3'oUd c ,.vu mypM ?3"" - vxi�`",�";�5_oxF-AB-�� u s C -+ 'J� [� N �O .-< � C� O� [� N V ; O G �D i� ..C'1 � V'1 � Cti 00 N N O O f� � Q1 � P 1 O ^" <Y Y •'""' HT1 � r"3 n ; `n € � N m ... 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U cI1 n • n�j v il ee -8- CITY OF KAUSPELL, FLATHEAD COUNTY, MONTANA COMBINED STATEMENT OF CASH FLOWS -ALL PROPRIETARY FUND TYPES For Fiscal Year Ended June 30, 2002 Cash Flows from Investing Activities: Interest on investments Purchase of sidewalk and curb warrants Redemption of sidewalk and curb warrants Net Cash Used in Investing Activities Net Increase in Cash and Cash Equivalents Cash and Cash Equivalents at July 1, 2001 Cash and Cash Equivafents at June 30, 2002 Reconciliation of Operating Income to Net Cash Provided by Operating Activities: Operating Income (Loss) Adjustments to reconcile income to net cash provided by operating activities: Depreciation Bad Debt Expense Changes in assets and liabilities: Decrease(Increase) in accounts receivable Decrease(Increase) in assessments receivable Decrease(increase) in inventory Increase(Decrease) in accounts payable Increase(Decrease) in short-term payable increase (Decrease) in Due to Other Funds Increase(Decrease) in estimated claims for liabilities Increase(Decrease) in compensated absences Net Cash Provided by Operating Activities Note: water fund noncash developer's contributions were $362,006 sewer/storm developer's contributions were $447,853 See accompanying Notes to Financial Statements $ 211,481 $ 12,630 $ 224,111 $ 667 PROPRIETARY (1,208) - (1,208) - PRIMARY COMPONENT REPORTING 10,394 PROPRIETARY FUND TYPES GOVERNMENT UNIT ENTITY $ 667 $ 233,964 $ 596,777 Totals $ 136,077 Totals $ 111,281 $ 8,170,143 Internal (Memorandum Parking (Memorandum $ 8,766,920 Enter rise Service only} Commission _only) Cash Flows from Operating Activities: $ (145,452) $ (390,289) $ (535,741) Cash received from customers $ 4,112,153 $ 976,873 $ 5,089,026 $ 95,873 $ 5,164,899 Cash received from assessments 760,831 - 760,831 - 760,831 Cash payments to suppliers for good and services (1,652,492) (1,423,013) (3,075,505) (37,887) (3,113,392) Cash payments to employees for services (1,859,844) - (1,859,844) (76,358) (1,936,202) Cash from other operating revenues 100,319_ 10,602 100,319 - 100,31_9_ Net Cash Provided by Operating Activities $ 1,460,967 $__ {446,140 $� 1,014,827 $ {18,372) $ 996,455 Cash Flows from Noncapital Financing Activities: 6,557 6,557 - 6,557 Loans from other funds $ 55,000 $ $ $ _ $ 34,531 Net Cash Provided by Noncapital Financing Activities $ 55,000 $ _ $ 55,000 $ __ $ 55,000 Cash Flows from Capital and Related Financing Activities: $ (18,372) $�� _996,455 Acquisition and construction of capital assets $ (861,776) $ (27,190) $ (888,966) $ (7,091) $ (896,057) Proceeds from Board of Investment Loans 2,562,221 2,562,221 2,562,221 Interest paid on debt service (416,718) (416,718) (41 6,718) Principal Paid on Debt Service (2,917,317) Cash Received from Hookups 493,733 - - Net Cash Used from Capital and Related Financing Activities $ (1,139,857} $ {27,190) $ 1,256,537 $ 1,249,446 Cash Flows from Investing Activities: Interest on investments Purchase of sidewalk and curb warrants Redemption of sidewalk and curb warrants Net Cash Used in Investing Activities Net Increase in Cash and Cash Equivalents Cash and Cash Equivalents at July 1, 2001 Cash and Cash Equivafents at June 30, 2002 Reconciliation of Operating Income to Net Cash Provided by Operating Activities: Operating Income (Loss) Adjustments to reconcile income to net cash provided by operating activities: Depreciation Bad Debt Expense Changes in assets and liabilities: Decrease(Increase) in accounts receivable Decrease(Increase) in assessments receivable Decrease(increase) in inventory Increase(Decrease) in accounts payable Increase(Decrease) in short-term payable increase (Decrease) in Due to Other Funds Increase(Decrease) in estimated claims for liabilities Increase(Decrease) in compensated absences Net Cash Provided by Operating Activities Note: water fund noncash developer's contributions were $362,006 sewer/storm developer's contributions were $447,853 See accompanying Notes to Financial Statements $ 211,481 $ 12,630 $ 224,111 $ 667 $ 224,778 (1,208) - (1,208) - (1,208) 10,394 10,394 - 1€7,394 $_ 220,667 $ 12,630 $ 233,297 $ 667 $ 233,964 $ 596,777 $ (460,700) $ 136,077 $ (24,796) $ 111,281 $ 8,170,143 $ 603,176 $ 8,773,319 $ 47,962 $ 8,821,281 $ 8,766,920 $� 142,476 $ 8 909 396 $_ 23,166 $_- 8,932,562 $ (145,452) $ (390,289) $ (535,741) $ (25,536) $ (561,277) 1,623,551 46,137 1,669,688 10,162 1,679,850 275,625 - 275,625 - 275,625 (269,874) (27,315) (297,189) (6,936) (304,125) (14,951) (14,951) - (14,951) 10,602 10,602 10,602 (53,065) - (53,065) (53,065) 47,920 47,920 2,105 50,025 6,557 6,557 - 6,557 - (129,150) (129,150) - (129,150) 34,531 - 34,531 1,833 36,364 $1 460957 $ 446 140 $� _ 1,014,827 $ (18,372) $�� _996,455 CITY OF KALISPELL FLATHEAD CITY, MONTANA NOTES TO THE FINANCIAL STATEMENTS .lune 30, 2002 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of the City of Kalispell'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 of Statement No. 14 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. Component Units Component units are entities for which the City is financially accountable. As required by generally accepted accounting principles, these financial statements present the City of Kalispell and its component units. The component units are included in the City's reporting entity because of the significance of their operational or financial relationship with the City, as described above. Blended component units, although legally separate entities, are, in substance, part of the City's operations and so data from these units are combined with data of the primary government. Each discretely presented component unit, on the other hand, is reported in a separate column in the combined financial statements to emphasize it is legally separate from the government. The discretely presented component units, the Kalispell Parking Commission and Tri City Planning are legally separate organizations of the City, but the City is financially accountable. Kalispell Parking Commission The Kalispell City Council passed Resolution 4103, a Resolution of intention to create Special Parking District #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 42 and Resolution 4105, a Resolution declaring the need for a Parking Commission to function in the City of Kalispell and declaring a jurisdictional area wherein said Parking Commission is authorized to function. The Mayor and City Council appointed the Board of Directors composed of City residents who operate businesses within the district. It is the intention of the City of Kalispell that the downtown business community manages the parking for the downtown district. The Parking Commission opened their doors on February 1, 1994. The City transferred $53,000 in Fiscal 1994 to the district as start up money; no further City funds have been given to the district. It is intended that the Parking Commission be operated as a Proprietary type fund and has been classified as such in the City's financial statements. -10- CITY OF KALISPELL FLATHEAD CITY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2002 Tri City Planning On June 30, 2001 Flathead County pulled out of the County -wide Administrative Board (CAB) which funded the Flathead Regional Development Office (FRDO). The CAB was a Joint Venture between the County, and the Cities of Kalispell, Whitefish, and Columbia Falls. The CAB created FRDO for the purpose of coordinating all land use planning, reviewing and approving subdivisions, and zoning and enforcement in Flathead County. FRDO also assisted in annexations by the cities. On July 1, 2001 the Tri City Planning Office was created by interlocal agreement between the three cities that were served by FRDO. The purpose of the Tri City Planning Office is to perform the functions of FRDO as they relate to the cities, namely to provide long range and current 1 and a se p lanning s ervices. T he Tri City Planning Board is made up of the City Managers, representing the Mayor and City Council, of the three cities. The City of Kalispell serves as the administrative agent at the pleasure of the Board. The employees are paid through the City of Kalispell payroll system and are included in its self insured health program. Cost of operating the office is split between the cities, proportionate to their expected benefit. Some costs of operating are recovered through planning fees. A lawsuit has been filed against Flathead County on behalf of the Tri City Planning office by the Cities. The lawsuit seeks an equitable distribution of the cash account of the former CAB. Flathead County distributed the funds as they deemed appropriate, however, the three cities returned all the funds and decided to seek a settlement through the courts. 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. Fuad 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 funds. 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 billed to the taxpayer. Expenditures are recorded when the related fund liability is incurred, except for unmatured interest on gcneral 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. -11- CITY OF KALISPELL FLATHEAD CITY, MONTANA NOTES TO THE FINANCIAL STATEMENTS Tune 30, 2002 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 other funds. The special revenue funds account for revenue sources that are legally restricted to expenditures for specific purposes (not including major capital projects). The debt service funds a ecount for the s ervicing o f g eneral 1 ong-term d ebt and s pecial 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. 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 appropriate 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. -12- CITY OF KALISPELL FLATHEAD CITY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2002 Fiduciary funds account for assets held by the government in a trustee capacity or as an agent on behalf of others. Trust funds account for assets held by the City under the terms of a formal trust agreement. The agency fund is custodial in nature and does 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 or trust 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 or trust funds. C. Budgets and Budgetary Accounting 1. Budget Process An annual appropriated operating budget is adopted each fiscal year for the General Fund, Special Revenue Funds, Debt Service Funds, Capital Projects Funds, Enterprise, and Internal Service Funds on the modified accrual basis of accounting. The appropriated budget is prepared by fund, function, and for the General fund and certain other funds, by department. The final budget is legally enacted by the City Council, on the second Monday in August after holding public hearings as required by State statutes. Budget appropriation transfers may be made between general classifications of salaries and wages, maintenance and operation and capital outlay. Reported budget amounts represent the originally adopted budget as amended by resolution of the City Council. It is management's responsibility to see that the budget is followed to the budgetary line item. The City Council may amend a final budget when shortfalls in budgeted revenues require reductions in approved appropriations to avert deficit spending; when savings result from unanticipated adjustments in projected expenditures; when unanticipated state or federal monies are received; or when a public emergency occurs which could not have been foreseen at the time of adoption. The procedure to amend the budget in total can be made only after the City prepares a resolution, notice is published of a public hearing, and a public hearing is held in accordance with state law. All material budget amendments and transfers during FY 2002 are described below: Increased the appropriations and expenditures f or t he W ater F and i n t he amount o f S 140,000 for costs associated with the replacement of the water lines at Main and Idaho. -13- CITY OF KALISPELL FLATHEAD CITY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2002 Increased the appropriations and expenditures for the newly created Pool Capital Fund in the amount of $3,675,000 as approved by the voters. Increased the appropriations within the Self -Insured Health Fuad in the amount of $391,000 for health insurance claims. Increased the appropriations and expenditures for the Downtown Urban Renewal District in the amount of $185,328 for redevelopment projects. A budget was established in the amount if $428,000 for use of a Montana Department of Commerce HOME Investment Partnership Program Grant to provide funds for the Second Avenue West Senior Housing project. 2. Encumbrances All appropriations, lapse at the end of the fiscal year. Encumbrance accounting is not used by the City. D. Assets, Liabilities, and Equity 1. Cash, Cash Equivalents, and Investments The City's cash and cash equivalents are considered to be cash on hand, demand and time deposits, bidders bonds, bonds and warrants, and investments with the State of Montana's short-term investment pool (STIP). The cash resources of the individual funds are combined to form a pool of cash and investments which is managed by the City Treasurer. Investments are carried at cost, which does approximate fair value as described in Note 3, A, except for investments in STIP and particular bonds, which are reported at fair value. For purposes of the statement of cash flows, the enterprise and internal services funds consider all funds (including restricted assets) held in the City's cash management pool to be cash equivalents. 2. Receivables and Payables Transactions between funds that are representative of 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. -14- CITY OF KALISPELL FLATHEAD CITY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2002 An allowance for uncollectible accounts was not maintained for real and personal property taxes and special assessments receivable. The direct write-off method is used for these accounts. A reserve for estimated uncollectible accounts receivable is maintained for the Water Fund, Sewer Fund and the Ambulance Fund. The reserve balances are as follows for June 30, 2002: Water $ 5,898 Sewer $ 12,482 Ambulance $ 104,923 Property tax levies are set on or before the second Monday in August, in connection with the budget process. Real property (and certain attached personal property) taxes are billed within ten days after the third Monday in October and are due in equal installments on November 30 and the following May 31. After those dates, they become delinquent (and a lien upon the property). After three years, the City may exercise the lien and take title to the property. Special assessments are either billed in one installment due November 30 or two equal installments due November 30 and the following May 31. Personal property taxes (other that those billed with real estate) are generally billed no later then the second Monday in July (normally in May or June), based on the prior November's levies. Personal property taxes, other than mobile homes, are due thirty days after billing. Mobile home taxes are billed in two halves, the first due thirty days after billing; the second due September 30. The tax billings are considered past due after the respective due dates and are subject to penalty and interest charges. The tax levies for the fiscal year ended June 30, 2002, were based upon a taxable valuation of $21,351,734 3. Inventories and Prepaid Items Inventories for materials and supplies for governmental fund types are expended at the time of purchase. Enterprise Fund Inventory of materials and supplies are valued at cost. 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. 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. -15- CITY OF KALISPELL FLATHEAD CITY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2002 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 10-50 Machinery, Vehicles, and 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 1.00 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. -16- CITY OF KALISPELL FLATHEAD CITY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2002 7, Long -Term Obligations The City reports long -terra 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. Prior to July 1, 2000, contributed capital included equity acquired through capital grants and capital contributions from developers, customers, or other funds or governments. Effective July 1, 2000, the City implemented GASB #33, "Accounting and Financial Reporting for Nonexchange Transactions". After this date, only contributions from other funds were included as a part of contributed capital. Depreciation on assets acquired from contributions is reflected in the statement of revenue, expenses and changes in retained earnings. The amount of depreciation applicable to assets acquired through contributions is transferred to the related contribution account instead of retained earnings. 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 perfonning the services. Transactions which constitute reimbursements of a fund for expenditures or expenses initially made from it which are properly applicable to another fund are recorded as expenditures in the reimbursing fund and as reductions of expenditures in the fund that is reimbursed. Advances between funds are accounted for in the appropriate Interfund receivable and payable accounts. -17- CITY OF KALISPELL FLATHEAD CITY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2002 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. 11. STEWARDSHIP, COMPLIANCE AND ACCOUNTABILITY A. Budget Overdrafts/Variances A significant unfavorable budget to actual variance in intergovernmental revenue in the special revenue funds related to anticipated grant revenue which was not realized during the fiscal year. Favorable variances in public works, housing and community development, and capital outlay expenditures in special revenue funds are due to conservative budgeting and delayed projects. Favorable variances of taxes/special assessment revenue in the debt service funds are due to increased growth in the Westside TIF district and higher than anticipated assessments in SID 343. The significant variance of expenditures in the capital project funds is due to the construction delay of the new aquatic facility. The General Fund exceeded its budget authority by $506,203 because the City did not budget anticipated revenues and expenditures for on -behalf payments made by the State for firemen and policemen pensions. B. Deficit Fund Balances Special Revenue Funds: ISTEA $ 12,625 Debt Service Funds: 1992 Sidewalk & Curb $ 272 1993 Sidewalk & Curb 11 1994 Sidewalk & Curb 683 1997 Sidewalk & Curb 181 SID 337 12,847 Capital Pralect Funds: Sidewalk Construction $ 653 -I8- CITY OF KALISPELL FLA'T'HEAD CITY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2002 The deficits in the Debt Service funds were caused by a short -fall in anticipated revenue and will be eliminated as delinquent assessments are collected. Sidewalk construction will be reimbursed by homeowners or through the sale of warrants. The ISTEA Fundis due $16,111 from the State of Montana. III, DETAILED NOTES ON ALL FUNDS AND ACCOUNT GROUPS A. Cash and Cash Equivalents Investment Income Income from pooled investments is allocated to the individual funds based on the fund's month end cash balance in relation to total pooled investments. Cash Composition Cash and investments may include cash and cash items; demand, time, savings, and fiscal agent deposits; investments in the State S hort-Tenn I nvestment P ool ( STIP); r epurchase agreements; U.S. government treasury bills, notes, bonds, and other treasury obligations such as state and local government series; general obligations of certain agencies of the United States such as Federal Home Loan Bank; and U.S. government security money market funds if the fund meets certain conditions. Total City's composition of cash, deposits and investments at fair value on June 30, 2002, are as follows: Cash on hand $ 1,401 Cash in banks: Demand Deposits 268,994 Time Deposits 45,862 Bidders Bonds 62,425 Bonds/Warrants 22,590 STIP 20,481,149 Total $=20 .882,421 Interest rates range from I% to 6% and maturity dates range froze. 6 months to five years. -19- CITY OF KALISPELL FLATHEAD CITY, MONTANA NOTES TO THE FINANCIAL STATEMENTS .lune 30, 2002 Deposits The City's deposit balance at year end was $314,856 and the bank balance was $521,302. The City's deposits at year-end are as follows: Bank Balance Insured (FDIC) $ 145,862 Collateralized: securities held by the Pledging financial institution's trust Department or agent in the City's name. 375,440 Uncollateralized - Total Deposits $ 521,302 Montana statutes require that the City obtain securities for the uninsured portion of the deposits as follows: L securities equal to 50% of such deposits if the institution in which the deposits are made has a net worth to total assets ratio of 6% or more, or 2. securities equal to 100% of the uninsured deposits if the institution in which the deposits are made has a net worth to total assets ratio of less than 6%. State statutes do not specify in whose custody or name the collateral is to be held. The amount of collateral held for City deposits as June 30, 2002, equaled or exceeded the amount required by State statutes. Categorized Risk Investments - as noted above, statutes authorize the City to invest in the State Short -Term Investment Pool (STIP); repurchase agreements; U.S. government treasury bills, notes, bonds and other treasury obligations such as state and local government series; general obligations of certain agencies of the United States such as Federal Home Loan Bank; and U.S. government security money market funds if the fund meets certain conditions. These investments are in addition to the demand, time, credit union, and savings deposits, which are included in deposits above. The City investments are categorized below to give an indication of the level of risk assumed by the City at .Tune 30, 2002. Statement No. 3 of t he G overnmental A ccounting S tandards B oard r equires g ovement entities to categorize investments held at year end to give an indication of the Ievel of risk assumed by the entity. Category l includes investments that are insured or registered or for which the securities are held by the City or its agent in the City's name. Category 2 includes uninsured and unregistered investments for which the securities are held by the counterparty's trust department or agent in the City's name. Category 3 includes uninsured and unregistered investments for which the securities are held by the counterparty or its trust department or agent, but not in the City's name. Category Carrying Market I 2 3 Value Value Warrants $ 22,590 $ - $ - $ 22,590 $ 22,590 Investments not subject to categorization: Investment in State Short -Term Investment Pool (STIP) 20,481149 20.481,149 Total Investments $2©,503 7�9 $20.503_,7a9 -20- CITY OF KALISPELL FLATHEAD CITY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2002 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 June 30, 2002, were as follows: Amounts invested by the City in SUP 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, 2002, were as follows: Due to/from other funds: Receivable Fund General Fund General Fund SID Revolving Fund SID Revolving Fund SID Revolving Fund SID Revolving Fund SID Revolving Fund SID Revolving Fund Total Advances to/from other funds: Receivable Fund Westside TIF Due to/from component units: Receivable Entity General Fund Payable Fund Category % Asset-backed $ 912,373,688 60.75 Variable rate 491,045,356 32.70 Other Securities 98,394,408 6.55 Total $l 501 813.452 100.00 Amounts invested by the City in SUP 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, 2002, were as follows: Due to/from other funds: Receivable Fund General Fund General Fund SID Revolving Fund SID Revolving Fund SID Revolving Fund SID Revolving Fund SID Revolving Fund SID Revolving Fund Total Advances to/from other funds: Receivable Fund Westside TIF Due to/from component units: Receivable Entity General Fund Payable Fund Amount Ambulance Fund $55,000 Health Fund 6,557 1992 S&C Fund 272 1993 S&C Fund 194 1994 S&C Fund 1,222 1996 S&C Fund 87 1997 S&C Fund 341 SID 337 13,615 $77,288 Payable Fund Amount UDAG $84 900 Payable Entity Amount Tri -City Planning $21,520 -21- CITY OF KALISPELL FLATHEAD CITY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2002 C. Operating Transfers The following is an analysis of operating transfers in and out during Fiscal Year 2002: From To General Fund Police Resource General Fund Drug Enforcement General Fund ISTEA General Fund Urban Forestry District Gas Tax Fund MACI Grant Gas Tax Fund SED 343 Construction Total D. Fixed Assets 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, 2001 Additions $ 1,980,607 $ 17,291 9,381,178 272,532 3,537,464 455,553 3,586,132 145,171 - 1,512.492 $.1.8,485,3.81 $2,403,039 /._,`" hili $ 5,229 18,103 5,000 50,000 81,000 37,000 $196,332 Balance Retirements June 30, 2002 $ (74,544) $ 1,923,354 (16,027) 9,637,683 (22,387) 3,970,630 (416,462) 3,314,841 (10,145 1 5_ x02 347 $J5 39 565 $20,348,855 Governmental Component Unit — Tri -City Planning fixed assets as of June 30, 2002: Balance Balance July 1, 2001 Additions Retirements June 30, 2002 Machinery and Equipment $ 51,109 $ -22- - $ - $ 51,109 CITY OF KALISPELL FLATHEAD CITY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2002 The following is a summary of proprietary fund type fixed assets as of June 30, 2002: E. Long -Term Debt Changes in Lang -Term Debt Liabilities - During the year ended June 30, 2002, the following changes occurred in liabilities reported in long-term debt: Balance Component Unit Balance Enterprise Internal Service Parking Commission Land $ 221,513 $ - $ - Buildings 316,731 - - Machinery and Equipment 2,042,578 302,328 59,241 Construction Work in Progress 459,357 - - Source of Supply 767,838 - - Pumping Plant 1,442,054 - - Treatment Plant 14,664,123 - - Transission and Distribution 19,671,137 - - General Plant 1,354,695 - - Storm Sewer System 4,317,628 - - Total $45,257,654 $ 302,328 $ 59,241 Less Accumulated Depreciation (18,392,439 22( 0,987) (45,103) Net $26.865,215 $===8 1,341 $ 14,138 E. Long -Term Debt Changes in Lang -Term Debt Liabilities - During the year ended June 30, 2002, the following changes occurred in liabilities reported in long-term debt: (1) Long-term debt account group (2) Reported in enterprise fund (3) Reported on Proprietary Component Unit (4) Reported in Governmental Unit -73- Balance Balance July 1, 2001 Additions Reductions June 30 2002 General Obligation Bonds (1) $ - $3,675,000 $ - $ 3,675,000 SRF Loan-WWTP (2) 2,607,000 - 182,000 2,425,000 Special Assessment Bonds (1) 1,798,275 1,209 131,894 1,667,590 Urban Renewal Bonds (1) 240,000 - 240,000 - Revenue Bonds (1) (2) 6,355,740 2,462,569 2,821,295 5,997,014 Contracted Debt (1) (2) 613,136 - 76,502 536,634 Compensated Absences (1) (2) (3) (4) 1,031,588 64,050 105,458 990,180 Total $12,645,738 $&.202,828 $3,557.1_49 $15.291 X418 (1) Long-term debt account group (2) Reported in enterprise fund (3) Reported on Proprietary Component Unit (4) Reported in Governmental Unit -73- CITY OF KALISPELL FLATHEAD CITY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2002 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, 2002 were as follows: Origination Purpose Date Aquatic Facility 4115/02 Interest Due Rate Term Date 2%-4.9% 20 yrs 2022 .Principal Annual Balance Amount Pent June 30, 2002 $3675 0©0 varies $3.67} 5} Special Assessment Debt - Special assessment bonds are secured by a lien on the assessed properties. The primary source of repayment is the assessments levied against the benefiting properties. However, the City is liable, to an extent, for repayment of these special assessment bonds. The City is authorized by State law to establish and has established a revolving fund to ensure the payment of debt service on the bonds in the event that assessed property owners default. Revenue bonds are directly related to and expected to be paid from the Proprietary Fund. The 2000 Westside Tax Inc. bonds are accounted for in GLTDAG. Origination Interest Bond Due Bonds Annual Balance Purpose Date Rate Term Date Amount Payment June 30, 2002 SID 341 -sewer 9/01/95 6.06% 15 yrs. 2011 S 100,000 varies $ 50,000 SID 342 -sewer 11/01/95 6.34% 15 yrs. 2011 209,000 varies 90,000 SID 343 -sewer 6112/01 3.6-5.5% 20 yrs. 2021 1,581,500 varies 1,505,000 1994 Walk & Curb 12/31/86 8.5% 8 yrs. 2003 28,513 varies 3,500 1995 Walk & Curb 1/02/96 8.5% 8 yrs. 2004 22,823 varies 5,704 1996 Walk & Curb 1/02/97 8.5% 8 yrs. 2005 12,148 varies 4,555 1997 Walk & Curb 10/01/98 8.0% 8 yrs. 2006 8,572 varies 3,215 1998 Walk & Curb 1/01/99 7.75% 8 yrs. 2007 1,687 varies 1,054 1999 Walk & Curb 1/01/00 8.50% 8 yrs. 2008 1,769 varies 1,327 2000 Walk & Curb 1/02/01 9.50% 8 yrs. 2009 2,315 varies 2,026 2001 Walk & Curb 1102/02 5.00% 8 yrs. 2010 1,209 varies 1,209 Total Special Assessment Bonds $ 1.969;536 $1,667.590 Revenue bonds are directly related to and expected to be paid from the Proprietary Fund. The 2000 Westside Tax Inc. bonds are accounted for in GLTDAG. Series 2000 Westside Urban Renewal Tax Increment Bond The Board of lDvestments loan for the Stream Project has interest rates dependant on the creation of jobs. Stream International, Inc, is a computer Support center anticipating creating over 500 new jobs for the Kalispell area. The Loan of $2,500,000 to the City is for the purchase of 60,000 sq. ft of the old Gateway West Mall. The area is being rehabilitated as part of a Westside Urban Renewal District (TIF) project The Stream organization is leasing the -24- Issue Interest Term of Final Outstanding P__ urpose Date Rate Bonds Maturity Bonds Issued .lune 30, 2002 2001 Water Bonds 6101 4.00% 20 yrs. 2021 761,000 S 735,000 2000 Solid Waste 3101 4.75% 5 yrs. 2006 159,265 132,721 1996 Water Bonds 6196 5.5% 15 yrs. 2011 1,060,000 735,000 2002 Sur/WWTP Refund 4/02 3.51% 9 yrs. 2011 2,355,000 2,280,000 2000 Westside Tax Increment 3100 6.21% 10 yrs. 2010 2,500,000 2.114,293 Total Revenue Bonds $,6 8.5 ,2 =L5 5.997.014 Series 2000 Westside Urban Renewal Tax Increment Bond The Board of lDvestments loan for the Stream Project has interest rates dependant on the creation of jobs. Stream International, Inc, is a computer Support center anticipating creating over 500 new jobs for the Kalispell area. The Loan of $2,500,000 to the City is for the purchase of 60,000 sq. ft of the old Gateway West Mall. The area is being rehabilitated as part of a Westside Urban Renewal District (TIF) project The Stream organization is leasing the -24- CITY OF KALISPELL FLATHEAD CITY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2002 property back. Extensive enhancements were provided to entice this company to come to Kalispell. The County Port Authority has also committed $125,000 per year toward the debt service. This loan has a first lien on the Tax Increment of the District. The Port will be managing the physical property. Significant provisions of the Revenue Bonds are as follows; Debt Service Account Monthly an amount equal to not less than 116 of the interest due within the next six months and 1/12 of the principal to become due within the next twelve months shall be credited to the debt service account. The City is in compliance with this provision. Reserve Account The City shall keep in the reserve account an amount equal to the lesser of 10% of the original principal or the maximum amount of principal and interest requirements. The City is in compliance with this provision. Property Insurance The City will cause all buildings, properties, amounts that are ordinarily carried. The City is in compliance with this provision. fixtures, and equipment to be kept insured in Liability Insurance The City will carry insurance against liability of the City and its employees. The City is in compliance with this provision. 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 is in compliance with this provision. Server Revenue Bonds Ordinances and Required Information 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. -25- CITY OF KALISPELL FLATHEAD CITY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2002 2. 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: sewer --- 6,400; d. the amount on hand in account of the Sewer System Fund at the end of the fiscal year: $7,381,646; e. a list of the insurance policies and fidelity bonds in force at the end of the fiscal year, setting out as to each the amount thereof, the risks covered thereby, the name of the insurer or surety and the expiration date of the policy or bonds: Montana Municioal Insurance Authorit Date of policy: July 1, 2001 through June 30, 2002 Type of policy: Property insurance Policy coverages: Building - $25,000,000 Machinery & Equipment - $50,000,000 Montana Municipal Insurance Authority Date of policy: July 1, 2001 through June 30, 2002 Type of policy: Liability Policy coverages: $750,000 -26- CITY OF KALISPELL FLATHEAD CITY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2002 City of Kalispell $ 85,658 Balance Sheet June 30, 2002 2,280,000 SRF Loan Payable Sewer ASSETS 51,410 Cash/investments $ 7,381,646 Taxes/assessments receivable 22,271 Other receivables 214,797 Due from other governments 42,898 Fixed Assets _16,703,038 TOTAL ASSETS $==2,436=4 .650 LIABILITIES AND FUND EQUITY Current Liabilities: Accounts payable $ 85,658 Noncurrent Liabilities: Bonds Payable 2,280,000 SRF Loan Payable 2,425,000 Board of Investments Loan 51,410 Compensated Absences Payable 56,933 Total Liabilities $ 4,899,001 w AM 0I0110 Contributed Capital $ 9,147,467 Retained Earnings: Reserved 7,709,063 Unreserved 2,609,119 Total Fund Equity $ 19649 TOTAL LIABILITIES AND FUND EQUITY $J24 ,364,650 -27- CITY OF KALISPELL FLATHEAD CITY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2002 City of Kalispell Statement of Revenues, Expenses, and Changes in Retained Earnings For the Fiscal Year Ended June 30, 2002 Sewer Operating Revenues: Charges for Services $ 2,496,314 Miscellaneous Revenues 3,194 Special Assessments 269,362 Total Operating Revenues $--..2.,768,870 __ Qperating Expenses. Personal Services $ 640,938 Supplies 49,577 Purchased Services 711,867 Building Materials 9,610 Fixed Charges 193,159 Losses bad debt expenses 2,713 Depreciation _...L.1.74,155 x74,155 Total Operating Expenses $ 2,782,019 Operating (Loss) $ (13,149) Non-Overatine Revenues (Exncnses): Hookups $ 348,966 Interest 182,477 Debt service interest expense (326,867) Contributions revenue 448,581 Total Non -Operating Revenues (Expenses) $ 653,157 Net Income $ 640,008 Add depreciation on fixed assets acquired with capital grants 584,493 Increase in Retained Earnings $ 1,224,501 Retained Earnings July 1, 2001 $ 9,096,104 Restatements (2,423) Retained Earnings June 30, 2002 $ =1=0,31 8 18 2 -28- CITY OF KALISPELL FLATHEAD CITY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2002 Significant provisions of Series 2000 Westside Urban Renewal Tax Increment Bond Pledged Revenues The City shall generate revenues from: 1) interest repayment of a loan. to Stream International, 2) user fee equal to Stream's Montana corporation license tax, 3) revenues generated from the Westside Tax increment District, and 4) $125,000 from Flathead County Economic Development Authority levy that will be sufficient to pay the principal thereof and interest thereon when due. During fiscal year 2002, the total bond payments due equaled $339,350. The Port Authority contributed $125,000. Westside Tax Increment District generated $264,827. State Revolving Fund Loan: In November 1991, the City entered into an agreement with the State Revolving Fund (SRF) to borrow funds to partially finance the construction of a wastewater treatment plant facility. This obligation is to be repaid from the operating income of the Sewer Fund. Interest Amount Outstanding June 30 2002 $ 2,425,000 Original Rate Term Borrowed Sewer -SRF Loan 4% 20 yrs. $==a,2k3 425 1. Loans/Contracted Debt 122,382 90,908 Origination Interest Due Purpose Date Rate Term Date *Board of Housing 3/01/1995 6.0% 30yrs 2/01/2025 BOI: Road Grader 2/25/2000 5.6% 7 yrs 2/15/2007 BOI: Fire Truck 2/15/2000 5.6% 5 yrs 2/15/2005 BOL Bin Trk/LFLdr 1/26/2001 5.6% 5 yrs 2/15/2006 Outstanding June 30 2002 $ 2,425,000 Original Principal Balance Amount June 30, 2002 $ 271,000 $ 241,270 122,382 90,908 87,603 54,678 88,950 72,663 Ente rise Funds: BOI: John Deere Loader 3/10/2000 5.6% 7yrs 2/15/2007 103,000 77,115 Total Loans 672 9 $ 536 634 *BO1— Board of Investments Intercap Loan Program *The Board of Housing loan is paid from the proceeds of the rents on the Courtyard Apartments per the agreement with NW .Montana Human Resources, 2. Compensated Absences Payable Compensated absences payable, which represent vacation, sick leave and compensatory time earned by employees which is payable upon termination, were as follows: Tri -City Planning $ 39,768 Enterprise Funds 192,265 General Long Term Debt Group of Accounts 751,721 Parking Commission 6,426 Total 990 180 -29- CITY OF KALISPELL FLATHEAD CITY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2002 3. Requirements to Amortize Debt The annual requirements to amortize all long-term debt outstanding, except Compensated Absences, as of June 30, 2002, were as follows: For Fiscal G.O. Assessment Revenue Contracted Year Ended Bonds Bonds Bonds Loans/Debt Total 2003 $ 285,555 $ 189,140 $ 893,515 $ 378,881 $ 1,747,091 2004 286,028 185,943 892,799 380,291 1,745,058 2005 290,472 178,196 902,469 381,300 1,752,440 2006 289,462 181,843 893,697 362,079 1,727,081 2007 288,387 175,449 768,704 341,510 1,574,050 2008-2012 1,157,825 682,470 2,683,225 1,659,100 6,182,620 2013-2017 1,454,155 551,200 282,640 376,800 2,664,795 2018-2022 143,85_ 292,000 197,770 234,000 2,174,155 Total $502 269 $ 2.436.241 $7,514,819 $ 4,113.961 $19 5. 67.290 Princpal 3,675,000 1,667,590 5,997,014 2,961,634 I4,301,238 Interest 1 827,269 768,651 1,517,805 1,152,327 „ 5,266.052 Total $ 5,502,269 $ 2.436,241 $ 7 514 81 $ 4.11,3 91 $1 67 290 4. Advance Refunding of Long -Term Debt On April 1, 2002, the City issued $2,355,000 in revenue bonds with an average interest rate of 3.53% to advance refund $541,650 and $1,813,350 of outstanding 1997 and 1991 sewer bonds, respectively. These bonds had an average interest rate of 4% and 7.2%, respectively. Additional funds to pay underwriter fees, insurance, and other issuance costs totaling $46,596 and to purchase U.S. Government securities totaling $228,907 were paid from funds available in reserves or debt service accounts. These securities were deposited in an irrevocable trust with an escrow agent to provide for all future debt service payments on the 1997 and 1991 sewer bonds. As a result, these bonds are considered to be, defeased and the liability for those bonds has been removed from the Sewer Enterprise Fund. The City advance refunded the sewer bonds to reduce its total debt service payments over the next nine years b y approximately $ 278,778 and to obtain an economic gain (difference between the present values of the debt service payments of the old and new debt) of $236,504. 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 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 $5,973,829 for FY02, of which $5,185,499 is covered by PERS, MPORS, or FURS. Component Unit payroll was $47,632 for the Parking Commission and $177,984 for Tri City Planning. -30- CITY OF KALISPELL FLATHEAD CITY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2002 Contribution rates for the plans are required and determined by State law. The contribution rates, expressed as a percentage of covered payroll for the fiscal year ended June 30, 2002, were: The State contribution qualifies as an on behalf payment. These amounts have been recorded in the City's financial statements. The Retirement System issues a publicly available financial report that includes financial statements and required supplementary information for all three plans. That report may be obtained by writing to Public Employees Retirement Division, P. O. Box 200131, Helena, MT 58620-0131 or by calling 1-406-444-3154. The City's contributions for the years ending June 30, 2000, 2001 and 2002, as listed below, were equal to the.required contributions for each year. PERS PERS MPORS FURS Employee 6.9% 9% 9.5%-10.7% Employer 6.8% 14.41% 14.36% State 0.1% 29.37% 32.61% The State contribution qualifies as an on behalf payment. These amounts have been recorded in the City's financial statements. The Retirement System issues a publicly available financial report that includes financial statements and required supplementary information for all three plans. That report may be obtained by writing to Public Employees Retirement Division, P. O. Box 200131, Helena, MT 58620-0131 or by calling 1-406-444-3154. The City's contributions for the years ending June 30, 2000, 2001 and 2002, as listed below, were equal to the.required contributions for each year. PERS MPORS FURS PARKING COMM TRI CITY 2004 $ 177,833 $ 153,004 $ 118,148 $ 3,066 $ - 2001 $ 194,590 $ 167,019 $ 128,806 $ 3,156 $ - 2002 $ 212,574 $ 179,112 $ 136,878 $ 3,239 $ 12,103 G. Post Employment Benefits Terminated employees may remain on the City's health insurance plan for up to 18 months if they pay the monthly premiums. This benefit is required under 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. The City had 52 retired employees and 13 terminated employees participating in the plan as of June 30, 2002. H. Amounts Due From and Due to Other Governments The amounts due from and due to other governments consisted of the following: Governmental Component Unit: Due to City of Whitefish $ 13,720 Due to City of Columbia Falls 4,760 Total $==j,=480 -31- CITY OF KALISPELL FLATHEAD CITY, MONTANA NOTES TO THE FINANCIAL STATEMENTS .lune 30, 2002 General Fund: Due from Flathead County $235,072 Due from State of Montana _ 1,540 Total $236612 Special Revenue Funds: Due from Flathead County $346,252 Debt Service Funds: Due from Flathead County $135.186 Enterprise Funds: Due from Flathead County $ 99,473 L Restricted Cash/Investments The following restricted cash/investments were held by the City as of June 30, 2002. These amounts are reported within the cash/investment account on the Combined Balance Sheet. Enterprise Funds Water Bond Reserve Replacement SRF Loan Reserve Sewer Operating Reserve Replacement Bond Contingency Capital Improvement Storm Sewer Garbage Replacement Bond Reserve Sinking & Interest Enterprise Total J. Fund Equity $ 106,000 632,711 55,998 128,000 3,717,304 650,550 1,199,128 879,710 126,761 16,000 24,095 $7.536.257 Reservations of equity show amounts that are not appropriate fax expenditure or are legally restricted for specific uses. Designations of equity are used to show the amounts within unreserved equity which are intended to be used for specific purposes but are not legally restricted. -32- CITY OF KALISPELL FLATHEAD CITY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2002 Reserves and/or Designations of the City at June 30, 2002 consisted of: Snecial Revenue Funds: UDAG Reserved for advances $ 84,900 Community Development Designated for Interest Subsidy 220,156 Community Development Designated for Courtyard Apartments 29,207 Total $ 334,263 Debt Service Funds: Reserved for Debt Service $ 453,9.10 Enterorise Funds: Water Reserve for revenue bond $ 106,000 Water Reserve for Replacement 632,712 Water Reserve for inventory supplies 85,765 Water Reserve for SRF Loan 55,998 Sewer Reserve for operations 128,000 Sewer Reserve for Replacement - Sanitary 1,584,992 Sewer Reserve for revenue bond 650,550 Reserve for Capital Sewer Improvements/WWTP 1,199,128 Sewer Reserve for replacement 2,132,312 Sewer Reserve for Storm Sewer 2,014,081 Garbage Designated for replacement 126,760 Garbage Reserve for revenue bond 16,000 Garbage Reserve for Sinking and Interest � 24,095 Total $ 8.756.393 K. Changes in Contributed Capital A schedule of changes in contributed capital is presented below: Contributed Capital - July 1, 2001 Add: Contributions from other funds Deduct: Depreciation on assets acquired via grants/contributions Contributed Capital June 30, 2002 Water Sewer Total $3,233,916 $9,566,974 $12,800,890 129,547 163,986 293,533 84,726583,493_ 668,219 $3,278,737 $9,147,467 $12,426 204 -33- CITY OF K A I ,ISPELL FLATHEAD CITY, MONTANA NOTES TO THE FINANCIAL STATEMENTS ;lune 30, 2002 L. Restatements During the current fiscal year, the following adjustments relating to prior years' transactions were made to fund balance and retained earnings accounts. Fund Amount Reason for Adiustment Governmental Component Unit: Tri -City Planning $ 11,341 Enterprise: Addition as part of City's financial statements, fiscal year 2002 - see Note I.A. Tri -City Planning for further explanation. Water $ 41,387 Fixed Assets policy change. Sewer $ 2,423 Fixed Assets policy change. Ambulance $ 1,574 Fixed Assets policy change. M. Segment Information For Enterprise Funds The City maintains four enterprise funds which provide water, sewer, garbage, and ambulance services. Selected segment information for the year ended June 30, 2002, is as follows: Operating Revenue Depreciation Expense Operating Income (Loss) Current Capital: Contributions Plant, Property & Equipment: Additions Deletions Working Capital Total Assets Long-term Liabilities: Payable from Operating Revenues Total Equity WATER SEWER AMBULANCE GARBAGE TOTAL $ 1,232,899 $ 2,768,870 $ 749,939 $ 506,419 $ 5,258,127 313,594 1,174,155 44,585 91,217 1,623,551 24,452 (13,149) (142,415) (14,340) (145,452) 129,547 163,986 - - 293,533 1,024,484 789,516 85,806 10,100 1,909,906 116,344 40,493 49,880 22,588 229,305 478,952 1,001,262 119,788 200,422 1,800,424 10,655,020 24,364,650 355,060 1,009,515 36,384,245 1,572,291 4,899,001 112,608 175,551 6,759,451 $ 9,082,729 $ 19,465,649 $ 242,452 $ 833,964 $29,624,794 N. Residual Equity Transfers Residual equity transfers are made to transfer the remaining equity balance of a discontinued fund to another fund. Transfers made during the year consisted of the following: Fund Making Transfer Fund Receiving Transfer Amount SID 343 Construction (Capital Projects) Water Fund (Enterprise) $129,547 SID 343 Construction (Capital Projects) Sewer Fund (Enterprise) $163,986 These transfers were made to the contributed capital of the enterprise funds. CITY OF KALISPELL FLATHEAD CITY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2002 O. Joint Ventures Joint ventures are independently constituted entities generally created by two or more governments for a specific purpose which are subject to joint control, in which the participating governments retain 1) an ongoing financial interest or 2) an ongoing financial responsibility. 1. City -County Health Department The City -City Health Department is operated under an interlocal agreement between Flathead City and the City of Kalispell. The .Department operates under the supervision and control of the City -City Health Board. The Board consists of seven members, six of whom are appointed by the Board of City Commissioners. The Department is financed, in addition to revenue generated by providing health services, by the City and the City levying an identical mill levy, up to 5 mills, in order that all property within the City of Kalispell and all property in Flathead City outside the City limits are taxed equally. The operation is accounted for in the City Health Fund and is included in the general purpose financial statements of Flathead City within the Special Revenue Fund. 2. Courtyard Apartments/Northwest Montana Human Resources The City entered into an agreement with Northwest Montana Human Resources for a joint venture construction project of the Courtyard Apartments. The City owns 16 units of the apartment complex built with Home Grant and CDGB funds. NWMHR has built 16 units also. The agreement provides for the management of the housing complex for low income housing. All operations and maintenance of the housing complex are managed by Northwest Montana Human Resources. NWMHR maintains a trust fund in the City's name to record the revenues and expenses of the housing complex. As of June 30, 2002 the equity in the fund was $45,191. 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, 2002 is $241,270. P. County Provided Services The City of Kalispell is provided various financial services by Flathead County. The County serves as cashier and treasurer for the City for tax 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. -35- CITY OF KALISPELL FLATHEAD CITY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2002 Q. Risk Management The City faces a considerable number of risks of loss, including a) damage to and loss of property and contents, b) employee torts, c) professional liability, i.e., errors and omissions, d) environmental damage, e) workers' compensation, i.e. employee injuries, and f) medical insurance costs of employees. A variety of methods are used to provide insurance for these risks. Commercial policies, transferring all risks of loss, except for relatively small deductible amounts are purchased for property and content damage and professional liabilities. The City participates in two statewide public risk pools operated by the Montana Municipal Insurance Authority, for workers' compensation and for tort liability coverage. Employee medical insurance is provided through a privately administered, self-insured plan. Given the lack of coverage available, the City has no coverage for potential losses from environmental damages. Effective July 1, 1987 The City of Kalispell joined with other Montana cities to form the Montana Municipal Insurance Authority, a self-insurance pool offering Worker's Compensation and Liability Coverage. Both public e ntity r isk 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 revenue was insufficient to cover the debt service. The City's share is $201,445 for Iiability 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. 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 -tune 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 a total of $200 maximum family deductible. Generic prescription 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 that exceed $75,000 per individual or aggregate claims of 115% of claims projected by Blue Cross. Claims Payable, June 30, 2001 $ 124,219 Claims Incurred $ 1,203,044 Claims Paid $ 1,286,575 Claims Payable, June 30, 2002 $ 40,688 -36- CITY OF KALISPELL FLATHEAD CITY, MONTANA NOTES TO THE FINANCIAL STATEMENTS June 30, 2002 Due to the increasing cost of health care, the City has changed the benefits effective July 1, 2002. Employees now share the cost of premiums and deductibles have been increased to $3001$600, respectively. 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 that may cover all or part of the damages. Accordingly, no provision has been made in the financial statements for these contingent liabilities. Damages requested Potential of Loss NuPac vs. City of Kalispell _ $70,000 remote -37- l p W W [s1 � � ..c ,.� V C o 0 o n, .°, a •s�. q 0 :n ✓� � � � a. a. a � � a � w .12 2 W W = - 41 -38- C � d "5 FA IN 64 fF3 CR lA Fn QN N N N Vo"i M p� f� Q� pp '.' � N N ✓i '/i i� m G 64 � E� s9 69 A V3 s9 d -r sv es sa va v3 O l° Q m Q � �" FR? Vi 69 EH 64 � N3 fA v3 ns N L L y C C Q O p o o C 7 l p W W [s1 � � ..c ,.� V C o 0 o n, .°, a •s�. q 0 :n ✓� � � � a. a. a � � a � w .12 2 W W = - 41 -38- CITY OF KALISPELL FLATHEAD COUNTY, MONTANA NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Fiscal Year Ended .Tune 30, 2002 Basis of Presentation The accompanying Schedule of Expenditures of Federal Awards includes the federal grant activity of City of Kalispell, Flathead County, Montana, and is presented on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non -Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in preparation of, the general-purpose financial statements. -39- Denning, Downey & Associates, P. C. CERTIFIED P UBLIC A CCO UNTA NTS 1740 U.S. Hwy 93 South - Suite 101 Kalispell, MT 59901 REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Mayor and City Council City of Kalispell Flathead County Kalispell, Montana We have audited the general purpose financial statements of City of Kalispell, Flathead County, Montana, as of and for the year ended June 30, 2002, and have issued our report thereon dated February 4, 2003. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Governnnent Auditing Standards, issued by the Comptroller General of the United States. Compliance As part of obtaining reasonable assurance about whether the City of Kalispell's general purpose 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 instances of noncompliance that are required to be reported under Government Auditing Standards which are described in the accompanying schedule of findings and questioned costs as item 02-4. Internal Control Over Financial Reporting In planning and performing our audit, we considered the City of Kalispell's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the general purpose financial statements and not to provide assurance on the internal control over financial reporting. However, we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in our judgment, could adversely affect the City of Kalispell's ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements. Reportable conditions are described in the accompanying schedule of findings and questioned costs as items 02-1, 02-2 and 02-5. -4p- Robert K. Denning, CPA, Kam M. Downey, CPA A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the general purpose financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, of the reportable conditions described above, we consider item 02-5 to be a material weakness. This report is intended solely for the information and use of the Mayor and City Council, management, the Montana Department of Administration, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. AIVN-", "_'� a&"f CPQ 7 , February 4, 2003 -41- Denning, Downey & Associates, P.C. CERTIFIED PUBLIC A CCO UNTANTS 1740 U.S. Hwy 93 South - Suite 101 Kalispell, MT 59901 REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 Mayor and City Council City of Kalispell Flathead County Kalispell, Montana Compliance We have audited the compliance of City of Kalispell, Flathead County, Montana, with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance .Supplement that are applicable to each of its major federal programs for the year ended June 30, 2002. The City's major federal programs are identified in the summary of auditor's results section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs is the responsibility of the City's management. Our responsibility is to express an opinion of the City's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether the noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the City's compliance with those requirements. In our opinion, the City complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs for the year ended June 30, 2002. 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. -42- Robert K. Denning, CPA - Kira 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 components does not reduce to a relatively low level the risk that noncompliance with applicable requirements of laws, regulations, contracts and grants that would be material in relation to a major federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over compliance and its operation that we consider to be material weaknesses. This report is intended for the information of Mayor and City Council, management, the Montana Department of Administration, the Montana Office of Public Instruction, 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. &U�' February 4, 2003 -43- CITY OF KALISPELL FLATHEAD COUNTY, MONTANA SCHEDULE OF FINDINGS AND QUESTIONED COSTS Fiscal Year Ended June 30, 2002 Section I — Summary of Auditor's Results ;Financial Statements Type of auditor's report issued Unqualified Internal control over financial reporting: Material weakness(es) identified? Yes Reportable condition(s) identified not considered to be material weaknesses Yes Noncompliance material to financial statements noted? Yes Federal Awards Internal control over major programs: Material weakness(es) identified? No Reportable condition(s) identified not considered to be material weaknesses None Reported Type of auditor's report issued on compliance for major programs: Unqualified Any audit findings disclosed that are required to be reported in accordance with Circular A-133, Section .510(a)? No Identification of major programs: CFDA Number Name of Federal Program or Cluster 20.205 Community Transportation Enhancement Program (CTEP) 16.710 Community Oriented. Policing Services -Hiring Award Dollar threshold used to distinguish between Type A and Type B programs: $ 300"000 Auditee qualified as low-risk auditee? No -44- SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) Section II — Financial Statement Findings 02-1 Parking Commission Receivables Condition: The Parking Commission accounting system for receivables did not provide for a retrievable list of the outstanding receivables and an aging of those receivables. This process is done manually by the director on a monthly basis. Criteria: Accounting system internal control procedures should include an obtainable list of outstanding receivables. Effect: We were unable to review for collectibility of the outstanding receivables as of June 30, 2002. Cause: The accounting system is not fully developed for receivables. Recommendation: The Commission should change from a spreadsheet based accounting system to an accounts receivable package in order to provide more accurate financial records for outstanding receivables. 02-2 City Court Receivables Condition: The City uses a manual card system for tracking court receivables. The system is not self -balancing, and it does not provide aged receivable reports or summaries of those that have not made payments as agreed upon. Criteria: Internal control procedures should include, at a minimum, the preparation of aged receivable listing and a self -balancing system to ensure all receivables are collected. Effect: Weak internal control procedures Cause: Inadequate accounting system Recommendation: The City should implement a computerized accounts receivable program for the City Court receivables. -45- SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) 02-3 Ex.ceeding Budgetary Authority Condition: The City exceeded its budgetary authority in the General fund by $506,203. Criteria: MCA 7-6-4005 (1) states "Local government officials may not make a disbursement or an expenditure or incur an obligation in excess of the total appropriations for a fund". Effect: Non-compliance with MCA's. The audited financial statements were corrected. Cause: The City did not recognize t he e xpense o r t her elated revenue o f $ 616,745 associated with the on -behalf payments made by the State for fireman and policemen pensions in their operating budget as required by GASB #24. Recommendation: We recommend that the City budget for the on -behalf payments made by the State in future years. 02-4 On -behalf Payments Condition: The State contributed $308,602 on behalf of the City's firefighters and $354,433 on behalf of the City's policemen for retirement. These contributions were not recorded by the City. Criteria: Governmental Accounting Standards Board statement (GASB) #24 defines on -behalf payments for fringe benefits and salaries as "direct payments made by one entity to a third -party recipient for the employees of another, legally separate entity". GASB ##24 requires that an on -behalf payment made by the paying governmental entity be recognized both as an expenditure and as revenue by the employer governmental agency. Effect: The audit report was adjusted to show the $616,745 effect on the General fund but was not adjusted to indicate the $46,290 effect on the Ambulance fund (enterprise fund). Cause: The City was not aware of the effects of GASB #24. Recommendation: We recommend that the City record the on -behalf payments as required by GASB 424. Section III — Federal Award Findings and Questioned Costs No federal award findings and questioned costs were reported. -46- Denning, Downey & Associates, P. C> CERTIFIED PUBLIC A CCO UNTA NTS 1740 U.S. Hwy 93 South - Suite 101 Kalispell, MT 59901 REPORT ON OTHER COMPLIANCE, FINANCIAL, AND INTERNAL ACCOUNTING CONTROL MATTERS Mayor and City Council City of Kalispell Flathead County Kalispell, Montana There were no other compliance, financial, or internal accounting matters. avui w� ' is C. February 4, 2003 -47- Robert K. Denning, CPA - Kirn M Downey, CPA Denning, Downey & Associates, P. C, CER TWED PUBLIC A CCO UNTANTS 1740 U.S. Hity 93 South - Suite 101 Kalispell, MT 59901 REPORT ON PRIOR AUDIT REPORT RECOMMENDATIONS Mayor and City Council City of Kalispell Flathead County Kalispell, Montana The prior audit report contained four recommendations. The action taken on each recommendation is as follows: Recommendation Action Taken Parking Commission Receivables Repeated City Court Receivables Repeated Exceeding Budget Authority in Crime Victim Advocate Fund and Employee Health Fund Implemented Unrecorded Short-term Payables hnplemented &" 4"� �� , February 4, 2003 -48- Robert K. Denning, CPA • Kim M. Downey, CPA