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SWCSR FINANCIAL REPORT 12-31-2007 1 1 1 1 SHERBURNE-WRIGHT COUNTY CABLE 1 COMMUNICATIONS COMMISSION II FINANCIAL STATEMENTS AND 1 SUPPLEMENTARY INFORMATION YEAR ENDED DECEMBER 31, 2007 1 1 1 1 i 1 1 1 1 1 1 1 i SHERBURNE-WRIGHT COUNTY CABLE COMMUNICATIONS COMMISSION II TABLE OF CONTENTS 1 YEAR ENDED DECEMBER 31, 2007 1 INTRODUCTORY SECTION ' COMMISSION OFFICIALS 1 FINANCIAL SECTION INDEPENDENT AUDITORS' REPORT 2 ' FINANCIAL STATEMENTS STATEMENT OF BALANCES ARISING FROM CASH TRANSACTIONS 3 ' STATEMENT OF RECEIPTS, DISBURSEMENTS AND CHANGES IN CASH FUND BALANCES 4 NOTES TO FINANCIAL STATEMENTS 5 OTHER REPORTS SECTION REPORT ON MINNESOTA LEGAL COMPLIANCE 8 1 1 I INTRODUCTORY SECTION 1 1 1 1 ISHERBURNE-WRIGHT COUNTY CABLE COMMUNICATIONS COMMISSION II COMMISSION OFFICERS DECEMBER 31, 2007 I Elected Position IPhil Kern Chairperson Merton Auger Treasurer Nancy Carswell Secretary i I I I I I I I i I I I ' FINANCIAL SECTION 1 1 1 1 1 1 1 t 1 1 LarsonAllen® LLN CPAs, Consultants & Advisors www.larsonallen.com 1 INDEPENDENT AUDITORS' REPORT Board of Directors Sherburne-Wright County Cable Communications Commission II Buffalo, Minnesota We have audited the accompanying statement of balances arising from cash transactions of Sherburne-Wright County Cable Communications Commission II (the Commission), as of and for the year ended December 31, 2007, and the related statement of receipts, disbursements and changes in cash fund balances, as listed in the table of contents. These financial statements are the responsibility of the Commission's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are 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, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. ' As described more fully in Note 1, the Commission has prepared these financial statements using the cash basis of accounting, which is a comprehensive basis of accounting other than accounting ' principles generally accepted in the United States of America. In our opinion, the financial statements referred to above present fairly, in all material respects, the cash balances of Sherburne-Wright County Cable Communications Commission II as of December 31, ' 2007, and their respective cash receipts and disbursements for the year then ended, on the basis of accounting described in Note 1. The Commission has not presented Management's Discussion and Analysis that accounting principles generally accepted in the United States of America has determined is necessary to supplement, although not required to be a part of, the basic financial statements. ' LarsonAllen LLP Minneapolis, Minnesota September 30, 2008 � LarsonAllen LLP is a member of Nexia International,a worldwide network of independent accounting and consulting firms. INTERNATIONAL i ' FINANCIAL STATEMENTS 1 i i i 1 1 1 1 i 1 i ' SHERBURNE-WRIGHT COUNTY CABLE COMMUNICATIONS COMMISSION II STATEMENT OF BALANCES ARISING FROM CASH TRANSACTIONS ' DECEMBER 31, 2007 1 ASSETS Cash and Cash Equivalents $ 355,409 ' CASH FUND BALANCES Unreserved $ 355,409 1 1 1 1 1 1 1 i 1 1 1 1 1 See accompanying Notes to Financial Statements. 1 (3) SHERBURNE-WRIGHT COUNTY CABLE COMMUNICATIONS COMMISSION II STATEMENT OF RECEIPTS, DISBURSEMENTS AND CHANGES IN CASH FUND BALANCES YEAR ENDED DECEMBER 31, 2007 CASH RECEIPTS ' Franchise Fees $ 549,867 PEG Capital Fees 173,507 Refunds 1,444 Total Receipts 724,818 CASH DISBURSEMENTS Equipment 492,481 Contract Labor 111,681 Cable Service 14,305 Postage and Delivery 320 ' Service Charges 60 Professional Fees 8,662 Rent 565 ' Total Disbursements 628,074 NONOPERATING CASH RECEIPTS -INVESTMENT EARNINGS 562 NET CHANGE IN CASH FUND BALANCE 97,306 ' Cash Fund Balances- Beginning of Year 258,103 CASH FUND BALANCES - END OF YEAR $ 355,409 1 1 See accompanying Notes to Financial Statements. 1 (4) SHERBURNE-WRIGHT COUNTY CABLE COMMUNICATIONS COMMISSION II NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2007 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ' Sherburne-Wright County Cable Communications Commission is an organized commission having the powers, duties, and privileges granted towns by Minn. Stat. ch. 471. The Commission's purpose is to monitor the operation and activities of cable communications ' and in particular, the cable communications systems of participating municipalities. The Commission also coordinates the administration and enforcement of the franchise associated with the cable communications systems and promotes the development of locally produced cable television programming and conducts such other authorized activities as may be necessary to insure equitable and reasonable rates and service levels for the citizens of participating municipalities. ' The Commission is located in Minnesota within Sherburne and Wright counties. It is governed by a board of directors who are appointed by each participating municipalities. Each municipality is required to appoint at least one alternate Director. The board of ' directors includes a board chair, treasurer and secretary who are appointed every 2 years by the board of directors. Commission Members As of December 31, 2007, the Commission had ten members which were comprised of the Cities of Big Lake, Buffalo, Cokato, Dassel, Delano, Elk River, Maple Lake, Monticello, ' Rockford and Watertown. Reporting Entity ' The financial reporting entity consists of the primary government and the component units for which the primary government is financially responsible. There is financial accountability if the primary government appoints a voting majority of an organization's governing body and has the ability to impose its will on that governing body; or there is a potential for the ' organization to provide specific financial benefits or to impose specific financial burdens on the primary government. Based on these criteria there are no component units to be included in the financial reporting entity. Basis of Accounting Sherburne-Wright County Cable Communications Commission II follows the cash basis of accounting. The statement of cash receipts and disbursements was prepared on the cash basis and accordingly, revenues and expenditures are recognized only as cash is received or paid out. These statements do not give effect to receivables, payables, accrued expenses, inventories or property, plant and equipment assets. Cash ' Cash consists of a checking account. 1 (5) ISHERBURNE-WRIGHT COUNTY CABLE COMMUNICATIONS COMMISSION II NOTES TO FINANCIAL STATEMENTS IDECEMBER 31, 2007 INOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) I Operating Revenues and Expenditures Operating revenues result from exchange transactions associated with the principal activity of the Commission, which is the administration and enforcement of the cable I communications systems franchise. Operating expenditures are defined as expenses directly or indirectly related to, or incurred in support of the cable communications systems franchise. IRevenue from investment earnings is reported as non-operating revenues. I Revenues from PEG capital fees are restricted for use for expenditures for property, plant and equipment associated with PEG access. Expenditures for property, plant and equipment assets exceeded the PEG capital fees for the year ended December 31, 2007. As such no amount of cash fund balances are reserved or restricted as to use at IDecember 31, 2007. Risk Management I The commission is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; and natural disasters. The Commission's member cities provide insurance coverage through their respective insurance programs. NOTE 2 DEPOSITS IThe Commission maintains deposits at financial institutions which are authorized by the . Commission Board. All such depositories are members of the Federal Reserve System. ICustodial Credit Risk— Custodial credit risk is the risk that in the event of a bank failure; the Commission's deposits may not be returned to it. The Commission does not have a deposit Ipolicy for custodial credit risk and follows Minnesota Statutes for deposits. Minnesota statutes require that all deposits with financial institutions be protected by insurance, surety bond, or collateral. The market value of collateral pledged must equal I110% of deposits not covered by insurance or corporate surety bonds. Authorized collateral include: U.S. government treasury bills, notes, or bonds; issues of a I U.S. government agency; general obligations of a state or local government rated "A" or better; revenue obligations of a state or local government rated "AA" or better; irrevocable standby letter of credit issued by a Federal Home Loan Bank; and time deposits insured by I a federal agency. Minnesota statutes require securities pledged as collateral be held in safekeeping in a restricted account at the Federal Reserve Bank or at an account at a trust department of a commercial bank or other financial institution not owned or controlled by the Idepository. The Commission's cash balances at December 31, 2007 include deposits of $355,409. I I ' OTHER REPORTS SECTION 1 1 1 1 1 1 t 1 SHERBURNE-WRIGHT COUNTY CABLE COMMUNICATIONS COMMISSION II NOTES TO FINANCIAL STATEMENTS 1 DECEMBER 31, 2007 NOTE 3 ON BEHALF PAYMENTS FOR COMMISSIONERS 1 The Commission has agreed to pay for basic cable for each of the Commissioners and appointed alternates for each Member City, Total payments on behalf of the commissioners for these services for the year ended December 31, 2007 amounted to $14.305, and is reported as cable service expenditures. 1 NOTE 4 CONCENTRATIONS The Commission received approximately 95% of its revenues from one cable television service provider for the year ended December 31, 2007. NOTE 5 COMMITMENTS 1 The Commissions' Restated Joint and Cooperative Agreement (the Agreement) requires the Commission to adopt and annual budget. The Agreement also requires that any payments ' received in excess of the Commission's budget shall be returned to participating municipalities in the same proportion as each participating municipality's contribution to the Commission budget. Participating municipalities are required to use any returned contributions for cable-related expenses. 1 i 1 i 1 1 1 1 1 (7) Lars•nAlleii 1LI I' CPAs, Consultants & Advisors www.larsonallen.com I IREPORT ON MINNESOTA LEGAL COMPLIANCE I IBoard of Supervisors Sherburne-Wright County Cable Communications Commission Buffalo, Minnesota We have audited the financial statements of the Sherburne-Wright County Cable Communications I Commission II (the Commission) of Minnesota as of, and for the year ended December 31, 2007, and have issued our report thereon dated September 30, 2008. Our report was qualified because, as described more fully in Note 1, the Commission has prepared these financial statements using the cash Ibasis of accounting, which is a comprehensive basis of accounting. We conducted our audit in accordance with U.S. generally accepted auditing standards and the I provisions of the Minnesota Legal Compliance Audit Guide for Local Government, promulgated by the State Auditor pursuant to Minn. Stat. 6.65. Accordingly, the audit included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. 1 The Minnesota Legal Compliance Audit Guide for Local Government covers seven main categories of compliance to be tested: contracting and bidding, deposits and investments, conflicts of interest, public indebtedness, claims and disbursements, miscellaneous provision, and tax increment financing. Our I study included tests of compliance for deposits and investments, conflicts of interest, and claims and disbursements as the only compliance categories applicable to the Commission. I The results of our tests indicate that for the items tested, Sherburne-Wright County Cable Communications Commission II complied with the material terms and conditions of applicable legal provisions referred to in the preceding paragraph. IThis report is intended solely for the information and use of the board of directors, members, and the Office of the Minnesota State Auditor and is not intended to be, and should not be used by anyone 1 other than these specified parties. IZiAjtexec4,..agt,,,.. a:.? I LarsonAllen LLP Minneapolis, Minnesota September 30, 2008 I I I�1�ri r�gli�� LarsonAllen LLP is a member of Nexia Inrernarional(8worldwide network of independent accounting and consulting firms. INTERNATIONAL Lars•nA11en CPAs, Consultants & Advisors www.larsonallen.com Board of Directors Sherburne-Wright County Cable Communications Commission II Buffalo,Minnesota In planning and performing our audit of the financial statements of the Sherburne-Wright County Cable Communications Commission II as of and for the year ended December 31, 2007, in accordance with auditing standards generally accepted in the United States of America, we considered Sherburne-Wright County Cable Communications Commission II's (the Commission) internal control over financial reporting(internal control) as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Commission's internal control. Accordingly, we do not express an opinion on the effectiveness of the Commission's internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. However, as discussed below, we noted certain deficiencies in internal control that we consider to be significant deficiencies and material weaknesses. 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. 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 organization's internal control. We believe that the following deficiencies constitute material weaknesses: Un-reconciled Bank Accounts Bank reconciliations should be performed shortly after receiving the month's bank statement to assist Management in their responsibilities for detecting errors, misstatements, or fraud in a timely manner. The Commission's checking account was not reconciled until after the end of the fiscal year; as a result we identified adjusting entries which increased cash fund balance at December 31, 2007 by approximately $2,500. The Commission should implement procedures to prepare bank reconciliations on a timely basis. Limited Segregation of Duties The treasurer has the primary responsibility for virtually all of the accounting and financial duties. As a result, many of those aspects of internal accounting control which rely upon an adequate segregation of duties are,for all practical purposes, not available in this staffing scenario. We recognize that the Commission's cost;benefit analysis has concluded that additional persons for the purpose of segregating duties is not practicable, but we are required, under our professional responsibilities, to call the situation to your attention. The Commission should utilize Board oversight of cash reconciling as well as the receipts and disbursements process to the maximum extent possible to mitigate the absence of segregation of duties. ("yi�w9 LarsonAllen LLP is a member of Nexia International,a worldwide:network of independent accounting and consulting firms. INTENNATIONAL Board of Directors Sherburne-Wright County Cable Communications Commission II Page 2 Internal Control over the Financial Reporting Process Management is responsible for establishing and maintaining internal controls, including monitoring, and for the fair presentation in the financial statements. At times, management may choose to outsource certain accounting functions (in this case, financial statement preparation) due to cost or training considerations. Such accounting functions and service providers must be governed by the control policies and procedures of the Commission. Management is as responsible for outsourced functions performed by a service provider as it is for its own personnel. Management is also responsible for management decisions and functions; for designating an individual with suitable skill, knowledge,or experience to oversee any outsourced services; and for evaluating the adequacy and results of those services and accepting responsibility for them. As part of the audit,management requested us to prepare a draft of your financial statements, including the related notes to financial statements. Management reviewed, approved, and accepted responsibility for those financial statements prior to their issuance. We understand that this material weakness is already known to management and represents a conscious decision by management and the Board to accept that degree of risk because of cost or other considerations. We acknowledge the fact that management is responsible for making decisions concerning costs and the related benefits. * * * * * * Also, during our audit,we became aware of other matters that are opportunities for strengthening internal controls and operating efciency. Our comments and suggestions regarding those matters are summarized below. Dual Signatures on Checks The Commission's Restated Joint and Cooperative Agreement requires that checks written on behalf of the Commission be signed by the Treasurer and the Chairman of the Board. We noted that it is generally not feasible for both individuals to sign each check, and as a result most of the Commission's checks are signed only by the Treasurer. We suggest that the Commission amend its Restated Joint and Cooperative Agreement to remove the requirement for dual signatures on checks, and instead implement a mitigating internal control procedure such as approval of disbursements by the Board, or Board review of monthly financial statements. Member Votes We noted that Section VI of the Restated Joint and Cooperative Agreement indicates that each Director is entitled to vote in direct proportion to the percent of annual franchise fee revenue and other support payments of that participating municipality (i.e. Member) relative to the total annual franchise fee revenue and other support payments of all participating municipalities, but in no case less than one vote. We suggest that the Commission consider amending the Restated Joint and Cooperative Agreement to simply allow one vote per Member regardless of the amount of annual franchise fee revenue and other support payments. Purchases and Contracts We noted that Section VIII of the Restated Joint and Cooperative Agreement requires the Commission to follow Minnesota procurement procedures for statutory cities when making purchases of entering into new contracts. We suggest that the Commission consider amending the Restated Joint and Cooperative Agreement to remove this requirement, as the procurement procedures for statutory cities may not be an efficient internal control for relatively small organizations such as the Commission. Board of Directors Sherburne-Wright County Cable Communications Commission II Page 3 We will review the status of these comments during our next audit engagement. We have already discussed many of these comments and suggestions with various organization personnel, and we will be pleased to discuss them in further detail at your convenience, to perform any additional study of these matters, or to assist you in implementing the recommendations. * * * * * * This communication is intended solely for the information and use of management, the board of directors of the Sherburne-Wright County Cable Communications Commission II, and others within the Organization, and is not intended to be and should not be used by anyone other than these specified parties. 6-444634^46?-deel". LarsonAllen LLP Minneapolis,Minnesota September 30,2008 Lars•nAlJen LLP CPAs, Consultants & Advisors www.larsonailen.com Board of Directors Sherburne-Wright County Cable Communications Commission II Buffalo, Minnesota We have audited the financial statements of the governmental activities of the Sherburne-Wright County Cable Communications Commission II for the year ended December 31,2007, and have issued our report thereon dated September 30, 2008. Professional standards require that we provide you with the following information related to our audit. Our Responsibility under U.S. Generally Accepted Auditing Standards As stated in our engagement letter dated April 15, 2008, our responsibility, as described by professional standards, is to express opinions about whether the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles. Our audit of the financial statements does not relieve you or management of your responsibilities. 1. Our responsibility is to plan and perform the audit to obtain reasonable, but not absolute, assurance that the financial statements are free of material misstatement. 2. As part of our audit, we considered the internal control of Sherburne-Wright County Cable Communications Commission H. Such considerations were solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control. 3. We are responsible for communicating significant matters related to the audit that are, in our professional judgment, relevant to your responsibilities in overseeing the financial reporting process. However, we are not required to design procedures specifically to identify such matters. 4. We are also responsible for communicating matters regarding provisions of the Minnesota Legal Compliance Audit Guide for Local Government,promulgated by the State Auditor pursuant to Minnesota Statute 6.65. Other Information in Documents Containing Audited Financial Statements Our audit opinion, the audited financial statements, and the notes to financial statements should only be used in their entirety. Inclusion of the audited financial statements in a client prepared document, such as an annual report, should be done only with our prior approval and review of the document. Our responsibility for other information in documents containing the entity's financial statements and report does not extend beyond the financial information identified in the report. We do not have an obligation to perform any procedures to corroborate other information contained in such documents. Significant Audit Findings Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. In accordance with the terms of our engagement letter, we will advise management about the appropriateness of accounting policies and their application. The significant accounting policies used by Sherburne-Wright County Cable Communications Commission II are described in Note 1 to the financial statements. The Commission's financial statements were prepared using the cash basis of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America. ti r 9 LarsonAllen LLP is a member of Nexia international,a worldwide network of independent accounting and consulting firms. INTERNATIONAL Board of Directors Sherburne-Wright County Cable Communications Commission II Page 2 We noted no transactions entered into by the Commission during the year for which there is a lack of authoritative guidance or consensus. There are no significant transactions that have been recognized in the financial statements in a different period than when the transaction occurred. The disclosures in the financial statements are neutral, consistent,and clear. Corrected and uncorrected misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. Management did not identify and we did not notify them of any uncorrected financial statement misstatements. In addition,none of the misstatements detected as a result of audit procedures and corrected by management were material, either individually or in the aggregate,to the financial statements taken as a whole. Planned Scope and Timing of the Audit We performed the audit according to the planned scope and timing previously communicated to representatives of you in April 2008. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. During the audit,we identified one adjusting entry,which increased cash fund balance by approximately$2,500. Management did not identify and we did not notify them of any uncorrected financial statement misstatements. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditors' report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated September 30,2008. Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the Commission's financial statements or a determination of the type of auditors' opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. • Board of Directors Sherburne-Wright County Cable Communications Commission II Page 3 Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the Commissions' auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. * * * * * * This information is intended solely for the use of the board of directors of the Sherburne-Wright County Cable Communications Commission II and is not intended to be and should not be used by anyone other than these specified parties. 6-441.61,+4ZZateN, LarsonAllen LLP Minneapolis, Minnesota September 30, 2008