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1 <br />1 <br />1 <br />1 <br /> <br /> <br /> <br /> <br />Citv of Elk Aiver <br />March 13, 2008 <br />Page 5 <br />Financial Position and Results of Operations <br />Our principal observations and recommendations are summarized on the following pages. These recommendations resulted from <br />our observations made in connection with our audit ofthe City's financial statements for the year ended December 31, 2007. <br />(;eneral Fund <br />The General fund is used to account for resources traditionally associated with government, which are not required legally or <br />by sound principal management to be accom7ted for in another fund. The General fund balance increased $535,618 from <br />2006. The fund balance of $5,352,004 is 43 percent of the 2008 budgeted expenditures. We reco~mnend the fund balance be <br />maintained at a level sufficient to fund operations until the major revenue sources are received in June. We feel a reserve of <br />approximately 40 to 50 percent of pla7med expenditures and transfers out is adequate to meet working capital and small <br />emergency needs. <br />Minnesota cities must maintain substantial amounts of fund balance in order to meet their Liquidity and workiog capital needs <br />as an operating entity. That is because a substantial portion ofyour revenue sources (taxes and intergovernmental revenues) <br />are received in the last two months of each six-month cycle. <br />The Minnesota Office of the State Auditor has classified cities' unreserved fund balance levels relative to expenditures as <br />1 follows: <br /> Percent of Months <br /> Planned <br />Expenditures Expenditures <br />on hand <br /> <br /> F,xtremely low Under 20% Under 2.5 <br /> Low 21 - 34 25 - 4 <br /> Acceptable 35 - 50 4 - 6 <br /> Moderately high 51 - 64 6 - 7 <br /> High 65 - 100 8 - 12 <br /> Very high 100 - 150 12 - 18 <br /> Exh~emely high Above 150 Above 18 <br />I The State Auditor does group all General, special revenue funds of the government when making this calculation where our <br />calculation is based only on the General fund. 'the Office of the State Auditor (the OSA) has issued a Statement of Position <br />relating to fund balance stating "a local government should identify fund balance separately between reserved and unreserved <br />' fund balance. The local government may assign and report some or all of the fund balance as designated and undesignated." <br />We recommend local governments adopt a formal policy on the level of unreserved fund balance YhaY should be maintained in <br />the General and special revenue funds. This helps address citizen concerns as to the use of fund balance and tax levels. <br /> <br /> <br /> <br /> <br />952.835.9090 Fax 952.835.3267 <br />www.aemepas.com <br />