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City of Elk River <br /> May 17,2013 <br /> Page 3 <br /> Management Consultations with Other Independent Accountants <br /> In some cases,management may decide to consult with other accountants about auditing and accounting matters,similar to obtaining <br /> a"second opinion"on certain situations. If a consultation involves application of an accounting principle to the City's financial <br /> statements or a determination of the type of auditor's opinion that may be expressed on those statements,our professional standards <br /> require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge,there <br /> were no such consultations with other accountants. <br /> Other Audit Findings or Issues <br /> We generally discuss a variety of matters,including the application of accounting principles and auditing standards,with management <br /> each year prior to retention as the City's auditors. However,these discussions occurred in the normal course of our professional <br /> relationship and our responses were not a condition to our retention. <br /> Financial Position and Results of Operations <br /> Our principal observations and recommendations are summarized on the following pages. These recommendations resulted from our <br /> observations made in connection with our audit of the City's financial statements for the year ended December 31,2012. <br /> General Fund <br /> The General fund is used to account for resources traditionally associated with government,which are not required legally or by <br /> sound principal management to be accounted for in another fund. The General fund balance decreased$92,298 from 2011. The <br /> fund balance of$6,205,314 is 48.3 percent of the 2013 budgeted expenditures. The total fund balance and percent of the 2013 <br /> budgeted expenditures is split between nonspendable$20,201 (0.1 percent),committed$208,486(1.6 percent),assigned$200,000 <br /> (1.6 percent)and unassigned$5,776,627(45.0 percent). In addition,the City has formally adopted a fund balance policy for the <br /> General fund to maintain a minimum unassigned fund balance of 40-45 percent of the following year's budgeted expenditures and <br /> transfers out.The City has maintained this target level. More information can be found starting on page 54 of the comprehensive <br /> annual financial report. <br /> The purposes and benefits of a fund balance are as follows: <br /> • Expenditures are incurred somewhat evenly throughout the year. However,property tax and state aid revenues are not <br /> received until the second half of the year. An adequate fund balance will provide the cash flow required to finance the <br /> General fund expenditures until these revenue sources are received. <br /> • The City is vulnerable to legislative actions at the State and Federal level.The State continually adjusts the local <br /> government aid formula.An adequate fund balance will provide a temporary buffer against aid adjustments. <br /> • Expenditures not anticipated at the time the annual budget was adopted may need immediate City Council action. These <br /> would include capital outlay replacement,lawsuits,tax court refunds,and other items. An adequate fund balance will <br /> provide the financing needed for such expenditures. <br /> • A strong fund balance will assist the City in obtaining,maintaining or improving its bond rating. The result will be <br /> better interest rates in future bond issues or refunding opportunities. <br /> 952.835.9090 • Fax 952.835.3261 <br /> www.aemcpas.com <br />