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Home My WebLink About2016-01-06 PACKET 04.E. REQUEST OF CITY COUNCIL ACTION COUNCIL AGENDA MEETING ITEM #�� DATE 01/06/16 . Y PREPARED BY: Finance Robin Roland ORIGINATING DEPARTMENT DEPARTMENT HEAD * * * * * * * � * * * * * * * * * * * * * * � * * * * * * * * * * * * * * � � � * � * � * * * * COUNCIL ACTION REQUEST: Consider resolution reclassifying interfund loan between ED Trust Fund (#286) and Golf Course Fund (#255). STAFF RECOMMENDATION: Adopt resolution reclassifying interfund loan between ED Trust Fund and Golf Course Fund. BUDGET IMPLICATION: BUDGETED AMOUNT ACTUAL AMOUNT ADVISORY COMMISSION ACTION: DATE REVIEWED APPROVED DENIED ❑ PLANNING ❑ ❑ ❑ ❑ PUBLIC SAFETY ❑ ❑ ❑ ❑ PUBLIC WORKS ❑ ❑ ❑ ❑ PARKS AND RECREATION ❑ ❑ ❑ ❑ HUMAN SERVICES/RIGHTS ❑ ❑ ❑ ❑ ECONOMIC DEV. AUTHORITY ❑ ❑ ❑ ❑ ❑ ❑ ❑ SUPPORTING DOCUMENTS: � MEMO/LETTER: � RESOLUTION: ❑ ORDINANCE: ❑ ENGINEERING RECOMMENDATION: ❑ LEGAL RECOMMENDATION: � OTHER: Mayer/Berg�nKDV ADMINISTRATORS COMMENTS: � � , i��U� � City Administrator Date * * * � * * * * :� * * * :� * * * * * * * * * * * * * * * * * * � * * * * * * * * * * * * * * * * H:\Council itemslcouncil-action template.docx Cottage Grove �here Pride and�rOSPerity Meet To: Mayor and City Council Members Charlene Stevens, City Administrator From: Robin Roland, Finance Director� Date: December 29, 2015 Subject: Consider resolution reclassifying Inter-fund loan between ED Trust fund and Golf Course fund Introduction The inter-fund loan between the ED Trust fund (#286) and the Golf Course fund (#255) has existed since 2008 and is currently reflected as $1.2 million on the Balance Sheet of each of the funds. Discussion This inter-fund loan has evolved over the last seven years as the Golf Course had shortfalls of cash on the books at year end which needed to be covered. Interest was forgiven on this loan in 2013 and the loan currently is interest free. During the course of the 2014 audit, the City's Auditors (berganKDV) cited this situation as non- compliant with Generally Accepted Accounting Principles (GAAP) and recommended action be taken to remedy the situation. A letter from Matt Mayer, the partner in charge of the City's audit, is attached with this memo. Reclassifying the loan will mean a permanent reduction in the operating cash on the ED Trust Fund balance sheet. Action Requested Adopt resolution reclassifying the $1.2 million inter-fund loan between the ED Trust Fund and the Golf Course fund effective for the fiscal year ended December 31, 2015. : bergan December 18,2015 BerganKDV,Ltd. Ms. Robin Roland,Finance Director e��r r�n� Cit of Cotta e Grove 602 Ma1n Street y g SWte 1� 12800 Ravine Parkway South eo.eoxaa9 Cedar falls,IA Cottage Grove,MN 55016 SD613•0026 T 319.268.1715 F 319.268.1720 Cedae P,apids D@aP MS.ROIariCl: 27201st Avenue NE 5ufte 300 Please let this letter seive as a follow up to our conversation at the end of last year's audit regarding C da Rapids.�lA the inter-fund loan between the Golf Couise Fund(#640)and the EDA Trust Fund(#286). szaoz-ozoo T 319.294.8000 P 319.294.9Q03 As we discussed,this loan currently does not have a formal repayment schedule nor is any interest �oEai��i� being charged by the EDA Trust Fund to the Golf Course Fund. zs3o co«ido�way Sulte 3p1 p0.Box 5267 Generally accepted accounting principles require that inter-fund loans deinonstrate a degree of Coralviile,ia 52241-0267 reciprocity,evidenced at the very least by a planned repayment schedule and preferably with some T 319148.0367 F 319.248A582 recognition of interest. Since these loans were originated in 2008,no repayments have been made [t�s PAolnes and the interest that was initially chaiged was forgiven in 2013. This calls into question the 9207 Northp�rk Drive reci rocit of this transaction and whether in substance the activi Is actuall a ermanent transfer �ohnston,in P Y tY � Y P 50131-2933 of funds. r sis.rzr.s7oo f 515.727.5800 The fact thaf a)the Golf Course Fund had deficit operations in 2014,b)received a subsidy from the g00 American Bivd W General Fund and c)had a negative cash balance of over$179 thousand,makes it seem unlikely that ��in�gton,MN Fund will ever be in a position to repay the loan. If this is the case,presenting the loan receivable as ssa3i-aa2o T 952.563.6800 an asset of the EDA Trust Fund would be overstating that fund's financial position. �gs2.s63.6eo� sc.c€ouci GASB Statemevt 34 paragraph 112a(1)states: "ifrepayment is not expected within a reasonable 220ParkAvenue5 P.Q Box 1304 time,the inter-fund balances should be reduced and the amount that is not expected be repaid should sc r�oUd,MN 56302-3713 be reported as a transfer from the fund that made the loan to the fund that received the loan." r szo.zsi.�o�o F 320.251.1784 Fot•2015 we ask the City to revisit this transaction and if circumstances have not changed fi•om the �v�t�r�ap facts listed above,reclassifi,this transaction as a transfer of resources between the two funds. ioo�a;c pa�kAve��e l.� Suite 3IX1 P.O.Bax 2100 S1riC0P01 Watedoo,IA �'� 50704-2104 T 319,234.6885 F 319.234.6287 6ergenkdv.com °"�...,..�..�--�._�. Matthew L.Mayer,CPA RESOLUTION NO. 16-xxx Reclassifying transfer of resources previously identified as Interfund loan WIIEREAS,the City Council of the City of Cottage Grove,Minnesota,approved Resolution 2009-057 on April 15,2009 approving a$500,000 Interfund loan from the ED Trust Fund to the Golf Course Fund; and WHEREAS,the City Council of the City of Cottage Grove,Minnesota,approved Resolution 2012-063 on June 6,2012 approving$450,000 in Interfund loans fi•oin the ED Trust Fund to the Golf Course Fund; and WIIEREAS,the City Council of the City of Cottage Grove,Minnesota, approved Resolution 2013-044 on April 17,2013 approving a$250,000 Interfund loan from the ED Trust Fund to the Golf Course Fund; and WIIEREAS, the City Council approved a restructuring of all these loans with Resolution 2013-ll2 on October 16,2013 to a ten year loan of equal annual payments without interest; and WHEREAS, it is in the best interest of the City to accm�ately reflect the nature of the funds which have been transferred from the ED Trust Fund to the Golf Course fund and which were previously identified as loans. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Cottage Grove, Minnesota, that the$1,200,000 previously identified as Intei�fund loan(s)be reclassified as a transfer of resources from the ED Trust Fund to the Golf Course fund and be identified as such on the City's financial statements for the fiscal year ending December 31,2015. Adopted by the City Council of the City of Cottage Grove this 6th day of January, 2016. By Myron Bailey,Mayor ATTEST: Joe Fischbach, City Clerk