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01. Audit Fiscal Years Ended 6/30/85 and 6/30/86CITY OF KALISPELL FLATHEAD COUNTY KALISPELL, MONTANA Fiscal Years Ended June 30, 1985 and 1986 CITY OF KALISPELL KALISPELL, MONTANA TABLE OF CONTENTS Page Organization 1 Fiscal Year Ended June 30, 1985 Auditor's Report 2-4 Financial Statements 5 Combined Balance Sheet - All Fund Types and Account Groups 6-7 Combined Statement of Revenues, Expenditures, and Changes in Fund Balances - All Governmental Fund Types and Expendable Trust Funds 8-9 Combined Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - General, Special Revenue, Capital Projects and Special Assessment Fund Types 10-11 Combined Statement of Revenues, Expenses, and Changes in Retained Earnings/Fund Balances - All Proprietary Fund Types and Similar Trust Funds 12-13 Combined Statement of Changes in Financial Position - All Proprietary Fund Types and Similar Trust Funds 14 Notes to Financial Statements 15-32 Auditor's Report on Supplemental Information and Supplemental Schedules 33 Report on Supplemental Information Schedules 34 Supplemental Schedules 35 Schedule of Federal Financial Assistance 36-37 Fiscal Year Ended June 30, 1986 Auditor's Report 38-40 Financial Statements 41 Combined Balance Sheet - All Fund Types and Account Groups 42-43 IM CITY OF KALISPELL KALISPELL, MONTANA TABLE OF CONTENTS - cont. PaEe Fiscal Year Ended June 30, 1986 - cont. Financial Statements - cont. Combined Statement of Revenues, Expenditures, and Changes in Fund Balances - All Governmental Fund Types and Expendable Trust Funds 44-45 Combined Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual - General, Special Revenue, Debt Service, Capital Projects and Special Assessment Fund Types 46-47 Combined Statement of Revenues, Expenses, and Changes in Retained Earnings/Fund Balances - All Proprietary Fund Types and Similar Trust Funds 48 Combined Statement of Changes in Financial Position - All Proprietary Fund Types and Similar Trust Funds 49 Notes to Financial Statements 50-69 Auditor's Report on Supplemental Information and Supplemental Schedules 70 Report on Supplemental Information Schedules 71 Supplemental Schedules 72 Schedule of Federal Financial Assistance 73-74 Report on Compliance Based on an Examination of General Purpose Financial Statements 75 Schedule of Compliance Findings - Noncompliance Areas Which Could Have a Material Effect on the General Purpose Financial Statements 76-77 Report on Compliance Matters - Noncompliance Areas Which Would Not Have a Material Effect on the General Purpose Financial Statements 78-79 Report on Compliance With Laws and Regulations Related to Major and Nonmajor Federal Financial Assistance Programs 80-81 Schedule on Findings and Questioned Costs 82 Report on Internal Accounting Control 83-85 Report on Internal Controls (Accounting and Administrative) - Based on a Study and Evaluation Made as a Part of an Examination of the General Purpose Financial Statements and the Additional Tests Required by the Single Audit Act 86-89 Report on Other Financial and Internal Accounting Control Matters 90-97 Report on Prior Audit Report Recommendations 98-102 CITY OF KALISPELL KALISPELL, MONTANA ORGANIZATION Fiscal Year Fiscal Year Ended June 30, 1985 Ended June 30, 1986 Mr. LeRoy E. McDowell Mayor Mr. John "Ed" Kennedy CITY COUNCIL Mr. Louis B. Ruiz, Jr. Mr. Howard Grainger Mr. Howard Grainger Mrs. Clare Hafferman Mr. Gary W. Nystul Mr. Charles J. Manning Mr. Paul R. Palmer Mr. Gary W. Nystul Mr. Charles Manning Mr. Paul R. Palmer Mr. Sandy Schindler Mr. Louis B. Ruiz, Jr. Mr. Pat Springer Mr. Wayne P. Saverud Mr. Wayne P. Saverud Mr. Sandy Schindler Mr. Glen Neier Mr. Martin D. Stefanie Mr. Don Halver Mr. Paul S. Willis Mr. Don Halver CITY OFFICIALS Attorney Chief of Police Clerk City Judge Treasurer ISM Mr. Glen M. Neier Mr. Martin D. Stefanie Mr. Don Halver Mrs. Frances M. Willis Mr. Don Halver CITY OF KALISPELL KALISPELL, MONTANA Fiscal Year Ended June 304 1985 -2- LOCAL GOVERNMENT SERVICES BUREAU TED SCHWINDEN, GOVERNOR CAPITOL STATION STATE OF MONTANA ENSMOMMEMMM (406)444-301.0 To the Honorable City Council City of Kalispell Kalispell, MT 59901 HELENA. MONTANA 59620 We have examined the general purpose financial statements of the City of Kalispell, Montana, as of and for the year ended June 30, 1985, as listed in the table of contents. Except as set forth in the following two paragraphs, our examination was made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. We were unable to obtain sufficient evidence to support the cost of the fixed assets of the general fixed assets account group, the Enterprise Funds or the Nonexpendable Trust Fund. Due to the length of time over which these fixed assets were acquired, it is not practicable to determine their actual cost and, as such, we did not examine these fixed assets, or the resulting depreciation on fixed assets of the Enterprise Funds. In addition, we could not obtain sufficient evidence to determine the propriety of certain prior period adjustments reported on the Combined Statement of Changes in Financial Position or the propriety of the beginning retained earnings for the Enterprise Fund as reported on the Combined Statement of Revenues, Expenses and Changes in Retained Earnings. Land purchased by the City in 1980 on contract was not recorded as a contract payable as required by generally accepted accounting principles. As a result, long-term liabilities and amounts to be provided for retirement of general long-term debt in the general long-term debt account group were understated by $162,586 at June 30, 1985. In addition, on the Combined Balance Sheet, a loan receivable of $340,000 from the Kalispell Center Limited Partnership was not recorded as required by generally accepted accounting principles. As a result, other receivables and deferred revenue (deferred credits) were understated by $340,000 in the Special Revenue Fund on June 30, 1985. Operating transfers in for all funds were reported at $135,303 greater than operating transfers out. Operating transfers in and out should offset each other. The net effect of the manner in which the City of Kalispell accounted for operating transfers had no effect on year end fund balances and retained earnings; however, revenues and/or expenditures, as well as operating transfers in and out, are misstated by undetermined amounts in the various funds for the year ended June 30, 1985. -3- I AM EOUAL OPPOP TUN! TY E?vfPLOYEP pibka-5g J Cash on deposit in an outside bank account for the Community Development Block Grant residential housing rehabilitation program was not reported in the City's financial statements. As a result, cash and fund balance in the Special Revenue Fund is understated by $22,805 at June 30, 1985. In our opinion, except for the effects of such adjustments, if any, as might have been necessary had we been able to examine the fixed assets of the Enterprise Fund, the Nonexpendable Trust Fund and the general fixed assets account group, and certain prior period adjustments and the beginning retained earnings in the Enterprise Fund, as discussed in paragraphs two and three, and except for the effects of the matters discussed in the preceding three paragraphs, the general purpose financial statements referred to above present fairly the financial position of the City of Kalispell, Montana, at June 30, 1985, and the results of its operations and the changes in financial position of its proprietary fund types for the year then ended, in conformity with generally accepted accounting principles, which except for the changes, with which we concur, of reporting the operations of the Solid Waste Fund and the Conrad Mansion Fund within the Enterprise and Nonexpendable Trust Funds, respectively, rather than within the Special Assessment and Expendable Trust Funds, respectively, as described in Note 18 to the financial statements, have been applied on a basis consistent with that of the preceding year. November 20, 1986 DONALD L. DOCLEY Bureau Chief by: 71010 P1 R. MICHAEL DUN CAN Audit Section Supervisor -4- CITY OF KALISPELL KALISPELL, MONTANA FINANCIAL STATEMENTS Fiscal Year Ended June 30, 1985 CITY OF KALISPELL KALISPELL, MONTANA COMBINED BALANCE SHEET - ALL FUND TYPES AND ACCOUNT GROUPS June 30, 1985 ASSETS Cash/Investments Taxes/Assessments Receivable (Net of Uneollectables) Other Receivables Due from Other Funds/Governments Inventories Restricted Cash/Investments Other Debits Amount to be Provided for Retirement of General Long -Term Debt Fixed Assets (Net of Accumulated Depreciation) TOTAL ASSETS GOVERNIENTAL FUND TYPES $ 1,829,132 LIABILITIES AND FUND EQUITY Special Capital Special General Revenue Projects Assessment $ 307,772 $ 1,323,018 $ 438,665 $ 140,672 776,231 400,125 - - 513,626 11,534 - - 5,825 - - - - 105,989 - - - - TOTAL ASSETS $ 1,095,537 $ 1,829,132 LIABILITIES AND FUND EQUITY Liabilities: Short -Term Payables $ 27,123 $ 293,360 Due to Other Funds/Governments Deferred Credits 776,231 400,125 Long -Term Liabilities - - 2,802 Total Liabilities $ 803,354 $ 696,287 Fund Equity: Contributed Capital $ - - $ - - Investment in General Fixed Assets - - - - Retained Earnings Reserved - - - - Unreserved - - - - Fund Balance Unreserved 292,183 1,132,845 Total Fund Equity $ 292,183 $ 1,132,845 TOTAL LIABILITIES AND FUND EQUITY $ 1,095,537 $ _1a 829, 132 See accompanying Notes to Financial Statements. IM $ 444,490 $ 654,298 $ 142,048 $ 17,528 50,246 - - 513,626 - - 520,250 $ 142,048 $ 1,101,650 302,442 (447,352) $302,442 $ (447,352) $ 444,490 $ 654,298 PROPRIETARY FIDUCIARY FUND TYPES FUND TYPES ACCOUNT GROUPS TOTALS (MEMORANDUM ONLY) Trust General General and Fixed Long - Enterprise Agency Assets Debt June 30, 1985 June 30, 1984 $ 560,733 $ 119,902 $ - - $ - - $ 2,890,762 $ 2,274,547 32,070 _ _ _ _ _ _ 1,722,052 1,843,667 236,571 - - - - - - 253,930 214,111 16,095 - - - - - - 122,084 260,572 82,154 - - - - - - 82,154 112,789 1,327,684 - - - - - - 1,327,684 1,478,743 - - - - - - - - -0- 290,918 - - - - - - 833,808 833,808 -0- 8,992,734 116,994 4,428,308 - - 18,538,036 12,052,779 $ 11,248,041 $ 236,896 $4,428,308 $ 8335.808 $ 20,770,510 $ 18,528,126 $ 283,646 $ 88,967 $ - - $ - - $ 852,672 $ 918,221 8,323 30,935 - - - - 89,504 103,701 32,070 - - - - - - 1,722,052 1,803,332 1,426,901 - - - - 833,808 2,783,761 2,343,035 $ 1,750,940 $ 119,902 $ -0- $ 833,808 $ 5,447,989 $ 5,168,289 $ 5,172,231 $ - - $ - - $ - - $ 5,172,231 $ 4,964,785 - - - - 4,428,308 - - 4,428,308 3,861,228 1,222,546 - - - - - - 1,222,546 591,777 3,102,324 - - - - - - 3,102,324 3,024,541 - - 116,4 - - - - 1,397,112 917,506 $ X9,497,101 $ 116,994 $ 4,428,308 $ -0- $ 15,322,521 $ 13,359,837 11,248,041$ 2 6�3 ,896_ $ 4,428,308 $ 833,808 $ 20,770,510 $ 18,528,126 CITY OF KALISPELL KALISPELL, MONTANA COMBINED STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - ALL GOVERNMENTAL FUND TYPES AND EXPENDABLE TRUST FUNDS Fiscal Year Ended June 30, 1985 Revenues: Taxes/Special Assessments Licenses and Permits Intergovernmental Revenue Charges for Services Fines and Forfeitures Miscellaneous Revenues Total Revenues Expenditures: Current: General Government Public Safety Public Works Public Health Culture and Recreation Housing and Community Development Miscellaneous Debt Service Total Expenditures $ 2,075,330 $ 1,602,520 $ 43,039 $ 341,463 $ 365,784 $ 118,381 $ - - $ - - 1,307,472 251,337 248,382 634,115 34,734 250,177 49,887 1,176 - - - - 127,598 20,909 293,110 - - 375,658 - - - - 379 53,757 - - - - 29 950 - - 47,523 $ 22099,531 $ 1,456,283 $327,844 $ 297,700 Excess (Deficiency) of GOVERNMENTAL FUND TYPES Special Capital Special General Revenue Projects Assessment $ 1,235,748 $ 729,432 $ - - $ 341,292 333,351 19,601 - - - - 250,100 689,468 35,000 - 3,162 117,602 - - - - 112,915 - - - - - - 140,054 46,417 8,039 171 $ 2,075,330 $ 1,602,520 $ 43,039 $ 341,463 $ 365,784 $ 118,381 $ - - $ - - 1,307,472 251,337 248,382 634,115 34,734 250,177 49,887 1,176 - - - - 127,598 20,909 293,110 - - 375,658 - - - - 379 53,757 - - - - 29 950 - - 47,523 $ 22099,531 $ 1,456,283 $327,844 $ 297,700 Excess (Deficiency) of Revenues Over Expenditures $ (24,201) $ 146,237 $ (284,805) $ 43,763 Other Financing Sources (Uses): Proceeds of General Long -Term Debt $ - - $ - - $ 552,356 $ - - Operating Transfers In 148,199 - - - - - - Operating Transfers Out (2,184) (10,712) - - - - Total Other Financing Sources (Uses) $ 146,015 $ (10,712) $ 552,356 $ -0- Excess (Deficiency) of Revenues and Other Sources Over Expenditures and Other Uses $ 121,814 $ 135,525 $ 267,551 $ 43,763 Fund Balances - July 1, 1984 143,331 973,566 34,891 (475,466) Prior Period Adjustments 12,812 16,491 - - 177 Residual Equity Transfers 14,226 7,263 - - (15,826) Fund Balances - June 30, 1985 $ 292,183 $ 1,132,845 $ 302,442 $ (447,352) See accompanying Notes to Financial Statements. IM FIDUCIARY FUND TYPES TOTALS (MEMORANDUM ONLY) Expendable Year Ended Trust June 30, 1985 June 30, 1984 - - $ 2,306,472 $ 2,612,037 352,952 237,785 974,568 1,071,032 - - 120,764 2:968 - - 112,915 131,059 - - 194,681 258,799 $ -0- $ 4,062,352 $ 4,313,680 $ - - $ 484,165 $ 779,801 - - 1,558,809 1,340,718 - - 1,167,408 836,004 - - 51,063 50,672 - - 441,617 230,453 - - 375,658 423,862 424 54,560 8,257 - - 48,502 68,997 $ 424 $ 4,181,782 $ 3,738,7614 $ (424) $ (1192430) $ 574,916 $ - - $ 552,356 $ 11,000 - - 148,199 4,875 - - (12,896) (29,047) $ -0- $ 687,659 $ (13,172) $ (424) 568,229 $ 561,744 4,111 680,433 1,944,977 - - 29,480 ( 1,826,288) (3,687) 1,976 -0- $ -0- $ 1,280,118 $ 680,433 CITY OF KALISPELL KALISPELL, MONTANA COMBINED STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - GENERAL, SPECIAL REVENUE, CAPITAL PROJECTS AND SPECIAL ASSESSMENT FUND TYPES Fiscal Year Ended June 30, 1985 Revenues: Taxes/Special Assessments Licenses and Permits Intergovernmental Revenue Charges for Services Fines and Forfeitures Miscellaneous Revenues Total Revenues Expenditures: Current: General Government Public Safety Public Works Public Health Culture and Recreation Housing and Community Development Miscellaneous Debt Service Total Expenditures Excess (Deficiency) of Revenues Over Expenditures Other Financing Sources (Uses): Proceeds of General Long -Term Debt Proceeds of General Fixed Asset Disposition Operating Transfers In Operating Transfers Out Total Other Financing Sources (Uses) Excess (Deficiency) of Revenues and Other Sources Over Expenditures and Other Uses Fund Balances - July 1, 1984 Prior Period Adjustments Residual Equity Transfers Fund Balances - June 30, 1985 See accompanying Notes to Financial Statements. am GENERAL FUND Variance - Favorable Budget Actual (Unfavorable) $ 1,336,802 $ 1,235,748 $ (101,054) 252,250 333,351 81,101 207,000 250,100 43,100 13,900 3,162 (10,738) 75,800 112,915 37,115 47,020 140,054 93,034 $ 1,932,772 $ 2,075,330 $ 142,558 $ 381,841 $ 365,784 $ 16,057 1,306,924 1,307,472 (548) 235,546 248,382 (12,836) 50,280 49,887 393 147,012 127,598 19,414 3,000 379 2,621 1,500 29 1,471 $ 2,126,103 $ 2,099,531 $ 26,572 $ (193,331) $ (24,201) $ 169,130 132,000 148,199 (2,500) (2,184) $ 129,500 $ 146,015 $ 16,515 $ (63,831) $ 121,814 $ 185,645 143,331 143,331 -0- -0- 12,812 12,812 -0- 14,226 14,226 00.: CITY OF KALISPELL KALISPELL, MONTANA FINANCIAL STATEMENTS Fiscal Year Ended June 30, 1985 CITY OF KALISPELL KALISPELL, MONTANA COMBINED BALANCE SHEET - ALL FUND TYPES AND ACCOUNT GROUPS June 30, 1985 ASSETS Cash/Investments Taxes/Assessments Receivable (Net of Uneollectables) Other Receivables Due from Other Funds/Governments Inventories Restricted Cash/Investments Other Debits Amount to be Provided for Retirement of General Long -Term Debt Fixed Assets (Net of Accumulated Depreciation) TOTAL ASSETS GOVERNIENTAL FUND TYPES $ 1,829,132 LIABILITIES AND FUND EQUITY Special Capital Special General Revenue Projects Assessment $ 307,772 $ 1,323,018 $ 438,665 $ 140,672 776,231 400,125 - - 513,626 11,534 - - 5,825 - - - - 105,989 - - - - TOTAL ASSETS $ 1,095,537 $ 1,829,132 LIABILITIES AND FUND EQUITY Liabilities: Short -Term Payables $ 27,123 $ 293,360 Due to Other Funds/Governments Deferred Credits 776,231 400,125 Long -Term Liabilities - - 2,802 Total Liabilities $ 803,354 $ 696,287 Fund Equity: Contributed Capital $ - - $ - - Investment in General Fixed Assets - - - - Retained Earnings Reserved - - - - Unreserved - - - - Fund Balance Unreserved 292,183 1,132,845 Total Fund Equity $ 292,183 $ 1,132,845 TOTAL LIABILITIES AND FUND EQUITY $ 1,095,537 $ _1a 829, 132 See accompanying Notes to Financial Statements. IM $ 444,490 $ 654,298 $ 142,048 $ 17,528 50,246 - - 513,626 - - 520,250 $ 142,048 $ 1,101,650 302,442 (447,352) $302,442 $ (447,352) $ 444,490 $ 654,298 PROPRIETARY FIDUCIARY FUND TYPES FUND TYPES ACCOUNT GROUPS TOTALS (MEMORANDUM ONLY) Trust General General and Fixed Long - Enterprise Agency Assets Debt June 30, 1985 June 30, 1984 $ 560,733 $ 119,902 $ - - $ - - $ 2,890,762 $ 2,274,547 32,070 _ _ _ _ _ _ 1,722,052 1,843,667 236,571 - - - - - - 253,930 214,111 16,095 - - - - - - 122,084 260,572 82,154 - - - - - - 82,154 112,789 1,327,684 - - - - - - 1,327,684 1,478,743 - - - - - - - - -0- 290,918 - - - - - - 833,808 833,808 -0- 8,992,734 116,994 4,428,308 - - 18,538,036 12,052,779 $ 11,248,041 $ 236,896 $4,428,308 $ 8335.808 $ 20,770,510 $ 18,528,126 $ 283,646 $ 88,967 $ - - $ - - $ 852,672 $ 918,221 8,323 30,935 - - - - 89,504 103,701 32,070 - - - - - - 1,722,052 1,803,332 1,426,901 - - - - 833,808 2,783,761 2,343,035 $ 1,750,940 $ 119,902 $ -0- $ 833,808 $ 5,447,989 $ 5,168,289 $ 5,172,231 $ - - $ - - $ - - $ 5,172,231 $ 4,964,785 - - - - 4,428,308 - - 4,428,308 3,861,228 1,222,546 - - - - - - 1,222,546 591,777 3,102,324 - - - - - - 3,102,324 3,024,541 - - 116,4 - - - - 1,397,112 917,506 $ X9,497,101 $ 116,994 $ 4,428,308 $ -0- $ 15,322,521 $ 13,359,837 11,248,041$ 2 6�3 ,896_ $ 4,428,308 $ 833,808 $ 20,770,510 $ 18,528,126 CITY OF KALISPELL KALISPELL, MONTANA COMBINED STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - ALL GOVERNMENTAL FUND TYPES AND EXPENDABLE TRUST FUNDS Fiscal Year Ended June 30, 1985 Revenues: Taxes/Special Assessments Licenses and Permits Intergovernmental Revenue Charges for Services Fines and Forfeitures Miscellaneous Revenues Total Revenues Expenditures: Current: General Government Public Safety Public Works Public Health Culture and Recreation Housing and Community Development Miscellaneous Debt Service Total Expenditures $ 2,075,330 $ 1,602,520 $ 43,039 $ 341,463 $ 365,784 $ 118,381 $ - - $ - - 1,307,472 251,337 248,382 634,115 34,734 250,177 49,887 1,176 - - - - 127,598 20,909 293,110 - - 375,658 - - - - 379 53,757 - - - - 29 950 - - 47,523 $ 22099,531 $ 1,456,283 $327,844 $ 297,700 Excess (Deficiency) of GOVERNMENTAL FUND TYPES Special Capital Special General Revenue Projects Assessment $ 1,235,748 $ 729,432 $ - - $ 341,292 333,351 19,601 - - - - 250,100 689,468 35,000 - 3,162 117,602 - - - - 112,915 - - - - - - 140,054 46,417 8,039 171 $ 2,075,330 $ 1,602,520 $ 43,039 $ 341,463 $ 365,784 $ 118,381 $ - - $ - - 1,307,472 251,337 248,382 634,115 34,734 250,177 49,887 1,176 - - - - 127,598 20,909 293,110 - - 375,658 - - - - 379 53,757 - - - - 29 950 - - 47,523 $ 22099,531 $ 1,456,283 $327,844 $ 297,700 Excess (Deficiency) of Revenues Over Expenditures $ (24,201) $ 146,237 $ (284,805) $ 43,763 Other Financing Sources (Uses): Proceeds of General Long -Term Debt $ - - $ - - $ 552,356 $ - - Operating Transfers In 148,199 - - - - - - Operating Transfers Out (2,184) (10,712) - - - - Total Other Financing Sources (Uses) $ 146,015 $ (10,712) $ 552,356 $ -0- Excess (Deficiency) of Revenues and Other Sources Over Expenditures and Other Uses $ 121,814 $ 135,525 $ 267,551 $ 43,763 Fund Balances - July 1, 1984 143,331 973,566 34,891 (475,466) Prior Period Adjustments 12,812 16,491 - - 177 Residual Equity Transfers 14,226 7,263 - - (15,826) Fund Balances - June 30, 1985 $ 292,183 $ 1,132,845 $ 302,442 $ (447,352) See accompanying Notes to Financial Statements. IM FIDUCIARY FUND TYPES TOTALS (MEMORANDUM ONLY) Expendable Year Ended Trust June 30, 1985 June 30, 1984 - - $ 2,306,472 $ 2,612,037 352,952 237,785 974,568 1,071,032 - - 120,764 2:968 - - 112,915 131,059 - - 194,681 258,799 $ -0- $ 4,062,352 $ 4,313,680 $ - - $ 484,165 $ 779,801 - - 1,558,809 1,340,718 - - 1,167,408 836,004 - - 51,063 50,672 - - 441,617 230,453 - - 375,658 423,862 424 54,560 8,257 - - 48,502 68,997 $ 424 $ 4,181,782 $ 3,738,7614 $ (424) $ (1192430) $ 574,916 $ - - $ 552,356 $ 11,000 - - 148,199 4,875 - - (12,896) (29,047) $ -0- $ 687,659 $ (13,172) $ (424) 568,229 $ 561,744 4,111 680,433 1,944,977 - - 29,480 ( 1,826,288) (3,687) 1,976 -0- $ -0- $ 1,280,118 $ 680,433 CITY OF KALISPELL KALISPELL, MONTANA COMBINED STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - GENERAL, SPECIAL REVENUE, CAPITAL PROJECTS AND SPECIAL ASSESSMENT FUND TYPES Fiscal Year Ended June 30, 1985 Revenues: Taxes/Special Assessments Licenses and Permits Intergovernmental Revenue Charges for Services Fines and Forfeitures Miscellaneous Revenues Total Revenues Expenditures: Current: General Government Public Safety Public Works Public Health Culture and Recreation Housing and Community Development Miscellaneous Debt Service Total Expenditures Excess (Deficiency) of Revenues Over Expenditures Other Financing Sources (Uses): Proceeds of General Long -Term Debt Proceeds of General Fixed Asset Disposition Operating Transfers In Operating Transfers Out Total Other Financing Sources (Uses) Excess (Deficiency) of Revenues and Other Sources Over Expenditures and Other Uses Fund Balances - July 1, 1984 Prior Period Adjustments Residual Equity Transfers Fund Balances - June 30, 1985 See accompanying Notes to Financial Statements. am GENERAL FUND Variance - Favorable Budget Actual (Unfavorable) $ 1,336,802 $ 1,235,748 $ (101,054) 252,250 333,351 81,101 207,000 250,100 43,100 13,900 3,162 (10,738) 75,800 112,915 37,115 47,020 140,054 93,034 $ 1,932,772 $ 2,075,330 $ 142,558 $ 381,841 $ 365,784 $ 16,057 1,306,924 1,307,472 (548) 235,546 248,382 (12,836) 50,280 49,887 393 147,012 127,598 19,414 3,000 379 2,621 1,500 29 1,471 $ 2,126,103 $ 2,099,531 $ 26,572 $ (193,331) $ (24,201) $ 169,130 132,000 148,199 (2,500) (2,184) $ 129,500 $ 146,015 $ 16,515 $ (63,831) $ 121,814 $ 185,645 143,331 143,331 -0- -0- 12,812 12,812 -0- 14,226 14,226 00.: SPECIAL REVENUE FUNDS CAPITAL PROJECTS FUNDS SPECIAL ASSESSMENT FUNDS Variance - Variance - Variance - Favorable Favorable Favorable _ Budget Actual (Unfavorable) Budget Actual (Unfavorable) Budget Actual (Unfavorable) $ 297,126 $ 729,432 $ 432,306 $ - - $ - - $ - - $ 173,500 $ 341,292 $ 167,792 16,777 19,601 2,824 1,113,989 689,468 (424,521) -0- 35,000 35,000 99,000 117,602 18,602 3,000 46,417 43,417 - - 8,039 8,039 -0- 171 171 $ 1,529,892 $ 1,602,520 $ 72,628 $ -0- $ 43,039 $ 43,039 $ 173,500 $341,463 $ 167,963 $ 158,916 $ 118,381 $ 40,535 $ - - $ - - $ - - $ - - $ - - $ - - 292,247 251,337 40,910 - - - - - - - - - - - - 778,234 634,115 144,119 34,243 34,734 (491) 240,312 250,177 (9,865) 1,171 1,176 (5) - - - - - - - - - - - - 65,549 20,909 44,640 552,356 293,110 259,246 1,391,764 375,658 1,016,106 53,751 53,757 (6) -0- 950 (950) - - - - - - -0- 47,523 (47,523) $ 2,741,632 $ 1,456,283 $ 1,285,349 $ 586,599 $ 327,844 $ 258,755 $ 240,312 $ 297,700 $ (57,388) $ (1,211,740) $ 146,237 $ 1,357,977 $ (586,50 $ (284,805) $301,794 $ (66,812) $ 43,763 $ 110,575 $ - - $ - - $ - - $ 552,356 $ 552,356 $ -0- $ - - $ - - $ - - 175,000 -0- (175,000) - - - - - - - - - - - - (5,000) (10,712) (5,712) - - $ 170,000 $ (10,712) $ (180,712) $ 552,356 $ 552,356 $ -0- $ -0- $ -0- $ -0- $ (1,041,740) $ 135,525 $ 1,177,265 $ (34,243) $ 267,551 $ 301,794 $ (66,812) $ 43,763 $ 110,575 973,566 973,566 - - 34,891 34,891 - - (475,466) (475,466) - - -0- 16,491 16,491 _ _ _ _ _ _ -0_ 177 177 -0- 7,263 7,263 - - - - - - -0- (15,826) (15,826) $ (68,174) $ 1.132,845 $ 1,201,019 $ 648 $ 03 2,442 $ 03 1,794 $ (542,278) $ (447,352) $ 94,926 -11- CITY OF KALISPELL KALISPELL. MONTANA COMBINED STATEMENT OF REVENUES EXPENSES AND CHANGES IN RETAINED EARNINGS/FUND BALANCES ALL PROPRIETARY FUND TYPES AND SIMILAR TRUST FUNDS Fiscal Year Ended June 30, 1985 FIDUCIARY PROPRIETARY FUND TYPES FUND TYPES Internal Nonexpendable Enterprise Service Trust Operating Revenues: Charges for Service $ 1,659,215 $ - - $ - - Micellaneous Revenues - - - - - - Assessments - - - - - - Internal Services Total Operating Revenues $ 1,659,215 $ -0- $ _O_ Operating Expenses: Personal Services $ 661,837 $ - - $ - _ Supplies 43,699 - - - - Purchased Services 300,873 - - - - Fixed Charges 25,250 - - - - Depreciation 275,441 - - - - Inter -Departmental Charges 159,543 - _ - - Bad Debt Expense - - - - - - Total Operating Expenses $ 1,466,643 $ -0_ $ -0- Operating Income (Loss) $ 192,572 $ -0- $ -0- Non-Operating Revenues (Expenses): Miscellaneous $ 81,190 $ - - $ - - Interest 148,265 - - - - Debt Service (126,922) Total Non -Operating Revenues (Expenses) $ 102,533 $ -0- $ _O_ Income (Loss) Before Operating Transfers $ 295,105 $ -0- $ -0- Operating Transfers In (Out) - - - - - - Net Income (Loss) $ 295,105 $ -0- $ -0- Add depreciation on fixed assets acquired by grants, entitlements, and shared revenues externally restricted for capital acquisitions and construc- tion that reduced contributed capital 12,067 - - - - Increase (Decrease) in Retained Earnings $ 307,172 $ _ _ $ - - Retained Earnings/Fund Balances - July 1, 1984 3,891,969 (40,871) 116,994 Prior Period Adjustments 125,729 25,688 - - Residual Equity Transfers - - 15,183 - - Retained Earnings/Fund Balances - June 30, 1985 $ 4.32 4,870 $ -0- $ 116,994 See accompanying Notes to Financial Statements. -12- TOTALS (MEMORANDUM ONLY) Year Ended June 30, 1985 June 30, 1984 $ 1,659,215 $ 1,060,879 -0- 39,653 -0- 72,238 -0- 138,349 $ 1,659,215 $ 1 ,311 ,119 $ 661,837 $ 509,680 43,699 109,008 300,873 186,068 25,250 6,473 275,441 239,003 159,543 117,121 -0- 6 ,35 6 $ 1_,466 ,643 $ 1 ,173 ,709 $ 192,572 $ 137,410 $ 81,190 $ 8,837 148,265 151 ,148 (126,922) (102,484) $ 102,533 $ 57,501 $ 295,105 $ 194,911 -0- (40,273) $ 295,105 $ 154,638 12,067 -0- $ 307,172 $ 154,638 3,968,092 3,277,778 151,417 183,902 15,183 -0- $ 4,441 8864 $ x,616 ,318 -13- CITY OF KALISPELL KALISPELL, MONTANA COMBINED STATEMENT OF CHANGES IN FINANCIAL POSITION ALL PROPRIETARY FUND TYPES AND SIMILAR TRUST FUNDS Fiscal Year Ended June 30, 1985 PROPRIETARY FUND TYPES TOTALS (MEMORANDUM ONLY) Year Ended Enterprise June 30, 1985 June 30, 1984 Sources of Working Capital: Operations: Net Income (Loss) $ 295,105 $ 295,105 $ 154,638 Add: Items Not Requiring Working Capital: Depreciation 275,4141 275,441 239,003 Compensated Absences 21,991 21,991 15,336 Working Capital Provided by Operations $ 592,537 $ 592,537 $ 408,977 Other Sources of Working Capital: Contributions 605,746 605,746 1,407,334 Proceeds from Bonds - - -0- 880,101 Net Decrease in Restricted Assets 151,059 151,059 -0- Prior Period Adjustments Affecting Working Capital 144,384 144,384 198,475 Total Sources of Working Capital $ 1 ,493 ,726 $ 1,493 ,726 $ 2,894 ,887 Uses of Working Capital: Contract Payments $ 10,000 $ 10,000 $ 10,000 Fixed Asset Purchases 1 ,311 ,915 1 ,311 ,915 1,885,329 Bond Payments 60,000 60,000 252000 Net Increase in Restricted Assets - - -0- 1 ,1 26,456 Prior Period Adjustments Affecting Working Capital 21,810 21,810 5,111 Total Uses of Working Capital $ 1,403,725 $ 1,40a,725 $ 3,051 ,896 Net Increase (Decrease) in Working Capital $ 90,001 $ 901001 $ (157,009) Elements of Increase (Decrease) in Working Capital: Cash/Investments $ (60,244) $ (60,244) $ 161,705 Interest Receivable - - -0- 26,126 Overpayment Account - - -0- (3,700) Taxes Receivable (5,835) (5,835) (3,327) Accounts Receivable 47,674 47,674 (19,762) Due From Other Funds (196,507) (196,507) 167,617 Inventory (16,011) (16,011) 13,581 Deferred Revenue (32,070) (32,070) -0- Warrants Payable 493,563 493,563 (488,857) Accounts Payable (146,767) (146,767) (400) Due To Other Funds 23,133 23,133 -0- Deposits Payable 506 506 -0- Interest Payable (17 ,441) (17 ,441) (169 ) Accrued Payables - - -0- (9,823) Net Increase (Decrease) in Working Capital $ 90,001 $ 90,001 $ (157,009) See accompanying Notes to Financial Statements. Me CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS June 30, 1985 1. Summary of Significant Accounting Policies The following is a summary of the City of Kalispell's significant accounting policies: a. Reporting Entity The general purpose financial statements include all funds, account groups, boards, commissions, and authorities which meet the criteria embodied in GASB Cod. Sec. 2100, "Defining the Reporting Entity." Such criteria are manifestation of oversight responsibility (financial interdependency, selection of governing authority, designation of management, ability to significantly influence operations, and accountability for fiscal matters), scope of public service (benefit to the City and/or its residents, conducted within the geographic boundaries of the City, and generally available to its citizens), and special financing relationships. b. Fund Accounting The accounts of the City are organized on the basis of funds and account groups, each of which is considered a separate accounting entity. The operations of each fund are accounted for within a separate set of self -balancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures, or expenses, as appropriate. The following types of funds and account groups are maintained by the City. GOVERNMENTAL FUNDS General Fund - Used to account for all financial resources except those required to be accounted for in other funds. Special Revenue Funds - Used to account for the proceeds of special revenue sources (other than special assessments, expendable trusts, or for major capital projects) that are legally restricted to expenditures for specific purposes. Capital Projects Funds - Used to account for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by proprietary funds, special assessment funds, and trust funds). Special Assessment Funds - Used to account for financing of public improvements or services deemed to benefit the properties against which special assessments are levied. a' CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1985 1. Summary of Significant Accounting Policies - cont. b. Fund Accounting - cont. PROPRIETARY FUNDS Enterprise Funds - Used to account for operations (a) that are financed and operated in a manner similar to private business enterprises - where the intent of the governing body is that costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or (b) where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. Internal Service Funds - Used to account for the financing of goods or services provided by one department or agency to other departments or agencies of the City, on a cost reimbursement basis. FIDUCIARY FUNDS Trust and Agency Funds - Used to account for assets held by the City in a trustee capacity or as an agent for individuals, private organizations, other governments, and/or other funds. These may include (a) expendable trust funds, (b) nonexpendable trust funds, (c) pension trust funds, and (d) agency funds. FIXED ASSETS AND LONGTERM LIABILITIES General Fixed Assets Account Group - Used to account for the fixed assets of the City which are not accounted for in proprietary funds or in trust funds. General Long -Term Debt Account Group - Used to account for all long-term debt of the City except that accounted for in the proprietary funds, trust funds, and special assessment funds. C. Basis of Accounting The modified accrual basis of accounting is followed by all funds except the proprietary funds. Under the modified accrual basis of accounting, revenues are recorded when susceptible to accrual, that is, when they become both measurable and available. Available means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. The accrual basis of accounting is utilized by the proprietary funds for recording revenue, except that assessments receivable were recorded as deferred revenue at year end. -16- CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1985 1. Summary of Significant Accounting Policies - cant. C. Basis of Accounting - cont. The City records real and personal property taxes and assessments levied for the current year as revenue. Taxes and assessments receivable remaining unpaid at year end and not expected to be collected soon enough thereafter to be available to pay obligations of the current year were recorded as deferred revenue, with a corresponding reduction in revenues, as required by generally accepted accounting principles. In addition, prior period delinquent taxes and assessments collected in the current period were recorded as revenue in the current period as required by generally accepted accounting principles. Expenditures other than interest on long-term debt are recorded when the liability is incurred. d. Budgets and Budgetary Accounting An operating budget is adopted each fiscal year for the General Fund, Special Revenue Funds, Capital Projects Funds, and Special Assessment Funds on the modified accrual basis. A non-binding management budget is adopted for the Enterprise and Internal Service Funds. The final budget is legally enacted by the City Council, on the second Monday in August, after holding public hearings as required by State statutes. The operating budgets cannot be increased except by a public emergency which could not have been reasonably foreseen at the time of adoption of the budget. Budget appropriation transfers may be made between the general classifications of salaries and wages, maintenance and operation and capital outlay. e. Encumbrances All appropriations, except for construction in progress, lapse at the end of the fiscal year. Encumbrances at year end are reflected as reservations of fund balances since they do not constitute expenditures or liabilities. Encumbrances are appropriated for in the subsequent fiscal period. am CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1985 1. Summary of Significant Accounting Policies - cont. f. Fixed Assets Fixed assets were recorded at historical cost and estimated costs as determined by the City at the inception of the Budgetary, Accounting and Reporting System for Montana Cities and Counties. No work was done to establish the validity of these cost figures. Fixed assets purchased are now recorded as expenditures in the various funds at the time of purchase. Such assets, other than those of the proprietary funds and nonexpendable trust funds, are capitalized at cost in the general fixed assets account group. Gifts or contributions are recorded at fair market value at the time received. No depreciation has been provided on general fixed assets. Depreciation has been provided for the property, plant and equipment of the proprietary funds using the straightline method. Public domain or infrastructure fixed assets are excluded from the general fixed assets account group. Public domain or infrastructure assets include roads, bridges, curbs and gutters, streets and sidewalks, drainage systems, lighting systems, and similar assets that are immovable and of value only to the governmental unit. g. Taxes and Assessments An allowance for uncollectible accounts was not maintained for real and personal property taxes and special assessments receivable. The direct write-off method is used for these accounts. h. Enterprise Accounts Receivable A reserve for estimated uncollected accounts receivable is maintained for the Ambulance Enterprise Fund only. At June 30, 1985, this reserve was $12,889. i. Inventories Inventories for governmental funds are expensed at the time of purchase. Inventories on hand are not maintained. The enterprise fund inventory was valued at a combination of cost and replacement cost. J. Warrants Payable The City pays its claims by issuing a warrant ordering the City Treasurer to pay for the warrant upon presentation. Warrants issued but not presented for payment are reported as Warrants Payable. E+1 CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1985 1. Summary of Significant Accounting Policies - cont. k. Vacation and Sick Leave Liabilities incurred because of unused vacation and sick leave accumulated by employees which is payable upon termination are included in the financial statements. The liability for unused vacation and sick leave for governmental fund employees is recorded in the general long-term debt account group. Expenditures for these liabilities are recognized when paid. The liability for unused vacation and sick leave for proprietary fund employees is recorded as a long-term liability in the proprietary funds. The expenses were recorded when the liability was incurred as required by generally accepted accounting principles. 1. Contributions Enterprise Fund contributions from grants, customers, special improvement districts and other outside sources restricted for capital acquisition or construction should be reported as contributed capital. However, current capital contributions which were restricted for capital acquisition or construction were incorrectly reported as non-operating revenues on the Statement of Revenues, Expenses and Changes in Retained Earnings, and included in the beginning and ending retained earnings on the Statement of Revenues, Expenses and Changes in Retained Earnings. This has a material effect on the financial statements of the enterprise funds. Depreciation on assets acquired from contributions is reflected in the statement of revenue, expenses, and changes in retained earnings. Enterprise Fund resources received from grants, entitlements, or shared revenues which may be utilized for operations or for either operations or capital acquisition or construction are reported as "non-operating" revenues. M. Interfund Transactions Interf and 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. CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1985 1. Summary of Significant Accounting Policies - cont. M. Interfund Transactions - cont. Transactions which constitute reimbursements of a fund for expenditures or expenses initially made from it which are properly applicable to another fund are recorded as expenditures in the reimbursing fund and as reductions of the expenditures in the fund that is reimbursed. Advances between funds are accounted for in the appropriate interf and receivable and payable accounts. n. Comparative Data Comparative total data for the prior year have been presented in the accompanying financial statements in order to provide an understanding of changes in the City's financial position and operations. However, comparative (i.e., presentation of prior year totals by fund type) data have not been presented in each of the statements since their inclusion would make the statements unduly complex and difficult to read. o. Total Columns on Combined Statements Total columns on the Combined Statements are captioned Memorandum Only to indicate that they are presented only to facilitate financial analysis. Data in these columns do not present financial position, results of operations, or changes in financial position in conformity with generally accepted accounting principles. Neither is such data comparable to a consolidation. Interfund eliminations have not been made in the aggregation of this data. 2. Property Taxes The City's real estate property tax is levied on the assessed value listed as of January 1 for all real property located in the City. Assessed values are established by the State Department of Revenue based on a market value. A revaluation of all property is required to be completed on a periodic basis. Taxable value is defined by State statute as a fixed percentage of assessed value. The City is permitted by State statutes to levy taxes up to certain fixed limits for various purposes. The taxes levied by the City for the year ended June 30, 1985 were within the legal limits. IRE CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1985 2. Property Taxes - cont. Taxes are due in two equal installments on November 30 and May 31 of each fiscal year. Current Real tax collections collected by the County Treasurer for the year ended June 30, 1985 were approximately 89% of the amount levied. The taxable value upon which the tax levies for the fiscal year ended June 30, 1985 was based was $15,001,357. 3. Deficit Fund Balances The Special Revenue Airport and Comprehensive Insurance Funds had deficit fund balances at June 30, 1985, of $154,266 and $11,548, respectively. The deficit in the Airport Fund was caused when certain capital improvements at the airport were scheduled to be made and were to be funded with $175,000 in proceeds from the sale of land. The capital improvements were made, however, a buyer could not be found for the land, resulting in the deficit fund balance. The deficit in the Comprehensive Insurance fund was caused when liability insurance premiums were significantly higher than anticipated, resulting in a shortfall in revenue to cover the expenditures. The deficit in the Airport Fund is expected to be corrected, at least partially, if and when the land is sold. The deficit in the Comprehensive Insurance Fund was considered in setting the property tax levy for the fiscal year ended June 30, 1986. The deficits of the Special Assessment Funds, totaling $447,352, arise because of the application of generally accepted accounting principles to the financial reporting of such funds. Bond proceeds used to finance construction of special assessment projects are not recognized as revenue or an "other financing source" when received, however, construction expenses are incurred and recorded at the beginning of the project. Special assessments are recognized as revenue only when the individual installments are due. The deficit will be reduced and eliminated as deferred special assessment installments are recognized as revenue in future years. 4. Budget Overdrafts Budget overdrafts are reported for the Special Assessment Funds because formal budgets were not adopted for those special assessment funds servicing debt only. As a result, appropriations were not recorded for interest payments and the budget overdrafts occurred. Mie CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1985 5. Cash in Treasury Cash in Treasury may include cash and cash items; demand, time, savings and fiscal agent deposits; investments in the State Short -Term Investment Pool (S.T.I. P. ); direct obligations of the United States Government; and repurchase agreements. Investments are stated at cost. The composition of Cash in Treasury on June 30, 1985, was as follows: Cash on Hand $ 8,613 Petty Cash 500 Cash in Banks: July 1, 1984 Demand Deposits 116,688 Savings Deposits 1,205,508 Time Deposits 511,101 Fiscal Agent Deposits 33,988 Repurchase Agreements 2,348,024 Bonds 12,000 Less Unreceipted Interest (17,976) Total $ 41218_L446 6. Fixed Assets A summary of changes in general fixed assets follows: ENO Balance Balance July 1, 1984 Additions Deletions June 30, 1985 Land $ 504,053 $ 41,271 $ $ 545,324 Buildings 1,800,276 40,377 1,8+0,653 Improvements Other Than Buildings 104,708 1014,708 Machinery & Equipment 1,452,191 192,322 1,61414,513 Construction Work In Progress -0- 293,110 293,110 Total $ 3,8612228 $ 567,080 $ -0- $ 14,1428,308 ENO CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1985 6. Fixed Assets - cont. A summary of proprietary fund type property, plant, and equipment at June 30, 1985 follows: Total $ 12,315,488 Less Accumulated Depreciation (3,322,754) Net $ 8,992,734 7. Long -Term Debt a. Bonded Debt The following is a summary of bond transactions of the City for the fiscal year ended June 30, 1985: Bonds Payable at July 1, 1984 New Bonds Issued: Bruckhauser Pool 1984 Sidewalk and Curb Special Lighting District Number 2 Bonds Retired General Obligation $ -0- 550,000 0- 550,000 ( -0- ) Revenue $ 1,385,000 .� # Special Assessment $ 573,750 Total $ 1,958,750 28,500 28,500 000 000 Bonds Payable at June 30, 1985 $ 550,000 $ 113251000 $ 520,250 $ 2,395,250 Bonds payable at June 30, 1985 are comprised of the following individual issues: Issue Interest Term of Date Rate Bond Purpose General Obligation Bonds: Bruckhauser Pool 4/01/85 15 Yrs. Total General Obligation Bonds Final Outstanding Maturity Bonds June 30, Annual Date Issued 1985 Payment 2000 $ 550,000 $ 550,000 Varies Enterprise Machinery & Equipment $ 1,327, 808 Construction Work in Progress 1,889,538 Source of Supply 288,115 Pumping Plant 548,411 Storm Sewer 2,389,295 Transmission and Distribution 4,229,181 General Plant 1,643,140 Total $ 12,315,488 Less Accumulated Depreciation (3,322,754) Net $ 8,992,734 7. Long -Term Debt a. Bonded Debt The following is a summary of bond transactions of the City for the fiscal year ended June 30, 1985: Bonds Payable at July 1, 1984 New Bonds Issued: Bruckhauser Pool 1984 Sidewalk and Curb Special Lighting District Number 2 Bonds Retired General Obligation $ -0- 550,000 0- 550,000 ( -0- ) Revenue $ 1,385,000 .� # Special Assessment $ 573,750 Total $ 1,958,750 28,500 28,500 000 000 Bonds Payable at June 30, 1985 $ 550,000 $ 113251000 $ 520,250 $ 2,395,250 Bonds payable at June 30, 1985 are comprised of the following individual issues: Issue Interest Term of Date Rate Bond Purpose General Obligation Bonds: Bruckhauser Pool 4/01/85 15 Yrs. Total General Obligation Bonds Final Outstanding Maturity Bonds June 30, Annual Date Issued 1985 Payment 2000 $ 550,000 $ 550,000 Varies CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1985 7. Long -Term Debt - cont. a. Bonded Debt - cont. Total Revenue Bonds $ 1,520,000 $ 1,325,000 Purpose Special Assessment Bonds (S.I.D.) S.I.D. No. 302 S.I.D. No. 306 S.I.D. No. 307 S.I.D. No. 313 S.I.D. No. 322 S.I.D. No. 324 S.I.D. No. 326 S.I.D. No. 328 S.I.D. No. 333 S.I.D. No. 334 S.I.D. No. 335 S.I.D. No. 336 1978 Sidewalk and Curb 1979 Sidewalk and Curb 1980 Sidewalk and Curb 1981 Sidewalk and Curb 1982 Sidewalk and Curb 1983 Sidewalk and Curb 1984 Sidewalk and Curb Special Light Construction No. 1 -qpecial Light Construction No. 2 Final Outstanding Interest Maturity Bonds June 30, Annual Rate Date Issued 1985 Payment 6.7% 1988 $ 50,000 $ 8,500 Final 5.7% Outstanding 13,500 2,000 Issue Interest Term of Maturity Bonds June 30, Annual 1992 Date Rate Bond Date Issued 1985 Payment Purpose 6.75% 1986 90,000 17,000 Varies 7.75% 1988 Revenue Bonds: 6,000 Varies 8.7% 1999 300,000 204,000 Varies Sewage Plant 1/01/72 5.50% 20 Yrs. 1992 $ 200,000 $ 70,000 $ 10,000 Storm Sewer 7/01/76 6.75% 20 Yrs. 1996 445,000 395,000 Varies Sewage Plant 9/01/83 10.08% 20 Yrs. 2004 875,000 860,000 $ 15,000 Total Revenue Bonds $ 1,520,000 $ 1,325,000 Purpose Special Assessment Bonds (S.I.D.) S.I.D. No. 302 S.I.D. No. 306 S.I.D. No. 307 S.I.D. No. 313 S.I.D. No. 322 S.I.D. No. 324 S.I.D. No. 326 S.I.D. No. 328 S.I.D. No. 333 S.I.D. No. 334 S.I.D. No. 335 S.I.D. No. 336 1978 Sidewalk and Curb 1979 Sidewalk and Curb 1980 Sidewalk and Curb 1981 Sidewalk and Curb 1982 Sidewalk and Curb 1983 Sidewalk and Curb 1984 Sidewalk and Curb Special Light Construction No. 1 -qpecial Light Construction No. 2 Final Outstanding Interest Maturity Bonds June 30, Annual Rate Date Issued 1985 Payment 6.7% 1988 $ 50,000 $ 8,500 Varies 5.7% 1987 13,500 2,000 Varies 5.25% 1987 54,000 7,000 Varies 7% 1992 100,000 9,000 Varies 7.75% 1985 110,000 10,000 Varies 6.75% 1986 90,000 17,000 Varies 7.75% 1988 75,000 6,000 Varies 8.7% 1999 300,000 204,000 Varies 15% 1992 65,000 54,500 Varies 14.5% 1992 14,000 12,000 Varies 12% 1992 15,000 9,000 Varies 12% 1994 4,500 4,500 Varies 5% 11,250 6,250 Varies 7% 22,000 15,000 Varies 7% 4,500 3,500 Varies 9.5% 18,000 17,000 Varies 12% 1,000 1,000 Varies 10% 6,500 6,500 Varies 12% 45,000 45,000 Varies 12% 75,000 54,000 Varies 12% 28,500 28,500 Varies Total Special Assessment Bonds (S.I.D.) awe $ 1,102,750 $ 520,250 7. CITY OF KALISPELL KALISPELL, MONTANA S TO FINANCIAL STATEMENTS - cont June 30, 1985 Long -Term Debt - cont. a. Bonded Debt - cont. Revenue Bond Disclosure The revenue bond ordinances require certain disclosures regarding the Sewer Fund in each year's audited financial statements. For the year ended June 30, 1985, the following are the required disclosures which are not contained elsewhere in the audited financial statements. (a) Number of premises connected to the system at the end of the fiscal year - 4119. (b) Amount of cash on hand in each account of the sewer system at the end of the fiscal year. Sewer Operating $ 333,028 Replacement and Depreciation 63,259 Revenue Bond Reserve 170,028 Capital Improvement 421,994 Construction Account 183,070 Maintenance and Operation 35,709 Revenue Bond Account 129,428 $ 1.336,516 (c) Noncompliance by the City with the provisions of the revenue bond ordinance: (1) Audited financial statements were not supplied to the original purchasers of the 1976 Revenue bonds and to the bank designated as agent for payment of principal and interest on those bonds within 120 days after the close of the fiscal year as required by the revenue bond ordinance. (2) Sewer department books were not audited annually within 120 days after the close of each fiscal year by an independent public accountant or by the Department of Commerce as prescribed by the 1983 Revenue bond Ordinance. (3) An operating reserve equal to one month's operating expenses was not maintained as required by the revenue bond ordinance. (4) Monthly transfers of cash to the revenue bond account and the replacement and depreciation account were not made as required by the revenue bond ordinance. The cash transfer was made on an annual basis. MC CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1985 7. Long -Term Debt - cont. b. Contracted Debt Origination Due Principal Date Term Date Amount Purpose Special Revenue Fund Montana Aeronautics Division - Airport 10/01/79 10 Yrs. 6/30/89 $ 6,914 Enterprise Fund Montana State Highway Department 8/31/82 8 Yrs. 8/31/89 $ 80,000 Total Outstanding Retired Outstanding 7/1/84 During Year 6/30/85 $ 3,457 $ 655 $ 2,802 60,000 10,000 Revenue 50,000 $ 63,457 $ 10,655 June 30 $ 52,802 c. Compensated Absences Payable Compensated absences payable, which represent vacation and sick leave earned by employees which is payable upon termination, were as follows: Enterprise Fund $ 51,901 General Long -Term Debt Account Group 283,808 d. Requirements to Amortize Debt The annual requirements to amortize all long-term debt out- standing, except compensated absences payable, as of June 30, 1985, including interest payments of $2,005,337, are as follows: Annual Requirements to Amortize Long -Term Debt June 30, 1985 General Special Year Ending Obligation Revenue Assessment Contracted June 30 Bonds Bonds Bonds Debt Total 1986 $ 64,563 $ 159,202 $ 149,689 10,830 $ 384,284 1987 68,242 155,923 102,930 10,795 337,890 1988 66,392 162,237 80,368 10,761 319,758 1989 69,543 158,123 70,691 10,762 309,119 1990 67,230 163,587 68,823 10,000 309,640 1991 - 1995 (5yrs.) 341,413 802,836 232,285 1,376,534 1996 - 2000 (5yrs. ) 355,402 579,243 73,487 1,008,132 2001 - 2004 (5yrs.) 408,032 408,032 Total $ 1,0329785 $ 2,589,183 2$ $ 378,11 53,148 $ 4,453,389 SK -2 CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1985 7. Long -Term Debt - cont. d. Requirements to Amortize Debt - cont. A Debt Service Fund had not yet been established to service the general obligation bonds. 8. Contracts, Notes, and Capital Leases (Unrecorded) In 1980, the City purchased property to be used in developing a public parking lot. One parcel was purchased for $145,000, at 7% interest, to be paid in installments of $10,202 every six months beginning on January 1, 1981. The purchase price of the second parcel was $130,000 at 7% interest, to be paid in installments of $9,147 every six months beginning on January 10, 1981. The liability for the land purchase was not recorded in the City's financial statements as required by generally accepted accounting principles. The unrecorded promissory notes payable due to the bank of Columbia Falls, Columbia Falls, Montana on June 30, 1985 were as follows: Account No. 78121 $ 85,725 Account No. 5178 76,861 9. Retirement Plans The City participates in the following Retirement Plans: Public Employees' Retirement System All full-time employees except police and firemen are covered by the Montana Public Employees' Retirement System. This plan is administered by the State of Montana. All eligible employees contribute 6% of their salary to the plan, while the City contributes 6.417% of the employees' salaries to the plan. The City's contribution to this plan for the year ended June 30, 1985, was $87,292. The unfunded past service costs and the actuarially computed value of vested benefits are determined periodically for the statewide plan and can be obtained from the Public Employees' Retirement Division. CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1985 9. Retirement Plans - cont. Municipal Police Officers' Retirement System The police are covered under the Municipal Police Officers' Retirement System. The plan is a defined contribution/defined benefit plan. State law requires the contributions to be made and the benefits to be paid. The contributions of each policeman's salary are as follows: 6% from each member, or 7 1/2% if first employed after June 30, 1979, 14.04% from the City and 14.04% from the State (from moneys received for insuance premium taxes). The City's contribution for the fiscal year ended June 30, 1985, was $65,890. The Public Employees' Retirement Division of the Montana Department of Administration is charged by Section 19-9-503, MCA, to determine the excess and unfunded liability of each city which participates in the Municipal Police Officers' Retirement System. The unfunded liability for the City of Kalispell may be obtained from PERD. The City is to make arrangements with the State to amortize this liability over a period of not more than 40 years. Firefighters' Unified Retirement System The firefighters are covered under the Firefighters' Unified Retirement System. The plan is a defined contribution/def ined benefit plan. State law requires the contributions to be made and the benefits to be paid. Each member contributes 6% of his salary to the plan. The City's contribution to the plan was equal to 18% of the employees' salaries. The State also contributes, out of moneys received for insurance premium taxes, an amount equal to 181% of the firefighters salaries. The City's contribution to the plan for the fiscal year ended June 30, 1985, was $78,186. The unfunded past service costs and the actuarially computed value of vested benefits are determined periodically for the plan and can be obtained from the Public Employees' Retirement Division. CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1985 10. Amounts Due From and Due To Other Funds/Governments The amounts due from and due to other funds and governments consist of the following: Due From Other Funds/ Governments: Special Revenue Fund Community Development Fund Due from U.S. Department of Housing and Urban Development $ 55,7142 Special Improvement District Revolving Fund Due from Special Assessment Funds S.I.D. No. 316 $ 2,679 S.I.D. No. 321 2,030 S.I.D. No. 324 3,431 S. I. D. No. 328 13,050 S.I.D. No. 333 13,126 S. I. D. No. 334 250 S.I.D. No. 335 730 Sidewalk and Curb Fund - 1976 2,1497 Sidewalk and Curb Fund - 1977 12,454 50,247 $ 105,989 Enterprise Fund E.P.A. Evergreen Fund Due from E.P.A. $ 7,772 Due from Sewer E.P.A. Construction Fund _8,323 $ 16,095 Due To Other Funds/Governments: Special Assessment Fund Due to Special Revenue Fund (S.I.D. Revolving Fund) $ 50,2247 Enterprise Fund Sewer E.P.A. Construction Fund Due to E.P.A. Evergreen Fund $ 8,323 Trust and Agency Fund Payroll Fund Due to Various State and Federal Agencies $ 30,935 11. Restricted Cash/Investments The following Restricted Cash/ Investments were held by the City Treasurer as of June 30, 1985: Description Enterprise Funds: Water - Replacement and Depreciation Sewer - Replacement and Depreciation Sewer - Capital Improvement Reserve Sewer - Storm Maintenance Sewer - E.P.A. Evergreen Sewer Study Sewer - E.P.A. Construction Sewer - E.P.A. Contractor Retainage Sewer - Debt Service Sewer - Revenue Bond Reserve Total Enterprise Amount $ 324,197 63,259 1421,994 35,709 736 77,064 105,270 129,1428 170,027 $ 1,327,6814 CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1985 12. Fund Equity Reserves of the City at June 30, 1985 consisted of: Water - Reserve for Replacement and Depreciation Sewer - Reserve for Contractor Retainage Reserve for Debt Service Payments Reserve for Revenue Bonds Reserve for Replacement and Depreciation Reserve for Capital Improvement Total Enterprise $ 324,197 105,270 129,428 170,027 63,259 430,365 $ 1L222 ,546 13• Prior Period Adjustments During the current fiscal year, adjustments relating to prior years' transactions were made to the fund balance and retained earnings accounts. The following is a schedule of these adjustments: Community Development Fund $ 691 To record reimbursement for prior year expenditure 8,724 To correct error in recording disbursement 5,860 To correct warrants payable balance Total Community Developement Fund $ 15,275 Total Special Revenue Fund $ 16 1491 Enterprise Funds Water Fund $ 50,651 To adjust retained earnings and oontributed capital Water Fund 0 ,894) To correct accounts receivable balance (29494) To correct fixed assets recorded twig Total Water Fund $ 19,263 Sewer Fund $ (16,387) To correct accounts receivable 156,660 To adjust retained earnings and contributed capital 434 To write off old warrants (551) To correct interest accrual (63,886) To delete assets not fully depreciated (2,978) To correct inventory for fiscal 1984 Total Sewer Fund $ 73,292 -30- Fund Amount Reason for Adjustment General $ 12,130 To record interest earned in fiscal 1984 (768) To refund prior year's revenue 1,450 To write off old warrants Total General Fund $ 12_2812 Special Revenue Funds Revenue Sharing Fund $ 1,216 To write off old warrants Community Development Fund $ 691 To record reimbursement for prior year expenditure 8,724 To correct error in recording disbursement 5,860 To correct warrants payable balance Total Community Developement Fund $ 15,275 Total Special Revenue Fund $ 16 1491 Enterprise Funds Water Fund $ 50,651 To adjust retained earnings and oontributed capital Water Fund 0 ,894) To correct accounts receivable balance (29494) To correct fixed assets recorded twig Total Water Fund $ 19,263 Sewer Fund $ (16,387) To correct accounts receivable 156,660 To adjust retained earnings and contributed capital 434 To write off old warrants (551) To correct interest accrual (63,886) To delete assets not fully depreciated (2,978) To correct inventory for fiscal 1984 Total Sewer Fund $ 73,292 -30- CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1985 13. Prior Period Adjustments - cont. Fund Amount Reason for Adjustment Enterprise Funds - oont. Ambulance Fund $ 3,600 To adjust accounts receivable 1,612 To correct warrants payable Total Ambulance Fund $ 5,212 Solid Waste Fund $ 27,938 To record assets previously expensed 24 To correct warrants payable Total Solid Waste Fund $ 27,962 Total Enterprise Funds $ 125,729 Internal Service Fund Central Garage Fund $ 25,688 To close old inventory account Special Assessment Fund Special Lighting District District Number 2 $ 177 To correct interest accrual 14. Residual Equity Transfers P,esidual equity transfers were not identifiable. However, residual equity transfers in for all funds were reported at $17,159 greater than residual equity transfers out. Residual equity transfers in and out should offset each other. The net effect on revenues and expenditures of the manner in which the City of Kalispell accounted for residual equity transfers could not be determined, however, it was deemed immaterial. 15. Segment Information For Enterprise Funds The City maintains four Enterprise Funds which provide water, sewer, solid waste, and ambulance services. Segment information for the year ended June 30, 1985 was as follows: Total Water Sewer Solid Waste Ambulance Enterprise Fund Fund Fund Fund Funds Operating Revenues $ 591,410 $ 712,142 $ 220,004 $ 135,659 $ 1,659,215 Depreciation, Depletion and Amortization Expense $ 85,498 $ 166,200 $ 12,788 $ 10,955 $ 275,441 Operating Income or (Loss) $ 78,637 $ 127,220 $ (31 ,852) $ 18,567 $ 192,572 Operating Grants, Entitle- ments and Shared Revenues $ $ $ $ $ Operating Transfers In $ $ $ $ $ out $ $ $ $ $ Tax Revenues $ $ $ $ $ Net Income or Loss $ 119,174 $ 181,679 $ (28,189) $ 22,441 $ 295,105 Current Capital: Contributions $ 149,929 $ 455,817 $ $ $ 605,746 Transfers $ $ $ $ $ CITY OF KALISPELL KALISPELL MONTANA NOTES TO YINANCIAL STATEMENTS - cont. June 30, 1985 16. Segment Information For Enterprise Funds - cont. Total Water Sewer Solid Waste Ambulance Enterprise Fund Fund Fund Fund Funds Plant, Property and Equipment: Additions $ 296,977 $ 950,995 $ 146 ,486 $ 3,193 $ 1,397 ,651 Deletions $ 94,535 $ 172,463 $ $ $ 266,998 Net Working Capital $ 254,845 $ 204,822 $ 61,197 $ 82,720 $ 603,584 Total Assets $ 2,801 ,869 $ 8,183,511 $ 162,705 $ 99,956 $ 11 ,248,041 Borns and Other Long -Term Liabilities: Payable from Operating Revenues $ 14,745 $ 1,398,303 $ 13,558 $ 295 $ 1,426,901 Payable from Other Sources $ $ $ $ $ Total Equity $ 2,734 ,653 $ 6,541 ,189 $ 123,539 $ 97,720 $ 9,497 ,101 17. Pending Litigation The following is a list of litigation pending against the City of Kalispell and the amount of damages claimed by the Plaintiff. The City Attorney has made no evaluation as to the outcome of each case. Damages Case Requested Arnold Gilmore vs. City of Kalispell $ 1,000,000 Claude and Debbie Brown vs. City of Kalispell $ 3,500 R. James Webster vs. City of Kalispell $ 15,000 18. Changes in Accounting Principles The following are changes in accounting principles for the 1984-85 fiscal year: 1 . The operation of the Solid Waste Fund was reported within the Enterprise Fund for the 1984-85 fiscal year. The operation of the Solid Waste Fund was reported as a Special Assessment Fund for the 1983-84 fiscal year. 2. The operation of the Conrad Mansion Fund was reported as a Non -Expendable Trust Fund for the 1984-85 fiscal year. The operation of the Conrad Mansion Fund was reported as an Expendable Trust Fund for the 1984-85 fiscal year. 19. Subsequent Events As of November 20, 1986, the City had not obtained general liability insurance coverage. This creates a potential liability for the City. 20. Retained Earnings The retained earnings reported by the City for the Enterprise fund on July 1, 1984 were greater than the retained earnings reported for June 30, 1984 on the prior audit report by $229,576.00. The auditors disclaimed an opinion on the City's financial statements for the fiscal year ended June 30, 1984. The City reclassified the Solid Waste Fund from the Special Assessment Fund to the Enterprise Fund during the 1984-85 fiscal year. This reclassification accounted for $123,766.00 of the difference in retained earnings. The reason for the remaining difference of $105,810 was not readily determinable. -32- CITY OF KALISPELL KALISPELL, MONTANA AUDITOR'S REPORT ON SUPPLEMENTAL INFORMATION AND SUPPLEMENTAL SCHEDULES Fiscal Year Ended June 30, 1985 Wn LOCAL GOVERNMENT ASSISTANCE DIVISION LOCAL GOVERNMENT SERVICES BUREAU TED SCHWINDEN. GOVERNOR STATE OF [MiONTANA (406) 444 -3010 REPORT ON SUPPLEMENTAL INFORMATION SCHEDULES To the Honorable City Council Flathead County Kalispell, MT 59901 CAPITOL STATION HELENA, MONTANA 5962 -- We have examined the general purpose financial statements of the City of Kalispell, Montana, for the year ended June 30, 1985, and have issued our report thereon dated November 20, 1986. Our examination of such general purpose financial statements was made in accordance with generally accepted auditing standards and the standards for financial and compliance audits contained in the Standards for Audit of Governmental Organizations, Programs, Activities, and Functions, issued by the U.S. General Accounting Office, and accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. Our examination was made for the purpose of forming an opinion on the general purpose financial statements taken as a whole. The accompanying Schedule of Federal Financial Assistance is presented for purposes of additional analysis and is not a required part of the general purpose f inancial statements. The information in that schedule has been subjected to the auditing procedures applied in the examination of the general purpose financial statements and, in our opinion, except for the effects of not reflecting Community Development Block Grant Funds on deposit in an outside bank account as explained in paragraph six of our Auditor's Report on pages three and four, such information is fairly stated in all material respects in relation to the general purpose financial statements taken as a whole. November 20, 1986 DONALD L. DOOLEY Bureau Chief by: R. MICHAEL DUNCAN Audit Section Supervisor -34- AN EQUAL OPPORTUNITY EMPLOYER PU*ams 6 9q# CITY OF KALISPELL KALISPELL, MONTANA SUPPLEMENTAL SCHEDULES Fiscal Year Ended June 30, 1985 -35- CITY OF KALISPELL KALISPELL. MONTANA SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE For the Fiscal Year Ended June 30, 1985 Federal CFDA Number Federal Grantor/Pass-Through Grantor/Program Title U.S. Department of the Treasury Direct Programs: State and Local Government Fiscal Assistance -Revenue Sharing 21.300 Passed Through Flathead County, Montana: State and Local Government Fiscal Assistance -Revenue Sharing: Evergreen Sewer Study Project 21.300 Bruckhauser Pool Project 21.300 Total U.S. Department of the Treasury U.S. Department of the Interior Passed Through State Department of Fish, Wildlife and Parks: Land and Water Conservation Fund Grant 15.916 U.S. Department of Housing and Urban Development Direct Programs: Urban Development Action Grant 14.221 Passed Through State Department of Commerce: Community Development Block Grant - States Program 14.228 Total U.S. Department of Housing and Urban Development U.S. Environmental Protection Agency Direct Programs: Construction Grants for Wastewater Treatment Works Wastewater Treatment Works, Construction Grant Total U.S. Environmental Protection Agency Total Federal Assistance -36- 66.418 66.015 Pass -Through Grantor's Number None None MT-CDBG-C83-017 MT-CDBG-C84-06 MT-CDBG-C85-10 Program or Beginning Cash Receipts $ 831 Ending Award Balance Federal Matching/ Cash Balance Amount July 1, 1984 Funds Income/Other Disbursements June 30, 1985 $ 264,621 $ 48,559 $ 264,621 $ 10,324 $ 243,528 $ 79,976 $ 218,126 $ -0- $ 11,242 $ $ 11,242 $ -0- 35,000 -0- 35,000 $ 579,526 35,000 -0- $ $ -0- $ 46,242 $ -0- $ 46,242 $ -0- 35,661 $ 48,559 $ 310,863 $ 10,324 $ 289,770 $ 79,976 $ 110,000 $ (10,618) $ 9,299 $ $ 831 $ (21150) $ 3,175,000 $ -0- $ 340,000 $ $ 340,000 $ -0- $ 1,500,000 $ 218,126 $ 149,428 $ 20,497 $ 366,397 $ 21,654 $ 218,126 $ 489,428 $ 20,497 $ 706,397 $ 21,654 $ 1,640,611 $ 667,653 $ 579,526 $ 100,805 $ 1,165,650 $ 182,334 $ 67,140 8,097 16,955 11,345 35,661 736 $ 675,750 $ 596,481 $ 112,150 $ 1,201,311 $ 183,070 $ 931,817 $ 1,406,071 $ 142,971 $ 2,198,309 $ 282,550 -37- CITY OF KALISPELL KALISPELL, MONTANA AUDITOR'S REPORT Fiscal Year Ended June 30, 1986 -38- DEPARTMENT OF COMMERCE LOCAL GOVERNMENT ASSISTANCE DIVISION LOCAL GOVERNMENT SERVICES BUREAU TED SCHWINDEN, GOVERNOR CAPITOL STATION - STATE OF MONTANA (406) 444-3010 HELENA, MONTANA 59620 To the Honorable City Council City of Kalispell Kalispell, MT 59901 We have examined the general purpose financial statements of the City of Kalispell, Montana, as of and for the year ended June 30, 1986, as listed in the table of contents. Except as set forth in the following paragraph, our examination was made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. We were unable to obtain sufficient evidence to support the cost of the fixed assets of the general fixed assets account group, the Enterprise Funds or the Nonexpendable Trust Fund. Due to the length of time over which these fixed assets were acquired, it is not practicable to determine their actual cost and, as such, we did not examine these fixed assets, or the resulting depreciation on fixed assets of the Enterprise Funds. A loan receivable of $2,675,000 from the Kalispell Center Limited Partnership was not recorded as required by generally accepted accounting principles. As a result, other receivables and deferred revenue (deferred credits) were understated by $2,675,000 in the Special Revenue Fund on June 30, 1986. Cash on deposit in an outside bank account for the Community Development Block Grant residential housing rehabilitation program was not reported in the City's financial statements. As a result, cash and fund balance in the Special Revenue Fund is understated by $37,106 at June 30, 1986. Operating transfers in for all funds were reported at $37,783 less than operating transfers out. Operating transfers in and out should offset each other. The net effect of the manner in which the City of Kalispell accounted for operating transfers had no effect on year end fund balances and retained earnings; however, revenues and/or expenditures, as well as operating transfers in and out, are misstated by undetermined amounts in the various funds for the year ended June 30, 1986. -39- AN EQUAL OPPORTUNITY EMPLOYED phk- B "'pW`� In our opinion, except for the effects of such adjustments, if any, as might have been necessary had we been able to examine the fixed assets of the Enterprise Fund, the Nonexpendable Trust Fund and the general fixed assets account group, as discussed in paragraph two, and except for the effects of the matters discussed in the preceding three paragraphs, the general purpose financial statements referred to above present fairly the financial position of the City of Kalispell, Montana, at June 30, 1986, and the results of its operations and the changes in financial position of its proprietary fund types for the year then ended, in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year. November 20, 1986 DONALD L. DOOLEY Bureau Chief by: R. MICHAEL DUN CAN Audit Section Supervisor -40- CITY OF KALISPELL KALISPELL, MONTANA FINANCIAL STATEMENTS Fiscal Year Ended June 30, 1986 mim CITY OF KALISPELL KALISPELL, MONTANA COMBINED BALANCE SHEET - ALL FUND TYPES AND ACCOUNT GROUPS June 30, 1986 GOVERNMENTAL FUND TYPES LIABILITIES AND FUND EQUITY Liabilities: Short -Term Payables $ 30,524 $ 428,917 $ - Due to Other Funds/Governments Deferred Credits 724,933 419,771 23,617 Long -Term Liabilities - - 2,108,443 - - Total Liabilities $755,457 $ 2,957,131 $ 23,617 Fund Equity: Contributed Capital Special Debt Investment in General Fixed Assets General Revenue Service ASSETS Cash/Investments $ 245,677 $ 2,991,426 $ 12,312 Taxes/Assessments Receivable - - - - - - (Net of Uneollectables) 724,933 419,771 23,617 Other Receivables - - 73,607 - - Due from Other Funds/Governments 513 67,834 - - Inventories - - - - - - Restricted Cash/Investments - - 427,856 - - Amount Available in Debt Service Funds - _ Amount to be Provided for Retirement of General Long -Term Debt - - - - - - Fixed Assets (Net of Accumulated Depreciation) TOTAL ASSETS $971,123 $ 3,980,494 $ 35,929 LIABILITIES AND FUND EQUITY Liabilities: Short -Term Payables $ 30,524 $ 428,917 $ - Due to Other Funds/Governments Deferred Credits 724,933 419,771 23,617 Long -Term Liabilities - - 2,108,443 - - Total Liabilities $755,457 $ 2,957,131 $ 23,617 Fund Equity: Contributed Capital Investment in General Fixed Assets - - - - - - Retained Earnings Reserved - - - - - - Unreserved - - - - - - Fund Balance Reserved - - 123,046 - - Unreserved 215,666 900,317 12,312 Total Fund Equity $ 215,666 $ 1,023,363 $ 12,312 TOTAL LIABILITIES AND FUND EQUITY $ 271,12 $ 3,980,494 $ 35,929 See accompanying Notes to Financial Statements. -42- GOVERNMENTAL PROPRIETARY FIDUCIARY FUND TYPES - cont. FUND TYPES FUND TYPES ACCOUNT GROUPS TOTALS (MEMORANDUM ONLY) Trust General General Capital Special and Fixed Long- Projects Assessment Enterprise Agency Assets Debt June 30, 1986 June 30, 1985 $ 15,126 $ 40,819 $ 601,495 $ 34,245 $ - _ $ _ _ $ 3,941,100 $ 2,890,762 - - 513,563 36,789 _ - - - - - 1,718,673 1,722,052 - - - - 254,117 _ - - - - - 327,724 253,930 - - - - 145,947 - - - - - - 214,294 122,084 - - - - 85,566 - - - - - - 85,566 82,154 - - - - 1,896,468 7,186 - - - - 2,331,510 1,327,684 _ - - - - - - - - - 12,312 12,312 -0- _ 940,476 940,476 833,808 10,411,504 5,095,412 - - 15,506,916 13,538,036 $ 15,126 $ 554,382 $ 13,431,886 $ 41,431 $ 5 095,412 $59 2,788 $ 25,078,571 $ 20,770,510 $ 1,953 $ 30,545 $ 379,931 $ 41,431 $ - - $ - - $ 913,301 $ 852,672 - - 67,832 513 - - - - - - 68,345 89,504 - - 513,563 - - - - - - - - 1,681,884 1,722,052 503,850 2,872,118- - - - 59 2,788 6,437,199 2,783,761 $ 1,953 $ 1,115,790 $ 3,252,562 $ 41,431 $ -0- $952,788 $ 9,100,729 $ 5,4472989 $ - - $ - - $ 5,419,800 $ - - $ - - $ - - $ 5,419,800 $ 5,172,231 - - - - - - - - 5,095,412 - - 5,095,412 4,428,308 - - - - 2,071,433 - - - - - - 2,0712433 1,222,546 - - - - 2,688,091 - - - - - - 2,688,091 3,102,324 - - 123,046 -0- 13,173 (561,408) - - - - - - - - 5802060 1,397,112 $ 13,173 $ (561,408) $ 10,179,324 $ -0- $ 5,095,412 $ -0- $ 15,977,842 $ 15,322,521 $ 15,126 $ 554,382 $ ,1,431,886 $ 41,431 $ 5,095,412 $ 252J88 $ 25,078,571 $ 20,770,510 -43- CITY OF KALISPELL KALISPELL. MONTANA COMBINED STATEMENT OF REVENUES EXPENDITURES AND CHANGES IN FUND BALANCES - ALL GOVERNMENTAL FUND TYPES AND EXPENDABLE TRUST FUNDS Fiscal Year Ended June 30, 1986 GOVERNMENTAL FUND TYPES Special Debt General Revenue Service Revenues: Taxes/Special Assessments $ 1,181,363 $ 995,826 $ 47,279 Licenses and Permits 301,870 23,699 2,184 Intergovernmental Revenue 225,790 1,211,136 2,630 Charges for Services 14,198 78,140 - - Fines and Forfeitures 127,085 43,286 - - Miscellaneous Revenues 119,728 136,326 - - Total Revenues $ 1,970,034 $ 2,488,413 $ 52,093 Expenditures: Current: General Government $ 407,377 $ 51,565 $ - - Public Safety 1,342,569 316,469 - - Public Works 273,041 1,257,557 - - Publie Health 51,457 6,586 - - Culture and Recreation 155,869 99,275 - - Housing and Community Development - - 520,649 - - Miscellaneous 4,650 100,252 - - Debt Service 224,110 64,562 Total Expenditures $ 2,234,963 $ 2,576,463 $ 64,562 Excess (Deficiency) of Revenues Over Expenditures $ (264,929) $ (88,050) $ (12,469) Other Financing Sources (Uses): Proceeds of General Long -Term Debt $ - - $ - - $ - - Operating Transfers In 173,010 - - 24,781 Operating Transfers Out - - 29,730) - - Total Other Financing Sources (Uses) $ 173,010 $ (29,730) $ 24,781 Excess (Deficiency) of Revenues and Other Sources Over Expenditures and Other Uses $ (91,919) $ (117,780) $ 12,312 Fund Balances - July 1, 1985 292,183 1,132,846 - - Prior Period Adjustments 13,996 (8,942) - - Residual Equity Transfers 1,406 17,239 Fund Balances - June 30, 1986 $ 215,666 $ 1,023,363 $ 12,312 See accompanying Notes to Financial Statements. -44- GOVERNMENTAL FUND TYPES - cont. Capital Special Projects Assessment $ - - $ 264,628 34,645 - - $ 34,645 $ 264,628 TOTALS (MEMORANDUM ONLY) Year Ended June 30, 1986 June 30, 1985 $ 2,489,0 96 $ 2,306,472 327,753 352,952 1,439,556 974,568 92,338 120,764 170,371 112,915 290,699 194,681 13 Wj-* : � . $ - - $ - - $ 458,942 $ 484,165 - - - - 1,659,038 1,558, 809 273,030 1,803,628 1,167,408 - - - - 58,043 51,063 297,717 - - 552,861 441,617 520,649 375,658 104,902 54,560 64,518 353,190 48,502 $ 297,717 $ 337,548 $ 5,511,253 $ 4,181,782 $ (263,072) $ (72,920) $ (701,440) $ (119,430) $ - - $ - - $ -0- $ 552,356 - - 197,791 148,199 (24,781) (23,897) (78,408) (12,896) $ (24,781) $ (23,897) $ 119,383 $ 687,659 $ (287,853) $ (96,817) $ (582,057) $ 568,229 302,443 (447,352) 1,280,120 680,433 ( 11 ) - - 5,043 29,480 (1,406) (17,239) -0- 1,976 $ 13,173 $ (561,408) $ 703,106 $ 1,280,118 -45- CITY OF KALISPELL KALISPELL, MONTANA COMBINED STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL - GENERAL, SPECIAL REVENUE, DEBT SERVICE, CAPITAL PROJECTS AND SPECIAL ASSESSMENT FUND TYPES Fiscal Year Ended June 30, 1986 Revenues: Taxes/Special Assessments Licenses and Permits Intergovernmental Revenue Charges for Services Fines and Forfeitures Miscellaneous Revenues Total Revenues Expenditures: Current: General Government Public Safety Public Works Public Health Culture and Recreation Housing and Community Development Miscellaneous Debt Service Total Expenditures Excess (Deficiency) of Revenues Over Expenditures Other Financing Sources (Uses): Operating Transfers In Operating Transfers Out Total Other Financing Sources (Uses) Excess (Deficiency) of Revenues and Other Sources Over Expenditures and Other Uses Fund Balances - July 1, 1985 Prior Period Adjustments Residual Equity Transfers Fund Balances - June 30, 1986 See accompanying Notes to Financial Statements. GENERAL FUND $ 407,382 1,3142,578 273,0147 51,1457 155,869 14,650 $ 407,377 1,3142,569 273,0141 51,1457 155, 86 9 14,650 $ 5 9 6 $ 2,234,983 $ 2,234,963 $ 20 $ (2514,1485) $ (2614,929) $ (10,�41414) $ 125,000 $ 173,010 $ 148,010 $ 125,000 $ 173,010 $ 148,010 $ (129,1485) $ (91,919) $ 37,566 2 92 ,183 2 92 ,183 - - -0- 13,996 13,996 -0- 1,1406 1,1406 $ 162,698 215,666 $ 52,968 Variance - Favorable Budget Actual (Unfavorable) $ 1,157,059 $ 1,181,363 $ 214,3014 288,969 301,870 12,901 2014,200 225,790 21,590 13,250 114,198 9148 110,000 127,085 17,085 207,020 119,728 (87,292) $ 1,980,1498 $ 1,970,0314 $ (10,14614) $ 407,382 1,3142,578 273,0147 51,1457 155,869 14,650 $ 407,377 1,3142,569 273,0141 51,1457 155, 86 9 14,650 $ 5 9 6 $ 2,234,983 $ 2,234,963 $ 20 $ (2514,1485) $ (2614,929) $ (10,�41414) $ 125,000 $ 173,010 $ 148,010 $ 125,000 $ 173,010 $ 148,010 $ (129,1485) $ (91,919) $ 37,566 2 92 ,183 2 92 ,183 - - -0- 13,996 13,996 -0- 1,1406 1,1406 $ 162,698 215,666 $ 52,968 CAPITAL PROJECTS FUNDS Variance - Favorable Budget Actual (Unfavorable) 30,000 34,645 4,645 $ 30,000 $ 34,645 $ 4,645 SPECIAL ASSESSMENT FUNDS Variance - Favorable Budget Actual (Unfavorable) $ 178,350 $ 264,628 $ 86,278 $ 178,350 $ 264,628 $ 86,278 $ 63,005 SPECIAL REVENUE FUNDS DEBT SERVICE FUNDS Variance - Variance - Favorable 316,469 29,424 Favorable Budget Actual (Unfavorable) Budget Actual (Unfavorable) $ 957,773 $ 995,826 $ 38,053 $ 72,119 $ 47,279 $ (24,840) 19,737 23,699 3,962 -0- 2,184 2,184 975,847 1,2T1,136 235,289 -0- 2,630 2,630 83,672 78,140 (5,532) - - - - - - 39,500 43,286 3,786 - - - - - - 196,900 136,326 (60,574) _ _ - - - - $ 2,273,429 $ 2,488,413 $ 214,984 $ 72,119 $ 52,093 $ (20,026) CAPITAL PROJECTS FUNDS Variance - Favorable Budget Actual (Unfavorable) 30,000 34,645 4,645 $ 30,000 $ 34,645 $ 4,645 SPECIAL ASSESSMENT FUNDS Variance - Favorable Budget Actual (Unfavorable) $ 178,350 $ 264,628 $ 86,278 $ 178,350 $ 264,628 $ 86,278 $ 63,005 $ 51,565 $ 11,440 345,893 316,469 29,424 3,107,355 1,257,557 1,849,798 - - - - - - - - - - - - 287,020 273,030 13,990 6,826 6,586 240 118,733 99,275 19,458 - - - - - - 321,890 297,717 24,173 794,092 520,649 273,443 99,597 100,252 (655) - - - - 219,433 224,110 (4,677) 65,063 64,562 501 _ _ _ _ _ _ -0- 64,518 (64,518) $ 4,754,934 $ 2,576,463 $ 2,178,471 $ 65,063 $ 64,562 $ 501 $ 321,890 $ 297,717 $ 24,173 $ 287,020 $ 337,548 $ (50,528) $ (2,481,505) $ (88,050) $ 2,393,455 $ 7,056 $ (12,469) $ (19,525) $ (291,890) $ (263,072) $ 28,818 $ (108,670) $ (72,920) $ 35,750 $ -- $ -- $ -- $ -0- $ 24,781 $ 24,781 $ -- $ -- $ -- $ -- $ -- $ -- (938,525) (29,730) 908,795 - - - - - - -0- (24,781) (24,781) -0- (23,897) (23,897) $ _ (938,525) $ (29,730) $ 908,795 $ -0- $ 24,781 $ 24,781 $ -0- $ (24,781) $ (24,781) $ -0- $ (23,897) $ (23,897) $ (3,420,030) $ (117,780) $ 3,302,250 $ 7,056 $ 12,312 $ 5,256 $ (291,890) $ (287,853) $ 4,037 $ (108,670) $ (96,817) $ 11,853 1,132,846 1,132,846 - - - _ _ _ - - 302,443 302,443 - - (447,352) (447,352) - - -0- (8,942) (8,942) - - - - - - -0- (11) (11) - - - - - - -0- 17,239 17,239 - - - - - - -0- (1,406) 1 406) -0- (17,239) (17,239) $ (2,287,184) $ 1.023,363 $ 3,310,547 $ 7,056 $ 12,312 $ 5,256 $ 10,553 $ 13,173 $ 2,620 $ (556,022) $ (561,408) $ 586 -47- CITY OF KALISPELL KALISPELL, MONTANA COMBINED STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN RETAINED EARNINGS/ FUND BALANCES ALL PROPRIETARY FUND TYPES AND SIMILAR TRUST FUNDS Fiscal Year Ended June 30, 1986 PROPRIETARY FIDUCIARY Non -Operating Revenues (Expenses): Miscellaneous FUND TYPES FUND TYPES TOTALS (MEMORANDUM ONLY) $ 81,190 Interest Nonexpendable Year Ended 148,265 Enterprise Trust June 30, 1986 June 30, 1985 Operating Revenues: Total Non -Operating Revenues Charges for Service $ 1,728,141 $ - - $ 1,728,141 $ 1,659,215 Micellaneous Revenues 15,781 - - 15,781 -0- Total Operating Revenues $ 1,7432922 $ -0- $ 1,743,922 $ 1,659,215 Operating Expenses: Operating Transfers In (Out) (157 ,166) - - (157 ,166) Personal Services $ 683,722 $ - - $ 683,722 $ 661,837 Supplies 39,203 - - 39,203 43,699 Purchased Services 281,509 - - 281,509 300,873 Fixed Charges 20,061 - - 20,061 25,250 Depreciation 352,247 - - 352,247 275,441 Inter -Departmental Charges - - - - -0- 159,543 Bad Debt Expense 13,566 - - 13,566 -0- Materials 95,116 - - 95,116 -0- Total Operating Expenses $ 1,485,424 $ -0- $ 1,485,424 $ 1,466,643 Operating Income (Loss) $ 258,498 $ -0- $ 258,498 $ 192,572 Non -Operating Revenues (Expenses): Miscellaneous $ - - $ - - $ -0- $ 81,190 Interest 122,008 - - 122,008 148,265 Debt Service (148,229) - - (148,229) (126,922) Total Non -Operating Revenues (Expenses) $ (26,221) $ -0- $ (26,221) $ 102,533 Income ( Loss) Before Operating Transfers $ 232,277 $ - - $ 232,277 $ 295,105 Operating Transfers In (Out) (157 ,166) - - (157 ,166) -0- Net Income (Loss) $ 75,111 $ -0- $ 75,111 $ 295,105 Add depreciation on fixed assets acquired by grants, entitlements, and shared revenues externally restricted for capital acquisi- tions and construction that reduced contributed capital 212,753 - - 212,753 12,067 Increase (Decrease) in Retained Earnings $ 287,864 $ - - $ 287,864 $ 307072 Retained Earnings/Fund Balances - July 1, 1985 4,324,870 116,994 4,441 ,864 3,968,092 Prior Period Adjustments 146,790 - - 146,790 151,417 Residual Equity Transfers - - - - - - 15,183 Retained Earnings/Fund Balances - June 30, 1986 $ 4,759,524 $ 116,994 $ 4,876,518 $ 4,441,864 See accompanying Notes to Financial Statements, CITY OF KALISPELL KALISPELL MONTANA COMBINED STATEMENT OF CHANGE9-=INANCIAL POSITION ALL PROPRIETARY FUND TYPES AND SIMILAR TRUST FUNDS Fiscal Year Ended June 30, 1986 PROPRIETARY FUND TYPES TOTALS (MEMORANDUM ONLY) Year Ended Enterprise June 30, 1986 June 30, 1985 Sources of Working Capital: Operations: Net Income $ 75,111 $ 75,111 $ 295,105 Add: Items Not Requiring Working Capital: Depreciation 352,247 352,247 275,441 Compensated Absences 906 906 21,991 Working Capital Provided by Operations $ 428,264 $ 428,264 $ 592,537 Other Sources of Working Capital: Contributions 690,176 690,176 605,746 Proceeds from Bonds 1 ,300 ,000 1 ,300 ,000 -0- Net Decrease in Restricted Assets _ _ _0- 151,059 Prior Period Adjustments Affecting Working Capital 32,895 32,895 144,384 Increase in Current Liabilities Payable from Restricted Assets 199,311 199,311 -0- Total Sources of Working Capital $ 2 ,650 ,6146 $ 2 ,650 ,646 $ 1 ,493 ,726 Uses of Working Capital: Contract Payments $ 10,000 $ 10,000 $ 10,000 Fixed Asset Purchases 1,872,942 1,872,942 1 ,311 ,915 Bond Payments 145,000 45,000 60,000 Net Increase in Restricted Assets 568,784 568,784 -0- Prior Period Adjustments Affecting Working Capital 14,034 14,034 21,810 Total Uses of Working Capital $ 2,510,760 $ 2,510,760 $ 1,403 ,725 Net Increase (Decrease) in Working Capital $ 139,886 $ _]33_L8 86 $ 90,001 Elements of Increase (Decrease) in Working Capital: Cash $ 40,762 $ 40,762 $ (60,244) Assessments Receivable 4,719 4,719 (5,835) Accounts Receivable 17,546 17,546 47,674 Due From Other Funds 129,852 129,852 (196,507) Inventory 3,412 3,412 (16 ,011) Warrants Payable (33,812) (33,812) 493,563 Accounts Payable (90,134) (90,134) (146,767) Matured Interest Payable 27,661 27,661 -0- Due To Other Funds 7,810 7,810 23,133 Deposits Payable - - -0- 506. Deferred Revenue 32,070 32,070 (32,070) Interest Payable - - - - (17,441) Net Increase (Decrease) in Working Capital $ 139,886 $ 139,886 $ 90,001 See accompanying Notes to Financial Statements® CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS June 30, 1986 1. Summary of Significant Accounting Policies The following is a summary of the City of Kalispell°s significant accounting policies: a. Reporting Entity The general purpose financial statements include all funds, account groups, boards, commissions, and authorities which meet the criteria embodied in GASB Cod. Sec. 2100, "Defining the Reporting Entity." Such criteria are manifestation of oversight responsibility (financial interdependency, selection of governing authority, designation of management, ability to significantly influence operations, and accountability for fiscal matters), scope of public service (benefit to the City and/or its residents, conducted within the geographic boundaries of the City, and generally available to its citizens), and special financing relationships. b. Fund Accounting The accounts of the City are organized on the basis of funds and account groups, each of which is considered a separate accounting entity. The operations of each fund are accounted for within a separate set of self -balancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures, or expenses, as appropriate. The following types of funds and account groups are maintained by the City. GOVERNMENTAL FUNDS General Fund - Used to account for all financial resources except those required to be accounted for in other funds. Special Revenue Funds - Used to account for the proceeds of special revenue sources (other than special assessments, expendable trusts, or for major capital projects) that are legally restricted to expenditures for specific purposes. Capital Projects Funds - Used to account for financial resources to be used for the acquisition or construction of major capital facilities (other than those financed by proprietary funds, special assessment funds, and trust funds). Debt Service Funds - Used to account for the accumulation of resources for, and the payment of, general long-term debt principal, interest, and related costs. mo CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1986 1. Summary of Significant Accounting Policies - cont. b. Fund Accounting - cont. GOVERNMENTAL FUNDS - cont. Special Assessment Funds - Used to account for financing of public improvements or services deemed to benefit the properties against which special assessments are levied. PROPRIETARY FUNDS Enterprise Funds - Used to account for operations (a) that are financed and operated in a manner similar to private business enterprises - where the intent of the governing body is that costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or (b) where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. FIDUCIARY FUNDS Trust and Agency Funds - Used to account for assets held by the City in a trustee capacity or as an agent for individuals, private organizations, other governments, and/or other funds. These may include (a) expendable trust funds, (b) nonexpendable trust funds, (e) pension trust funds, and (d) agency funds. FIXED ASSETS AND LONG-TERM LIABILITIES General Fixed Assets Account Group - Used to account for the fixed assets of the City which are not accounted for in proprietary funds or in trust funds. General Long -Term Debt Account Group - Used to account for all long-term debt of the City except that accounted for in the proprietary funds, trust funds, and special assessment funds. Wn CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1986 1. Summary of Significant Accounting Policies - cont. e. Basis of Accounting The modified accrual basis of accounting is followed by all funds except the proprietary funds. Under the modified accrual basis of accounting, revenues are recorded when susceptible to accrual, that is, when they become both measurable and available. Available means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. The accrual basis of accounting is utilized by the proprietary funds for recording revenue. The City records real and personal property taxes and assessments levied for the current year as revenue. Taxes and assessments receivable remaining unpaid at year end and not expected to be collected soon enough thereafter to be available to pay obligations of the current year were recorded as deferred revenue, with a corresponding reduction in revenues, as required by generally accepted accounting principles. In addition, prior period delinquent taxes and assessments collected in the current period were recorded as revenue in the current period as required by generally accepted accounting principles. Expenditures other than interest on long-term debt are recorded when the liability is incurred. d. Budgets and Budgetary Accounting An operating budget is adopted each fiscal year for the General Fund, Special Revenue Funds, Debt Service Funds, Capital Projects Funds and Special Assessment Funds, on the modified accrual basis. A non-binding management budget is adopted for the Enterprise Funds. The final budget is legally enacted by the City Council, on the second Monday in August, after holding public hearings as required by State statutes. The operating budgets cannot be increased except by a public emergency which could not have been reasonably foreseen at the time of adoption of the budget. Budget appropriation transfers may be made between the general classifications of salaries and wages, maintenance and operation and capital outlay. MO CITY OF KALISPELL KALISPELL. MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1986 1. Summary of Significant Accounting Policies - cant. d. Budgets and Budgetary Accounting - cont. As of June 30, 1986, the City had overexpended the Comprehensive Insurance Fund budget by $19,781. After June 30, the City adopted an emergency budget to cover the overexpended budget in the Comprehensive Insurance Fund. For reporting purposes, the budget for the Comprehensive Insurance Fund was amended to reflect the approved emergency budget adopted after the fiscal year end. e. Encumbrances All appropriations, except for construction in progress, lapse at the end of the fiscal year. Encumbrances at year end are reflected as reservations of fund balances since they do not constitute expenditures or liabilities. Encumbrances are appropriated for in the subsequent fiscal period. f. Fixed Assets Fixed assets were recorded at historical cost and estimated costs as determined by the City at the inception of the Budgetary, Accounting and Reporting System for Montana Cities and Counties. No work was done to establish the validity of these cost figures. Fixed assets purchased are now recorded as expenditures in the various funds at the time of purchase. Such assets, other than those of the proprietary funds and nonexpendable trust funds, are capitalized at cost in the general fixed assets account group. Gifts or contributions are recorded at fair market value at the time received. No depreciation has been provided on general fixed assets. Depreciation has been provided for the property, plant and equipment of the proprietary funds using the straightline method. Public domain or infrastructure fixed assets are excluded from the general fixed assets account group. Public domain or infrastructure assets include roads, bridges, curbs and gutters, streets and sidewalks, drainage systems, lighting systems, and similar assets that are immovable and of value only to the governmental unit. -53- CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1986 1. Summary of Significant Accounting Policies - cont. g. Taxes and Assessments An allowance for uncollectible accounts was not maintained for real and personal property taxes and special assessments receivable. The direct write-off method is used for these accounts. h. Enterprise Accounts Receivable A reserve for estimated uncollectible accounts receivable is maintained for The Ambulance Fund enterprise only. At June 30, 1986, this reserve was $27,888. i. Inventories Inventories for governmental funds are expensed at the time of purchase. Inventories on hand are not maintained. The enterprise fund inventory was valued at a combination of cost and replacement cost. J. Vacation and Sick Leave Liabilities incurred because of unused vacation and sick leave accumulated by employees which are payable upon termination are included in the financial statements. The liability for unused vacation and sick leave for governmental fund employees is recorded in the general long-term debt account group. Expenditures for these liabilities are recognized when paid. The liability for unused vacation and sick leave for proprietary fund employees is recorded as a long-term liability in the proprietary funds. The expenses were recorded when the liability was incurred as required by generally accepted accounting principles. k. Contributions Enterprise Fund contributions from grants, customers, special improvement districts and other outside sources restricted for capital acquisition or construction are reported as contributed capital. Depreciation on assets acquired from contributions is reflected in the statement of revenue, expenses, and changes in retained earnings. me 1. CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1986 Summary of Significant Accounting Policies - cont. k. Contributions - cont. Current capital contributions which were restricted for capital acquisition or construction were incorrectly reported as non-operating revenues on the Statement of Revenues, Expenses and Changes in Retained Earnings. In addition, beginning and ending contributed capital was incorrectly included in the beginning and ending retained earnings on the Statement of Revenues, Expenses and Changes in Retained Earnings. This has a material effect on the financial statements of the enterprise funds. Enterprise Fund resources received from grants, entitlements, or shared revenues which may be utilized for operations or for either operations or capital acquisition or construction are reported as "non-operating" revenues. 1. 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 the expenditures in the fund that is reimbursed. Advances between funds are accounted for in the appropriate interfund receivable and payable accounts. M. Comparative Data Comparative total data for the prior year have been presented in the accompanying financial statements in order to provide an understanding of changes in the City's financial position and operations. However, comparative (i.e., presentation of prior year totals by fund type) data have not been presented in each of the statements since their inclusion would make the statements unduly complex and difficult to read. W9 CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. 1. Summary of Significant Accounting Policies - cont. n. Total Columns on Combined Statements Total columns on the Combined Statements are captioned Memorandum Only to indicate that they are presented only to facilitate financial analysis. Data in these columns do not present financial position, results of operations, or changes in financial position in conformity with generally accepted accounting principles. Neither is such data comparable to a consolidation. Interfund eliminations have not been made in the aggregation of this data. 2. Property Taxes The City's real estate property tax is levied on the assessed value listed as of January 1 for all real property located in the City. Assessed values are established by the State Department of Revenue based on a market value. A revaluation of all property is required to be completed on a periodic basis. Taxable value is defined by State statute as a fixed percentage of assessed value. The City is permitted by State statutes to levy taxes up to certain fixed limits for various purposes. The taxes levied by the City for the year ended June 30, 1986 were within the legal limits. Taxes are due in two equal installments on November 30 and May 31 of each fiscal year. Current tax collections collected by the County Treasurer for the year ended June 30, 1986 were approximately 89% of the amount levied. The taxable value upon which the tax levies for the fiscal year ended June 30, 1986 was based was $15,760,847. 3. Deficit Fund Balances/Retained Earnings The Special Revenue Airport and Comprehensive Insurance Funds had deficit fund balances at June 30, 1986, of $172,796 and $22,292, respectively. The deficit in the Airport Fund arose in the fiscal year ended June 30, 1985, when certain capital improvements at the airport were made. Proceeds from the sale of land were to fund the improvements, however, the City was not able to sell the land, resulting in the deficit fund balance. The deficit in the Comprehensive Insurance fund was caused when liability insurance premiums were higher than anticipated, resulting in a shortfall in revenue to cover the expenditures. ME CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1986 3. Deficit Fund Balances/Retained Earnings - cont. The def icit in the Airport Fund is expected to be corrected, at least partially, if and when the land is sold. The deficit in the Comprehensive Insurance Fund was considered in setting the property tax levy for the fiscal year ended June 30, 1987. The deficits of the Special Assessment Funds, totaling $561,408, arise because of the application of generally accepted accounting principles to the financial reporting of such funds. Bond proceeds used to finance construction of special assessment projects are not recognized as revenue or an "other financing source" when received, however, construction expenses are incurred and recorded at the beginning of the project. Special assessments are recognized as revenue only when the individual installments are due. The deficits will be reduced and eliminated as deferred special assessment installments are recognized as revenue in future years. 4. Cash in Treasury Cash in Treasury may include cash and cash items; demand, time, savings and fiscal agent deposits; investments in the State Short -Term Investment Pool (S.T.I.P.); direct obligations of the United States Government; and repurchase agreements. Investments are stated at cost. The composition of Cash in Treasury on June 30, 1986, was as follows: Cash on Hand $ 11,787 Petty Cash 500 Cash in Banks: Demand Deposits 403,872 Savings Deposits 178,461 Time Deposits 56,373 Repurchase Agreements 5,602,431 Bonds 12,000 Performance Bonds 7,186 Total $ 6,272,610 CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1986 5. Fixed Assets A summary of changes in general fixed assets follows: Balance July 1, 1985 Land $ 545,324 Buildings 1,840,653 Improvements Other Than Buildings 104,708 Machinery & Equipment 1,644,513 Construction Work Additions Deletions $ 148,789 $ 3,043 571,311 237,071 Balance June 30, 1986 $ 694,113 1,843,696 676,019 1,881,584 In Progress 293,110 293,110 -0- Total $ 4,428,308 $69 0,214 $ 2110 $ 5,095,412 A summary of proprietary fund type property, plant, and equipment at June 30, 1986 follows: Land Buildings Improvements Other Than Buildings Machinery & Equipment Construction Work in Progress Source of Supply Pumping Plant Treatment Plant Transmission and Distribution General Plant Total Less Accumulated Depreciation Net Enterprise $ 228,819 395,209 442,569 1,014,062 624,258 290,573 548,412 7,138,404 3,059,384 335,671 $ 14,077,361 (3,665,857) $ 10,411,504 CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1986 6. Property Leased to Others The City leases certain of its property to others under operating leases expiring in future years. The following is a schedule of material leases and the minimum future rentals on non -cancelable operating leases as of June 30, 1986: Minimum 7. Long -Term Debt a. Bonded Debt The following is a summary Duration Annual 1986 Lessee Leased Property of Lease Rental Kalispell Airport Association Airport 12/31/99 $ 1 Kalispell Golf Association Golf Course 6/30/88 $ 1,500 Lions Club Revenue Visitor Center 3 Yrs. $ -0- Hockaday Art Association Art Center 3 Yrs. $ 1 Chamber of Commerce Depot Building 2001 $ 1 7. Long -Term Debt a. Bonded Debt Issue Interest Term of Date Rate Bond Purpose General Obligation Bonds: Bruckhauser Pool 14/01/85 8.3%-9.25% 15 Yrs. Final The following is a summary of bond transactions of the City for Date Issued 1986 the fiscal year ended June 30, 1986: General Special Special Obligation Revenue Assessment Revenue Totals Bonds Payable at July 1, 1985 $ 550,000 $ 1,325,000 $ 520,250 $ $ 2,395,250 New Bonds Issued: 1986 Sewer Revenue 1,300,000 1,300,000 1985 Sidewalk and Curb 1414,600 1414,600 Urban Renewal Project 2,100,000 2,100,000 Bonds Retired (15,000) (45,000) (61,000) ( -0- ) (121,000) Bonds Payable at June 30, 1986 $ 535,000 $ 2,580,000 $ 503,850 $ 2,100,000 $ 5,718,850 Bonds payable at June 30, 1986 are comprised of the following individual issues: Issue Interest Term of Date Rate Bond Purpose General Obligation Bonds: Bruckhauser Pool 14/01/85 8.3%-9.25% 15 Yrs. Final Outstanding Maturity Bonds June 30, Date Issued 1986 2000 $ 550,000 $ 535,000 Total General Obligation Bonds $ 5501000 $ 535,000 Annual Payment Varies CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1986 7. Long -Term Debt - cont. a. Bonded Debt - cont. Total Revenue Bonds Purpose Special Assessment Bonds (S.I.D.) S.I.D. No. 302 S.I.D. No. 306 S.I.D. No. 307 S.I.D. No. 313 S.I.D. No. 324 S.I.D. No. 326 S.I.D. No. 328 S.I.D. No. 333 S.I.D. No. 334 S.I.D. No. 335 S.I.D. No. 336 1978 Sidewalk and Curb 1979 Sidewalk and Curb 1980 Sidewalk and Curb 1981 Sidewalk and Curb 1982 Sidewalk and Curb 1983 Sidewalk and Curb 1984 Sidewalk and Curb 1985 Sidewalk and Curb Special Light Construction No. 1 Special Light Construction No. 2 $ 218202000 $ 2,580,000 Final Outstanding Final Interest Outstanding Bonds June 30, Issue Interest Term of Maturity Bonds June 30, Annual Date Rate Bond Date Issued 1986 Payment Purpose 1,500 Varies 5.25% 1987 54,000 4,500 Varies Revenue Bonds: 1992 100,000 8,000 Varies 6.75% 1986 90,000 1972 Sewage Plant 1/01/72 5.5% 20 Yrs. 1992 $ 200,000 $ 60,000 $ 10,000 1976 Storm Sewer 7/01/76 6.75% 20 Yrs. 1996 445,000 375,000 Varies 1983 Sewage Plant 9/01/83 10.08% 20 Yrs. 2004 875,000 845,000 15,000 1986 Sewer Lines 6/01/86 7% 20 Yrs. 2006 1,300,000 1,300,000 Varies Total Revenue Bonds Purpose Special Assessment Bonds (S.I.D.) S.I.D. No. 302 S.I.D. No. 306 S.I.D. No. 307 S.I.D. No. 313 S.I.D. No. 324 S.I.D. No. 326 S.I.D. No. 328 S.I.D. No. 333 S.I.D. No. 334 S.I.D. No. 335 S.I.D. No. 336 1978 Sidewalk and Curb 1979 Sidewalk and Curb 1980 Sidewalk and Curb 1981 Sidewalk and Curb 1982 Sidewalk and Curb 1983 Sidewalk and Curb 1984 Sidewalk and Curb 1985 Sidewalk and Curb Special Light Construction No. 1 Special Light Construction No. 2 $ 218202000 $ 2,580,000 Total Special Assessment Bonds (S.I.D.) ME $ 1,037,350 $ 503,850 Final Outstanding Interest Maturity Bonds June 30, Annual Rate Date Issued 1986 Payment 6.7% 1988 $ 50,000 $ 5,000 Varies 5.7% 1987 13,500 1,500 Varies 5.25% 1987 54,000 4,500 Varies 7% 1992 100,000 8,000 Varies 6.75% 1986 90,000 10,000 Varies 7.75% 1988 75,000 5,000 Varies 8.7% 1999 300,000 204,000 Varies 15% 1992 65,000 54,500 Varies 14.5% 1992 14,000 11,000 Varies 12% 1992 15,000 9,000 Varies 12% 1994 4,500 4,500 Varies 5% 11,250 2,250 Varies 7% 22,000 8,000 Varies 7% 4,500 3,500 Varies 9.5% 18,000 114,000 Varies 12% 1,000 1,000 Varies 10% 6,500 6,500 Varies 12% 145,000 32,000 Varies 10% 44,600 44,600 Varies 12% 75,000 54,000 Varies 12% 28,500 21,000 Varies Total Special Assessment Bonds (S.I.D.) ME $ 1,037,350 $ 503,850 CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. 7. Long -Term Debt - cont. a. Bonded Debt - cont. Tax Increment Urban Renewal Bonds In December, 1985, the City issued $2,100,000 in Tax Increment Urban Renewal Bonds pursuant to Title 7, Chapter 15, Parts 42 and 43, MCA, and pursuant to the Bond Resolution adopted by the Kalispell City Council. These Series 1985 Bonds are considered to be special obligations of the City payable solely from tax increment generated by the area. The City has irrevocably pledged and appropriated the tax increment to the payment of the Series 1985 Bonds which have a first lien on all tax increment revenue generated by the area. The Series 1985 Bonds do not constitute a general obligation of the City or pledge the ad valorem taxing power of the City. Therefore, the long-term liability created by the issuance of the bonds is a fund specific liability and is reported as a liability in the Special Revenue Fund. Final Outstanding Annual Issue Interest Term of Maturity Bonds. June 30, Serial Date Rate Bond Date Issued 1986 Payment Purpose Urban Renewal Bonds Tax Increment 12/85 6.25%-9.5% 16 Yrs. 7/01/2002 $ 2,100,000 $ 2,100,000 Total Urban Renewal Bonds $ 2,100,000 $ 2,100,000 Revenue Bond Disclosure The revenue bond ordinances require certain disclosures regarding the Sewer Fund in each year's audited financial statements. For the year ended June 30, 1986, the following are the required disclosures which are not contained elsewhere in the audited financial statements. (a) Number of premises connected to the system at the end of the fiscal year - 14223. (b) Amount of cash on hand in each account of the sewer system at the end of the fiscal year. Sewer Operating $ 229,7514 Maintenance and Operation 143,885 Sewer Capital Improvement 273,120 Sewer Revenue Reserve 173,19�4 Operating Reserve 35,000 Construction Fund 1,011,7148 Replacement and Depreciation 914,267 Sewer Revenue Bond Account 159,443 $ 2,020,411 -61- Varies CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1986 7. Long -Term Debt - cont. a. Bonded Debt - cont. Revenue Bond Disclosure - cont. (c) Operating reserve to be accumulated and maintained in an amount equal to the average one month operating expense. 1984-85 fiscal year operating expense $418,722 ; 12 $34,893• (d) Noncompliance by the City with the provisions of the revenue bond ordinance. (1) Audited financial statements were not supplied to the original purchasers of the 1976 revenue bonds and to the bank designated as agent for payment of principal and interest on those bonds within 120 days after the close of the fiscal year as required by the revenue bond ordinance. (2) Sewerage department books were not audited annually within 120 days after the close of each fiscal year by an independent public accountant or by the Department of Commerce as prescribed by the 1983 and 1986 revenue bond ordinance. (3) As of November, 1986, the City has no general liability insurance. However for the period under audit, the City did have ample liability coverage. All revenue bond ordinances require the City to carry insurance against liability of the City and its employees for damage to persons and property resulting from the operation of the system. b. Contracted Debt Origination Due Principal Outstanding Date Term Date Amount 7/1/85 Purpose Special Revenue Fund Montana Aeronautics Division - Airport 10/01/79 Enterprise Fund Montana State Highway Department 8/31/82 Dougherty Dowkins 4/18/86 10 Yrs. 6/30/89 $ 6,914 $ 2,802 Retired Outstanding During Year 6/30/86 $ 691 $ 2,111 8 Yrs. 8/31/89 $ 80,000 50,000 $ 10,000 $ 40,000 3 Yrs. 4/15/89 $ 209,651 -0- 10,340 129,311 $ 50,000 $ 20,340 $ 239,311 -62- CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1986 7. Long -Term Debt - cont. b. Contracted Debt - cont. Enterprise Fund $ 52,807 General Long -Term Debt Account Group 282,026 d. Origination Due Principal Outstanding Retired Outstanding Date Term Date Amount 7/1/85 During Year 6/30/86 Purpose standing, except compensated absences payable, General Long -Term Debt Account Group 1986, including Purchase of are as follows: Land 4/24/80 10 Yrs. 7/01/90 $ 145,000 $ 85,724 $ 14,084 $ 71,640 Purchase of June 30, 1986 Land 5/01/80 10 Yrs. 7/01/90 $ 130,000 76,862 12,740 64,122 Total General Long -Term Debt Account Group $ 162,586 $ 26,824 $ 135,762 Total Assessment $ 215,388 $ 47,855 $ 3111_184 June 30 c. Compensated Absences Payable Bonds Bonds Debt Bonds Compensated absences payable, which represent vacation and sick $ 68,242 $ 279,057 leave earned by employees which is payable upon termination, were $ 128,625 $ 97,585 $ as follows: 1988 66,393 280,290 Enterprise Fund $ 52,807 General Long -Term Debt Account Group 282,026 d. Requirements to Amortize Debt The annual requirements to amortize all long-term debt out- standing, except compensated absences payable, as of June 30, 1986, including interest payments of $5,129,454, are as follows: Annual Requirements to Amortize Long -Term Debt June 30, 1986 General Special Urban Year Ending Obligation Revenue Assessment Contracted Renewal June 30 Bonds Bonds Bonds Debt Bonds Totals 1987 $ 68,242 $ 279,057 $ 172,707 $ 128,625 $ 97,585 $ 746,216 1988 66,393 280,290 83,927 128,591 242,795 801,996 1989 69,543 276,775 73,251 115,404 243,726 778,699 1990 67,230 280,140 56,938 48,698 248,814 701,820 1991 69,917 273,070 54,086 247,995 645,068 1992-1996 341,577 1,410,406 256,403 1,252,425 3,260,811 1997-2001 285,321 1,178,515 46,409 1,758,452 3,268,697 2002-2006 1,022,181 1,022,181 Total $ 968,223 $ 5,000,434 $ 743,721 $ 421,318 $ 4,091,792 $ 11,225,488 M CITY OF KALISPELL KALISPELL. MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1986 7. Long -Term Debt - cant. d. Requirements to Amortize Debt - cont. $12,312 is available in the Debt Service Funds to service the general obligation bonds. 8. Retirement Plans The City participates in the following Retirement Plans: Public Employees' Retirement System All full-time employees except police and firemen are covered by the Montana Public Employees' Retirement System. This plan is administered by the State of Montana. All eligible employees contribute 6% of their salary to the plan, while the City contributes 6.417% of the employees' salaries to the plan. The City's contribution to this plan for the year ended June 30, 1986, was $93,879. The unfunded past service costs and the actuarially computed value of vested benefits are determined periodically for the statewide plan and can be obtained from the Public Employees' Retirement Division. Municipal Police Officers' Retirement System The police are covered under the Municipal Police Officers' Retirement System. The plan is a defined contribution/defined benefit plan. State law requires the contributions to be made and the benefits to be paid. The contributions of each policeman's salary are as follows: 6% from each member, or 7 1/2% if first employed after June 30, 1979, 15.06% from the City and 13.02% from the State (from moneys received for insuance premium taxes). The City's contribution for the fiscal year ended June 30, 1986, was $62,205. The Public Employees' Retirement Division of the Montana Department of Administration is charged by Section 19-9-503, MCA, to determine the excess and unfunded liability of each city which participates in the Municipal Police Officers' Retirement System. The unfunded liability for the City of Kalispell may be obtained from PERD. The City is to make arrangements with the State to amortize this liability over a period of not more than 40 years. No amounts have been recorded in the accompanying financial statements for this liability. Vested benefits in the plan were not available. M- CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1986 8. Retirement Plans - cont. Firefighters' Unified Retirement System The firefighters are covered under the Firefighters' Unified Retirement System. The plan is a defined contribution/defined benefit plan. State law requires the contributions to be made and the benefits to be paid. Each member contributes 6% of his salary to the plan. The City's contribution to the plan was equal to 13.02% of the employees' salaries. The State al so contributes, out of moneys received for insurance premium taxes, an amount equal to 22.98% of the firefighters salaries. The City's contribution to the plan for the fiscal year ended June 30, 1986, was $56,331. The unfunded past service costs and the actuarially computed value of vested benefits are determined periodically for the plan and can be obtained from the Public Employees' Retirement Division. 9. Amounts Due To and From Other Funds/ Governments Amounts due to and from other funds and governments consist of the following: Due From General Fund - $ 513 is due from the Enterprise Fund (Ambulance Fund) Special Revenue Fund - $ 67,834 is due from the Special Assessment Fund Special Light No. 1 - $ 612 S.I.D. No. 316 Fund - 1,678 S.I.D. No. 321 Fund - 1,965 S.I.D. No. 324 Fund - 431 S.I.D. No. 328 Fund - 12,945 S.I.D. No. 333 Fund - 14,030 S.I.D. No. 337 Fund - 4,809 S.I.D. No. 338 Fund - 115 Sidewalk and Curb 1976 Fund - 2,192 Sidewalk and Curb 1977 Fund - 7,588 Sidewalk and Curb 1985 Fund - 6,348 Sidewalk and Curb 1986 Fund - 15,121 Total $ 6�84 Enterprise Fund (Sewer E.P.A. Construction Grant Fund) - $145,947 is due from the Environmental Protection Agency. CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1986 9. Amounts Due To and From Other Funds/ Governments - cont. Due To Special Assessment Fund - $ 67,834 is due to the Special Revenue Fund (S.I.D. Revolving Fund) Enterprise Fund - $ 513 is due to the General Fund Amounts Due to S.I.D. Revolving Amounts due to the S.I.D. Revolving Fund from Special Assessment Funds which appear to be questionable as to repayment include the following amounts. Due From: S.I.D. No. 321 $ 1,965 Due From: S.I.D. No. 337 1,991 Due From: S.I.D. No. 338 115 Due From: Sidewalk and Curb 1976 1,410 Due From: Sidewalk and Curb 1977 6,789 Total $ 12,270 10. Restricted Cash/Investments The following Restricted Cash/ Investments were held by the City Treasurer as of June 30, 1986: Description Amount Special Revenue Funds: Community Development - Rehabilitation $ 304,810 Tax Increment - Sinking and Interest 123,046 Total Special Revenue $ 427,856 Enterprise Funds: Water - Replacement and Depreciation $ 105,810 Sewer - Replacement and Depreciation 94,267 Sewer - Reserve for Operations 35,000 Sewer - Construction 1,011,748 Sewer - Sinking and Interest 159,444 Sewer - Contingency 173,194 Sewer - Storm and Special Maintenance 317,005 Total Enterprise $ 1,896,468 Trust and Agency Fund: Performance Bond - Bonds Held $ 7,186 Total Restricted Cash/Investments $ 2,3319510 mm CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1986 11. Fund Equity Reserves of the City at June 30, 1986 consisted of: Special Revenue Funds: Tax Increment - Reserved for Sinking and Interest Enterprise Funds: Suer - Reserved for Operations Reserved for Capital Improvement Reserved for Replacement and Depreciation Reserved for Contingency Reserved for Revenue Bond Reserved for Plant Improvement Water - Reserved for Replacement and Depreciation Total Enterprise Funds $ 123,046 $ 35,000 1,308,209 94,267 173,194 159,444 195,509 105,810 $ 2 ,071 ,433 12. Changes in Contributed Capital A schedule of changes in contributed capital is presented below: Contributed Capital - July 1, 1985 Add: Capital Grants Deduct: Depreciation on assets acquired via capital grants Prior Period Adjustment Water Sewer Total $ 262,305 $ 4,909,926 $ 5,172,231 196,917 493,259 690,176 9,532 203,220 212,752 229,855 229,855 Contributed Capital - June 30, 1986 $ 449,690 $ x,970,110 $ 5, 19,800 13. Prior Period Adjustments During the current fiscal year, adjustments relating to prior years' transactions were made to the fund balance and retained earnings accounts. The following is a schedule of these adjustments: Fund General Special Revenue: Airport Parking Retirement Revenue Sharing Total Special Revenue Capital Projects: Bruckhauser Pool Amount Reason for Adjustment $ 13,996 To correct recording of prior year's revenue $ (8,744) To correct recording of prior year's expenditure 30 Refund of prior year's expenditure (239) To record expenditure from prior years 11 Prior year expenditure posted to wrong fund Prior •- • - posted to wrong fund me Total Enterprise $ 146 ,M0 14. Residual Equity Transfers Residual equity transfers consist of the following: Balance in closed Fire and Street Capital Project Fund Transferred to General Fund $ 1 ,406 Balance in closed Special Assessment Funds transferred to Special Revenue Revolving Fund. S.I.D. No. 8608 $ 3,522 S.I.D. No. 8609 1,138 S.I.D. No. 8615 12,801 S.I.D. No. 8622 222 ) Total $ L_2U 15. 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, 1986 was as follows: Operating Revenues $ Depreciation, Depletion and Amortization Expense $ Operating Income or (Loss) $ Operating Grants, Entitle- ments and Shared Revenues $ Operating Transfers In $ Out $ Tax Revenues $ Net Income or Loss $ CITY OF KALISPELL KALISPELL, 0 TANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1986 Water 13. Prior Period Adjustments - cont. Fund Amount Reason for Adjustment Enterprise: Fund Water $ 200 Reimbursement of prior year expenditure of 625 To correct prior year's interest accrual It (16,739) To correct recording of fixed assets Sewer 113 To correct recording of fixed assets It 9,318 To close deferred revenue accounts " (85 ,299) To remove fixed assets recorded in error " 229,854 To correct depreciation closed to contributed $ 7,994 capital in prior years Garbage 22,752 To close deferred revenue accounts Ambulance (14,034) To record prior year's bad debt expense Total Enterprise $ 146 ,M0 14. Residual Equity Transfers Residual equity transfers consist of the following: Balance in closed Fire and Street Capital Project Fund Transferred to General Fund $ 1 ,406 Balance in closed Special Assessment Funds transferred to Special Revenue Revolving Fund. S.I.D. No. 8608 $ 3,522 S.I.D. No. 8609 1,138 S.I.D. No. 8615 12,801 S.I.D. No. 8622 222 ) Total $ L_2U 15. 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, 1986 was as follows: Operating Revenues $ Depreciation, Depletion and Amortization Expense $ Operating Income or (Loss) $ Operating Grants, Entitle- ments and Shared Revenues $ Operating Transfers In $ Out $ Tax Revenues $ Net Income or Loss $ Total Water Sewer Garbage Ambulance Enterprise Fund Fund Fund Fund Funds 627,985 $ 756,896 $ 218,574 $ 140,467 $ 1,743,922 87,420 $ 224,997 $ 31,836 $ 7,994 $ 352,247 125,280 $ 112,000 $ (1,270) $ 22,488 $ 258,1498 $ $ $ $ $ $ $ $ (61,423) $ (56,384) $ (31,4149) (7,910) $ (157,166) $ $ $ $ 101,4145 $ (2,750) $ (38,653) $ 15,069 $ 75,111 CITY OF KALISPELL KALISPELL, MONTANA NOTES TO FINANCIAL STATEMENTS - cont. June 30, 1986 15. _Segment Information For Enterprise Funds - cont. Total Water Sewer Garbage Ambulance Enterprise Fund Fund Fund Fund Funds Current Capital: Contributions $ 196,917 $ 493,259 $ $ $ 690,176 Transfers $ $ $ $ $ Plant, Property and Equipment: Additions $ 411,783 $ 1 ,231 ,042 $ 214,620 $ 15,497 $ 1,872,942 Deletions $ $ $ $ $ Net Working Capital $ 447,311 $ 158,820 $ 60,950 $ 76:389 $ 743,470 Total Assets $ 3,092,937 $ 9,915,829 $ 321,158 $ 101,962 $ 13,431,886 Bonds and Other Long -Term Liabilities: Payable from Operating Revenues $ 14,000 $ 2,645,690 $ 211,996 $ 432 $ 2,872,118 Payable from Other Sources $ $ $ $ $ Total Equity $ 3,017,101 $ 6,955,830 $ 107,638 $ 98,755 $ 10,179,324 16. Pending Litigation The following is a list of litigation pending against the City of Kalispell and the amount of damages claimed by the Plaintiff. The City Attorney has made no evaluation as to the outcome of each case. Damages Case Requested Arnold Gilmore vs. City of Kalispell $ 1,000,000 Claude and Debbie Brown vs. City of Kalispell $ 3,500 R. James Webster vs. City of Kalispell $ 15,000 17. Subsequent Events As of November 20, 1986, the City had not obtained general liability insurance coverage. This creates a substantial potential liability for the City. in CITY OF KALISPELL KALISPELL. MONTANA AUDITOR'S REPORT ON SUPPLEMENTAL INFORMATION SUPPLEMENTAL SCHEDULES Fiscal Year Ended June 30, 1986 -70- LOCAL GOVERNMENT ASSISTANCE DIVISION LOCAL GOVERNMENT SERVICES BUREAU TED SCHWINDEN, GOVERNOR CAPITOL STATION STATE OF MONT1rZ-\NA URNMEMMMMONN (406) 444-3010 HELENA, MONTANA 59620 REPORT ON SUPPLEMENTAL INFORMATION SCHEDULES To the Honorable City Council Flathead County Kalispell, MT 59901 We have examined the general purpose financial statements of the City of Kalispell, Montana, for the year ended June 30, 1986, and have issued our report thereon dated November 20, 1986. Our examination of such general purpose financial statements was made in accordance with generally accepted auditing standards and the standards for financial and compliance audits contained in the Standards for Audit of Governmental Organizations, Programs, Activities, and Functions, issued by the U.S. General Accounting Office, and accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. Our examination was made for the purpose of forming an opinion on the general purpose financial statements taken as a whole. The accompanying Schedule of Federal Financial Assistance is presented for purposes of additional analysis and is not a required part of the general purpose financial statements. The information in that schedule has been subjected to the auditing procedures applied in the examination of the general purpose financial statements and, in our opinion, except for the effects of not reflecting Community Development Block Grant Funds on deposit in an outside bank account as explained in paragraph five of our Auditor's Report on pages 39 and 40, such information is fairly stated in all material respects in relation to the general purpose financial statements taken as a whole. November 20, 1986 DONALD L. DOOLEY Bureau Chief by: R. MICHAEL DUNCAN Audit Section Supervisor 5M "AN EQUAL OPPOQTU.NfTY EMPLOYER" CITY OF KALISPELL KALISPELL, MONTANA SUPPLEMENTAL SCHEDULES Fiscal Year Ended June 30, 1986 -72- CITY OF KALISPELL KALISPELL, MONTANA SCHEDULE OF FEDERAL FINANCIAL ASSISTANCE For the Fiscal Year Ended June 30, 1986 Federal CFDA Number Federal Grantor/Pass-Through Grantor/Program Title U.S. Department of the Treasury Direct Programs: State and Local Government Fiscal Assistance -Revenue Sharing 21.300 U.S. Department of the Interior Passed Through State Department of Fish, Wildlife and Parks: Land and Water Conservation Fund Grant 15.916 U.S. Department of Housing and Urban Development Direct Programs: Urban Development Action Grant 14.221 Passed Through State Department of Commerce: Community Development Block Grant - States Program 14.228 Total U.S. Department of Housing and Urban Development U.S. Environmental Protection Aaene Direct Programs: Construction Grants for Wastewater Treatment Works Evergreen Sewer Study Project Kalispell Sewer Study Project Total U.S. Environmental Protection Agency Total Federal Assistance -73- 66.418 66.015 66.015 Pass -Through Grantor's Number MT-CDBG-C83-017 MT-CDBG-C84-06 MT-CDBG-C85-10 Program or Beginning Cash Receipts Ending Award Balance Federal Matching/ Cash Balance Amount July 1, 1985 Funds Income/Other Disbursements June 30,_.1986 $ 236,854 $ 79,976 $ 236,854 $ 9,392 $ 194,475 $ 131,747 $ 110,000 $ (2,150) $ 2,150 $ $ -0- $ -0- $ 3,175,000 $ -0- $ 2,344,700 $ $ 2,343,464 $ 1,236 $ 1,500,000 21,654 7902727 6,781 511,854 307,308 $ 21,654 $ 3,135,427 $ 6,781 $ 2,855,318 $308,544 $ 1,640,611 $ 182,334 $ 116,762 $ 8,264 $ 254,974 $ 52,386 $ 67,140 736 7,772 10,084 18,177 415 $ 10,200 -0- 4,948 10,028 (5 1080) $ 183,070 $ 129,482 $ 18,348 $ 283,179 $ 47,721 $ 282,550 $ 1,503,913 $ 34.521 $ 3,332,972 $ 488,012 -74- 163=2#312"Wej LOCAL GOVERNMENT ASSISTANCE DIVISION LOCAL GOVERNMENT SERVICES BUREAU TED SCHWINDEN, GOVERNOR STATE OF MON (406)444-3010 REPORT ON COMPLIANCE BASED ON AN EXAMINATION OF GENERAL PURPOSE FINANCIAL STATEMENTS To the Honorable City Council City of Kalispell Kalispell, MT 59901 CAPITOL STATION HELENA, MONTANA 59620 We have examined the general purpose financial statements of the City of Kalispell, Montana, for the years ended June 30, 1985 and 1986, and have issued our reports thereon dated November 20, 1986. Our examination was made in accordance with generally accepted auditing standards and the standards for financial and compliance audits contained in the Standards for _Audit of Governmental Organizations, Programs, Activities, and Functions, issued by the U.S. General Accounting Office, and accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. The management of the City of Kalispell, Montana, is responsible for the City's compliance with laws and regulations. In connection with our examination referred to above, we selected and tested transactions and records to determine the City's compliance with laws and regulations noncompliance with which could have a material effect on the general purpose financial statements of the City. The results of our tests indicate that for the items tested, the City of Kalispell, Montana, complied with those provisions of laws and regulations, noncompliance with which could have a material effect on the general purpose financial statements. Nothing came to our attention that caused us to believe that for the items not tested the City of Kalispell, Montana, was not in compliance with laws and regulations noncompliance with which could have a material effect on the City's general purpose financial statements. In connection with our examination referred to above, we also performed tests of compliance with laws and regulations noncompliance with which would not have a material effect on the general purpose financial statements of the City. Areas of noncompliance which would not have a material effect on the general purpose financial statements are described in the attached schedule under a separate heading. November 20, 1986 DONALD L. DOOLEY Bureau Chief by: R. MICHAEL DUNCAN Audit Section Supervisor -75- "AN EOUAL OPPORTUNITY EMPLOYEP- W-F7� CITY OF KALISPELL KALISPELL, MONTANA SCHEDULE OF COMPLIANCE FINDINGS NONCOMPLIANCE AREAS WHICH COULD HAVE A MATERIAL EFFECT ON THE GENERAL PURPOSE FINANCIAL STATEMENTS Budget Transfers Budget transfers were made during the 1985-86 fiscal year within the Airport Fund and the Employee Retirement Fund. The transfers were made from public works and public safety categories, respectively, to the debt service category in order to increase the debt service budget authority to cover interest on registered warrants. Section 7-6-4236, MCA, provides that upon a resolution adopted by the Council at a regular or special meeting and entered in the minutes, transfers or revisions within or among the general class or classes of salaries and wages, maintenance and support, and capital outlay may be made. There is no provision for budget transfers to be made to the debt service category, nor was there any evidence that revisions or transfers were approved by the City Council. Furthermore, the Tax Increment Fund budget was increased by $170,084.00 for bond processing costs and interest expense. Recommendation All budget revisions or transfers should be made only within or among the general class or classes of salaries and wages, maintenance and support, and capital outlay, as provided for by Section 7-6-4236, MCA. If a fund's total budget is insufficient, the emergency budget procedures in Title 7, Chapter 6, Part 142, MCA, should be followed to increase the budget. Budget Overdrafts Debt service expenditure line -items within the Special Assessment Fund were overexpended by $147,523.00 and $614,518.00 during the 19814-85 and 1985-86 fiscal years, respectively. The budget overdrafts occurred because bond interest payments were not budgeted for. Line -item budget overdrafts also occurred in the General Fund and various Capital Projects and Special Revenue Funds in the 19814-85 fiscal year, and again in various Special Revenue Funds in the 1985-86 fiscal year. Line -item budget overdrafts are contrary to the provisions of Section 7-6-142314 and 7-6-4235, MCA. Recommendation The City's budget should include payments for interest for each bond issue or for each item affecting debt service expenditures. Furthermore, the City should make timely budget transfers as allowed by Section 7-6-4236, MCA, so as to avoid budget overdrafts in expenditure line -items. CITY OF KALISPELL KALISPELL, MONTANA SCHEDULE OF COMPLIANCE FINDINGS - cont. NONCOMPLIANCE AREAS WHICH WOULD NOT HAVE A MATERIAL EFFECT ON THE GENERAL PURPOSE FINANCIAL STATEMENTS Vacation and Sick Leave Accrual In certain pay periods, some employees were credited with vacation and sick leave at rates in excess of those established by Sections 2-18-612 and 2-18-618, MCA. The error was caused when employees were on call or on overtime, and the additional time was entered separately into the computer system. The computer system would accrue additional leave time on the overtime and on call time. Recommendation Procedures should be developed with the help of the computer software vendor to ensure that vacation and sick leave is accrued at proper rates established by Sections 2-18-612 and 2-18-618, MCA. Vacation Pay Upon Termination A City employee was terminated during the 1984-85 fiscal year for reasons that would appear to have reflected discredit on herself, that of embezzling City funds. However, this employee received pay for 118.99 hours of unused vacation leave in the amount of $702.04 upon termination. That may be in violation of Section 2-18-617 (2), MCA. This section states "An employee who terminates his employment for reason not reflecting discredit on himself shall be entitled upon the date of such termination to cash compensation for unused vacation leave, assuming that the employee has worked the qualifying period set forth in 2-18-611." Recommendation In the future, if any employee terminates for a reason which appears to reflect discredit on himself, the situation should be discussed with the City Attorney and a decision made as to whether or not the employee should be paid for unused vacation leave. 5= CITY OF KALISPELL KALISPELL, MONTANA REPORT ON COMPLIANCE MATTERS NONCOMPLIANCE AREAS WHICH WOULD NOT HAVE A MATERIAL EFFECT ON THE GENERAL PURPOSE FINANCIAL STATEMENTS Minutes of City Council Meetings The minutes of the Council's meetings did not mention pledged securities being approved or budget transfers made during the 1985-86 fiscal year. Section 7-6-207 (2), MCA, states, "It is the duty of the appropriate governing body, upon the acceptance and approval of any of the above-mentioned bonds or securities, to make a complete minute entry of the acceptance and approval upon the record of their proceedings, and the bonds and securities shall be reapproved at least quarter -annually thereafter." In addition, Section 7-6-4236, MCA, requires budget transfers to be approved by resolution of the City Council. Further, when meetings were closed to the public, the minutes were not specific as to why the meeting was closed. Section 2-3-203(2), MCA, provides that "the presiding officer of any meeting may close the meeting during the time the discussion relates to a matter of individual privacy and then if and only if the presiding officer determines that the demands of individual privacy clearly exceed the merits of public disclosure. The right of individual privacy may be waived by the individual about whom the discussion pertains and, in that event, the meeting will be open." In addition, Section 2-3-203(3), MCA, allows a meeting to be closed to discuss a strategy to be followed with respect to collective bargaining or litigation when an open meeting would have a detrimental effect on the bargaining or litigating position of the public agency. Recommendation The Mayor, Council, and Clerk should ensure that the minutes as approved contain the substance of all matters proposed, discussed or decided. All new pledged securities should be accepted and approved in the minutes, and all pledged securities should be reapproved on a quarterly basis. Approved budget transfers should be listed in the minutes. The presiding officer of any meeting should ensure that the meeting is closed only for those reasons allowed by statute, and the minutes should disclose that fact. SReeial Improvement District (S.I.D.) Revolving Fund Loans - Rate of Interest Loans made from the S.I.D. Revolving Fund to various Special Improvement District funds carried only a 6% interest rate. However, the bonds and warrants payable from those funds bore interest at rates ranging from 6.75% to 15%. Section 7-12-422$, MCA, states in part that interest be charged on those loans "at the rate or percentage borne by the bond or warrant for payment of which, or of interest thereon, such loan was made. 50 CITY OF KALISPELL KALISPELL, MONTANA REPORT ON COMPLIANCE MATTERS - cont. NONCOMPLIANCE AREAS WHICH WOULD NOT HAVE A MATERIAL EFFECT ON THE GENERAL PURPOSE FINANCIAL STATEMENTS Special Improvement District (S.I.D.) Revolving Fund Loans - Rate of Interest - cont. Recommendation Interest on loans made from the S.I.D. Revolving fund should be assessed at the rate of interest borne by the bond for payment of which the loan was made. Pledged Securities A review of the pledged securities as of June 30, 1986, indicated that required securities were not pledged on deposits not guaranteed or insured according to law on the checking accounts at the Valley and Norwest Banks or the savings accounts held at First Federal Savings and Loan. However, the City required 100% of the investments in repurchase agreements to be backed by pledged securities. The amount of the demand deposits not guaranteed or insured according to law as of June 30, 1986, was $173,154.45 at Valley Bank and $88,489.74 at Norwest Bank. The amount of time deposits not guaranteed or insured according to law as of June 30, 1986 were $133,345.55 in savings and certificates of deposit at First Federal Bank Savings and Loan. Under Section 7-6-207, MCA, the local governing body may require security only for that portion of the deposits which is not guaranteed or insured according to law and, as to such unguaranteed or uninsured portion, to the extent of: (a) 50% of such deposits if the institution in which the deposit is made has a net worth to total assets ratio of 6% or more; or (b) 100% of such deposits if the institution in which the deposit is made has a net worth to total assets ratio of less than 6%. The securities should consist of those enumerated in Section 17-6-103, MCA or cashier's checks issued to the depository institution by any federal reserve bank. Recommendation The City should review their pledged securities and ensure that deposits not guaranteed or insured according to law are adequately covered in accordance with the provisions of Section 7-6-207, MCA. LOCAL GOVERNMENT ASSISTANCE DIVISION LOCAL GOVERNMENT SERVICES BUREAU TED SCHWINDEN, GOVERNOR -STATE OF \ \ (406)444-3010 CAPITOL STATION HELENA MONTANA 59620 REPORT ON COMPLIANCE WITH LAWS AND REGULATIONS RELATED TO MAJOR AND NONMAJOR FEDERAL FINANCIAL ASSISTANCE PROGRAMS To the Honorable City Council City of Kalispell Kalispell, MT 59901 We have examined the general purpose financial statements of the City of Kalispell, Montana, for the years ended June 30, 1985 and 1986, and have issued our reports thereon dated November 20, 1986. Our examination was made in accordance with generally accepted auditing standards; the standards for financial and compliance audits contained in the Standards for Audit of Governmental Organizations, Programs, Activities, and Functions, issued by the U.S. General Accounting Office; the Single Audit Act of 1984; and the provisions of OMB Circular A-128, Audits of State and Local Governments; and accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. The management of the City of Kalispell, Montana, is responsible for the City's compliance with laws and regulations. In connection with the examination referred to above, we selected and tested transactions and records from each major federal financial assistance program and certain nonmajor federal financial assistance programs. The purpose of our testing of transactions and records from those federal financial assistance programs was to obtain reasonable assurance that the City of Kalispell, had, in all material respects, administered major programs, and executed the tested nonmajor program transactions, in compliance with laws and regulations, including those pertaining to financial reports and claims for advances and reimbursements, noncompliance with which we believe could have a material effect on the allowability of program expenditures. Our testing of transactions and records selected from major federal financial assistance programs disclosed instances of noncompliance with those laws and regulations. All instances of noncompliance that we found and the programs to which they relate are identified in the accompanying schedule of findings and questioned costs. _80_ "AN EOUAL OPPORTUNITY EAFPLOYER REPORT ON COMPLIANCE - cont. In our opinion, subject to the effect of the ultimate resolution of those instances of noncompliance referred to in the preceding paragraph, for the years ended June 30, 1985 and 1986, the City of Kalispell, Montana, administered each of its major federal financial assistance programs in compliance, in all material respects, with laws and regulations, including those pertaining to financial reports and claims for advances and reimbursements, noncompliance with which we believe could have a material effect on the allowability of program expenditures. The results of our testing of transactions and records selected from nonmajor federal financial assistance programs indicate that for the transactions and records tested the City of Kalispell, Montana, complied with the laws and regulations referred to in the second paragraph of our report, except as noted in the accompanying schedule of findings and questioned costs. Our testing was more limited that would be necessary to express an opinion on whether the City of Kalispell, Montana, administered those programs in compliance in all material respects with those laws and regulations noncompliance with which we believe could have a material effect on the allowability of program expenditures; however, with respect to the transactions and records that were not tested by us, nothing came to our attention to indicate that the City of Kalispell, Montana, had not complied with laws and regulations other than those laws and regulations for which we noted violations in our testing referred to above. November 20, 1986 DONALD L. DOOLEY Bureau Chief by: / R. MICHAEL DUNCAN Audit Section Supervisor 5 -ate CITY OF KALISPELL KALISPELL, MONTANA SCHEDULE OF FINDINGS AND QUESTIONED COSTS Programs Findings/Noncompliance All Civil Rights The City's policy of nondiscrimination had not been updated to include the necessary references of handicapped individuals. In addition, no individual had been appointed civil rights compliance officer. Federal laws and regulations require that the City adopt a policy of nondiscrimination on the basis of handicap, and that it appoint an individual to oversee civil rights compliance All Civil Rights Complaint One case, based on sex/government services, has been filed against the City of Kalispell, Montana, by the State Human Rights Commission. The Commission's decision is on appeal, and a settlement is pending. F. Questioned Costs $ -0- DEPARTMENT OF COMMERCE LOCAL GOVERNMENT ASSISTANCE DIVISION LOCAL GOVERNMENT SERVICES BUREAU TED SCHWINDEN, GOVERNOR STATE OF MONTI/\NA (406) 444-3010 REPORT ON INTERNAL ACCOUNTING CONTROL To the Honorable City Council City of Kalispell Kalispell, MT 59901 CAPITOL STATION HELENA, MONTANA 59620 We have examined the general purpose financial statements of the City of Kalispell, Montana, for the years ended June 30, 1985 and 1986, and have issued our reports thereon dated November 20, 1986. As part of our examination, we made a study and evaluation of the system of internal accounting control of the City of Kalispell, Montana, to the extent we considered necessary to evaluate the system as required by generally accepted auditing standards and the standards for financial and compliance audits contained in the U.S. General Accounting Office Standards for Audit of Governmental Organizations, Programs, Activities, and Functions. For the purpose of this report, we have classified the significant internal accounting controls in the following categories: General Cash Receipts Billing/Accounts Receivable Tax Revenue/Taxes Receivable Assessment Revenue/Assessments Receivable Purchasing Accounts Payable Expenditures Pay rol l Cash Disbursements Material/Supply Inventories Fixed Assets/Depreciation Cash and Investments Long -Term Debt Our study included all of the control categories listed above. The purpose of our study and evaluation was to determine the nature, timing and extent of the auditing procedures necessary for expressing an opinion on the entity's financial statements. Our study and evaluation was more limited than would be necessary to express an opinion on the system of internal accounting control taken as a whole or on any of the categories of controls identified above. -83- ,AN EOUAL OPPORTUNITY EMPLOYER REPORT ON INTERNAL ACCOUNTING CONTROL - cont. The management of the City of Kalispell, Montana, is responsible for establishing and maintaining a system of internal accounting control. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of a system are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that the transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles. Because of inherent limitations in any system of internal accounting control, errors or irregularities may nevertheless occur and not be detected. Also, projection of any evaluation of the system to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the degree of compliance with the procedures may deteriorate. Our study and evaluation made for the limited purpose described in the first paragraph would not necessarily disclose all material weaknesses in the system. Accordingly, we do not express an opinion on the system of internal accounting control of the City of Kalispell, Montana, taken as a whole or on any of the categories of controls identified in the first paragraph. However, our study and evaluation disclosed the following conditions that we believe result in more than a relatively low risk that errors or irregularities in amounts that would be material in relation to the financial statements of the City of Kalispell, Montana, may occur and not be detected within a timely period. Fixed Assets The fixed asset records remain substantially unchanged from the prior audit. Weaknesses noted in the fixed asset records include: 1. The City Council has not adopted a formal capitalization policy defining the assets which are to be inventoried, subsequently minor or consummable items are entered on the fixed asset inventory records. 2. A complete physical inventory of all City -owned assets is not taken periodically (i.e. annually). 3. Assets are not tagged or identified as City property. 4. The inventory records do not contain all of the necessary information for each item, particularly historical cost. 5. The general ledger fixed assets account balance is not in agreement with the detailed inventory records. Recommendation To ensure that fixed assets are properly accounted for and safeguarded, the City should implement the followings 1. The City Council should adopt a formal capitalization policy. EM REPORT ON INTERNAL ACCOUNTING CONTROL - cont. Fixed Assets - cont. Recommendation - cont. 2. A complete physical inventory of all City -owned assets should be taken annually, and the results of the inventory should be compared with the detailed fixed asset records. 3. All assets, particularly movable items, should be tagged and identified as City property. 4. The inventory records should include the following information for each item: description of item, date of acquisition, identification number, model/serial number, department charged with the item, historical cost, method of acquisition (purchase, donation, etc.), physical location, and date and method of retirement. 5. The general ledger fixed assets account balances should be reconciled with the detailed inventory records. In addition, maintaining complete fixed asset records will help ensure that the City has adequate insurance coverage. Urban Development Action Grant (UDAG) Loan On June 29, 1984, the City entered into an agreement with Kalispell Center Limited Partnership (KCLP) whereby funds received by the City under an UDAG agreement were to be loaned to KCLP to help fund the Kalispell Mall project. The loan commenced upon the initial disbursement to KCLP and as of June 30, 1985 and 1986, the amount disbursed to KCLP totaled $340,000 and $2,675,000, respectively. Loan repayments to the City are to begin in April, 1987, and are to be deposited in the Tax Increment Special Revenue Fund. However, the loan receivable and offsetting deferred revenue were not recorded in the City's accounting records or reported in the City's financial statements. Generally accepted accounting principles and good internal control practices require that all amounts due the City be recorded in the accounting records. Recommendation The UDAG loan receivable and deferred revenue should be recorded in the Tax Increment Special Revenue Fund. These conditions were considered in determining the nature, timing, and extent of the audit tests to be applied in our examination of the financial statements for the years ended June 30, 1985 and 1986, and this report does not affect our reports on the financial statements dated November 20, 1986. This report is intended solely for the use of the City of Kalispell's City Council and its management and should not be used for any other purpose. This restriction is not intended to limit the distribution of this report which, upon issuance, is a matter of public record. November 20, 1986 DONALD L. DOOLEY Bureau Chief by: R. MICHAEL DUNCAN Audit Section Supervisor ma DEPARTMENT OF COMMERCE LOCAL GOVERNMENT ASSISTANCE DIVISION LOCAL GOVERNMENT SERVICES BUREAU TED SCHWINDEN, GOVERNOR CAPITOL STATION STATE OF MONTANA (406)444-3010 HELENA, MONTANA 59620 REPORT ON INTERNAL CONTROLS (ACCOUNTING AND ADMINISTRATIVE) - BASED ON A STUDY AND EVALUATION MADE AS A PART OF AN EXAMINATION OF THE GENERAL PURPOSE FINANCIAL STATEMENTS AND THE ADDITIONAL TESTS REQUIRED BY THE SINGLE AUDIT ACT To the Honorable City Council City of Kalispell Kalispell, MT 59901 We have examined the general purpose financial statements of the City of Kalispell, Montana, for the years ended June 30, 1985 and 1986, and have issued our reports thereon dated November 20, 1986. As part of our examination, we made a study and evaluation of internal control systems, including applicable internal administrative controls, used in administering federal financial assistance programs to the extent we considered necessary to evaluate the systems as required by generally accepted auditing standards, the standards for financial and compliance audits contained in the Standards for Audit of Governmental Organizations, Programs, Activities, and Functions, issued by the U.S. General Accounting Office, the Single Audit Act of 1984, and the provisions of OMB Circular A-128, Audits of State and Local Governments. For the purpose of this report, we have classified the significant internal accounting and administrative controls used in administering federal financial assistance programs in the following categories: Accounting Controls: General Cash Receipts Purchasing Accounts Payable Administrative Controls: General Requirements: Political Activity Davis -Bacon Act Civil Rights Cash Management Federal Financial Reports Expenditures Payr of 1 Cash Disbursements Fixed Assets/Depreciation Cash and Investments Specific Requirements: Types of Services Eligibility Matching Level of Effort Reporting Cost Allocation Special Requirements -86- AN EOt)AL OPPORTUNITY EMP(OVER REPORT ON INTERNAL CONTROLS (ACCOUNTING AND ADMINISTRATIVE) - cont. The management of the City of Kalispell, Montana is responsible for establishing and maintaining internal control systems used in administering federal financial assistance programs. In fulfilling that responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of internal control systems used in administering federal financial assistance programs are to provide management with reasonable, but not absolute, assurance that, with respect to federal financial assistance programs, resource use is consistent with laws, regulations, and policies; resources are safeguarded against waste, loss, and misuse; and reliable data are obtained, maintained, and fairly disclosed in reports. Because of inherent limitations in any system of internal accounting and administrative controls used in administering federal financial assistance programs, errors or irregularities may nevertheless occur and not be detected. Also, projection of any evaluation of the system to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the degree of compliance with the procedures may deteriorate. Our study included all of the applicable control categories listed above. During the year ended June 30, 1985, the City of Kalispell, Montana, expended 85% of its total federal financial assistance under major federal financial assistance programs. During the year ended June 30, 1986, the City of Kalispell, Montana, expended 86% of its total federal financial assistance under major Federal Financial assistance programs. With respect to internal control systems used in administering major federal financial assistance programs, our study and evaluation included considering the types of errors and irregularities that could occur, determining the internal control procedures that should prevent or detect such errors and irregularities, determining whether the necessary procedures are prescribed and are being followed satisfactorily, and evaluating any weaknesses. With respect to the internal control systems used solely in administering the nonmajor federal financial assistance programs of the City of Kalispell, Montana our study and evaluation was limited to a preliminary review of the systems to obtain an understanding of the control environment and the flow of transactions through the accounting system. Our study and evaluation of the internal control systems used solely in administering the nonmajor federal financial assistance programs of the City of Kalispell, Montana, did not extend beyond this preliminary review phase. Our study and evaluation was more limited than would be necessary to express an opinion on the internal control systems used in administering the federal financial assistance programs of the City of Kalispell, Montana. Accordingly, we do not express an opinion on the internal control systems used in administering the federal financial assistance programs of the City of Kalispell, Montana. Further, we do not express an opinion on the internal control systems used in administering the major federal financial assistance programs of the City of Kalispell, Montana. REPORT ON INTERNAL CONTROLS (ACCOUNTING AND ADMINISTRATIVE) - cont. Also, our examination, made in accordance with the standards mentioned above, would not necessarily disclose material weaknesses in the internal control systems used solely in administering nonmajor federal financial assistance programs. However, our study and evaluation and our examination disclosed the following conditions that we believe result in more than a relatively low risk that errors or irregularities in amounts that would be material to a federal financial assistance program may occur and not be detected within a timely period. Civil Rights No individual had been appointed by the City as civil rights compliance officer. Federal laws and regulations require the appointment of an individual to oversee civil rights compliance. The appointment of such an individual would improve control over and help ensure civil rights compliance. Recommendation To ensure compliance with civil rights requirements, the City should appoint an individual to oversee civil rights compliance. Political Activity The City has a policy restricting all employee's political activity during working hours; however, no mention is made of the restrictions imposed by the Hatch Act. The Hatch Act prohibits City employees paid with Federal financial assistance from becoming involved in certain political activates. The failure of the City to include the Hatch Act restrictions in its policy could result in employees unknowingly being in violation of the provisions of the Act. Recommendation The City's policies on political activity should be expanded to include the restrictions imposed by the Hatch Act on employees paid with Federal financial assistance. The revised policy should be distributed to all City employees. Revenue Sharing Files Although nothing indicated that the Revenue Sharing regulations had not been complied with, the central Revenue Sharing f ile did not contain documentation to support compliance with the public participation notice requirements. In addition, the self-evaluation and transition plan regarding compliance with the handicapped discrimination regulations was not on file. Recommendation The City should document compliance with the Revenue Sharing public participation notice requirements by including a copy of each publication affidavit in the Revenue Sharing file. Also, a copy of the City's self evaluation and transition plan regarding compliance with the handicapped discrimination regulations should be placed in the Revenue Sharing file. REPORT ON INTERNAL CONTROLS (ACCOUNTING AND ADMINISTRATIVE) - cont. Fixed Assets The City's fixed asset inventory records were not in balance with the general ledger fixed asset accounts, and periodic physical inventories of the fixed assets had not be taken and reconciled to the inventory records. Attachment N to OMB Circular A-102 requires governments acquiring property with Federal financial assistance to maintain accurate fixed asset inventory records and take a physical inventory at least once every two years and reconcile the results with the fixed assets inventory records. The failure to maintain adequate fixed asset inventory records can result in the loss or misuse of City property. Recommendation The City should take a complete inventory of all City -owned fixed assets and reconcile the results to the fixed asset inventory records. The inventory records should then be updated for all new asset acquisitions or deletions. Loan Receivable Funds received under the Urban Development Action Grant were loaned to another party. The loan, however, was not recorded on the City's accounting records. Although there were memorandum records of the loan, control would be improved if the loan were recorded on the City's accounting records. Failure to record the loan also results in the City not being in compliance with generally accepted accounting principles. Recommendation The loan made by the City with Federal grant moneys should be recorded as a loan receivable on the City's accounting records. These conditions were considered in determining the nature, timing, and extent of the audit tests to be applied in (1) our examination of the general purpose financial statements for the fiscal years ended June 30, 1985 and 1986 and (2) our examination and review of the City's compliance with laws and regulations noncompliance with which we believe could have a material effect on the allowability of program expenditures for each major federal financial assistance program and nonmajor federal financial assistance programs. This report does not affect our reports on the general purpose financial statements and on the City's compliance with laws and regulations dated November 20, 1986. This report is intended solely for the use of the City of Kalispell's City Council and its management and should not be used for any other purpose. This restriction is not intended to limit the distribution of this report which, upon issuance, is a matter of public record. November 20, 1986 DONALD L. DOOLEY Bureau Chief by R. MICHAEL DUNCAN Audit Section Supervisor M CITY OF KALISPELL KALISPELL, MONTANA REPORT ON OTHER FINANCIAL AND INTERNAL ACCOUNTING CONTROL MATTERS Findings relating to financial or accounting matters, along with our recommendations, are presented below. Also, other internal control weaknesses disclosed by our study and evaluation, although not considered to be material, are disclosed below for your information, along with our recommendations for improvement where applicable. Time Cards Time cards were not always signed by individual employees nor were the time cards always approved by a supervisor before being submitted to the payroll department. Recommendation Each employee should properly sign their time card each pay period, and each time card should be signed by the appropriate supervisor. Police Department Citation Stationary Control The police department maintains a stationary control register for citations. Initially, the department checks out citation books from the City Clerk's office. A designated individual within the police department keeps a separate register for citation books which are then issued to each officer. This individual also keeps another register which records all citations by number and whether they remain outstanding, issued, or dismissed. It was noted, however, that on occasions not all citations were accounted for and, in addition, officers sometimes obtained another book before issuing all of the citations in their previously issued book. Recommendation All citations issued to police officers should be accounted for. Under normal conditions, all citations should be issued before a new ticket book is issued. Police Department Parking Ticket Collections Parking tickets and other remittances paid by check were not stamped "For Deposit Only" immediately upon collection by the Police Department. Furthermore, a collection report was not utilized by the department to reconcile receipts issued to collections taken in. Recommendation All remittances to the Police Department made by check should be stamped "For Deposit Only" immediately upon collection. The daily reconciliations made by the department should be summarized and documented on a monthly collection report which would reconcile receipts issued to collections. CITY OF KALISPELL KALISPELL, MONTANA REPORT ON OTHER FINANCIAL AND INTERNAL ACCOUNTING CONTROL MATTERS - cont. City Court Collections The following control weaknesses were observed in the operation of the City Court: 1. Segregation of duties was not adequate in the area of City Court collections. The City Judge sometimes issued receipts and normally made the bank deposits and reconciled the bank statements. 2. Undeposited cash and cash items were stored in a locked desk drawer in the City Court office. 3. Two checking accounts were maintained, one for the deposit of collections of fines and forfeitures and one for the deposit of bond collections: Recommendation For improved control we recommend that the checking account for collections of fines and forfeitures be closed. These collections should be deposited directly with the City Treasurer on a daily basis. There should be a division of duties relating to issuing receipts, making bank deposits and reconciling the bank account in the remaining checking account. For example, if the City Court Clerk issues the receipts and makes the bank deposits, then the City Judge or some other individual should reconcile the bank statements. Undeposited cash should be stored in the safe within the vault instead of in a desk in the City Court office. Swimming Pool Collections The following internal accounting control weaknesses were observed in the area of swimming pool collections: 1. Prenumbered receipts for children, adult, and family season tickets were not adequately accounted for. 2. Prenumbered receipts for swimming lessons were not adequately accounted for. 3. Bank deposits were made by individuals who also collected money and issued receipts. 4. Differences in daily reconciliations were not adequately identified or substantiated. 5. Collection reports were not effectively utilized. Recommendation In order to improve controls over swimming pool collections, the following should be implemented: 1. All prenumbered documents should be controlled through'the use of a stationary control register. The register should include an inventory, by number, of tickets on hand and issued. The register should be maintained by an independent party. CITY OF KALISPELL KALISPELL, MONTANA REPORT ON OTHER FINANCIAL AND INTERNAL ACCOUNTING CONTROL MATTERS - cont. Swimming Pool Collections - cont. Recommendation - cont. 2. Ticket sales for swimming lessons and season tickets should be accounted for by ticket number. 3. Deposits should be made by someone other than those involved in the collecting and receipting processes. 4. Differences between the daily locked -in cash register tape and the amount of daily collections should be resolved. 5. Collection reports should be expanded to include number of swimmers holding season tickets and the number of swimmers not holding season tickets. Furthermore, the collection report should have a detailed record of ticket numbers issued for lessons and season tickets. Parking Meter and Lot Collections The City employs one individual to perform parking meter and lot collections. This individual collects money from the various parking meters and lots, counts the money collected, prepares a daily collection report, and deposits the cash directly to the bank account in the name of the City. The collector then gives the duplicate deposit slips to the City Treasurer in return for a general receipt. A collection report does accompany the duplicate deposit slips. Recommendation To improve control over parking meter and lot collections, someone should periodically accompany the collector on his rounds to provide a test sample of collections that could be expected at various times and locations and count the cash after the collector has made his rounds. In addition, we suggest that the City assign someone else the responsibility of depositing the cash, or periodically rotate the collection assignment to another person. Furthermore, a collection report should be provided to the Treasurer in addition to the duplicate deposit slips. Reconciling City Bank Statements The deputy treasurer prepares City checks to be issued, collects money, issues receipts, make daily deposits, and reconciles monthly bank statements. Recommendation The deputy treasurer's duties should be segregated to the extent possible to provide stronger internal controls. This could be achieved by having another employee reconcile the monthly bank statements. CITY OF KALISPELL KALISPELL, MONTANA REPORT ON OTHER FINANCIAL AND INTERNAL ACCOUNTING CONTROL MATTERS - cont. Access to Investments and Undeposited Cash The City has one vault to which several employees have the combination. Within this vault are two safes in which all investments and undeposited cash are stored. The keys to open these safes are kept in the vault, thus allowing easy access to the safes. Furthermore, the $500.00 Petty Cash Fund is not stored in a safe but in a locked desk. Recommendation The keys to the individual safes within the vault should be strictly controlled to restrict access to undeposited cash and investment documents. One alternative would be that the safe keys could be assigned to the Clerk/Treasurer and then the keys could be given to authorized personnel as needed. Restricted Endorsements Checks and warrants received by the City were not stamped "For Deposit Only" until the daily deposit was prepared the morning following collection. Recommendation Remittances made to the City by check or warrant should be stamped "For Deposit Only" immediately upon collection. Enterprise Fund Accounts Receivable Recordkeeping and Reports The Enterprise Fund accounts receivable records for the 1985-86 fiscal year consisted primarily of daily billing and receipt registers and a daily journal voucher register. Other available reports consisted of a Revenue Summary for the year and a Summary Aged Receivables Report as of June 30, 1986. There were no monthly reports available which summarized the daily register activity nor were there detailed, aged accounts receivable reports by customer. The general ledger accounts receivable control accounts were reconciled with the subsidiary balances only at year-end when the Summary Aged Receivables report was prepared. The Enterprise Fund accounts receivable computer system generated a Transaction Summary Report each day in summary form (i.e. by sewer, water, special sprinkling, and sprinkling) which gave the following information: Beginning accounts receivable balance, invoices (charges), receipts (collections), memos (debit/credit journal vouchers), and ending accounts receivable balance. However, these reports were not maintained for audit nor were they utilized for reconciling the general ledger with the subsidiary records. Recommendation The Enterprise Fund accounts receivable records and reports should be maintained and summarized in a manner which improves accountability and provides an adequate audit trail. The general ledger accounts receivable balance should be reconciled monthly with the subsidiary records. CITY OF KALISPELL KALISPELL, MONTANA REPORT ON OTHER FINANCIAL AND INTERNAL ACCOUNTING CONTROL MATTERS - cont. Collection Procedures over Sundry Accounts Receivable A formal collection policy has not been established regarding delinquent water and sewer sundry accounts receivable. Subsequently, $9,709.82 of the $16,624.37 total water sundry accounts receivable were over 90 days old. It was noted during the review of the schedule of accounts receivable that one of the customers with an account balance of $798.90 had declared bankruptcy in January 1986 and that there were five accounts totaling $1,087.10 that had been turned over to the City Attorney for action two to three years ago. The status and collectibility of several of the accounts is questionable. An aged accounts receivable listing is not prepared for the sundry accounts receivable. Recommendation A formal collection policy and procedures should be established regarding the sundry accounts receivable. An aged accounts receivable listing should be prepared periodically and reviewed by management. The sundry accounts receivable should be examined for uncollectible or incorrect accounts and the proper authorization to write-off or adjust accounts should be obtained. Building Department Collections Collections made at the Building Department for building permits, septic permits, etc. were not adequately safeguarded against theft or pilferage. Daily collections are stored in a locked desk within the department. Furthermore, collections are not deposited in a timely fashion (i.e. weekly). It was also noted that collections on permits made by check were not stamped "For Deposit Only" immediately upon receipt. Stationary control records were not established for permits. Recommendation Collections should be stored in the safe within the vault in the City Treasurer's office. Deposits should be made weekly and reconciled to receipts issued. Collections made by check should be stamped "For Deposit Only" immediately upon collection. Furthermore, the City Clerk's office should control and provide stationary control records over all prenumbered documents. Salaried Employee Pay Period The pay period for hourly City employees was from the 21st of one month until the 20th of the following month. Salaried City employees have a calendar month pay period from the first day of the month to the last day. However, all payroll warrants for both hourly and salaried personnel are dated the 20th of the month and are generally distributed about the 25th of the month. The majority of the payroll warrants are cashed prior to the end of the month. The result is that salaried employees are paid and have cashed their payroll warrants before they complete the pay period for which they are being paid. CITY OF KALISPELL KALISPELL, MONTANA REPORT ON OTHER FINANCIAL AND INTERNAL ACCOUNTING CONTROL MATTERS - cont. Salaried Employee Pay Period - cont. Recommendation The pay day should be altered so as to coincide with or be after the end of each pay period worked. All of a pay period should be worked prior to issuance of payroll warrants for that period. Enterprise Fund Deferred Revenue and Assessment Revenue - Disclosure As of June 30, 1985, the City had two Enterprise funds that operated either partially or fully on assessment revenue. These two funds, Storm Sewer Maintenance and Garbage Operating, had assessment revenue which was accounted for under the modified accrual basis of accounting. Under this method, current year revenue not collected at year-end or soon thereafter is treated as deferred revenue. Under generally accepted accounting principles, Enterprise Funds are to utilize the accrual basis. of accounting. Failure to record assessment revenue on the accrual basis of accounting can result in understatements of revenue and retained earnings, and overstatements of liabilities. The accrual basis of accounting was utilized to record assessment revenue for the 1985-86 fiscal year. Enterprise Fund Materials Inventory The Enterprise Fund inventory for materials was taken by sewer and water department personnel. The inventory valuation was based on catalog prices or invoices, subsequently, the potential exists to misstate inventory by reporting inventories at current cost rather than historical cost, as required by generally accepted accounting principles. Recommendation To strengthen internal controls over the sewer and water materials inventory, the inventory count should be taken by an independent party. In addition, the valuation basis should be consistent and in accordance with generally accepted accounting principles. Gasoline Purchased and Used The City has gas pumps at two locations: the City Shop and the City Hall. Records were maintained of gasoline used per gas slips, but individual slips were never reconciled to gasoline used per meter readings. Furthermore, controls were not established which would control the dispensing of gasoline. Plans are being made by City officials to implement a card system for dispensing gasoline. This system would require each person needing gasoline to enter this card which would identify the person and the car receiving gas so as to document gallons received by each car and each employee. Q' CITY OF KALISPELL KALISPELL, MONTANA REPORT ON OTHER FINANCIAL AND INTERNAL ACCOUNTING CONTROL MATTERS - cont. Gasoline Purchased and Used - cont. Recommendation If the City does not procure the card system for dispensing gasoline, reconciliations should be made monthly between gasoline used per the gas slips and per the meter readings. Also, on a periodic basis, reconciliations should be made between gasoline purchases and gas used, taking into account gasoline in the tanks at the beginning of the period. Planning Growth for Computer System No three to five year plan for growth exists at the City for the City's computer system. Recommendation A plan for growth of the City's computer system, including both hardware and software, over a three or five year period should be implemented. This plan should be reviewed with the vendor and submitted to the City Council. The system coordinator should then periodically review the plan to assure timeliness of the plan. Enterprise Fund Reporting Enterprise Fund contributions from Environmental Protection Agency grants, developers, other funds, and other outside sources totaling $577,976 and $652,393 for the fiscal years ended June 30, 1985 and 1986, respectively, which were restricted for capital acquisition or construction were reported as non-operating revenue rather than as contributed capital as required by generally accepted accounting principles. In addition, the beginning and ending contributed capital account balances of the Enterprise Funds were included in beginning and ending retained earnings account balances as reported on the Statement of Revenues, Expenses and Changes in Retained Earnings. Recommendation Contributions to Enterprise Funds that are externally restricted for capital acquisition or construction should be recorded and reported as contributed capital. Operating grants, entitlements or other such unrestricted sources of funding should be reported as non-operating revenues. Contributed capital should not be included in retained earnings account balances as reported on the Statement of Revenues, Expenses and Changes in Retained Earnings. CITY OF KALISPELL KALISPELL, MONTANA REPORT ON OTHER FINANCIAL AND INTERNAL ACCOUNTING CONTROL MATTERS - cont. Community Development Block Grant (CDBG) Bank Account As part of the CDBG residential housing rehabilitation program, block grant funds in the form of up -front interest subsidies are paid into a passbook savings account in the City's name, however this account is not recorded on the City's accounting records. The full amount of the interest subsidy is placed in this account at the time the bank and the borrower close the loan agreement. Each month as the borrower makes his portion of the principal and interest payment, the bank withdraws from this passbook account the interest subsidy applicable to that month for that borrower. After all such loans have run full term, all interest subsidies will have been withdrawn and the account should have a zero balance. In the event a borrower decides to pay off the remaining principal balance owed to the bank before the loan has run full term, the City receives a refund of the unused portion of the interest subsidy. In addition, interest paid on the balance of this passbook account is credited to another bank account in the name of the City which is recorded on the City's accounting records. The balance in the account at June 30, 1985 and 1986, was $22,805 and $37,106, respectively. The City's Community Development staff has not considered this account to be the property of the City; therefore, it has not been recorded on the City's accounting records. However, because of the City's interest in the account and because of the treatment given the interest earned on the account, we believe the balance should be recorded on the City's accounting records and financial statements. State and Federal CDBG personnel are also of the opinion the moneys are still CDBG program funds and should be recorded in the City's accounting records. Recommendation The CDBG interest subsidy money in the outside bank account should be recorded in the City's accounting records and reported in its financial statements. IM CITY OF KALISPELL KALISPELL, MONTANA REPORT ON PRIOR AUDIT REPORT RECOMMENDATIONS The following is a summary of the prior audit report recommendations and the actions taken on them by the City. Recommendations Fixed Assets - The City should: 1. Adopt a formal capitalization policy 2. Complete a physical inventory 3• Assign a numbered identification tag to each asset. 4. Evaluate results of physical inventory and ascertain that all pertinent information is included for all fixed assets. 5. Adjust the general ledger fixed assets accounts to agree with results of the inventory 6. Physical inventories should be taken periodically City Court - Bond Account - Subsidiary records should be established to identify the source and disposition of all bond and the fine restitution payments and other moneys in the bond trust account. City Court -Dual Signatures - The City Court Clerk as well as the City Judge should sign all checks issued. City Court -Trust and Bond Account - All bank statements should be reconciled on a timely basis by the City Judge or, if inconvenient, another appropriate official should perform the reconcilement. City Court -Trust Account -Depositing - Deposits should be made on a regular basis. All deposits made should be intact, in that the total of the receipts issued since the last deposit should equal the deposit made. Also, all money received for each month should be remitted to the City Treasurer on a regular basis. Council ADDroval of Claims in Minutes - The minutes should reflect the numbers of the claims approved, the payee and the amount. As an alternative, the claims could be listed in an addendum to the minutes with appropriate reference made to the addendum. Actions Taken Not Implemented Implemented Partially Implemented Implemented Implemented Implemented CITY OF KALISPELL KALISPELL, MONTANA REPORT ON PRIOR AUDIT REPORT RECOMMENDATIONS - cont. Recommendations Actions Taken Fidelity Bond Insurance - Fidelity bond insurance Implemented coverage should be increased for the Deputy Treasurer, the City Clerk and the Finance Director. Unsigned Warrants - All warrants should be signed Implemented by the Mayor and the Clerk. Parking Meter and Parking Lot Collections - On a Not Implemented periodic basis, an individual should accompany the collector on rounds to verify collections and deposits. Stationary Control -Police Department - Citation Implemented stationary control should be the responsibility of the Clerk's office. Citations should be received by the Clerk's office and issued to the Police Department. Gasoline Purchased and Used - The dispensing of Not Implemented gasoline should be made the responsibility of one individual at each location. If possible, reconciliations should be made monthly. Property Taxes and Assessments Receivable - The Implemented City should confirm property taxes and assessments receivable with the County on a periodic basis, and always at June 30 of each year. Accounts Receivable Aging and Writeoff - The City Not Implemented should prepare an aged listing of accounts receivable monthly and have this list reviewed by management. After review, uncollectible accounts should be written off. The City should establish and allowance for uncollectible accounts for the Water and Sewer Funds. COMPUTER AUDIT Security - The main security control account on Not Possible on Big Sky all devices (1,2) and all accounts connected System with the system utilities should be protected through use of passwords. Passwords should not include names, telephone numbers, social security numbers, etc. Data Files - Back-up data files should be stored Implemented off-site on a regular scheduled basis. CITY OF KALISPELL KALISPELL. MONTANA REPORT ON PRIOR AUDIT REPORT RECOMMENDATIONS - cont. Recommendations COMPUTER AUDIT - cont. : Documentation - A request for an error recovery guide should be made from the vendor. Software Maintenance Records - The system coordinator should create a software maintenance log. Daily software problems or updates should be recorded here. Planning - A plan for growth of the computer system over a three or five year pariod should be implemented. Planning - A disaster recovery plan should be developed showing what procedures should take place if a disaster occurs. Program Testing - Contact should be made with vendor to correct backup routine. Program Testing - Thorough testing with the vendor should be performed on the utility billing application to assure all programs are operating properly. Budget Overdrafts - Timely budget transfers should be made to avoid overdrafts in individual expenditure line items. Filing of Annual Financial Report - The City's Annual Financial Report should be completed and submitted to the Department of Commerce and City Council no later than August 31, of each year. Special Improvement District Revolving Fund Tax Levy - A tax levy for the S.I.D. Revolving Fund should not be imposed if the balance in the fund exceeds 5% of the principal amount of the then outstanding special improvement district bonds and warrants. Special Improvement Districts-Adeeuacv of Assess- ments - The City should review all special improvement districts and sidewalk and curb districts to determine reasons for deficit and excessive fund balances. If necessary, the assessments should be corrected and reassessed. Sm Actions Taken Implemented - Software maintenance agreement covers Implemented Not Implemented Not Implemented Implemented Implemented Implemented in 1985-86 fiscal year Implemented in 1985-86 fiscal year Implemented Implemented CITY OF KALISPELL KALISPELL. MONTANA REPORT ON PRIOR AUDIT REPORT RECOMMENDATIONS - cont. Recommendations Capital Improvement Fund - Since the capital improvement program is complete, the money remaining in the Capital Improvement Funds should be transferred back to the General Fund and the funds closed. In the future, Capital Improvement Funds should be established as required by Section 7-6-4134, MCA. Pledged Securities - All new pledged securities should be accepted and approved in the minutes, and all pledged securities should be reapproved on a quarterly basis. Salaried Employee Pay Period - Pay days should be altered so as to coincide with or be after the end of each pay period worked. All of a payroll period should be worked prior to issuance of payroll warrants for that period. Budgets - When preparing budgets, provisions should be made to redeem any outstanding warrants in excess of available cash at year end. Solid Waste Fund - We recommend that the Solid Waste Fund be accounted for by the City as an Enterprise Fund. Water and Sewer Sundry Accounts Receivable - The Water and Sewer sundry accounts receivable subsidiary records, control cards and general ledger account balances should be kept in agreement. Enterprise Fund Charges - Proper care should be exercised when arriving at charges, so as not to misstate income. Further, amounts reported as charges on the City's records should be reconciled to the subsidiary records. Sewer and Water Accounts Receivable - Any adjustments made to the subsidiary records should be made in the same manner to both the control cards and the general ledger accounts. M Actions Taken Implemented Not Implemented Not Implemented Implemented Implemented Implemented Implemented Implemented CITY OF KALISPELL KALISPELL, MONTANA REPORT ON PRIOR AUDIT REPORT RECOMMENDATIONS - cont. Recommendations Treasurer's Combined Statement of Cash Receipts and Disbursements - In the future, greater care should be taken to ensure that the cash receipts and disbursements reported on the Combined Statement of Cash Receipts and Disbursements agree with the cash receipts and cash disbursements journals. Transfers in and transfers out should also agree. Unreceipted Interest - Interest earned should be reeeipted for on a timely basis and recorded as revenue in the period earned. Administrative Fees - Administrative fees allocated against the Water, Sewer, Ambulance, Solid Waste, Oil Sprinkling, and Water Sprinkling Funds should be transferred to the General Fund on a monthly basis. Prior Period Adjustments - The City should review all prior period adjustments and be certain that such adjustments are proper under generally accepted accounting principles. General journal vouchers should contain a complete explanation of why any adjustments are being made. Actions Taken Implemented in 1985-86 Fiscal Year Implemented in 1985-86 Fiscal Year Implemented Implemented Water Sprinkling Charges - We recommend the City Implemented - Hired Tom Flynn, consider putting sprinkling charges into effect for Water/Sewer Consultant - No a more realistic time period, such as over a four changes recommended to six month period. This will match sprinkling rates with actual times sprinkling is being done. Operating Transfers - Operating transfers between funds should be recorded and reported as operating transfers in by the receiving fund and as operating tranfers out by the remitting fund. Implemented in 1985-86 Fiscal Year