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HomeMy Public PortalAbout2007 AuditBERBERICHTRAHAN&fCO.,P.A . Certifie d Public Accountant s CITY OF PARKVILLE, MISSOURI BASIC FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2007 CITY OF PARKVILLE, MISSOURI BASIC FINANCIAL STATEMENTS Year Ended December 31, 2007 TABLE OF CONTENTS Independent Auditors' Report Management's Discussion and Analysis Basic Financial Statements: Government-Wide Financial Statements: Statement of Net Assets Statement of Activities Fund Financial Statements: Balance Sheet - Governmental Funds Reconciliation of the Balance Sheet of the Governmental Funds to the Statement of Net Assets Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - General Fund Statement of Net Assets - Proprietary Funds Statement of Revenues, Expenses and Changes in Fund Net Assets - Proprietary Funds Statement of Cash Flows - Proprietary Funds Notes to Basic Financial Statements Required Supplementary Information CITY OF PARKVILLE, MISSOURI BASIC FINANCIAL STATEMENTS Year Ended December 31, 2007 TABLE OF CONTENTS (Continued) Other Supplementary Information: Combining and Individual Fund Statements and Schedules: Combining Balance Sheet - Nonmajor Governmental Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances -Nonmajor Governmental Funds Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Schedule of Findings and Responses Schedule of Prior Year Findings BTMo . BERBER!CHTRAHANyCO.,P.A . Certified Public Accountant s INDEPENDENT AUDITORS' REPORT The Honorable Mayor and Board of Aldermen City ofParkville, Missouri We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Parkville, Missouri (the City) a s of and for the year ended December 31, 2007, which collectively comprise the City's basic financial statements a s listed in the table of contents. These financial statements ar e the responsibility of the City's management. Our responsibility is to expres s opinions on thes e financial statements base d on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United State s of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements ar e free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, a s well a s evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects , the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City ofParkville, Missouri, a s of December 31, 2007. and the respective changes in financial position and cas h flows, where applicable, thereof and the respective budgetary comparison for the general fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued a report dated December 18, 2008. on our consideration of the City's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessin g the results of our audit. RSMMcGladrey Network A n liilependBitl y Owne d Manta - The Management's Discussion and Analysis and the Required Supplementary Information on page s 3 through 1 3 and 54 through 55, respectively, ar e not a required part of the basic financial statements but ar e supplementary information required by accounting principles generally accepted in the United State s of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and expres s no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements. The accompanying introductory section and supplementary section ar e presented for purposes of additional analysis and ar e not a required part of the basic financial statements. The supplementary information ha s been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken a s a whole. December 18,2008 -2- Management's Discussion and Analysis As management of the City ofParkville, we offer readers of the City ofParkville's fmancial statements this narrative overview and analysis of the financial activities of the City of Parkville for the fiscal year ended December 31, 2007. We encourage readers to consider the information presented here in conjunction with additional information that we have furnished in our letter oftransmittal. Financial Highlights • The assets of the City of Parkville exceeded its liabilities a t the close of the most recent fiscal year by $4,798,691 (net assets). Of this amount, $1,189,604 (unrestricted net assets) may be used to meet the government's ongoing obligations to citizens and creditors. • The government's total net assets increased by $1,776,753. The net assets increase is found in governmental activities where there is a positive $1,516,555 net change, and a positive $260,198 change in net assets reported in business-type activities including Sewer service and Grinder pump operations. • As of the close of the current fiscal year, the City of Parkville's governmental funds reported combined ending fund balances of $8,368,207, an increase of $3,396,303 in comparison with the prior year. Nearly 98% of the total fund balances, $8,164,219, is available for spending at the government's discretion (unreserved, undesignated fund balance). • At the end of the current fiscal year, unreserved, undesignated fund balance for the general fund was $653,914, or approximately 21% of total general fund expenditures. • The City of Parkville's total debt, including compensated absences, increased by $5,666,940, (42.6%) during the fiscal year. The key factor was the initiation of the Neighborhood Improvement District projects. Brink Meyer Road and Rush Creek, construction loan limited obligation temporary notes. Overview of the Financial Statements This discussion and analysis are intended to serve a s an introduction to the City of Parkville's basic financial statements. The City ofParkville's basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the City of Parkville's finances, in a manner similar to a private-sector business. The statement of net assets presents information on all of the City ofParkville's assets and liabilities, with the difference between the two reported a s net assets. Over time, increases or decreases in net assets may serve a s a useful indicator of whether the financial position of the City of Parkville is improving or deteriorating. -3- The statement of activities presents information showing how the government's net assets changed during the most recent fiscal year. All changes in net assets ar e reported a s soon a s the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expense s are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions of the City of Parkville that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges {business-type activities). The governmental activities of the City of Parkville include general government, public safety, streets, economic development, and culture and recreation. The business- type activities of the City of Parkville include Sewer service and Grinder pump service. The government-wide financial statements can be found on pages 14-15 of this report. Fund financial statements. A . fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City of Parkville, like other state and local governments, use s fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City of Parkville can be divided into two categories: governmental funds and proprietary funds. Governmental funds. Governmental funds are used to account for essentially the same functions reported a s governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, a s well a s on balances of spendable resources available a t the end of the fiscal year. Such information may be useful in evaluating a government's near-term financing requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government's near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City of Parkville maintains three individual major governmental funds. Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the general fund, capital projects fund, and debt service fund, each of which are considered to be major funds. Data from the other eleven governmental funds are combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements elsewhere in this report. The City of Parkville adopts an annual appropriated budget for its general fund. A budgetary comparison statement has been provided for the general fund to demonstrate compliance with this budget. The basic governmental fund financial statements can be found on pages 16-21 of this report. -4- Proprietary funds. The City ofParkville maintains one type of proprietary fund. Enterprise funds ar e used to report the same functions presented a s business-type activities in the government-wide financial statements. The City ofParkville used enterprise funds to account for its Sewer Service and for Grinder Pump operations. Proprietary funds provide the same type of information a s the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separat e information for the Sewer Service and for the Grinder Pump operation, with the former considered to be a major fund and the latter a nonmajor fund of the City ofParkville. The basic proprietary fund financial statements can be found on page s 22-25 of this report. Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 26-53 of this report. Other Information, m addition to the basic financial statements and accompanying notes, this report presents certain required supplemental information concerning the City of Parkville's infrastructure reporting. As recommended by American Public Works Association, the modified approach for infrastructure was developed a s a compromise to provide an alternative to depreciating eligible infrastructure assets. The basic premise behind the modified approach is that no depreciation is incurred if infrastructure assets are being maintained or preserved at a certain level. The City of Parkville provides an up-to-date inventory of eligible assets by location, type and physical parameters and performs replicable condition assessments , triennially. Results are summarized using a measurement scale, seen on pages 54-55 of this report. Estimated amounts needed to maintain and preserve these assets at the City's established service level are budgeted for annually. The combining and individual fund statements referred to earlier in connection with nonmajor governmental funds are presented on page s 56-59 of this report. Government-wide Financial Analysis As noted earlier, net assets may serve over time a s a useful indicator of a government's financial position. In the case of the City ofParkville, assets exceeded liabilities by $4,798,691 at the close of the most recent fiscal year. The City of Parkville use s capital assets to provide services to citizens; consequently, thes e assets are not available for future spending. Although the City of Parkville's investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. -5- City of Parkville's Net Assets Governmental activities___Business-type activities________Total_______ 2007 2006 2007 2006 2007 2006 Current and other assets $10,243,456 $7,568,976 $791,269 $485,733 $11,034,725 $8,054,709 Capital assets 9,708,845 5,717.663 4,823.640 5.032,617 14.532.485 10.750,280 Total Assets 19,952.301 13.286.639 5.614.909 5.518.350 25,567,210 18.804.989 Long-term liabilities outstanding 15,951,285 10,088,077 2,972,411 3,162,304 18,923,696 13,250,381 Other liabilities 1.785.728 2.499.829 59.095 32.841 1,844.823 2.532.670 Total Liabilities 17.737.013 12.587.906 3,031,506 3.195.145 20,768.519 15.783.051 Net assets: invested in capital assets, net of related debt (3,498,492) (1,483,029) 2,015,940 2,097,133 (1,482,552) 614,104 Restricted 5,091,639 1,754,946 0 0 5,091,639 1,754,946 Unrestricted 622.141 426.816 567,463 226,072 1.189.604 652.888 Total net assets $2.215.288 $698.733 $2.583.403 $2.323.205 $4.798.691 $3.021.93^ A portion ($5,091,639) of the City of Parkville's net assets represents resources that ar e subject to external restrictions on how they may be used. An additional portion of the City of Parkville's net assets (approximately 25 percent) reflect the balance ofunrestricted net asset s ($1,189,604) that may be used to meet the government's ongoing obligations to citizens and creditors. -6- Revenues: Program revenues: Charges for services Operating grants and contributions Capital grants and contributions General revenues: Property taxes Transportation taxes Other taxes Franchise taxes Sales taxes Licenses and permits Other Transfers Sale of Capital Assets Unrestricted invest- ment earnings Total revenues Expenses: General government Public safety Municipal Court Public works Economic development Culture and recreation Interest on long-term debt Sewer Grinder pump Total expenses Change in net assets Net assets -1/1/07 Prior period adjustments Net assets - 1/1/06 (restated) Net assets - 12/31/07 c Government 2007 $514,602 114,304 1,433,647 1,112,720 5,930 666,839 1,539,184 (227,640) 347,361 309.615 5.816,562 1,050,407 1,036,955 143,544 1,299,433 283,184 47,579 438,905 0 4.300.007 1,516,555 698,733 0 0 $2,215,288 "ity of ParkviIIe Changes in Net Assets :al activities Business-type activities 2006 2007 2006 $574,719 $970,778 $1,028,410 32,576 0 0 805,367 0 0 1,030,254 4,101 496,479 1,511,586 227,640 193.820 295 93.140 4,648.902 1,198,713 1,121,550 843,143 976,696 125,744 1,331,631 301,758 56,989 445,167 888,542 987,158 0 49,973 274.367 4.081.128 938,515 1,261.525 567,774 260,198 (139,975) 19,852,455 2,323,205 598,141 fl9.721.496) 0 $1.865.039 130.959 0 $2,463,180 $698,733 $2,583,403 $2.323.205 Tota 2007 $1,485,380 114,304 1,433,647 1,112,720 5,930 666,839 1,539,184 0 347,361 309.910 7,015,275 1,050,407 1,036,955 143,544 1,299,433 283,184 47,579 438,905 888,542 49.973 5.238.522 1,776,753 3,021,938 0 0 $4,798,691 1 2 $1,603, 32, 805, 1,030, 4, 496, 1,511, 286. 5,770, 843, 976, 125, 1,331, 301, 56, 445, 987, 274. 5,342, 427. 20,450, (17,856,4 2,594, $3.021, ;006 ,129 ,576 ,367 ,25 4 ,101 ,47 9 586 960 452 143 696 744 631 758 989 167 15 8 367 653 799 596 •57) 139 938 -7- Governmental activities. Governmental activities increased the City of Parkville's net assets by $1,516,555, and business-type activities increased by $260,198, affecting a total net gain of $1,776,753. Key elements of this increase ar e a s follows: a In the Change in Net Assets table, property taxes report an increase of $82,466 in the current fiscal year, about 8%. Franchise taxes were up $170,360 due to the releas e of protested funds held in escrow. Sale s taxes increased slightly, $27,598, les s than 2%. a Another main source of increase in net assets is in unrestricted investment earnings. An increase of $115,795 come s predominately from Neighborhood Improvement District construction funds including Brink Meyers Road and Brush Creek projects. Operating grants for governmental activities increased by $81,728. The new grant awards included $59,449.80 FEMA assistanc e for the May, 2007 flood, a $49,277.00 grant from Platte County for Rush Creek, and $2,323 for Police Training. a Capital grants and contributions include the River Park bond, and Parkville Special Road District contributions, hi 2007 they were $333,599 and $100,047 respectively. For the most part, increases in expenses , 5%, closely paralleled inflation and growth in the demand for services. a -8- Revenues by Source - Governmental Activities Unrestricted investment earnings 5% Sale s taxeqSB i 27% Franchise taxg^ 12% '"'asw Charges for services 9% Operatin g grants and contributions Mteas 2% Capital grants and contributions 25% -9- Business-type activities. The change in net assets for business-type activities increased the City of Parkville's net assets by $260,198. The net assets for business-type activities in the current fiscal year are $2,583,403, approximately 54 percent of the total primary government activities. Expenses and Program Revenues - Business-type Activities I D Expenses • Program revenue s Sewe r Grinde r pum p Revenues by Source - Business-type Activities E Sewe r charges • Grinde r pum p fees D Other charges Financial Analysis of the Government's Funds As noted earlier, the City ofParkville use s fund accounting to ensure and demonstrate compliance with finance-related legal requirements. -10- Governmental funds. The focus of the City ofParkville's governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City of Parkville's financing requirements, hi particular, unreserved fund balance may serve a s a useful measure of a government's net resources available for spending at the end of the fiscal year. As mentioned earlier in this analysis, a t the end of the current fiscal year, the City of Parkville's governmental funds reported combined ending fund balances of $8,368,207. Of that, $31,829 is reserved or designated to indicate that it is not available for new spending because it has already been committed to prepaid items in general fund ($31,170 employee health insurances) and capital projects fund ($659 salt & sand, and other items ordered in December, 2007 and paid in January, 2008). The general fund is the chief operating fund of the City of Parkville. At the end of the current fiscal year, unreserved, undesignated fund balance of the general fund was $653,914, while total fund balance reached $685,084. As a measure of the general fund's liquidity, it may be useful to compare both unreserved fund balance and total fund balance to total fund expenditures. Unreserved, undesignated fund balance represents 21.3 percent of total general fund expenditures, while total fund balance represents 22.3 percent of that same amount. The fund balance of the City ofParkville's general fund increased by $189,147 during the current fiscal year. Overall, expenditures and revenues reflect the City's conservative approach in establishing a reliable budget. Although the sale s tax revenue was $77,191 less than budgeted and Court revenues were $51,231 less, all other revenue sources exceeded the budget projections with an overall variance of positive $141,433. Further, expenditures were $47,714 less than expected. The debt service fund has a total fund balance of $172,159, all of which is reserved for the payment of debt service. A net decrease in the fund balance during the current year of $12,195 was due to the total revenues (taxes, special assessments, investment earnings, and transfers in) of $828,883 , and total expenditures (principal, interest, and fees) of $841,078. This reduction was budgeted with the application of existing debt service funds toward bond payments. The capital projects fund has a total fund balance of $6,311,155. The prepaid amount of $659 included in this total is from a prior year purchase in the street department. Proprietary funds. The City of Parkville's proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. Unrestricted net assets of the Sewer Service at the end of the year total $567,463. The Grinder pump repair fund is in the process of being made inactive by means of transferring the related assets and obligations to the Riss Lake Home Owners Association. The Grinder pump fund balance, $34,792, comes from machinery and equipment valued at $49,703 less $14,911 depreciation. Other factors concerning the finances of these two funds have already been addressed in the discussion of the City of Parkville's business-type activities. -11- General Fund Budgetary Highlights There were no amendments to the general fund budget for the current fiscal year. Revenues were slightly more than four percent above projected figures and expenditures were one and one-half percent below expected amounts. General fund revenues were $141,433 more than projected. Contributing factors include an increase in property taxes of $17,023 due to new homes construction and $140,839 increase in utilities franchise fees that includes the release of portions of accumulated revenues held in escrow pending litigation. Revenues that fell below budget projections include sale s taxes a t $77,191 less than expected which is indicative of the economy a s a whole. Licenses and permit fees were also down due to a decline in new construction. Another are a of note, fines and fees, were $51,231 les s than budgeted and that decrease is attributed to a shortage of patrol personnel in the Police Department. Intergovernmental revenues show the greatest increase, $61,773 and is attributed to the FEMA and police training grants mentioned earlier in this report. General fund expense s were $47,714 les s than projected. The largest portion of costs over budget occurred in professional fees , legal and engineering, incurred by administrative needs. Construction of a second nature sanctuary, Sullivan, also resulted in expenditures greater than budgeted. Lastly, vehicle ga s prices soared across the nation and patrol car s and street department vehicles and equipment gasoline expenses exceeded that part of the budget. All other departments effectively kept overall expenditures under budget with the greater savings in Community Development at 11.6% under, Court at 8.7%, Police Department at 5%, and Street Department at 4%. Capital Asset and Debt Administration Capital assets. The City ofParkville's investment in capital assets for its governmental and business- type activities a s of December 31, 2007, totals $14,532,485. City ofParkville's Capital Assets (net of depreciation) Buildings and improvements Machinery and equipment Infrastructure Land Construction in process Infrastructure not being depreciated Total Governmental activities 2007 $3,871,284 472,769 42,111 806,486 1,105,892 3,410,303 $9.708,845 Business- type activities 2007 $3,292,846 61,630 1,272,335 59,975 136,854 0 $4,823,640 Total 2007 $7,164,130 534,399 1,314,446 866,461 1,242,746 3,410,303 $14,532,485 -12- During 2006, the City entered into a leas e agreement with First Bank of Missouri to construct a new City Hall. The construction started in the fall of 2006. initial expenditures for the City during 2006 were $1,749,303, including $ 250,000 for land. Construction costs during 2007 were $2,035,562. Total project costs were estimated to be $3,570,000 and actual costs totaled $3,784,865. Additional capital projects included $213,183 for stree t asphalt overlay, and $34,814 for curb and sidewalk repairs. Additional information on the City ofParkville's capital assets ca n b e found in note 5, page 41 of this report. Long-term debt. At the end of the current fiscal year, the City of Parkville had total debt outstanding of$16,107,066. Cit y o f Parkville's Outstanding Debt General Obligatio n an d Revenue Bond s Governmental activities____Business-typ e activities_______Total_____ _____2007_____2006____2007____2006_____2007_____2006 General obligatio n bonds $ 3,374,446 $ 3,665,000 $ 3,374,446 $ 3,665,000 Accreted interes t payable 30,554 65,000 30,554 65,000 Revenu e bond s $ 2,640,000 $ 2,815,00 0 2,640,000 2,815,000 NI D Limite d Obligatio n Temp Note s 6,275,000 6,275,000 Certificate s o f Participatio n 6,330,000 6,405,000 6,330,000 6,405,000 Compensated Absences 62,943 69,12 1 2,97 3 2,52 1 65,91 6 71,64 2 Capita l leases/lease-purchase 34,123____53,35 3 213,582 221,686 247,705 275,039 Total $ 16,107,06 6 $ 10,257,47 4 $ 2,856,555 $ 3,039,207 $ 18,963,62 1 $ 13,296,68 1 The City ofParkville's total debt increased by $5,666,940 (42.6 percent) during the current fiscal year . Economic Factors and Next Year's Budgets and Rates For 2008, the City of Parkville is expecting Property Tax revenue to increase about 6.2%. This represent s normal growth for the City of Parkville. Building permits ar e anticipated to remain constant a t about $160,000. The City is expecting Franchise fees to increase about 18 % over 2007 budget due to telecommunications tax being collected. Before 2007 telecommunications companies were not paying the 5% fee on cell phones usage . The City expects Sale s Tax to remain constant over 2007. Over all City of Parkville is expecting normal growth. -13- CITY OF PARKVILLE, MISSOURI STATEMENT OF NET ASSETS December 31,2007 Assets: Cash and cash equivalents Receivables, net of allowance foruncollectibles: Taxes Accounts Other Restricted cash and investments Deferred charges Prepaid items Capital assets not being depreciated: Land Construction in process Infrastructure Capital assets , net of accumulated depreciation: Buildings and improvements Machinery and equipment Infrastructure Total assets Liabilities: Accounts payable and other current liabilities Accrued interest payable Customer deposits Unearned revenue Noncurrent liabilities: Due within one year Due in more than one year Total liabilities Net assets: Invested in capital assets, net of related debt Restricted for: Debt service Capital projects Other purposes Unrestricted Total net assets Governmental Business-type Activities Activities Total $ 1,541,978 $ 365,716 $ 1,907,694 1,654,160 - 1,654,160 34,097 121,963 156,060 191 - 191 6,748,605 175,223 6,923,828 232,596 128,047 360,643 31,829 320 32,149 806,486 59,975 866,461 1,105,892 136,854 1,242,746 3,410,303 - 3,410,303 3,871,284 3,292,846 7,164,130 472,769 61,630 534,399 42,111 1,272,335 1,314,446 19,952,301 320,609 143,075 - 1,322,044 383,930 15,567,355 17,737,013 5,614,909 40,336 5,274 13,485 - 203,088 2,769,323 3,031,506 25,567,210 360,945 148,349 13,485 1,322,044 587,018 18,336,678 20,768,519 (3,498,492) 2,015,940 (1,482,552) 29,084 - 29,084 3,862,746 - 3,862,746 1,199,809 - 1,199,809 622,141 567,463 1,189,604 $ 2,215,288 $ 2,583,403 $ 4,798,691 See accompanying notes to basic financial statements. -14- CITY OF PARKVILLE, MISSOURI STATEMENT OF ACTIVITIES Year Ended December 31, 2007 Functions/Programs Primary government Governmental activities General government Public safety - police Public safety - court Public works Culture and recreation Economic development Interest on long-term debt Total governmental activities Business-type activities Sewer Grinder pump Total business-type activities Total government General revenue s Unrestricted investment earnings Gain on sale of capital assets Total general revenues 3,754,009 Net assets, beginning of year Net assets, end of year $ $ Char Expenses Se i 1,050,407 $ 1,036,955 143,544 1,299,433 47,579 283,184 438,905 4,300,007 888,542 49,973 938,515 5,238,522 $ 1 Property tax Franchise tax Sales tax Other taxes Transfers Change in net assets ges for rvices 299,401 3,210 195,186 (1,299,433) - (1,299,433) 16,805 - (438,905) 514,602 943,258 27,520 970,778 ,485,380 (227,640) 4,254 54,716 (22,453) Progra C G Co $ $ .m Revenues )perating Grants and ntiibutions 110,050 - - - 114,304 - 114,304 ( C $ $ Capital 3rants and G ontnbutions 1,433,647 $ (1,029,491) - (1,029,491) - - .- 1,433,647 - 1,433,647 $ N overnmental Activities 792,691 51,642 (30,774) (283,184) (2,237,454) - (2,237,454) 1,112,720 666,839 1,539,184 5,930 309,615 347,361 1,516,555 698,733 2,215,288 et (Exp Chang BL $ (2,237,454) $ ense ) Revenue; :e s in Net Asset; ismess-Type Activities $ 792,691 - - - 32,263 32,263 - - - - 295 - 227,640 227,935 260,198 2,323,205 2,583,403 and 3 Total 51,642 (30,774) (283,184) (438,905) 54,716 (22,453) 32,263 (2,205,191) 1,1)2,720 666,839 1,539,184 5,930 309,910 347,361 - 3,981,944 1,776,753 3,021,938 $ 4,798,691 See accompanying notes to basic financial statements CITY OF PARKVILLE, MISSOURI BALANCE SHEET GOVERNMENTAL FUNDS Decembe r 31,2007 Assets: Cas h and cas h equivalents Receivables (net of allowance for uncollectibles)' Taxes Accounts Other Restricted cas h and investments Prepaid items Total assets Liabilities and fund balances : Liabilities: Accounts payable Accrued payroll liabilities Deferred revenue Total liabilities Fund balances: Reserved for: Prepaid items Unreserved, reported in: General fund Special revenue funds Capital projects funds Permanent fund Debt service fund Total fund balance s Total liabilities and fund balance s See accompanying notes to basi c financial statements . General $ 389,405 1,136,155 3,988 - 6,217,603 31,170 $ 1,560,718 $ 66,945 25,645 783,044 875,634 31,170 653,914 684,958 - - 172,159 685,084 $ 1,560.718 Capital Projects $ 253,892 518,005 30,109 - 659 $ 6,502,263 $ 191,10 8 - 539,000 191,10 8 659 - 6,310,496 - 6,311,155 $ 6,502,263 Other Governmental Debt Service Funds $ 177,003 $ 721,678 - 191 16,151 514,851 - $ 711,159 $ 1,236,720 S - $ 36,911 - 539,000 36,911 - 6,310,496 514,851 172,159 1,199,80 9 $ 711,159 $ 1,236,720 Total Governmental Funds $ 1,541,978 1,654,160 34,097 191 6,748,605 31,829 $ 10,010,860 $ 294,964 25,645 1,322,044 1,642,653 31,829 653,914 684,958 514,851 172,159 8,368,207 $ 10,010,860 CITY OF PARKVILLE, MISSOURI RECONCILIATION OF THE BALANCE SHEET OF THE GOVERNMENTAL FUNDS TO THE STATEMENT OF NET ASSETS December 31,2007 Total fund balance in Governmental Fund Balance Sheet $ 8,368,207 Amounts reported for governmental activities in the statement of net assets are different because: Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. 9,708,845 Long-term liabilities, including bonds payable, are not due and payable in the current period and therefore are not reported in the funds. (15,861,764) Net assets of governmental activities $ 2,215,288 See accompanying notes to basic financial statements. -17- CITY OF PARKVILLE, MISSOURI STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS Year Ended December 31, 2007 Revenues: Taxes Licenses and permits Intergovernmental Charges for services Fines and fees Special assessments Investment earnings Miscellaneous Total revenue s General 2,956,671 219,819 61,773 25,816 191,469 26,588 38,997 3,521,133 Expenditures: Current: General government 648,189 Public safety - police 964,163 Public safet y - court 143,50 5 Public works 975,997 Economic development 281.183 Debt service: Principal Interest Bond issuance cost s Other Capital outlay _______56,892 Total expenditures ______3,069,929 Excess (deficiency) of revenues over (under) expenditures S_____451,204 Capital Projects Debt Service Other Governmental Funds Total Governmental Funds 118,875 S 48,277 100,047 201,977 26,463 243,197 495,639 128,044 4,243,816 4,371,860 (3,876,221) 333,600 48,068 624,865 365,553 471,989 3,536 841,078 32,981 22,222 55,203 117,802 55,096 2,738 49,704 225,340 (216,213)(170,137) 3,318,743 219,819 110,050 25,816 191,469 433,647 309,614 87,682 4,696,840 765,991 964,163 143,505 975,997 281,183 420,649 474,727 128,044 3,536 4,350,412 8,508,207 (3,811,367) (Continued) CITY OF PARKVILLE, MISSOURI STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS (Continued) Year Ended December 31, 2007 Other financing sources (uses): Transfers in Transfers out Capital lease s Sale of capital assets Bonds issue d Total other financing sources (uses) Net change in fund balance s Fund balances, beginning of year Fund balances, end of year General $ (1.386,501) 1,124,444 (262,057) 189,147 495,937 S 685,084 Capital Projects S 726,602 (204,018) 6,275,000 6,797,584 2,921,363 3,389,792 $ 6,311,155 Debt Service $ $ 204,018 204,018 (12,195) 184,354 172,159 Other Governmental Funds S 432,259 35,86 6 468,125 297,988 901,821 S 1,199,809 Total Governmental Funds $ $ 1,362,879 (1,590,519) 35,866 1,124,444 6,275,000 7,207,670 3,396,303 4,971,904 8,368,207 See accompanying notes to basic financial statements . CITY OF PARKVILLE, MISSOURI RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES Year Ended December 31, 2007 Amounts reported for governmental activities in the statement of activities ar e different because : Net change in fund balances - total governmental funds $ 3,396,303 Governmental funds report capital outlays a s expenditures. However, in thestatement of activities the cost of those assets is allocated over their estimated useful lives and reported a s depreciation expense . 3,768,264 Revenues in the statement of activities that do not provide current financial resources ar e not reported a s revenues in the funds. 1,000,000 The net effect of various miscellaneous transactions involving capital assets (i.e., sales, trade-ins, and donations) is to decreas e net assets. (777,083) The issuance of long-term debt (e.g., bonds, leases ) provides current financial resources to governmental funds, while the repayment of the principal of long- term debt consumes the current financial resource s of governmental funds. Neither transaction, however, ha s any effect on net assets. Also, governmental funds report the effect of issuance costs, premiums, discounts and similar items when debt is first issued, whereas thes e amounts ar e deferred and amortized in the statement of activities. This amount is the net effect of thes e differences in the treatment of long-term debt and related items. (5,890,216) Some expense s reported in the statement of activities do not require the us e of current financial resource s and, therefore, ar e not reported a s expenditures in governmental funds.19,287 Change in net assets of governmental activities $ 1,516,555 See accompanying note s to basic financial statements. -20- CITY OF PARKVILLE, MISSOURI GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES - BUDGET AND ACTUAL Year Ended December 31, 2007 Revenues : Taxes: Property Franchise Sale s Intergovernmental Licenses and permits Charges for services Fines and fees Investment income Miscellaneous Total revenue s Expenditures: Administrative Police Court Public works Community development Street Parks Neighborhood development Nature sanctuary Channel 2/website Contingency Total expenditures Excess of revenue s over expenditures Other financing sources (uses): Transfer s out Sale of capital assets Total other financing sources (uses ) Net chang e in fund balance s Fund balances , beginning of yea r Fund balances , end of yea r Original and Final Budgeted Amounts 852,500 526,000 1,497,500 204,000 22,000 242,700 15,000 20,000 3,379,700 593,231 1,032,075 157,444 125,754 318,107 568,392 267,452 11,000 8,600 32,455 3,133 3,117,643 262,057 (262,057) (262,057) Actual Amounts $ 869,523 666,839 1,420,309 61,773 219,819 25,816 191,469 26,588 38,997 3,521,133 689,175 979,901 143,703 114,30 8 281,183 546,178 262,073 1,939 17,790 28,846 4,833 3,069,929 451,204 (1,386,501) 1,124,444 (262,057) 189,147 495,937 $ 685,084 See accompanying notes to basic financial statements. -21- CITY OF PARKVILLE, MISSOURI STATEMENT OF NET ASSETS PROPRIETARY FUNDS December 31,2007 Assets: Current assets: Cas h and cash equivalents Accounts receivable Restricted cash and investments Prepaid items Total current assets Noncurrent assets: Deferred charge s Capital assets: Land Buildings and improvements Machinery and equipment Construction in progress Infrastructure Less accumulated depreciation Total capital assets, net of accumulated depreciation Total noncurrent assets Total assets Liabilities: Current liabilities: Accounts payable and other current liabilities Accrued interest payable Accrued compensated absences Customer deposit s payable Current portion of revenu e bond s payable Current portion of leases payable Total current liabilities Noncurrent liabilities: Revenue bond s payable, net Lease s payable Total noncurrent liabilities Total liabilities Net assets: Invested in capital assets, net of related debt Unrestricted Total net assets Major Fund Non-Major Fund Sewer Grinder Pump Service Repair $ 365,716 S 121,96 3 175,22 3 320 663,222 128,047 59,975 4,767,271 194,40 6 49,703 136,854 1,847,350 (2,217,008) (14,911) 4,788,848 34,792 4,916,895 34,792 5,580,117 34,792 40,336 5,274 2,973 13,485 192,241 7,874 262,183 2,563,615 205,708 2,769,323 3,031,506 1,981,148 34,792 567,463 $ 2,548,611 $ 34,792 See accompanying notes to basic financial statements. -22- CITY OF PARKVILLE, MISSOURI STATEMENT OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS Year Ended December 31, 2007 Operating revenues: Charges for sales and services: Sewe r charges Grinder pump fees Total operating revenues Operating expenses : Costs of sale s and service s Administration Depreciation Total operating expense s Operating income (loss) Nonoperating revenues (expenses): Interest revenue Interest expens e Transfers in Total nonoperating revenues (expenses ) Change in net assets Total net assets (deficit), beginning of year Total net assets, end of year Major Fund Sewe r Service $ 943,258 943,258 466,961 87,736 287,936 842,633 100,625 295 (45,909) (45,614) 55,011 2,493,600 $ 2,548,611 Non-Major Fund Grinder Pump Repair $ 27,520 27,52 0 40,032 9,941 49,973 (22,453) 227,640 227,640 205,187 (170,395) $ 34,792 Total $ 943,258 27,520 970,778 466,961 127,768 297,877 892,606 78,172 295 (45,909) 227,640 182,026 260,198 2,323,205 $ 2,583,403 See accompanying notes to basic financial statements. -23- CITY OF PARKVILLE, MISSOURI STATEMENT OF CASH FLOWS PROPRIETARY FUNDS Year Ended December 31, 2007 Cash flows from operating activities: Receipts from customers Payments to suppliers Payments to employees Interfund reimbursements Net cash provided by (used in) operating activities Cash flows from financing activities: Noncapital transfers from other funds Cash flows from capital and related financing activities: Payments on leases payable Acquisition and construction of capital assets Principal paid on capital debt Interest paid on capital debt Net cash used in capital and related financing activities Cash flows from investing activities: Interest received Increase in cash and cash equivalents Cash, beginning of year Cash, end of year Cash consists of: Cash and cash equivalents Restricted deposits and investments Maj or Fund Non-Maj or Fund Sewer Grinder Pump Service Repair $ 930,726 $ 27,520 $ (440,707) (40,032) (87,284) 215,128 (215,128) 617,863 (227,640) 227,640 S: (8,104) (88,900) (175,000) (48,091) (320,095) 295 298,063 242,876 $ 540,939 $ - $ $ 365,716 $ - $ 175,223 $ 540,939 $ - $ (Continued) -24- Total 958,246 (480,739) (87,284) 390,223 227,640 (8,104) (88,900) (175,000) (48,091) (320,095) 295 298,063 242,876 540,939 365,716 175,223 540,939 CITY OF PARKVILLE, MISSOURI STATEMENT OF CASH FLOWS (Continued) PROPRIETARY FUNDS Year Ended December 31, 2007 Reconciliation of operating income (loss) to net cash provided by (used in) operating activities: Operating income (loss) Adjustments to reconcile operating income (loss) to net cash provided by (used in) operating activities: Depreciation expense Changes in assets and liabilities: Accounts receivable Due from (to) other funds Accounts payable Accrued compensated absence s Net cash provided by (used in) operating activities Major Fund Sewer Service Non-Major Fund Grinder Pump Repair 100,625 $ Total (22,453) $78,172 287,936 (12,532) 215,128 26,254 452 $ 617,863 $ 9,941 (215,128) (227,640) $ 297,877 (12,532) 26,254 452 390,223 See accompanying notes to basic financial statements. -25- CITY OF PARKVILLE, MISSOURI NOTES TO BASIC FINANCIAL STATEMENTS December 31,2007 1 - Summary of Significant Accounting Policies Reporting Entity The City of Parkville, Missouri (the City), is incorporated under the provisions of the State of Missouri a s a fourth class city, which operates under an elected Mayor/Board of Aldermen form of government. Government-Wide and Fund Financial Statements The government-wide financial statements (i.e., the statement of net assets and the statement of activities) report information on all of the activities of the government. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead a s general revenues. Separate financial statements are provided for governmental funds and proprietary funds. Major individual governmental funds and the major individual enterprise fund are reported a s separate columns in the fund financial statements. Measurement Focus, Basis of Accounting, and Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, a s are the proprietary fund financial statements. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized a s revenues in the year for which they are levied. Grants and similar items are recognized a s revenue a s soon a s all eligibility requirements imposed by the provider have been met. -26- CITY OF PARKVILLE. MISSOURI NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 1 - Summary of Significant Accounting Policies (Continued) Measurement Focus, Basis of Accounting, and Financial Statement Presentation (Continued) Governmental fund financial statement s ar e reported using the current financial resource s measurement focus and the modified accrual basi s of accounting. Revenues ar e recognized a s soon a s they ar e both measurable and available. Revenues ar e considered to b e available when they ar e collectible within the current period or soon enough thereafter to pay liabilities of the current period. A 90-day availability period is use d for revenue recognition for all governmental funds revenues except property taxes for which a 60-day availability period is used . Expenditures generally ar e recorded when a liability is incurred, a s under accrual accounting. However, debt service expenditures, a s well a s expenditures related to compensated absence s and claims and judgments, ar e recorded only when payment is due. In applying the susceptible to accrual concept to intergovernmental revenues, the legal and contractual requirements of the numerous individual programs ar e use d a s guidance. There are, however, essentially two types of thes e revenues, hi one, monies must be expended for the specific purpose or project before any amounts will be paid to the City; therefore, revenues ar e recognized based upon the expenditures recorded. £1 the other, monies ar e virtually unrestricted a s to purpose of expenditure and ar e usually revocable only for failure to comply with prescribed requirements. Thes e resource s ar e reflected a s revenues a t the time of receipt, or earlier if the susceptible to accrual criteria ar e met. Property taxes, sale s taxes, franchise taxes, interest associated with the current fiscal period, and certain state and federal grants and entitlements ar e all considered to be susceptible to accrual and so have been recognized a s revenues of the current fiscal period. Only the portion of special assessment s receivable due within the current fiscal period is considered to be susceptible to accrual a s revenue of the current period. All other revenue items are considered to b e measurable and available only when cas h is received by the City. While property taxes ar e shown on the balance shee t a s current assets of the City, they ar e not recognized a s revenue a t year end because statutory provisions prohibit their us e until the year for which they were raised and budgeted. Instead, they ar e offset by deferred revenue accounts . -27- CITY OF PARKVILLE, MISSOURI NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 1 - Summary of Significant Accounting Policies (Continued) Measurement Focus, Basis of Accounting, and Financial Statement Presentation (Continued) The City reports the following major governmental funds: General Fund - This fund is the City's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. Debt Service - This fund accounts for the accumulation of resources for, and the payment of, principal and interest on long-term general obligation debt of governmental funds. Capital Projects - This fund accounts for the financing and acquisition and construction of various citywide improvements. The City reports the following major proprietary fund: Sewer Service - This fund accounts for the provision of waste and sewer services to the general public. All activities necessar y to provide such services ar e accounted for in this fund, including administration, operations, maintenance, financing and related debt service, and billing and collection. Private-sector standards of accounting and financial reporting issued prior to December 1, 1989 , generally ar e followed in both the government-wide and proprietary fund financial statements to the extent that those standards d o not conflict with or contradict guidance of the Governmental Accounting Standards Board. Governments als o have the option of following subsequent private-sector guidance for their business-type activities and enterprise funds, subject to this sam e limitation. The City ha s elected not to follow subsequent private-sector guidance. As a general rule the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule ar e charges between the City's sewer and grinder pump function and various other functions of the City. Elimination of these charge s would distort the direct costs and program revenues reported for the various functions concerned. -28- CITY OF PARKVILLE, MISSOURI NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 1 - Summary of Significant Accounting Policies (Continued) Measurement Focus, Basis of Accounting, and Financial Statement Presentation (Continued) Amounts reported a s program revenues include 1) charges to customers or applicants for goods, services, or privileges provided, 2) operating grants and contributions, and 3) capital grants and contributions, including special assessments . Internally dedicated resource s ar e reported a s general revenues rather than a s program revenues. Likewise, general revenues include all taxes. Proprietary funds distinguish operating revenues and expense s from nonoperating items. Operating revenues and expense s generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the sewer fund and the grinder pump fund ar e charges to customers for sale s and services. Operating expense s for the sewer fund and the grinder pump fund include the cost of sale s and services, administrative expenses, and depreciation on capital assets. All revenues and expense s not meeting this definition ar e reported a s nonoperating revenues and expenses . When both restricted and unrestricted resources are available for use, it is the City's policy to us e restricted resource s first, then unrestricted resources a s they ar e needed. Cash. Cash Equivalents and Investments Cash and investments of the individual funds ar e combined to form a pool which is managed by the Finance Department. Each fund's equity in the pool is included in "cash and cas h equivalents" in the financial statements. Investment earnings, including interest income, ar e allocated to the funds required to accumulate interest. If a fund is not required to account for its own earnings by law or regulation, the earnings are allocated to the General Fund. Missouri state statute s authorize the City, with certain restrictions, to deposit funds in open accounts and certificates of deposit. Missouri state statute s also require that collateral pledged must have fair market value equal to 100% of the funds on deposit, les s amounts insured by federal deposit insurance. Collateral securities must be held by the City or a disinterested third party and may include U.S. Government and government agency bonds and securities; general obligation bonds of any of the 50 states ; general obligation bonds of any Missouri county, certain cities, and special districts; and revenue bonds of certain Missouri agencies. Obligations pledged to secur e deposits ar e delivered to the banks' joint custody accounts a t the custodial bank. Written custodial agreements ar e required that provide, among other things, that the collateral be held separat e from the assets of the custodial bank. -29- CITY OF PARKVILLE, MISSOURI NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 1 - Summary of Significant Accounting Policies (Continued) Statement of Cash Flows The City's cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. Receivables and Payables Activities between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to a s "due to/from other funds" (i.e., the current portion ofinterfund loans). Any residual balances outstanding between the governmental activities and business-type activities ar e reported in the government-wide financial statements a s "internal balances." All trade accounts receivable ar e shown net of an allowance for uncollectibles. Management records a trade accounts receivable allowance based on percentages of collection estimated from the aging of accounts receivable. At December 31, 2007, management determined that no allowance was necessary. Governmental funds report deferred revenue in connection with receivables for revenues that are not considered to be available to liquidate liabilities of the current period. Governmental funds deferred revenue is reported a s follows: General fund property tax receivable $ 783,044 Debt service fund property tax receivable 539,000 $ 1,322,044 Property Taxes Property taxes ar e legally restricted for use in financing operations of the ensuing year. Accordingly, the City defers revenue recognition until the year for which they are to be used. -30- CITY OF PARKVILLE, MISSOURI NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 1 - Summary of Significant Accounting Policies ('Continued') Property Taxes (Continued') The City's property taxes ar e levied eac h November 1 based on the assessed value a s of the prior January 1 for all real property and personal property located within the City. Property taxes ar e billed immediately following the levy dat e and considered delinquent after December 31 following the levy date . Assessed values are established by county assessors, subject to review by the county's Board of Equalization. The City is permitted by Missouri state statute s t o levy taxes up to $ 1.00 per $ 100 of assessed valuation for general governmental service s other than the payment of principal and interest on long-term debt and in unlimited amounts for the payment of principal and interest on long-term debt. The tax levy per $ 10 0 of assessed valuation which supports the 2007 budget was: General Fund $ 0.4860 Capital Projects Fund 0.0960 Debt Service Fund 0.0618 $ 0.6438 Taxe s receivable represent property taxes levied for 2007 and prior year s that have not yet been collected, net of estimated uncollectibles. Prepaid Items Certain payments to vendors reflect costs applicable to future accounting periods and ar e recorded a s prepaid items in both government-wide and fund financial statements. Restricted Cas h and Investments The City is statutorily required to maintain customer utility deposits separat e from City assets. Restricted cas h and investments ar e als o set asid e for debt service payments and for required debt reserves . -31- CITY OF PARKVILLE, MISSOURI NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 1 - Summary of Significant Accounting Policies (Continued) Capital Assets Capital assets, which include property, plant, equipment, infrastructure (e.g., roads, bridges, sidewalks and similar items) and construction in progress are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. As the City is a Phas e III government under Governmental Accounting Standards Board Statement No. 34 (GASB 34), it has elected to exercise fts option to forego retroactively reporting governmental infrastructure assets acquired prior to December 31, 2003. Governmental infrastructure assets on the statement of net assets include only roads, bridges, sidewalks and similar items acquired subsequent to December 31, 2003. Capital assets, excluding land, are defined by the City a s assets with a cost of more than $ 2,500 and an estimated useful life of a t least one year. All land purchases are capitalized regardless of cost. All purchased capital assets are valued at cost where historical records are available and a t an estimated historical cost where no historical records exist. Donated capital assets are valued at their estimated fair market value on the date received. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend the life of the asse t are not capitalized. Major outlays for capital improvements are capitalized a s projects are constructed. Interest incurred during the construction phase of capital assets of the business-type activities is included a s part of the capitalized value of the assets constructed. There was no interest capitalized during the year ended December 31, 2007. The City defines infrastructure a s the basic physical assets that allow the City to function. The assets include the street network, storm drainage network, and pedestrian and vehicle bridges and buildings combined with the site amenities such a s parking and landscaped area s used by the City in the conduct of its business. Each major infrastructure network can be divided into subsystems. For example, the street network can be subdivided into pavement, curbs, gutters, sidewalks, land, medians, etc. These networks and subsystems are not delineated in the basic financial statements. -32- CITY OF PARKVILLE, MISSOURI NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 1 - Summary of Significant Accounting Policies (Continued') Capital Assets (Continued) Governmental street and parking lot assets ar e reported using the modified approach a s defined in GASB Statement 34 for infrastructure reporting of these assets. When using the modified approach, only those projects that add efficiency or capacity to street and parking lot assets are capitalized. Street and parking lot assets ar e not depreciated. Expenditures that preserve those assets are expensed. Capital assets are depreciated using the straight-line method over the following estimated useful lives: Buildings Sewer plant and collection system Machinery and equipment Infrastructure 20 - 40 years 20-50 years 5-7 years 35 years Compensated Absences City policies permit full-time employees to accumulate sick pay benefits and vacation time based on the number of years of service. Accumulated vacation payable is accrued when incurred in the government-wide financial statements and proprietary fund statements. In the governmental fund financial statements, a liability is accrued when it has matured, for example, a s a result of employee resignations and retirements. Long-Term Obligations In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported a s liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net assets. Bond premiums and discounts, a s well a s issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are reported a s deferred charges and amortized over the term of the related debt. -33- CITY OF PARKVILLE, MISSOURI NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 1 - Summary of Significant Accounting Policies (Continued) Long-Term Obligations (Continued') In the fund financial statements, governmental fund types recognize bond premiums and discounts, a s well a s bond issuance costs, during the current period. The face amount of debt issued is reported a s another financing source. Premiums received on debt issuances ar e reported a s other financing source s while discounts on debt issuances ar e reported a s other financing uses . Issuance costs, whether or not withheld from the actual debt proceeds received, ar e reported a s debt service expenditures. Fund Balance hi the fund financial statements, governmental funds report reservations of fund balance for amounts that ar e not available for appropriation or ar e legally restricted by outside parties for us e for specific purposes. Concentration of Credit Risk Unsecured credit is extended to customers for sewe r and grinder pump fees. Credit is extended to citizens for special assessment s levied by the City for capital improvements. Thes e assessment s ar e secured by loans on the related properties. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities a t the date of the financial statements and the reported amounts of revenues and expense s during the reporting period. Actual results could differ from those estimates. -34- CITY OF PARKVILLE, MISSOURI NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 1 - Summary of Significant Accounting Policies (Continued) Pending Governmental Accounting Standards Board Statements At December 31, 2007, the Governmental Accounting Standards Board (GASB) had issued several statements not yet implemented by the City. The statements that might impact the City are a s follows: GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, was issued in June 2004. This statement establishes standards for the measurement, recognition and display of other postemployment benefits (OPEB) expense/expenditures and related liabilities (assets), note disclosures, and, if applicable, required supplementary information in the financial reports of state and local governmental employers. The term "other postemployment benefits" refers to postemployment benefits other than pension benefits and includes (a) postemployment healthcare benefits and, (b) other types of postemployment benefits (i.e., life insurance) if provided separately from a pension plan. The provisions of this statement are effective for periods beginning after December 15, 2008. GASB Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obligations, was issued in November 2006. The provisions of this statement are effective for periods beginning after December 15, 2007. This statement addresse s accounting and financial reporting standards for pollution (including contamination) remediation obligations, which ar e obligations to addres s the current or potential detrimental effects of existing pollution by participating in pollution remediation activities such a s site assessment s and cleanups. The scope of the document excludes pollution prevention or control obligations with respect to current operations, and future pollution remediation activities that ar e required upon retirement of an asset, such a s landfill closure and postclosure care and nuclear power plant decommissioning. GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets, was issued in June 2007. This statement establishes standards for when and whether intangible assets should be considered capital assets for financial reporting purposes. It requires that all intangible assets not specifically excluded by its scope provisions be classified a s capital assets. Accordingly, existing authoritative guidance related to the accounting and financial reporting for capital assets should be applied to thes e intangible assets, a s applicable. This statement also provides authoritative guidance that specifically addresse s the nature of these assets. Such guidance should be applied in addition to the existing authoritative guidance for capital assets. The provisions of this statement ar e effective for periods beginning after June 15, 2009. -35 - CITY OF PARKVILLE, MISSOURI NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 2 - Reconciliation of Government-Wide and Fund Financial Statements Explanation of Certain Differences Between the Governmental Fund Balance Shee t and the Government-Wide Statement of Net Assets The governmental fund balance shee t includes a reconciliation between fund balance - total governmental funds and net assets of governmental activities a s reported in the government-wide statement of net assets. One element of that reconciliation explains that "long-term liabilities, including bonds payable, are not due and payable in the current period and therefore ar e not reported in the funds." The details of this $ (15,861,764) difference ar e a s follows: Bonds payable $ (3,405,000) Certificates of participation payable (6,330,000) Neighborhood Improvement District Limited General Obligation Temporary Notes (6,275,000) Capital lease s payable (34,123) Accrued interest payable (143,075) Compensated absence s (62,943) Issuance discount 52,848 Costs of issuance 232,596 Deferred refunding difference 102,93 3 Net adjustment to reduce fund balance - total governmental funds to arrive at net assets - governmental activities $ (15,861,764) -36- CITY OF PARKVILLE, MISSOURI NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 2 - Reconciliation of Government-Wide and Fund Financial Statements (Continued) Explanation of Certain Differences Between the Governmental Fund Statement of Revenues, Expenditures and Changes in Fund Balances and the Government-Wide Statement of Activities The governmental fund statement of revenues, expenditures, and changes in fund balances includes a reconciliation between net changes in fund balances - total governmental funds and changes in net assets of governmental activities as reported in the government-wide statement of activities. One element of that reconciliation explains that "Governmental funds report capital outlays a s expenditures. However, in the statement of activities the cost of those assets is allocated over their estimated useful lives and reported a s depreciation expense." The details of this $ 3,768,264 difference are a s follows: Capital outlay Depreciation expens e Net adjustment to increase net change in fund balance s -total governmental funds to arrive a t change in net assets of governmental activities $ 3,986,769 ______(218,505) $ 3,768,264 -37- CITY OF PARKVILLE, MISSOURI NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 2 - Reconciliation of Government-Wide and Fund Financial Statements ('Continued') Explanation of Certain Differences Between the Governmental Fund Statement of Revenues, Expenditures and Changes in Fund Balances and the Government-Wide Statement of Activities (Continued) Another element of that reconciliation states that "The issuance of long-term debt (e.g., bonds, leases ) provides current financial resource s to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of issuance costs, premiums, discounts, and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities." The details of this $ (5,890,216) difference ar e a s follows: Debt issued or incurred: Issuance of Neighborhood Improvement District Limited General Obligation Temporary Notes Capital lease financing Principal repayments: General obligation bonds Certificates of Participation Leases $ (6,275,000) (35,866) 290,554 75,000 55,096 Net adjustment to decreas e net changes in fund balances - total governmental funds to arrive at changes in net assets of governmental activities $ (5,890,216) Another element of that reconciliation states that "Some expense s reported in the statement of activities do not require the us e of current financial resources and therefore are not reported a s expenditures in governmental funds." The details of this $ (19,286) difference are a s follows: Compensated absence s Accrued interest Amortization of issuance costs Amortization of deferred refunding difference Amortization of bond discounts Accretion of interest-capital appreciation bonds $ 6,178 4,912 (12,634) (10,834) (2,782) 34,446 Net adjustment to increase net changes in fund balances - total governmental funds to arrive at changes in net assets of governmental activities $ 19,286 -38- CITY OF PARKVILLE, MISSOURI NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 3 - Stewardship, Compliance and Accountability Budgets and Budgetary Accounting Missouri statutes require that all political subdivisions of the State prepare an annual budget. Governmental funds required to have legally adopted annual budgets ar e the general fund, the special revenue funds, and the debt service fund. Legally adopted annual budgets ar e not required for the capital projects fund and the permanent fund. Annual budgets for all governmental funds are adopted using the modified accrual basis of accounting, further modified by the encumbrance method of accounting, that is, commitments such a s purchase orders, contracts and other commitments, in addition to disbursements and accounts payable are recorded a s expenditures. Budgeted expenditures cannot exceed budgeted revenues and unencumbered positive fund balances a s required by Section 67.010 RSMo. The appropriated budget is prepared by fund, function, and department. State statutes set the legal level of budgetary control a t the fund level (i.e., the level at which expenditures may not legally exceed appropriations). Department heads may make transfers of appropriations within their departments. Upon written request, the City Administrator or the Board of Aldermen may by ordinance transfer part or all of any unencumbered appropriate balance from one department to another. The reported budgetary data represents the final approved budget after amendments a s adopted by the Board of Aldermen. -39- CITY OF PARKVILLE, MISSOURI NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 4 - Deposits and Investments As of December 31, 2007, the City had the following deposits and investments: Reported Amount/ Fair Value US Treasuries Deposits Guaranteed investment contracts Federated treasury obligation fund $ 568,517 7,390,013 190,076 682,916 $ 8,831,522 Reconciliation of Government-wide Statement of Net Assets to total deposits and investments: Cash and cash equivalents $ 1,907,694 Restricted cash and investments ____6,923,828 Total deposits and investments $ 8,831,522 Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The City does not have a formal investment policy that limits investment maturities a s a means of managing its exposure to fair value losses arising from increasing interest rates. It is the City practice to place operating funds in either money market accounts or Treasury Bills with 3 to 6 month maturities. All longer-term investments are placed in certificates of deposit or Treasury securities having maturities of 1 to 5 years. These consist of funds whose use is restricted and are unlikely to be needed prior to maturity (e.g. the Fewson Trust and Sewer Debt Reserve). -40- CITY OF PARKVILLE, MISSOURI NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 4 - Deposits and Investments Credit Risk Missouri statute s prohibit municipalities from investing in derivative, leveraged, or speculative securities. City agents invest funds for restricted debt reserves and unexpended debt proceeds in money market mutual funds, guaranteed investment contracts and repurchase agreements. The City's investments in money market mutual funds are rated AAA by Standard & Poor's, and the repurchase agreements and guaranteed investment contracts are unrated. Custodial Credit Risk-Deposits In the case of deposits, this is the risk that in the event of a bank failure, the City's deposits may not be returned. As of December 31, 2007, the carrying amount of the City's deposits was $ 7,860,738. The City had bank balances of deposits of $ 7,390,013 which were covered by federal depository insurance or by collateral held by the City's agent in the City's name. The City does not have a formal deposit policy for custodial credit risk. It is City practice to require banks to provide collateral equal to any deposited amounts exceeding federal depository insurance limits. Custodial Credit Risk-Investments For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the City will not be able to recover the value of its investments or collateral securities that ar e in the possession of an outside party. At December 31, 2007, the City's investments were not exposed to custodial credit risk. -41- CITY OF PARKVILLE, MISSOURI NOTES TO BASIC FINANCIAL STATEMENTS (Continued) Capital Assets Capital asset activity for the year ended December 31, 2007, was a s follows: Governmental activities: Capital assets not being depreciated Land Construction in progres s Infrastructure Total capital assets not being depreciated Capital assets being depreciated Buildings and improvements Machinery and equipment Infrastructure Total capital assets being depreciated Les s accumulated depreciation for Buildings and improvements Machinery and equipment Infrastructure Total accumulated depreciation Total capital assets being depreciated, ne t Governmental activities capital assets, ne t Business-type activities: Capital assets not being depreciated Land Construction in progress Total capital assets not being depreciated Capital assets being depreciated Buildings and improvements Machinery and equipment Infrastructure Total capital asset s being depreciated Less accumulated depreciation for Buildings and improvements Machinery and equipment Infrastructure Total accumulated depreciation Total capital assets being depreciated, net Business-type activities capital assets, net Beginning Balance $ 906,486 1,850,962 1,449,38 4 4,206,832 1,570,314 1,096,200 44,663 2,711,177 (467,485) (731,585) (1,276) (1,200,346) 1,510,831 $ 5,717,663 $ 59,975 47,954 107,929 4,767,271 244,109 1,847,350 6,858,730 (1,236,061) (159,835) (538,146) (1,934,042) 4,924,688 $ 5,032,617 Increases $ 751,572 1,960,919 2,712.491 3,532,184 238,737 3,770,921 (86,646) (130,583) (1,276) (218,505) 3,552,416 $ 6,264,907 $ 88,900 88,900 - - (238,364) (22,644) (36,869) (297,877) (297,877) $ (208,977) Decreases $ (100,000) $ (1,496,642) (1,596,642) (1,000,000) (1,000,000) 322,917 322,917 (677,083) $ (2,273,725) $ $ - $ - - - (1,474,425) (182,479) (575,015) (2,231,919) - $ - $ Ending Balance 806,486 1,105,892 3,410,303 5,322,681 4,102,498 1,334,937 44,663 5,482,098 (231,214) (862,168) (2,552) (1,095,934) 4,386,164 9,708,845 59,975 136,854 196,829 4,767,271 244,109 1,847,350 6,858,730 4,626,811 4,823,640 -42- CITY OF PARKVILLE, MISSOURI NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 5 - Capital Assets (Continued') Depreciation expense was charged to functions/programs of the primary government a s follows: Governmental activities: General government $ 78,795 Public safety 32,22 8 Public works 62,79 3 Culture and recreation 44,689 Business-type activities: Water and sewer Stormwater Total depreciation expens e - business-type activities Total depreciation expens e - governmental activities $ 218,505 $ 287,936 ______9,941 $ 297,877 -43- CITY OF PARKVILLE, MISSOURI NOTES TO BASIC FINANCIAL STATEMENTS (Continued) Long-Term Obligations The following is a summary of the debt transactions of the City for the year ended December 31, 2007: Governmental activities: Bonds payable General obligation bonds Accreted interest payable on capital appreciation bonds Certificates of Participation Neighborhood Improvement District Limited Obligation Temp Notes Less deferred amounts For issue discounts For deferred refunding difference Capital leases Compensated absence s Governmental activity long-term liabilities Business-type activities: Bonds payable Refunding revenue bonds Plus deferred amounts For issu e premiums Leas e purchase agreement Compensated absences Business-type activity long-term liabilities Of the $ 3,374,446 in general obligation debt shown above, $ 3,250,000 is special assessmen t debt with governmental commitment. For governmental activities, compensated absence s and other long-term debt ar e generally liquidated by the general fund. Beginning Balance $ 3,665,000 65,000 6,405,000 - (55,630) (113,767) 53,353 69,121 $ 10,088,077 $ 2,815,000 123,097 221,686 2,521 $ 3,162,304 Additions $ - 6,275,000 35,86 6 $ 6,310,866 $ 452 $ 452 Reductions $ (290,554) (34,446) (75,000) 6,275,000 2,782 10,834 (55,096) (6,178) $ (447,658) $ (175,000) (7,241) (8,104) $ (190,345) Ending Balance $ 3,374,446 30,554 6,330,000 (52,848) (102,933) 34,123 62,943 $ 15,951,285 $ 2,640,000 115,856 213,582 2,973 $ 2,972,411 Due Within One Year $ 174,44 6 30,554 165,000 (2,782) (5,417) 22,129 $ 383,930 $ 185,000 7,241 7,874 2,973 $ 203,088 -44- CITY OF PARKVILLE, MISSOURI NOTES TO BASIC FINANCIAL STATEMENTS (Continued) Long-Term Obligations (Continued) General Obligation Bonds The City issue s general obligation bonds to provide funds for the acquisition and construction of major capital assets. General obligation bonds currently outstanding consist of the following: Interest Rate s Original Issue Final Maturity Date Principal Payment s During 2007 Outstanding Decembe r 31, 2007 General Obligation Bonds: Governmental activities: Serie s 1998 3.70% to 4.45% $ 325,000 Accreted interest payable capital appreciation bonds Series 2001 4.50% to 5.50% 3,985,000 Series 2003 1.30% to 2.50% 449,000 9/1/2011 5,554 $ 124,446 3/1/2021 9/1/2007 34,446 160,000 125,000 $ 325,000 30,554 3,250,000 $ 3,405,000 The annual requirements to amortize governmental activities general obligation bonds outstanding a s of December 31, 2007, ar e a s follows: Governmenta l Activities Principal Interes t 2008 2009 201 0 2011 2012 2013-2017 2018-2022 205,00 0 210,000 225,000 235,000 200,00 0 1,160,00 0 1,170,00 0 158,61 0 152,859 142,641 132,14 0 121,313 450,833 124,37 3 3,405,00 0 1,282,76 9 -45- CITY OF PARKVILLE, MISSOURI NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 6 - Long-Term Obligations (Continued) General Obligation Debt Margin The State Constitution permits a city, by vote of two-thirds of the voting electorate, to incur general obligation indebtedness for "city purposes" not to exceed 10% of the assessed value of taxable tangible property and to incur additional general obligation indebtedness not exceeding, in the aggregate, an additional 10% of the assessed value of taxable tangible property for the purpose of acquiring rights-of-way, construction, extending and improving street s and avenue and/or storm sewer systems, and purchasing or construction waterworks, electric, or other light plants, provided that the total general obligation indebtedness of the City doe s not exceed 20% of the assessed valuation of taxable property. Certificates of Participation The City issued certificates of participation serie s 2006 in the original amount of $ 6,405,000 with interest rate s ranging from 3.5% to 4.4% and with a final maturity in 2027. Principal payments ar e scheduled annually ranging from $ 75,000 to $ 490,000. The balance a t December 31, 2007 is $ 6,330,000. Proceeds from the certificates of participation were used for City Hall renovation. Rush Creek stabilization, land acquisition and other scheduled capital improvements. The annual requirements to amortize thes e certificates of participation are a s follows: Principal Interest 2008 2009 201 0 2011 2012 2013-2017 2018-2022 2023-2027 $ 165,00 0 $ 260,949 175,000 190,00 0 200,000 215,000 1,350,000 1,880,00 0 2,155,000 254,870 248,205 240,940 233,105 1,020,023 688,112 257,950 6,330,000 $ 3,204,154 -46- CITY OF PARKVILLE, MISSOURI NOTES TO BASIC FINANCIAL STATEMENTS (Continued) Long-Term Obligations (Continued) Neighborhood Improvement District Limited Obligation Temporary Notes The City issued Neighborhood Improvement District Limited Financial Obligation Temporary Notes Series 2006A and 2007 in the original amount of $3,575,00 0 and $2,700,000, respectively, with an interest rate of 4.0% and a final maturity of August 1, 2009. The balance a t December 31, 2007 is $ 3,575,000 and $ 2,700,000, respectively Proceed s from the temporary note s ar e to be used for the Brink Meyer Road Neighborhood Improvement Project in the amount of $ 2,700,000 and the Brush Creek Drainage Area Neighborhood Improvement Project in the amount of$ 3,575,000. The annual requirements to amortize thes e notes ar e a s follows: Principal Interest 2008 2009 6,275,000 629,808 6,275,000 629,808 Capital Lease s - Governmental Funds The City has entered into the following capital leases: Cost Accumulated depreciation Term Vehicles 67,889 13,791 3 year s The annual debt service requirements for the capital lease s to be paid with governmental funds a t December 31, 2007 ar e a s follows: Year Principal Interest Total 2008 2009 22,129 11.994 34,123 1,900 547 2,447 24,029 12,541 36,570 -47- CITY OF PARKVILLE, MISSOURI NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 6 - Long-Term Obligations ('Continued) Capital Leases - Governmental Funds ("Continued) Amortization of$ 30,137 on the assets acquired through capital lease s has been included in 2007 depreciation expense in the governmental activities. Revenue Bonds The City issued Sewer System Refunding Revenue Bonds Series 1998 in the original amount of $ 640,000 with interest rates ranging from 3.75% to 4.65% and with a final maturity in 2011. Principal payments are scheduled annually ranging from $ 25,000 to $ 70,000. The balance at December 31, 2007 is $ 255,000. Series 1998 Sewer System Refunding Revenue or portions thereof maturing in 2007 and thereafter may be called for redemption and payment prior to the stated maturity thereof on November 1, 2006 and thereafter in whole a t any time or in part on any interest payment date at par plus accrued interest. The bonds are special obligations of the City payable solely from, and secured a s to the payment of principal and interest by a pledge of, the net income and revenues derived from the operation of the system. The bonds shall not be or constitute a general obligation of the City. The City issued Sewerage System Revenue Bonds Series 2004 in the original amount of $ 2,740,000 with interest rates ranging from 3.0% to 5.25% and with a final maturity in 2025. Principal payments are scheduled annually ranging from $ 30,000 to $ 170,000. The balance a t December 31, 2007 is $ 2,385,000. Series 2004A Sewage System Refunding Revenue Bonds are special, limited obligations of the City payable solely from, and secured by a pledge of, the net revenues. The taxing power of the City is not pledged to the payment of the bonds. The bonds do not constitute a general obligation of the City or an indebtedness of the City within the meaning of any constitutional, statutory or charter provision, limitation or restriction. Bonds maturing on January 1, 2015 and thereafter may be called for redemption and payment prior to maturity in whole or in part on any date with the consent of the bondholder, or on each June 1 and December 1, commencing December 1, 2013, a t the redemption price of 100% of principal amount of the bonds redeemed, plus accrued interest to the redemption date. Bonds maturing on January 1, 2019, January 1, 2020 and January 1, 2021 are not subject to redemption prior to maturity. -48- CITY OF PARKVILLE, MISSOURI NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 6 - Long-Term Obligations (Continued) Revenue Bonds (Continued) The annual requirements to amortize these bonds outstanding a s of December 31, 2007, are a s follows: 2008 2009 2010 2011 2012 2013-2017 2018-2022 2023-2027 Principal Interest $ 185,000 $ 119,650 185,000 113,290 195,000 106,870 205,000 97,413 135,000 89,702 725,000 361,728 810,000 170,637 200,000 10,350 $ 2,640,000 $ 1,069,640 Lease-purchase In July 2003, the City entered into a lease-purchase agreement wherein the City sold its sewer plant for $ 585,000 and leased it back for a period of twenty-two years. The proceeds from the lease-purchase are to be used to make certain improvements to the sewer plant property. Under the lease the City will have the full use of the property and will make rental payments, which will apply to the principal and interest under the lease. -49- CITY OF PARKVILLE, MISSOURI NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 6 - Long-Term Obligations (Continued) Lease Purchase Agreement Required payments under the leas e purchase agreement on the sewer plant are a s follows: 2008 2009 2010 2011 2012 2013-2017 2018-2022 2023-2027 Principal Interest $ 7,874 $ 10,582 8,273 8,691 9,131 9,594 55,764 71,383 42,872 10,183 9,764 9,325 8,862 36,515 20,896 3,269 $ 213,582 $ 109,396 Defeased Debt In prior years, the City defeased certain bonds by placing the proceeds of new bonds in an irrevocable trust to provide for all future debt service payments on the old bonds. Accordingly, the liability for the defeased bonds is not included in the City's financial statements. At December 31, 2007, $ 5,545,000 of the bonds which were considered defeased in prior years remained outstanding. Combined Waste Water and Sewerage Revenue Bonds The Sewerage Revenue Bond ordinance requires that the Sewerage System Fund be accounted for in a separate Enterprise Fund. It also requires that, after sufficient current assets have been set aside to operate the system, all remaining monies held in the Sewerage System Fund be segregated and restricted in separat e special reserves and accounts. In accordance with the bond ordinance, thes e bonds are serviced by the Sewerage System Fund operations and are included a s a liability of that fund. -50- CITY OF PARKVILLE, MISSOURI NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 6 - Long-Term Obligations (Continued) Combined Waste Water and Sewerage Revenue Bonds (Continued) Restricted assets of the principal and interest account ar e to be used for payment of current principal and interest on bonds. Restricted assets of debt service ar e available to pay principal and interest in the event of a deficiency in the principal and interest account. Restricted assets of the depreciation and replacement account ar e available to operate, maintain, or improve the system, call bonds or for payment of debt service in the event of a deficiency in other restricted assets. 7 - Risk Management The City is exposed to various risks of los s related to torts; theft of, damage to, and destruction of assets; errors and omissions; employee injuries and illnesses; natural disasters; and employee health, dental and accident benefits. To protect itself against risks of loss, the City is a member of the Mid-America Regional Council Insurance Trust (MARCIT), a not-for-profit corporation consisting of governmental entities incorporated in 1984 to acquire insurance for its members. MARCIT operate s a s a purchasing pool and is not a joint venture activity of the City. The City ha s no control over budgeting, financing, management selection, or the governing body. MARCIT provides both conventional and self-insurance coverage for its members, including medical, dental, property, casualty, general liability, and workers' compensation. The City participates in property, casualty, general liability, and workers' compensation insurance coverage through MARCIT. MARCIT manages the cash and investment pool, funded by insurance premiums, on behalf of its members. MARCIT's investment pool consist s of interest-bearing deposits, U.S. Treasury strips, U.S. Governmental agency obligations, and collateralized mortgage obligations. -51- CITY OF PARKVILLE, MISSOURI NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 7 - Risk Management (Continued) In the event that a deficit occurs with respect to any fiscal year of MARCIT for which the City was a participant at any time during such year, and in the event that MARCIT determines that an assessmen t is required in order to provide additional funds for the obligations of MARCIT for such year, and further, in the event that the City was covered by the types of benefits requiring the assessment during the time period in which the assessmen t arose, the City is obligated to pay its pro rata share of any such assessmen t whether or not the City is a member of MARCIT at the time of such assessment . Management of the City is not aware of any deficit situation in MARCIT that would require an accrual of a liability a s of December 31, 2007. MARCIT's financial statements are presented in its Comprehensive Annual Financial Report for the year ended December 31, 2007. There ha s been no significant change in insurance coverage from the previous fiscal year. Settled claims have not exceeded insurance coverage in any of the past three years. Retirement Plan The City retirement plan consists of individual retirement accounts established for employees. All full-time employees after six months of service are eligible to participate. The City contributes five percent of the employee's gross earnings on a monthly basis to the individual retirement accounts. The City's contributions for the year ended December 31, 2007 were $ 65,124. Investments - Trust Fund The City of Parkville was the recipient of funds from a resident's estate during calendar year 2002. The funds are held by a trustee for the benefit of the City. The trustee of the fund is to distribute one-half of the income from the fund to be used on various city projects. The balance of the annual net income is to be reinvested in the principal of the fund. The trust fund is to remain in existence for twenty-one years from the date of the death of the Trustor, April 9, 2001. On that date, April 9, 2022, the balance remaining in the fund is to be distributed to the City. At December 31, 2007, the trust assets had an account balance of $ 514,851 which are recorded in the permanent trust fund. -52- CITY OF PARKVILLE, MISSOURI NOTES TO BASIC FINANCIAL STATEMENTS (Continued) 8 - Commitments and Contingencies Litigation The City is a defendant in various lawsuits relating to easements, condemnations and other matters a s a result of the ordinary course of City activities. The City's management and legal counsel anticipate that the potential claims against the City not covered by insurance, if any, resulting from such matters would not materially affect the financial position of the City. 9 - mterfund Transactions mterfund transfers for the year ended December 31, 2007, consisted of the following: Transfer to capital projects fund from: General fund $ 726,602 Transfer to debt service fund from: Capital projects fund Transfer to non-major governmental funds from: General fund $ 204,018 $ 432,259 Transfer to non-major proprietary fund from: General fund $ 227,640 Transfers ar e used to (1) move revenues from the fund that statute or budget requires to collect them to the fund that statute or budget requires to expend them, (2) move receipts restricted to debt service from the funds collecting the receipts to the debt service fund a s debt service payments become due, and (3) us e unrestricted revenues collected in the general fund to finance various programs accounted for in other funds in accordanc e with budgetary authorizations. -53 - REQUIRED SUPPLEMENTARY INFORMATION CITY OF PARKVILLE, MISSOURI REQUIRED SUPPLEMENTARY INFORMATION Year Ended December 31, 2007 Information needed to support the use of the Modified Approach for Infrastructure Reporting: Street and Parking Lot Assets The street and parking lot condition rating is accomplished every other year or triennially. Every street and parking lot of Parkville is visually rated for observed structural conditions to determine the level of preservation need. The field rating reflects the condition of the type of street or parking lot being reviewed. It is the City's goal to repair all streets and parking lots rated a t a 6.0 or above and to maintain all streets within the City at a service level of 5.0 for each respective type of street or parking lot. A field rating scale has been developed to indicate the overall condition of the observed street or parking lot. 1 - Indicates an equivalent of a newly constructed street or parking lot [crack sealing & minor patching] 2 - Indicates slight imperfections in the street or parking lot condition [crack sealing, slurry sealing, and/or patching] 3 - Indicates some deterioration has occurred and minor maintenance may be required [Street or parking lot needs various repairs to maintain condition; patches; poss. milling & overlay] 4 - Indicates noticeable deterioration maintenance is required [deterioration is significant and visually noticeable; repair mill & overlay] 5 - Indicates significant maintenance is required [considerable cracking, potholes or other fatigue demands repair work and overlay] 6 - Indicates serious deficiency [deterioration mandates edge milling (to prevent total base failure) needs overlay] 7 - Indicates severe deficiency [severe deterioration needing various repairs] 8 - Indicates major failure [Some good street is left within a total replacement street or parking lot condition] 9 - Indicates nearly total replacement is required [limited salvage of street or parking lot are a is possible] 10 - Indicates total replacement is required. -54- CITY OF PARKVILLE, MISSOURI REQUIRED SUPPLEMENTARY INFORMATION (Continued) While the City has goals to maintain these systems a t higher levels, minimum acceptable condition levels have been defined a s having at least 80 percent of the streets and parking lots at or below a rating of 5. The following table compares the minimum acceptable condition levels with the actual condition levels for the current and prior years. Minimum Fiscal Acceptable Actual Condition Year Condition Level * Level * 2005 80 94 2006 80 94 2007 80 94 * Percentage of streets and parking lots rated at 5 or below The City's goal is to continually improve the condition of its streets and parking lots. To achieve this goal, it is necessary to perform maintenance activities and replace those assets that can no longer be economically maintained. To maintain the City's street s and parking lots at or above the stated minimum condition level, it is estimated that annual preservation and replacement expenditures must exceed $ 292,000 annually. The following table compares the estimated expenditures needed to maintain the system a t a minimum acceptable condition level with actual amounts spent for the current and prior years. Fiscal Estimated Actual Year Expenses Expenses 2 0 0 5$ 246,519 $ 241,190 2006 292,227 292,579 2007 246,819 213,183 -55 - OTHER SUPPLEMENTARY INFORMATION CITY OF PARKVILLE, MISSOURI COMBINING BALANCE SHEET NONMAJOR GOVERNMENTAL FUNDS December 31,2007 Assets Cash and cash equivalents Restricted cash and investments Other receivable Total assets Liabilities Accounts payable Fund balance s Unreserved, reported in Special revenu e funds Permanent fund Total fund balance s Total liabilities and fund balances Special Revenue Reserve Municipal Equip Guest Room Nature Palk Parkland Funds Reserv e Tax Sanctuary Donations Dedication $ 556,567 $ 10,225 $ 13,266 $ 27,138 $ 3,788 $ 46,794 $ 556,567 $ 10,225 $ 13,266 $ 27,138 $ 3,788 $ 46,794 $ 31,641 $ - $ - $ - $ - $ 524,926 524,926 10,225 13,266 27,138 3,788 10,225 13,266 27,138 3,788 46,794 46,794 $ 556,567 $ 10,225 $ 13,266 $ 27,138 $ 3,788 $ 46,794 (Continued) CITY OF PARKVILLE, MISSOURI COMBINING BALANCE SHEET (Continued) NONMAJOR GOVERNMENTAL FUNDS December 31,2007 Assets Cash and cash equivalents Restricted cash and investments Other receivable Total assets Liabilities Accounts payable Fund balances Unreserved, reported in Special revenue funds Permanent fund Total fund balances Total liabilities and fund balance s Special Revenue Train Depot Court Police Training Restoration Recoupment Fee s Fee s - LET Court $ 2,397 $ 20,727 $ 23,183 $ 5,270 514,851 514,851 - $ 2,397 $ 20,727 $ 23,183 $ 5,270 $ - $ - $ - $ 5,270 2,397 20,727 23,183 514,851 514,851 2,397 20,727 23,183 $ 2,397 $ 20,727 $ 23,183 $ 5,270 TIF Development $ 12,323 191 $ 12,514 $ 12,514 12,514 $ 12,514 Permanent Total Total 721,678 19 1 $ 721,869 $ 36,911 684,958 684,958 $ 721,869 Nonmajor Governmental Fewson Project Funds $ - $ 721,678 191 $ 5)4,851 $ 1,236,720 $ - $ 36,911 684,958 514,851 1,199,809 $ 514,851 $ 1,236,720 CITY OF PARKVILLE, MISSOURI COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES NONMAJOR GOVERNMENTAL FUNDS Year Ended December 31,2007 Revenue s Investment earnings Miscellaneous Total revenues Expenditures Current General government Debt service Principal Interest Capital outlay Total expenditures Excess (deficiency) of revenues over (under) expenditures Other financing sources (uses) Transfers in Capital leases Total other financing sources Net change in fund balances Fund balances, beginning of year Fund balances, end of year Special Revenue Reserve Funds $ 30 30 90,944 90,944 (90,914) 358,378 358,378 267,464 257,462 $ 524,926 Municipal Equip Reserv e 104,647 (104,647) $ 10,225 $ - 55,096 2,738 46,813 73,881 35,866 109,747 5,100 5,125 Guest Room Tax $ 5,930 5,930 - 5,930 - - 5,930 7,336 $ 13,266 $ 27,138 Nature Sanctuary $ 5,111 5,111 3,700 3,700 1,411 - 1,411 25,727 Park Donations $ $ 3 3,788 $ 46,794 - - - - - ,788 Parkland Dedication $ 2,891 2,891 (2,891) - - (2,891) 49,685 (Continued) CITY OF PARKVILLE, MISSOURI COMBINING STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES (Continued) NONMAJOR GOVERNMENTAL FUNDS Year Ended December 31, 2007 Special Revenue Revenue s Investment earnings Miscellaneous Total revenues Expenditures Current General government Debt service Principal Interest Capital outlay Total expenditures Excess (deficiency) of revenue s over (under) expenditures Other financing sources (uses ) Transfers in Capital lease s Total other financing sources Net chang e in fund balances Fund balances; beginning of year Fund balances , end of year Special Revenue Train Depot Court Police Training TIF Restoration Recoupment Fee s Fee s - LET Court Development Total $ -$ -$ -$ -$ -$ 30 3,717 7,464 - - 22,222 3,717 7,464 - - 22,252 630 - - 95,274 55,096 2,738 49,704 630 - - 202,812 3,717 6,834 - - (180,560) 432,259 35,866 468,125 3,717 6,834 - - 287,565 2,397 17,010 16,34 9 - 12,514 397,393 $ 2,397 $ 20,727 $ 23,183 $ - $ 12,514 $ 684,958 Permanent Fewson Project $ 32,951 32,951 22,528 22,528 10,423 - - 10,423 504,428 $ 514,851 Total Nonmajor Governmental Funds $ 32,981 22,222 55,203 117,802 55,096 2,738 49,704 225,340 (170,137) 432,259 35,866 468,125 297,988 901,821 $ 1,199,809 BTMo . BERBERICHTRAHAN6fCO.,P.A . Certifie d Publi c AccoiiiitttMs REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT A UDITING STANDARDS Honorable Mayor and Board of Aldermen City ofParkville, Missouri: We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City ofParkville, Missouri (the City) a s of and for the year ended December 31, 2007, which collectively comprise the City's basic financial statements and have issued our report thereon dated December 18, 2008. We conducted our audit in accordance with auditing standards generally accepted in the United State s of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered the City's internal control over financial reporting a s a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over financial reporting. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. However, a s discussed below, we identified certain deficiencies in internal control over financial reporting that we consider to be significant deficiencies. A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity's financial statements that is more than inconsequential will not be prevented or detected by the entity's internal control. We consider the deficiencies described in the accompanying schedule of findings and responses a s Findings 2007-1, 2007-2, 2007-3, 2007-4, 2007-5 and 2007-6 to be significant deficiencies in internal control over financial reporting. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the entity's internal control. RS M McGladre y Network A n Independentl y Owne d Membe r Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might b e significant deficiencies and, accordingly, would not necessarily disclose all significant deficiencies that are also considered to be material weaknesses. We consider the deficiencies in the accompanying schedule of findings and responses a s Findings 2007-1, 2007-2, 2007-3, 2007-4, 2007-5, and 2007-6 to be material weaknesses in internal control over financial reporting. Compliance and Other Matters As part of obtaining reasonable assurance about whether the City's financial statements ar e free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. The City's responses to the findings identified in our audit are described in the accompanying schedule of findings and responses. We did not audit the City's responses and, accordingly, we express no opinion on them. This report is intended solely for the information and use of management and federal awarding agencies and pass- through entities and is not intended to be and should not be used by anyone other than those specified parties. December 18,200 8 -61- CITY OF PARKVILLE, MISSOURI SCHEDULE OF FINDINGS AND RESPONSES Year Ended December 31, 2007 Finding 2007-1 - Cash Receipts and Expenditures - Material Weakness An important aspect of control in any accounting system is segregation of duties. Segregating certain routine tasks, particularly in the receipts and expenditure cycles can significantly improve controls. Lack of segregation of duties can lead to increased risks of fraud, errors, or material misstatement of the financial statements. In reviewing the cash receipts and expenditures cycles during our audit, we noted certain duties which appear to be too centralized, which could create a lack of maximum control in this area. One employee receives cash, prepares the deposit, makes the deposit, prepares checks for payment, mails checks, makes the majority of the journal entries, and prepares the bank reconciliation. There is also no formal review of the bank reconciliation and the bank reconciliations are not being prepared timely. Check signers are not reviewing invoices and supporting documents prior to signing checks. We recommend that the City segregate duties in the cash receipts and expenditures cycles, implement review procedures for expenditures and that bank reconciliations be prepared timely and be reviewed by a knowledgeable employee for accuracy and completeness. Pre-numbered permits are not being used by the Community Development department so the cash receipts are not traceable to a particular permit. Also, cash and checks received in this department are not kept in a locked area overnight and are not turned in for deposit in a timely manner. We recommend that the City implement procedures to track permits issued and the related cash received. We also recommend that cash received and held overnight be locked up and that cash be deposited in a timely manner. A monthly municipal court activity report is given to accounting from which a batch journal entry is made to record the month's activity. This report is not being reviewed by the accounting department prior to the posting to the general ledger. We recommend that the accounting department agree the daily cash receipts to the monthly report before posting the entry to the general ledger. Without such procedures cash receipts ar e exposed to the risk of loss. Repeat comment from prior year. Response (Unaudited) - This finding'is copied from the 2006 Schedule of Findings. The addition of staff in November of 2007 helped to segregat e the cash receipts and expenditures procedures and allow for internal controls to be put into place. -62- CITY OF PARKVILLE, MISSOURI SCHEDULE OF FINDINGS AND RESPONSES (Continued) Pre-numbered permits and other traceable solutions ar e being researched by Community Development staff. This department does not accept payments in any form since moving from the old City Hall building (May 25, 2007) where the public did not have interior access from the basement level department to the cash collections desk on the main floor. Citizen comfort and convenience during inclement weather dictated any exceptions to the collections of fees. Court activity reports ar e computer generated, reviewed and initialed daily by the accounting department. Month end reports are a computer generated sum of the periods daily activity reports. Finding 2007-2 - Payroll - Material Weakness An important aspect of control in any accounting system is segregation of duties. Segregating certain routine tasks, particularly in the receipts and expenditure cycles can significantly improve controls. Lack of segregation of duties can lead to increased risks of fraud, errors, or material misstatement of the financial statements. We noted that the City doe s not have adequate segregation of duties over its payroll process. One employee is responsible for entering timesheet information, preparing and reviewing the payroll run, and cutting checks and preparing the direct deposits. This same employee also maintains all the information for the employee human resource files. The Board and Treasurer sign the checks but a process needs to be implemented to review and approve the checks and direct deposit amounts before they are mailed or submitted for payment to the payroll ledger. We recommend that the duties within the payroll function be segregated in order to safeguard the City's assets. We also noted that the timesheets submitted by employees are not readily traceable to the payroll registers due to the timing difference between regular pay and overtime, vacation and sick leave pay. Also, we noted several timesheets during our testwork that were not approved by an appropriate supervisor and several timesheets that were not turned in to be verified by the payroll processor. We recommend that employees be paid in a timely manner based on the number of hours worked or number of hours taken off a s recorded on the employees' timesheets. We also recommend that all timesheets be reviewed and approved by an appropriate supervisor before paychecks are issued. Repeat comment from prior year. Response (Unaudited) - This finding is copied from the 2006 Schedule of Findings. The addition of staff in November of 2007 helped to segregate the payroll procedures and allow for internal controls to be put into place. -63- CITY OF PARKVILLE, MISSOURI SCHEDULE OF FINDINGS AND RESPONSES (Continued) Due to City policy requiring Board approval with advance submission of all Bill Paying Ordinances, pay checks must be prepared well in advance of the actual pay dates . It is thus not possible to have the overtime, etc., periods coincide exactly with pay periods. Once this is taken into account it is possible to trace timesheet adjustments to the computer payroll registers. Timesheets are approved and signed by supervisors. There were no unsigned timesheets for this fiscal year. Finding 2007-3 - Capital Assets - Material Weakness The City is responsible for maintaining complete and accurate schedules of capital assets with related depreciation. The City does not maintain complete depreciation schedules for capital assets. Significant adjustments were made to record additions and adjustments to capital assets during the audit process, m addition, annual depreciation expense was not calculated or recorded by the City prior to the audit. We recommend that capital asset additions and disposals be identified and recorded in a timely manner. We also recommend that depreciation schedules be updated periodically for these changes and that depreciation expense be calculated and recorded on the general ledger. Repeat comment from prior year. Response (Unaudited) - This rinding is copied from the 2006 Schedule of Findings. Capital assets schedules, produced in a spreadsheet format, are maintained for insurance a s well a s auditing purposes. Significant adjustments were made in the previous year due to a change in audit firms and their different directives. Previously, our audit firms have reviewed the depreciation schedules then advised the staff of the required recordings. Finding 2007-4 - Journal Entries - Material Weakness Preparation of the financial statements in accordance with generally accepted accounting principles is the responsibility of the City's management. During the course of the audit, we identified significant misstatements in the trial balance that were not initially identified by the City's internal control. We recommend that the City review its trial balance and make all necessary adjustments to ensure that the accounts on the trial balance are not materially misstated. Repeat comment from prior year. Response (Unaudited) - This finding is copied from the 2006 Schedule of Findings. During the audit process there were no misstatements found in the trial balance. -64- CITY OF PARKVILLE, MISSOURI SCHEDULE OF FINDINGS AND RESPONSES (Continued) Finding 2007-5 -Accounts Payable - Material Weakness The City is responsible for tracking its accounts payable balances. A listing of the City's accounts payable a t the end of the year was not prepared or recorded on the City's books, resulting in a misstatement of expenditures and liabilities on the City's trial balance. During testwork, there was one check that was selected that no support could be obtained other then the hicode print off. Also, the City doe s not us e its purchase order system when requesting authorization for a purchase. We recommend that the City begin to us e its purchase order system so that every purchase is properly authorized before disbursement. We also recommend that the City maintain an updated listing of all accounts payable a t all times in order to track all debts owed by the City and that proper support be maintained in a complete and organized form. Repeat comment from prior year. Response (Unaudited) - This finding is copied from the 2006 Schedule of Findings. A listing of year- end accounts payable is performed a s an adjusting journal entry recommended by the auditor a s part of the audit process. This has been the practice with previous auditors. Finding 2007-6 - Municipal Court - Material Weakness Every cas h account of the City should be recorded on the City's general ledger. We noted that the year- end cash balance of the municipal court was not recorded on the City's books a t the beginning or end of the current fiscal year. This resulted in a misstatement of cas h on the City's general ledger. We recommend that all activities and functions of the City be recorded on the City's books so that the financial statements ar e complete. Repeat comment from prior year. Response (Unaudited) - This finding is copied from the 2006 Schedule of Findings. The Municipal Judge has a longstanding policy of keeping the Court finances independent of the City. Funds do not become the property of the City until released by the Court, a t which time they ar e recognized a s City revenue. All court funds and accounts ar e fully reported separately by the court and their records ar e audited separately. -65- CITY OF PARKVILLE, MISSOURI SCHEDULE OF PRIOR YEAR FINDINGS Year Ended December 31, 2007 Finding 2006-1 - Cash Receipts and Expenditures - Material Weakness An important aspect of control in any accounting system is segregation of duties. Segregating certain routine tasks, particularly in the receipts and expenditure cycles can significantly improve controls. Lack of segregation of duties can lead to increased risks of fraud, errors, or material misstatement of the financial statements. In reviewing the cash receipts and expenditures cycles during our audit, we noted certain duties which appear to be too centralized, which could create a lack of maximum control in this area. One employee receives cash, prepares the deposit, makes the deposit, prepares checks for payment, mails checks, makes the majority of the journal entries, and prepares the bank reconciliation. There is also no formal review of the bank reconciliation and the bank reconciliations ar e not being prepared timely. Check signers are not reviewing invoices and supporting documents prior to signing checks. We recommend that the City segregate duties in the cash receipts and expenditures cycles, implement review procedures for expenditures and that bank reconciliations be prepared timely and be reviewed by a knowledgeable employee for accuracy and completeness. Pre-numbered permits are not being used by the Community Development department so the cash receipts are not traceable to a particular permit. Also, cash and checks received in this department ar e not kept in a locked area overnight and are not turned in for deposit in a timely manner. We recommend that the City implement procedures to track permits issued and the related cash received. We also recommend that cash received and held overnight be locked up and that cash be deposited in a timely manner. A monthly municipal court activity report is given to accounting from which a batch journal entry is made to record the month's activity. This report is not being reviewed by the accounting department prior to the posting to the general ledger. We recommend that the accounting department agree the daily cash receipts to the monthly report before posting the entry to the general ledger. Without such procedures cash receipts are exposed to the risk of loss. Response (Unaudited) - A personnel transition left many procedural functions undone for a period during this fiscal year, placing the Finance department in 'catch-up' mode for some time. Follow-up: This comment is repeated in the current year a s finding 2007-1. -66- CITY OF PARECVILLE, MISSOURI SCHEDULE OF PRIOR YEAR FINDINGS (Continued) Finding 2006-2 - Payroll - Material Weakness An important aspect of control in any accounting system is segregation of duties. Segregating certain routine tasks, particularly in the receipts and expenditure cycles can significantly improve controls. Lack of segregation of duties can lead to increased risks of fraud, errors, or material misstatement of the financial statements. We noted that the City doe s not have adequate segregation of duties over its payroll process. One employee is responsible for entering timesheet information, preparing and reviewing the payroll run, and cutting checks and preparing the direct deposits. This same employee also maintains all the information for the employee human resource files. The Board and Treasurer sign the checks but a process needs to be implemented to review and approve the checks and direct deposit amounts before they are mailed or submitted for payment to the payroll ledger. We recommend that the duties within the payroll function be segregated in order to safeguard the City's assets. We also noted that the timesheets submitted by employees are not readily traceable to the payroll registers due to the timing difference between regular pay and overtime, vacation and sick leave pay. Also, we noted several timesheets during our testwork that were not approved by an appropriate supervisor. We recommend that employees be paid in a timely manner based on the number of hours worked or number of hours taken off a s recorded on the employees' timesheets. We also recommend that all timesheets be reviewed and approved by an appropriate supervisor before paychecks are issued. Response (Unaudited) - Due to City policy requiring Board approval with advance submission of all Bill Paying Ordinances, pay checks must be prepared well in advance of the actual pay dates. It is thus not possible to have the overtime, etc., periods coincide exactly with pay periods. Once this is taken into account it is possible to trace timesheet adjustments to the computer payroll registers. Timesheets are normally approved by supervisors. The "several" unsigned timesheets represent a very small percentage of the total timesheets submitted. The City's finance department is understaffed and it is hoped that additional personnel will be budgeted for in the next fiscal year so that a segregation of duties can be realized. Follow-up: This comment is repeated in the current year a s finding 2007-2. -67- CITY OF PARKVILLE, MISSOURI SCHEDULE OF PRIOR YEAR FINDINGS (Continued) Finding 2006-3 - Capital Assets - Material Weakness The City is responsible for maintaining complete and accurate schedules of capital assets with related depreciation. The City doe s not maintain complete depreciation schedules for capital assets. Significant adjustments were made to record additions and adjustments to capital assets during the audit process, m addition, annual depreciation expense was not calculated or recorded by the City prior to the audit. We recommend that capital asset additions and disposals be identified and recorded in a timely manner. We also recommend that depreciation schedules be updated periodically for these changes and that depreciation expense be calculated and recorded on the general ledger. Response (Unaudited) - Capital assets schedules, produced in a spreadsheet format, are maintained for insurance a s well a s auditing purposes. Determining and recording capital assets often requires more expertise than is possessed by City staff. In the past we have expected and received expert guidance from our auditors to ensure these entries are done correctly. Follow-up: This comment is repeated in the current year a s finding 2007-3. Finding 2006-4 - Journal Entries - Material Weakness Preparation of the financial statements in accordance with generally accepted accounting principles is the responsibility of the City's management. During the course of the audit, we identified significant misstatements in the trial balance that were not initially identified by the City's internal control. We recommend that the City review its trial balance and make all necessary adjustments to ensure that the accounts on the trial balance are not materially misstated. Response (Unaudited) - The journal entry process has been revised allowing one staff member to affect entries generated by all departments. Follow-up: This comment is repeated in the current year a s finding 2007-4. Finding 2006-5 -Accounts Payable - Significant Deficiency The City is responsible for tracking its accounts payable balances. A listing of the City's accounts payable at the end of the year was not prepared or recorded on the City's books, resulting in a misstatement of expenditures and liabilities on the City's trial balance. Also, the City doe s not use its purchase order system when requesting authorization for a purchase. We recommend that the City begin to use its purchase order system so that every purchase is properly authorized before disbursement. We also recommend that the City maintain an updated listing of all accounts payable at all times in order to track all debts owed by the City. -68- CITY OF PARKVILLE, MISSOURI SCHEDULE OF PRIOR YEAR FINDINGS (Continued) Response (Unaudited) - A listing of year-end accounts payable is performed a s an adjusting journal entry recommended by the auditor a s part of the audit process. This has been the practice with previous auditors. Follow-up: This comment is repeated in the current year a s finding 2007-5 and is considered a material weakness. Finding 2006-6 - Municipal Court - Significant Deficiency Every cash account of the City should be recorded on the City's general ledger. We noted that the year- end cash balance of the municipal court was not recorded on the City's books at the beginning or end of the current fiscal year. This resulted in a misstatement of cash on the City's general ledger. We recommend that all activities and functions of the City be recorded on the City's books so that the financial statements are complete. Response (Unaudited) - The Municipal Judge has a longstanding policy of keeping the Court finances independent of the City. Court bond activities have no impact on city finances except for any revenue which may be generated. These revenues are recorded when received by the City. It is unclear what advantage would be served by including court cash balances a s part of the City finances. Follow-up: This comment is repeated in the current year a s finding 2007-6 and is considered a material weakness. -69-