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FY2010 Audit Report City (3)City of Blair, Nebraska FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT For the year ended September 30, 2010 TABLE OF CONTENTS Page INDEPENDENT AUDITOR'S REPORT 3 -4 MANAGEMENT'S DISCUSSION AND ANALYSIS 5 -17 BASIC FINANCIAL STATEMENTS Statement of net assets - Government -wide 18 Statement of activities - Government -wide 19 Balance sheet - Governmental funds 20 Reconciliation of the balance sheet of the governmental funds to the statement of net assets 21 Statement of revenues, expenditures, and changes in fund balances - Governmental funds 22 Reconciliation of the statement of revenues, expenditures and changes in fund balances of the governmental funds to the statement of activities 23 Statement of net assets - Proprietary funds 24 Statement of revenues, expenses, and changes in fund net assets - Proprietary funds 25 Statement of cash flows - Proprietary funds 26 Statement of net assets - Fiduciary funds 27 NOTES TO FINANCIAL STATEMENTS 28-46 SUPPLEMENTAL INFORMATION Budgetary comparison schedule - General fund and major special revenue funds 48 Budgetary comparison schedule - General fund revenues 49 Budgetary comparison schedule - Street fund 50 Budgetary comparison schedule - KENO fund 51 TABLE OF CONTENTS — CONTINUED Page INDEPENDENT AUDITOR'S 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 52-53 SCHEDULE OF FINDINGS AND RESPONSES 54-55 SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS 56 "&— &ASSOCIATES, L.L.C. Certified Public Accountants I Consultants INDEPENDENT AUDITOR'S REPORT Honorable Mayor and Members of the City Council City of Blair, Nebraska 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 Blair, Nebraska (the City), as of and for the year ended September 30, 2010, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City's management. Our responsibility is to express opinions 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 and the standards applicable to financial audits contained in Gohernment 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 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 the 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 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, as of September 30, 2010, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Gol�ernnlent Auditing Standards, we have also issued a report dated February 2, 2011 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 Goi,ernnrent Auditing Standards and should be considered in assessing the results of our audit. i Westroads Pointe 1015 N.98th St. Accounting principles generally accepted in the United States of America require that the management's discussion and analysis and budgetary comparison information on pages 5 through 17 and 48 through 51 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquires, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Hayes & Associates, L.L.C. Omaha, Nebraska February 2, 2011 -4- City of Blair, Nebraska MANAGEMENT'S DISCUSSION AND ANALYSIS September 30, 2010 The discussion and analysis of the City of Blair's financial performance provides an overview and analysis of the City's financial activities for the fiscal year ended September 30, 2010. It should be read in conjunction with the accompanying basic financial statements. FINANCIAL HIGHLIGHTS • The assets of the City of Blair exceeded its liabilities at the close of the fiscal year ending September 30, 2010 by $27.0 million (net assets). Of this amount, $4.6 million (unrestricted net assets) may be used to meet the government's ongoing obligations to citizens and creditors. • The City of Blair's total net assets increased by $2.5 million for the year ended September 30, 2010. The increase in net assets of $2.5 million can be attributed to grants, water revenue, and sales tax revenue used to purchase capital assets. • As of September 30, 2010, the City of Blair's governmental funds reported combined ending fund balances of $4.1 million, an increase of $1 million in comparison with the prior fiscal year. This increase is attributed in part to the completion of capital projects funded by sales tax. • The fund balances for the General Fund did not significantly change for the fiscal year ended September 30, 2010. The Debt Service Fund increased $900,000 and the Street Fund increased $85,000 during the same period. • The City's total debt decreased by $200,000 during the current fiscal year. The City issued new debt during the current year and continued to make annual debt payments. OVERVIEW OF FINANCIAL STATEMENTS The discussion and analysis serves as an introduction to the City of Blair's basic financial statements. The City of Blair's basic financial statements are comprised of three components, government -wide financial statements, fund financial statements, and notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. -5- City of Blair, Nebraska MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED September 30, 2010 Government -wide financial statements. The government -wide financial statements are designed to provide readers with a broad overview of the City of Blair's finances in a manner similar to a private -sector business. The statement of net assets presents inforination on all of the City of Blair's assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decrease in net assets may serve as a useful indicator of whether the financial position of the City of Blair is improving or deteriorating. The statement of net assets combines and consolidates govermnental funds' current financial resources (short-term spendable resources with capital assets and long-term obligations. Other nonfinancial factors should also be taken into consideration, such as changes in the City's property tax base and the condition of the City's infrastructure (Le. roads, drainage improvements, storm and sewer lines, etc.), to assess the overall health or financial condition of the City. The statement of activities presents information showing how expenses are taken into account regardless of when cash is received or paid. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes). Both the statement of net assets and the statement of activities are prepared utilizing the accrual basis of accounting as opposed to the modified accrual basis. In the statement of net assets and the statement of activities, the City is divided into two kinds of activities: ® Governmental Activities - Most of the City's basic services are reported here, including the police, streets, fire, library, planning and development, parks and recreation, and general administration. Property taxes, sales taxes, and state allocations finance most of these activities. ® Business type Activities - The City charges a fee to customers to help it cover all or most of the cost of certain services it provides. The City's water and sewer system are reported here. ® Fiduciary Activities - The City accounts for Agency Funds for TIF District #1 Project which are held in restriction to pay the costs of the District. TIF District #1 bonds are held by the developer and do not carry the full faith and credit of the City. City of Blair, Nebraska MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED September 30, 2010 Reporting the City's Most Significant Funds 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. Some funds are required to be established by state laws and by bond covenants. However, the City also establishes many other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for using certain taxes, grant and other money. The City's three kinds of fund financial statements — governmental, proprietary and fiduciary - utilize different accounting approaches. • Governmental funds - The majority of the City's basic services are reported in governmental funds, which focus on how money flows into and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method identified as the modified accrual basis of accounting, which measures cash and all other financial assets that can readily be converted into cash. The governmental fund statements provide a detailed short-term view of the City's general governmental operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the City's programs. By comparing information presented for governmental funds with similar information presented for governmental activities in the government -wide statements, readers may better understand the long- term effect of the government's near term financing decisions. The relationships of differences between governmental activities (reported in the statement of net assets and the statement of activities) and governmental funds are detailed in a reconciliation following the fund financial statements. The City of Blair maintains five individual governmental funds. Information is presented separately in the governmental funds balance sheet and in the governmental funds statement of revenues, expenditures, and changes in fund balances for the general fund, debt service fund, street fund, keno fund and capital projects fund, all of which are considered to be major funds. -7- City of Blair, Nebraska MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED September 30, 2010 Fund Financial Statements - Continued • Proprietary. funds - The City charges customers for the services it provides, whether to outside customers or to other units within the City. These services are generally reported in proprietary funds. Proprietary funds are reported in the same way that all activities are reported in the statement of net assets and the statement of activities. In fact, the City's enterprise funds (a component of proprietary funds) are identical to the business -type activities that are reported in the government -wide statements but provide more detail and additional information, such as cash flows, for proprietary funds. The City of Blair maintains two individual enterprise funds. The City uses enterprise funds to account for its water and sewer. The funds provide the same type of information as the government -wide financial statements, only in more detail and include some of the internal service fund type activity. The proprietary fund financial statements provide separate information for the water and sewer funds, both of which are considered to be major funds in the City. • Fiduciary - The City accounts for Agency Funds for TIF District #1 Project which are held in restriction to pay the costs of the District. TIF District #1 bonds are held by the developer and do not carry the full faith and credit of the City. Notes to 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 immediately following the basic financial statements. THE CITY AS A WHOLE - Government -Wide Financial Analysis The City's combined net assets were $27.0 million as of September 30, 2010. Analyzing the net assets and net expenses of governmental and business -type activities separately, the governmental activities net assets were $14.3 million and the business type activities net assets were $12.7 million. This analysis focuses on the net assets (table 1) and changes in general revenues (table 2) and significant expenses of the City's govermilental and business -type activities. The comparative government -wide results are provided in the tables for additional analysis. By far the largest portion of the City's net assets (83%) reflects its restricted capital assets (e.g., donations, community betterment, debt service, and capital projects). SEE TABLE 1 -8- City of Blair, Nebraska MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED SUMMARY OF NET ASSETS Amounts expressed in thousands -9- TABLE 1 Governmental Activities Business -type Activities Total Primary Government 2010 2009 2010 2009 2010 2009 ASSETS Current and other assets $ 8,027 $ 7,464 $ 2,736 $ 1,870 $ 10,763 $ 9,334 Capital assets 16,771 14,525 34,797 35,825 51,568 50,350 Total assets 24,798 21,989 37,533 37,695 62,331 59,684 LIABILITIES Long-term debt outstanding 6,195 5,515 22,473 22,711 28,668 28,226 Other liabilities 4,341 4,638 2,343 2,384 6,684 7,022 Total liabilities 10,536 10,153 24,816 25,095 35,352 35,248 NET ASSETS Invested in capital assets net of related debt 9,986 8,520 11,125 11,944 21,111 20,464 Restricted 221 251 1,080 267 1,301 518 Unrestricted (deficit) 4,055 3,065 512 389 4,567 3,454 Total net assets S 14,262 $ 11,836 S 12,717 $ 12,600 $ 26,979 $ 24,436 -9- City of Blair, Nebraska MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED September 30, 2010 Governmental activities: Governmental activities increased the City's net assets by $2.4 million. Key elements of this increase are as follows: ® The increase was in part due to the fact that all revenue from taxes in governmental funding activities was fairly stable. The General Fund and Street Fund were the most effective at covering their costs due to sales tax, fees charged, operating grants, capital grants, and contributions, which was generally a positive increase. ® Other revenues accounted for an increase of $1.5 million. These revenues consist of reimbursements, developers' down payments, other donations, and miscellaneous revenues. The comparative financial analysis is provided for additional information. The City's governmental revenues increased when compared to the prior year by 22% or $1.6 million. The primary reason for this increase was the receipt of other funds such as grants and building fees. The assessed value of the property of the City increased by $9.25 million or 2.1 % as compared to the prior year while the City property tax rate of $.3569 per $100 assessed valuation stayed the same. Business -type Activities Revenues of the City's business -type activities were $6.5 million for the fiscal year ending September 30, 2010. Expenses for the City's business -type activities were $6.1 million for the year, resulting in net revenues of $367,000. The net revenues are the result of several factors, including the following: ® The City's water system recorded charges for services of $5.47 million, which exceeded expenses of $4 million, which included $1.08 million in depreciation, by $1.44 million. The most significant expenses of the water fund were $957,000 for operating expenses, $770,000 for salaries and benefits and $1,220,000 for material and supplies. ® The sewer fund had a net operating income of $204,982 before depreciation. SEE TABLE 2 -10- City of Blair, Nebraska MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED CHANAGES IN NET ASSETS Amounts expressed in thousands TABLE 2 Governmental Activities Business -type Activities Total Primary Government 2010 2009 2010 2009 2010 2009 REVENUES Program revenues Charges for services $ 601 $ 472 $ 6,482 $ 6,537 $ 7,083 $ 7,009 Operating grants and contributions 62 86 - - 62 86 Capital grants and contributions 460 333 460 333 General revenues Taxes 4,484 4,580 4,484 4,580 Interest income 159 187 4 10 163 197 Other 2,120 606 - 2,120 606 Total revenues 7,886 6,264 6,486 6,547 14,372 12,811 EXPENSES Administration 771 687 - - 771 687 Police 1,687 1,699 1,687 1,699 Fire 363 279 363 279 Parks 470 506 470 506 Library 285 277 285 277 Swimming pool 66 54 66 54 Zoning 157 138 157 138 Animal control 91 82 91 82 Donated fund 23 20 23 20 Streets 1,459 1,645 1,459 1,645 Keno 24 46 24 46 Bond issuance costs 18 - 18 - Interest expense 295 282 - - 295 282 Water - - 5,010 4,934 5,010 4,934 Sewer 1,109 944 1,109 944 Total expenses 5,709 5,715 6,119 5,878 11,828 11,593 \ CHANGE IN NET ASSETS BEFORE TRANSFERS 2,177 549 367 669 2,544 1,218 TRANSFERS 249 (362) (249) 362 CHANGE IN NET ASSETS 2,426 187 118 1,031 2,544 1,218 NET ASSETS, BEGINNING OF YEAR 11,836 11,149 12,599 12,068 24,435 23,217 PRIOR PERIOD ADJUSTMENT 500 (500) BEGINNING NET ASSETS, RESTATED 11,836 11,649 12,599 11,568 24,435 23,217 NET ASSETS, END OF YEAR$ 14,262 $ 11,836 _1__j 2.717 $ 12,599 _L__26 979 _L____24 .435 City of Blair, Nebraska MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED September 30, 2010 CAPITAL ASSET AND DEBT ADMINISTRATION Capital Assets At the end of the fiscal year 2010, the City had nearly $72.7 million invested in a broad range of capital assets, including police and fire equipment, buildings, park facilities, and water and sewer plants. (See Table 3) This amount represents a net increase (including increases and decreases) of $3.1 million or 4.4% over the prior fiscal year. Beginning October 1, 2003, the City began capitalizing general infrastructure assets and depreciating them over their useful lives as required by GASB 34. The general infrastructure assets capitalized in 2010 were $3.2 million. SEE TABLE 3 -12- City of Blair, Nebraska MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED CHANGES IN CAPITAL ASSETS Amounts expressed in thousands TABLE 3 -13- Balance Balance September 30, 2009 Increases Decreases September 30, 2010 GOVERNMENTAL ACTIVITIES Land S 206 $ S S 206 Street infiastructure 10,032 2,473 - 12,505 Buildings 5,659 44 5,703 Equipment 3,721 396 (86) 4,031 Total governmental 19,618 2,913 (86) 22,445 BUSINESS -TYPE ACTIVITIES Water assets 41,614 234 - 41,848 Sewer assets 8,356 37 (19) 8,374 Total business -type 49,970 271 (19) 50,222 Totals S 69,588 S 3,184 S (105) S 72,667 -13- City of Blair, Nebraska MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED September 30, 2010 Debt At year-end, the City had $7.68 million in General Obligation Bonds and General Registered Warrants outstanding as compared to $7.68 million at the end of the prior fiscal year, resulting in no change as shown in Table 4. The Water Revenue Bonds outstanding were decreased by $339,000. The City has a 25 year take or pay contract with Cargill to secure the debt. The expanded plant has a 17 million gallons per day (MPD) capacity with 12.5 MPD contracted to Cargill and was designed to be easily expanded to 20 million gallon per day. SEE TABLE 4 -14- City of Blair, Nebraska MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED CHANGES IN OUTSTANDING DEBT Amounts expressed in thousands Description General Registered Warrants General Obligation Bonds Water Revenue Bonds Sewer Revenue Bonds Totals TABLE 4 Balance Balance September 30, September 30, 2009 Additions Reductions 2010 $ 1,677 $ 379 $ (1,156) $ 900 6,005 1,270 (490) 6,785 21,741 7,270 (7,609) 21,402 2,140 1,645 (1,515) 2,270 $ 31,563 $ 10,564 $ (10,770) $ 31,357 -15- City of Blair, Nebraska MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED September 30, 2010 THE CITY'S FUND At the close of the City's fiscal year on September 30, 2010, the governmental funds of the City reported a combined fund balance of $4.1 million. The primary reason for the general fund's reduction is the transfer of cash to other funds for the purchase of capital improvements. General Fund Budgetary Highlights General Fund had revenues over expenditures of $572,000. This was primarily accomplished from the fact expenses were below budgeted projections. Debt Service had expenditures of $176,000 more than revenues. This was primarily result of special assessments, including interest, were less than what had been budgeted. Street Fund had an operating loss of $1,044,000. This was offset with the transfer in of $1,916,000 in sales taxes for capital projects. Keno and Capital Projects Fund had no major deviations in revenues or expenditures. Water and Sewer Funds had no major deviation of revenues or expenditures. Water finished the year with a 1.25 ratio of operating income before depreciation, plus interest income and operating transfers in divided by Debt Service. Sewer had a net operating income to debt ratio of 1.44. Internal Service Fund had a fund balance of $357,000. The fund was created to manage the city's partially self-funded employee health insurance program. The balance reflects positive management of the fund and savings over the previous commercial employee health plan. The fund balance represents a snapshot of the fund on Sept. 30, 2010 and does not include any accrued liabilities or refunds receivable from reinsurance. It does show the success the City has had in helping manage the City's employee health care costs the past four and three quarter years. The health care program and contracts operate on a calendar year bases. For the first five years of the insurance program, it is estimated the City will have over $350,000 in cash savings reserves above the expected medical costs to help hold down fixture premium costs. -16- City of Blair, Nebraska MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED September 30, 2010 ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS AND RATES Current economic conditions point toward a continued growth in the community that will allow for a stable budget environment. The City did take a slight hit to the community with the closing of Dana College in June of 2010. Despite the College closing, the City's sales tax has remained stable. It appears that the industrial growth of the Bio industries on the Cargill Bio Campus is providing a solid base for maintaining and growing the City's tax base. In addition to the industrial development, Walmart broke ground for a new 100,000 square foot super center in October of 2010 which should allow for the continued growth to the sales tax base. The City, Blair Area Chamber of Commerce, and Gateway Development Corporation all continue to work to help find a prospective buyer for the Dana College property to make the facility an asset to the City. The property tax request for fiscal year 2010/2011 was increased by less than 1%, which with the valuation increase caused the levy per valuation dollar to decrease over the prior year. The City's property valuation continues to grow at a 1.75% to 2% annual increase and sales taxes continue to be stable. The City's short term (1-5 years) forecast continues to be solid as the City budgets only $915,000 annually of the estimated $1.6 million in sales tax receipts for ear -marked projects such as property tax relief, fire bond payment and economic development. The balance of the sales tax dollars is currently available for discretionary capital projects and equipment that are important to the citizens of the City. The 6 to 10 year projections also appear to remain solid with exception that the City currently uses the $481,000 annual payment from OPPD, from the sale of the City's electric system in 1984, for property tax relief. This $481,000 asset will go away in 2014. The Council, in annual discussion on the issue at budget preparation time, is intent on expanding the City's economic growth in sales and property tax base through economic development to offset the loss of revenue from the OPPD payment in FY 2015. In addition, the City's current sales tax authorization is scheduled to expire on Sept. 30, 2015. The extension of the sales tax beyond 2015 will be imperative to maintaining a reasonable property tax levy. CONTACTING THE CITY'S FINANCIAL MANAGEMENT This financial report is designed to provide our citizens, taxpayers, customers, and investors and creditors with a general overview of the City's finances and to show the City's accountability for the money it receives. If you have questions about this report or need additional financial information, contact the City of Blair, 218 S. 16th Street, Blair, NE 68008. -17- City of Blair, Nebraska STATEMENT OF NET ASSETS GOVERNMENT - WIDE September 30, 2010 ASSETS Cash and cash equivalents Accounts receivable Due from County Treasurer Accrued interest receivable Prepaid expense Special assessments receivable Interfund balances Contract receivable Restricted cash and cash equivalents Bond issue costs - deferred Capital assets Land Street infrastructure Buildings Equipment Accumulated depreciation Total capital assets Total assets LIABILITIES Accounts payable Accrued expenses Accrued interest Deposits payable Registered warrants Deferred revenue Bonds payable Due within one year Due in more than one year Total liabilities NET ASSETS Investment in capital assets, net of related debt Restricted: Donated projects Debt service Community betterment Capital projects Unrestricted Total net assets Total liabilities and net assets Governmental Business -type $ 397,084 Activities Activities Total $ 2,645,874 $ 356,760 $ 3,002,634 287,416 1,089,318 1,376,734 123,946 - 123,946 70,243 2,130 72,373 - 6,862 6,862 2,868,310 - 2,868,310 (77,168) 77,168 - 1,560,947 - 1,560,947 547,576 1,080,173 1,627,749 - 123,266 123,266 206,241 423,783 630,024 12,505,089 - 12,505,089 5,703,022 47,634,141 53,337,163 4,030,902 2,163,926 6,194,828 (5,674,263) (15,424,945) (21,099,208) 16,770,991 34,796,905 51,567,896 $ 24,798,135 $ 37,532,582 $ 62,330,717 $ 159,723 $ 237,361 $ 397,084 245,437 162,490 407,927 60,914 242,430 303,344 36,350 1,700 38,050 400,000 500,000 900,000 2,848,462 - 2,848,462 590,000 1,199,438 1,789,438 6,195,000 22,472,596 28,667,596 10,535,886 24,816,015 35,351,901 9,985,991 11,124,871 21,110,862 41,934 - 41,934 - 1,080,173 1,080,173 110,072 - 110,072 68,792 - 68,792 4,055,460 511,523 4,566,983 14,262,249 12,716,567 26,978,816 $ 24,798,135 $ 31532,582 $ 62,330,717 See accompanying notes and independent auditor's report. - 18 - > cd 'o 0. 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O OW City of Blair, Nebraska STATEMENT OF NET ASSETS PROPRIETARY FUNDS September 30, 2010 See accompanying notes and independent auditor's report. -24- Enterprise Funds Internal Water Sewer Total Service Fund ASSETS CURRENT ASSETS Casb $ - $ 356,760 $ 356,760 $ 357,501 Accounts receivable user fees 931,775 157,543 1,089,318 - _ Accruedinterestreceivable 1,879 251 2,130 Prepaid expense 4,620 2,242 6,862 - Total current assets 938,274 516,796 1,455,070 357,501 NON-CURRENT ASSETS Restricted assets Bond and interest sinking fund cash and investments 825,673 254,500 1,080,173 Bond issuance costs - deferred 123,266 - 123,266 - `'" Total non-current assets 948,939 254,500 1,203,439 CAPITAL ASSETS Land 373,908 49,875 423,783 Buildings 40,404,402 7,229,739 47,634,141 Equipment 1,069,508 1,094,418 2,163,926 Accumulated depreciation (11,572,648) (3,852,297) (15,424,945) Total capital assets 30,275,170 4,521,735 34,796,905 Total assets $ 32,162,383 $ 5,293,031 $ 37,455,414 $ 357,501 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable $ 224,785 $ 12,576 $ 237,361 $ Accrued expenses 108,918 53,572 162,490 Accrued interest 227,364 15,066 242,430 - Deposits 1,700 - 1,700 Registered warrants 500,000 - 500,000 Bonds payable - current 1,134,438 65,000 1,199,438 Total current liabilities 2,197,205 146,214 2,343,419 NON-CURRENT LIABILITIES Bonds payable 20,267,596 2,205,000 22,472,596 Total liabilities 22,464,801 2,351,214 24,816,015 NET ASSETS Investment in capital assets net of related debt 8,873,136 2,251,735 11,124,871 - Restricted for debt service 825,673 254,500 1,080,173 - Unrestricted (1,227) 435,582 434,355 357,501 Total net assets $ 9,697,582 $ 2,941,817 12,639,399 $ 357,501 RECONCILIATION Eliminating entry between business -type activities and governmental activities 77,168 $ 12,716,567 See accompanying notes and independent auditor's report. -24- RECONCILIATION Change in net assets Change in eliminating entry between business -type activities and governmental activities Change in net assets business -type activities See accompanying notes and independent auditor's report. -25- $ 119,113 (2,501) $ 116,612 City of Blair, Nebraska STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN FUND NET ASSETS PROPRIETARY FUNDS For the year ended September 30, 2010 Enterprise Funds Internal Water Sewer Total Service Fund OPERATING REVENUES Charges for services $ 5,415,217 $ 989,733 $ 6,404,950 $ 1,073,249 Sale of merchandise 19,129 - 19,129 - Forfeited discounts 14,381 - 14,381 Other 24,143 18,136 42,279 Total operating revenues 5,472,870 1,007,869 6,480,739 1,073,249 EXPENSES Personnel 769,420 431,026 1,200,446 Operating expenses 957,641 356,609 1,314,250 Materials and supplies 1,227,239 12,580 1,239,819 Rental expense 6,637 2,672 9,309 - Insurance claims and expenses - - - 1,030,363 Depreciation 1,075,076 223,953 1,299,029 - Total expenses 4,036,013 1,026,840 5,062,853 1,030,363 OPERATING INCOME 1,436,857 (18,971) 1,417,886 42,886 NONOPERATING REVENUES (EXPENSES) Interest income 2,192 1,777 3,969 755 Interest expense (927,947) (81,040) (1,008,987) - Bonding costs (44,920) - (44,920) - Total nonoperating revenues (expenses) (970,675) (79,263) (1,049,938) 755 Income(loss) before transfers 466,182 (98,234) 367,948 43,641 Operating transfers - in 4,183 244,266 248,449 - Operating transfers - out (214,013) (283,271) (497,284) (45,380) CHANGE IN NET ASSETS 256,352 (137,239) 119,113 (1,739) NET ASSETS, BEGINNING OF YEAR 9,441,230 3,079,056 12,520,286 359,240 NET ASSETS, END OF YEAR $ 9,697,582 $ 2,941,817 $ 12,639,399 $ 357,501 RECONCILIATION Change in net assets Change in eliminating entry between business -type activities and governmental activities Change in net assets business -type activities See accompanying notes and independent auditor's report. -25- $ 119,113 (2,501) $ 116,612 CASH FLOWS FROM OPERATING ACTIVITIES Cash received fiom customers Cash received from interfund services provided Cash payments to suppliers Cash payments to employees Cash paid forinlerfund services used Cash paid for judgments and claims Cash provided from operating activities CASH FLOWS FROM NON -CAPITAL FINANCIAL ACTIVITIES Operating transfers - in Operating transfers - out Cash used from non -capital financing activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING Acquisition of capital assets Receipt of debt proceeds Repaymentoflong-term debt Interest payment long -tern debt Bonding costs Cash used from capital and related financing activities CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from interest earnings Disbursements from (to) restricted assets Cash provided from investing activities CHANGE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR CASH AND CASH EQUIVALENTS, END OF YEAR Reconciliation of operating income to net cash fi-om operating activities Operating income Adjustments to reconcile operating income to net cash from operating activities Depreciation Change in receivables Change in prepaid expenses Change in accounts payable Change in accrued expenses Total adjustments CASH PROVIDED FROM OPERATING ACTIVITIES City of Blair, Nebraska STATEMENT OF CASH FLOWS PROPRIETARY FUNDS September 30, 2010 4,183 244,266 248,449 (214,013) (283,271) (497,284) (45,380) (209,830) (39,005) (248,835) (45,380) (234,075) Enterprise Funds (270,807) Internal Water Server Total Service Fund $ 5,446,586 $ 1,012,405 S 6,458,991 S - - - - 1,073,249 (2,151,515) (379,076) (2,530,591) - (779,887) (421,168) (1,201,055) (1,030,363) 2,515,184 212,161 2,727,345 42,886 4,183 244,266 248,449 (214,013) (283,271) (497,284) (45,380) (209,830) (39,005) (248,835) (45,380) (234,075) (36,732) (270,807) 7,270,000 1,645,000 8,915,000 (7,609,339) (1,515,000) (9,124,339) (1,004,947) (106,327) (1,111,274) (168,186) 9,858 (168,186) (1,746,547) (13,059) (1,759,606) 313 1,729 2,042 755 (648,673) (164,500) (813,173) (648,360) (162,771) (811,131) 755 (89,553) (2,674) (92,227) (1,739) 89,553 359,434 448,987 359,240 $ $ 356,760 -L-3 56,760 -L--357 .501 $ 1,436,857 $ (18,971) $ 1,417,886 $ 42,886 1,075,076 223,953 1,299,029 (26,284) 4,536 (21,748) 81 63 144 39,921 (7,278) 32,643 (10,467) 9,858 (609) 1,078,327 231,132 1,309,459 S 2,515,184 $ 212,161 -L 2,727,345 $ 42,886 See accompanying notes and independent auditor's report. -26- City of Blair, Nebraska STATEMENT OF NET ASSETS FIDUCIARY FUNDS September 30, 2010 ASSETS Cash NET ASSETS TIF Fund 1 $ 48,431 Net Assets (Deficit) Held in Trust for Tax Incentive Funds (TIF) $ 48,431 See accompanying notes and independent auditor's report. -27- { City of Blair, Nebraska NOTES TO FINANCIAL STATEMENTS September 30, 2010 NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following is a summary of the significant accounting policies of the City of Blair, Nebraska: Rgporting EqjLty The City of Blair, Nebraska (the City) is a Municipal Corporation which was founded and incorporated in 1869. With a population of 7,612, the City of Blair functions as a City of the First Class under Nebraska Statutes. The City operates under a Mayor/Council form of government and provides the following services: public safety, streets, culture and recreation, public improvements, planning and zoning, water and sewer services, and general administrative services. This report includes all funds of the City (the "primary government"). 2. Basis of Accountinjz/Measurement Focus The accounts of the City are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self -balancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures. Governmental resources are allocated to and accounted for in individual funds based upon the purpose for which they are to be spent and the means by which spending activities are controlled. Government -Wide Financial Statements The City's government -wide financial statements include a statement of net assets and a statement of activities (including changes in net assets). These statements are prepared using the standards of the Governmental Accounting Standards Board (GASB), General Accepted Accounting Principles (GAAP), as well as FASB pronouncements issued through November 30, 1989. These statements present summaries of governmental and business -type activities for the City. Fiduciary activities of the City are not included in these statements. These statements are presented on an "economic resources" measurement focus and the accrual basis of accounting. City of Blair, Nebraska NOTES TO FINANCIAL STATEMENTS - CONTINUED September 30, 2010 NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 2. Basis of Accounting/Measurement Focus - Continued Government -Wide Financial Statements - Continued Accordingly, all of the City's assets and liabilities, including capital assets and infrastructure as well as long-term debt, are included in the statement of net assets. The statement of activities presents changes in net assets. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred. The statement of activities demonstrates the degree to which the direct expenses of a given function are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function. The types of transactions reported as program revenues for the City are reported in three categories: 1) charges for services, 2) operating grants and contributions, and 3) capital grants and contributions. Charges for services include revenues from customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function. Grant and contributions include revenues restricted to meeting the operational or capital requirements of a particular function. Taxes and other items not properly included among program revenues are reported instead as general revenues. All internal balances in the statement of net assets and internal transactions in the statement of activities have been eliminated. The purpose of transfers between funds was to record proper allocation of expenses. Amounts reported as 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 resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. -29- City of Blair, Nebraska NOTES TO FINANCIAL STATEMENTS - CONTINUED September 30, 2010 NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 2. Basis of Accounting/Measurement Focus - Continued Governmental Fund Financial Statements Governmental fund financial statements include a balance sheet and a statement of revenues, expenditures, and changes in fund balances for all major governmental funds. An accompanying schedule is presented to reconcile and explain the differences in fund balances as presented in these statements to the net assets presented in the government -wide financial statements. The City has presented all major funds that meet the qualifications of GASB Statement No. 34. All governmental funds are accounted for on a spending or "current financial resources" measurement focus and the modified accrual basis of accounting. Accordingly, capital assets and bonds payable are not included on the balance sheet. The statement of revenues, expenditures and changes in fund balances present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in fund balances. Under modified accrual basis of accounting, revenues are recognized in the accounting period in which they become both measurable and available to finance expenditures of the current period. Accordingly, revenues are recorded when received in cash, except that revenues subject to accrual (generally 60 -days after year-end are recognized when due. The primary sources susceptible to accrual are property tax, sales tax, transient occupancy tax, and grant revenues. Expenditures are generally recognized under the modified accrual basis of accounting when the related fund liability is incurred. An exception to this general rule is principal and interest on general long-term debt which is recognized when due. The City reports the following major governmental funds: The General Fund is the government's primary operating fund. It accounts for all financial resources of the City, except those required to be accounted for in another fund. The Debt Service Fund is used to account for the payment of principal and interest on general long-term debt. The primary sources of revenue are property taxes and special assessments. -30- City of Blair, Nebraska NOTES TO FINANCIAL STATEMENTS - CONTINUED September 30, 2010 NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 2. Basis of Accounting/Measurement Focus - Continued Governmental Fund Financial Statements - Continued The Street Fund is used to record transactions in the Street department, as the State of Nebraska requires an accounting to verify the matching of funds it provides for this purpose. The Keno Fund maintains an accounting of Keno gambling activity because the funds earned are restricted to community betterment projects and require special state reporting. The Capital Projects Fund is used to record transactions in the TIF 2 development area, as the funds are required to be accounted for separately. Proprietary Fund Financial Statements Proprietary Fund Financial Statements include a statement of net assets, a statement of revenues, expenses and changes in fund net assets, and a statement of cash flows for each major proprietary fund. A column representing internal service funds is also presented in these statements. However, internal service balances and activities have been combined with the governmental activities in the Government -Wide financial statements. Proprietary funds are accounted for using the "economic resources" measurement focus and the accrual basis of accounting. Accordingly, all assets and liabilities (whether current or noncurrent) are included on the statement of net assets. The statement of revenues, expenses and changes in fund net assets presents increases (revenues) and decreases (expenses) in total net assets. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred. Proprietary funds distinguish operating revenues and expense from non-operating items. Operating revenues and expense generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. Operating expenses for enterprise funds include the cost of services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. -31- City of Blair, Nebraska NOTES TO FINANCIAL STATEMENTS - CONTINUED September 30, 2010 NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 2. Basis of Accounting/Measurement Focus - Continued Proprietary Fund Financial Statements - Continued The City reports the following major proprietary funds: The Water and Sewer Fund accounts for the activities related to the operation of the City's water delivery and sewage systems. It operates the water treatment and sewer treatment plants, water distribution systems, sewer collection systems, and pump stations. Internal service funds of the City (which provide services primarily to other funds of the City) are presented, in summary form, as part of the proprietary fund financial statements. Since the principal users of the internal services are the City's governmental activities, financial activities of the internal service funds are presented in the governmental activities column when presented at the government -wide level.. The. costs of these services are allocated to the appropriate function/program (public safety, streets, culture and recreation, public improvements, planning and zoning, water and sewer services, and general administrative services) in the statement of activities. Fiduciary Fund Financial Statements Fiduciary fund financial statements include a statement of net assets. The City's Fiduciary fund represents an agency fund, which is custodial in nature (assets equal liabilities) and does not involve measurement of results of operations. Accordingly, it presents only a statement of fiduciary net assets and does not present a statement of changes in fiduciary net assets. Fiduciary funds are not reflected in the government -wide financial statements because the resources of those funds are not available to support the City's own programs. The agency fund is accounted for on a spending or "economic resources" measurement focus and the accrual basis of accounting as is the proprietary funds explained above. The City reports the following fiduciary fund: The TIF 1 Fund is an agency fund that accounts for the activities related to redevelopment costs financed by tax incremental finance bonds. The tax incremental finance bonds are to be paid by the taxes of the redeveloped area. -32- City of Blair, Nebraska NOTES TO FINANCIAL STATEMENTS - CONTINUED September 30, 2010 NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 3. Budgetary and Control Budgetary Basis of Accounting The City's legally adopted budget is not in conformity with accounting principles generally accepted in the United States of America, but meets the requirements of the Nebraska Budget Act. The budget is prepared and adopted using the cash basis of accounting whereby revenues budgeted are expected to be received rather than earned and expenditures budgeted are expected to be disbursed rather than incurred. Differences between the budgeted basis of accounting and the generally accepted basis are reconciled in the budget to actual schedule in the required supplementary information. The City Council sets the property tax levy needed to support the coming year's budget in August of each year and submits its budget as required by State statute. Budgetary Control Each fund's appropriated budget is prepared on a detailed line item basis. Revenues are budgeted by source. Expenditures are budgeted by department. Expenditures at the fund level constitute the legal level of control. Expenditures may not exceed appropriations at this level. All budget revisions at this level are subject to final review by the Council. No revisions to the budget were made for the year ended September 30, 2010. 4. The Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. 5. Deposits and Investments The City's cash and cash equivalents are considered to be cash on hand, demand deposit and short-term investments with original maturities of three months or less from the date of acquisition. Investments are restricted and consist of certificates of deposit shown at cost. There are no significant differences in cost and fair values at September 30, 2010. -33- City of Blair, Nebraska NOTES TO FINANCIAL STATEMENTS - CONTINUED September 30, 2010 NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 6. Capital Assets Capital assets, which include land, buildings, and equipment (furniture, vehicles, etc.) and infrastructure assets (street systems, stone drains, etc.), are reported in governmental activities column of the government -wide financial statements. Capital assets are defined by the City as assets with an initial, individual cost of more than $5,000. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated or annexed capital assets are recorded at estimated market value at the date of donation or annexation. The costs of normal maintenance or repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. The City qualifies for the exemption under GASB 34 to not retroactively apply the capitalization requirements of general infrastructure assets. The requirement to capitalize and depreciate these assets has been applied as of October 1, 2003. Depreciation is recorded in the government -wide financial statements on a straight-line basis over the useful life of the assets as follows: Assets Years Equipment 10 Vehicles 5 Buildings 40 Street infrastructure 40 7. Property Taxes Property tax revenue is recognized when collected by the County as the City's agent within the current period. There are no property taxes due which are not delinquent and all delinquent taxes are considered collectible. The City's December 31, 2009 valuation was $457,537,882. The levy for the City for the year ending September 30, 2010 was $0.3569 per $100 of value. The total tax levy was $1,632,785. Property taxes are collected by the County and are due December 31 of each year and delinquent in halves at May 1 and September 1 of the following year. In -lieu of tax receipts are equivalent in value to payments for service provided. -34- City of Blair, Nebraska NOTES TO FINANCIAL STATEMENTS - CONTINUED September 30, 2010 NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 8. Claims and Judgments Payable The City records a liability for litigation, judgments, and claims when it is probable that an asset has been impaired or a liability has been incuffed prior to year-end and the probable amount of loss (net of any insurance coverage) can be reasonably estimated. The liability, if any, is reported in the government -wide statement of net assets. The portion of the liability, which will be liquidated with expendable, available financial resources, if any, is reflected as a liability of applicable governmental funds. 9. Compensated Absences General leave for the City includes both vacation and sick pay. Vacation leave is based on an employee's length of employment. An employee is allowed to carry forward each year, on their anniversary date, that year's earned vacation, plus 40 hours. Sick leave is earned at a rate approved by the personnel manual, which is currently six (6) hours per month. Sick leave can be accumulated to a maximum of 840 hours and can only be used for illness, medical care, and care of sick members of the immediate family per the personnel manual. Upon terniination of employment, an employee is entitled to be compensated for all accumulated unused vacation pay. Unused sick leave is compensated as follows: (1) Upon death or retirement, 50% (2) Upon resignation in good standing, 5% after 10 years of employment increasing to a maximum of 50% after 20 years of employment. 10. Restricted Assets Assets are reported as restricted when limitations on their use change the nature or normal understanding of the availability of the asset. Such constraints are either externally imposed by creditors, contributions, grantors, or laws of other governments, or are imposed by law through constitutional provisions or enabling legislation. The City's policy is to first apply restricted resources to an expense when incurred for purposes for which both restricted and unrestricted net assets are available. Restricted assets in the governmental funds are related to the reserved fund balances. Restricted assets in the proprietary funds are related to the restricted for debt service fund balances. -35- City of Blair, Nebraska NOTES TO FINANCIAL STATEMENTS - CONTINUED September 30, 2010 NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 11. Allowance for doubtful accounts The City uses the direct write-off for uncollectable accounts. The doubtful accounts at September 30, 2010 were insignificant. 12. Transfers Transfers are used to move revenues from the fund that statute or budget requires to collect them to the fund that statute or budget requires to expend them and to move unrestricted revenue collected in the general fund to finance various programs accounted for in other funds in accordance with budgetary authorizations. NOTE B. DEPOSITS AND INVESTMENTS Deposits and investments consist of demand deposits and certificates of deposit. The City maintains a cash pool that is available for all funds. The carrying amount of the City's cash deposits was $4,630,383 at September 30, 2010. The bank balances of the City's cash deposits at September 30, 2010 was $3,598,293. The City's investments were made up of $1,080,173 of certificates of deposit. The City's cash deposits and certificates of deposit were either entirely insured or collateralized with securities held by the pledging financial institutions in the City's name. The City has no formal policy for handling credit risk, interest rate risk, or concentration risk; however, deposits and investments consist of demand deposits, certificates of deposits, and United States Treasury Notes. The statutes of the State of Nebraska require that local governmental units follow the "prudent man" rule with deposits, and that deposits be secured by collateral valued at market or par whichever is lower less the amount insured by the Federal Deposit Insurance Corporation. The City has no deposit and investment policy that would further limit its deposits, but the City administratively has required all deposits to be collateralized at 105%. -36- City of Blair, Nebraska NOTES TO FINANCIAL STATEMENTS - CONTINUED September 30, 2010 NOTE C. CAPITAL ASSETS A summary of changes in capital assets is as follows: Governmental Activities Capital assets not depreciated Land Other capital assets Street infrastructure Buildings Equipment Total other capital assets Less accumulated depreciation Street infrastructure Buildings Equipment Total accumulated depreciation Other capital assets, net Governmental activities capital Balance September 30, 2009 Increases $ 206,241 $ - Decreases Balance September 30, 2010 $ 206,241 10,032,570 2,472,519 - 12,505,089 5,658,662 44,360 - 5,703,022 3,720,389 396,606 (86,093) 4,030,902 19,411,621 2,913,485 (86,093) 22,239,013 (797,613) (327,249) - (1,124,862) (2,081,626) (143,681) - (2,225,307) (2,213,352) (196,835) 86,093 (2,324,094) (5,092,591) (667,765) 86,093 (5,674,263) 14,319,030 2,245,720 - 16,564,750 assets, net $ 14,525,271 $ 2,245,720 $ - $ 16,770,991 Depreciation expense was charged to functions as follows: Governmental Activities: Administration $ 57,378 Police 40,942 Fire 113,840 Parks 45,815 Library 4,218 Swimming pool 21,941 Animal control 8,139 Streets 375,492 Total depreciation $ 667,765 -37- City of Blair, Nebraska NOTES TO FINANCIAL STATEMENTS - CONTINUED September 30, 2010 NOTE C. CAPITAL ASSETS - CONTINUED Business -Type Activities Balance Balance September 30, September 30, 2009 Increases Decreases 2010 Capital assets not depreciated Land $ 423,783 $ - $ - $ 423,783 Other capital assets Infrastructure 47,539,681 94,460 - 47,634,141 Equipment 2,006,848 176,347 (19,269) 2,163,926 Total other capital assets 49,546,529 270,807 (19,269) 49,798,067 Less accumulated depreciation Infrastructure (12,513,571) (1,226,154) - (13,739,725) Equipment (1,631,614) (72,875) 19,269 (1,685,220) Total accumulated depreciation (14,145,185) (1,299,029) 19,269 (15,424,945) Other capital assets, net 35,401,344 (1,028,222) - 34,373,122 Business -type activities capital assets, net $ 35,825,127 $ (1,028,222) $ - $ 34,796,905 City of Blair, Nebraska NOTES TO FINANCIAL STATEMENTS - CONTINUED For the year ended September 30, 2010 NOTE D. BONDS PAYABLE A summary of the changes followed by principal and interest schedules and is as follows: Governmental Activities Balance Balance Interest September 30, September 30, Dated Description Rate 2009 Additions Reductions 2010 12/15/2002 Various purpose 1.60-4.25% $ 420,000 $ $ (135,000) $ 285,000 7/19/2005 Various purpose 2.90-4.25% 720,000 - (85,000) 635,000 6/15/2006 Various purpose 3.70-4.35% 505,000 - (65,000) 440,000 9/28/2007 Various purpose 3.70-5.00% 2,555,000 - (130,000) 2,425,000 Tax increment 12/14/2007 financing bond 4.48% 1,140,000 - (40,000) 1,100,000 Public safety tax 2/26/2008 anticipation bonds 2.75-4.25% 665,000 (35,000) 630,000 5/18/2010 Various purpose 0.85% - 4.25% - 1,270,000 - 1,270,000 Total $ 6,005,000 $ 1,270,000 $ (490,000) $ 6,785,000 Business-tvne Activities Balance Balance Interest September 30, September 30, Dated Description Rate 2009 Additions Reductions 2010 WATER DEBT 6/15/2000 Refunding Bonds 4.70-5.55% $ 690,000 $ - $ (135,000) $ 555,000 4/29/2002 DEQ Bonds 3.03% 4,655,397 - (658,343) 3,997,054 6/1/2006 NRD Bonds 4.15-4.75% 1,895,976 - (315,996) 1,579,980 4/24/2007 WA BANS 2007 4.50% 6,500,000 - (6,500,000) - 8/15/2007 WA BANS 2007B 4.65% 8,000,000 - 8,000,000 2010B Revenue 9/28/2010 Bonds 2.75% - 6,500,000 6,500,000 2010C Revenue 9/28/2010 Bonds 3.25% - 770,000 - 770,000 Total water $ 21,741,373 $ 7,270,000 $ (7,609,339) $ 21,402,034 SEWER DEBT 12/15/2004 Revenue Bonds 2.05-4.25% $ 685,000 $ - $ (60,000) $ 625,000 6/26/2007 SE BANS Series 2007 4.05% 1,455,000 (1,455,000) - 8/17/2010 2010 Revenue Bonds 2.70% 1,645,000 - 1,645,000 Total sewer $ 2,140,000 $ 1,645,000 $ (1,515,000) $ 2,270,000 -39- City of Blair, Nebraska NOTES TO FINANCIAL STATEMENTS - CONTINUED For the year ended September 30, 2010 NOTE D. BONDS PAYABLE - CONTINUED Governmental Activities Year ending September 30, Principal Interest Total 2011 $ 590,000 $ 274,609 $ 864,609 2012 620,000 253,882 873,882 2013 505,000 230,772 735,772 2014 470,000 212,483 682,483 2015 495,000 194,548 689,548 2016-2020 2,050,000 708,180 2,758,180 2021-2025 1,685,000 299,013 1,984,013 2026-2029 370,000 28,000 398,000 Total $ 6,785,000 $ 2,201,487 $ 8,986,487 Business -type Activities Bonds issued for the water and sewer funds are collateralized by a pledge of revenues derived and to be derived fi•om the operations of the water and sewer fund. Sinking fund requirements for Water and Sewer debt were a total reserve of $1,071,235 at September 30, 2010. Water Bonds Year ending September 30, Principal Interest Total 2011 $ 1,134,438 $ 784,875 $ 1,919,313 2012 9,170,151 819,997 9,990,148 2013 1,196,495 405,241 1,601,736 2014 1,158,492 360,770 1,519,262 2015 1,081,160 318,490 1,399,650 2016-2020 1,981,298 1,281,347 3,262,645 2021-2025 2,290,000 939,124 3,229,124 2026-2030 2,765,000 445,271 3,210,271 2031 625,000 11,594 636,594 Total $ 21,402,034 $ 5,366,709 $ 26,768,743 Sewer Bonds Year ending September 30, Principal Interest Total 2011 $ 65,000 $ 63,327 $ 128,327 2012 60,000 85,598 145,598 2013 65,000 83,361 148,361 2014 65,000 80,940 145,940 2015 70,000 78,340 148,340 2016-2020 505,000 340,921 845,921 2021-2025 510,000 249,091 759,091 2026-2030 625,000 136,280 761,280 2031 305,000 6,634 311,634 Total $ 2,270,000 $ 1,124,492 $ 3,394,492 Bonds issued for the water and sewer funds are collateralized by a pledge of revenues derived and to be derived fi•om the operations of the water and sewer fund. Sinking fund requirements for Water and Sewer debt were a total reserve of $1,071,235 at September 30, 2010. City of Blair, Nebraska NOTES TO FINANCIAL STATEMENTS - CONTINUED September 30, 2010 NOTE E. RISK MANAGEMENT The City of Blair is exposed to various risks of loss related to torts; theft, damage to and destruction of assets; errors and omissions; injuries to employees; and natural disasters. These risks are covered by the purchase of commercial insurance. The City assumes liability for any deductibles and claims in excess of coverage limitations. Settled claims from these risks have not exceeded commercial insurance coverage in any of the past three fiscal years. NOTE F. NET ASSETS In the government -wide financial statements net assets are classified in the following categories: Invested in Capital Assets - This category groups all capital assets, including infrastructure, into one component of net assets. Accumulated depreciation on these assets reduces this category. Restricted Net Assets - This category presents external restrictions imposed by creditors, grantors, contributors or laws or regulations of other governments and restrictions imposed by law through constitutional provisions or enabling legislation. Unresti-icted Net Assets- This category represents the net assets of the City that are not restricted for any project or other purpose. In the Fund financial statements, reserves and designations segregate portions of fund balance that are either not available or have been earmarked for specific purposes. The various designations are established by actions of the City Council and Management and can be increased, reduced, or eliminated by similar actions. Following is a description and summary of reservations of fund balance at September 30, 2010: Donated Funds - The City has received donations toward specific projects. The undisbursed funds with specific restrictions are accounted for in the donated fund balance. Debt Service - The Water and Sewer restricted cash is a sinking fund required by conditions of Revenue Bonds. These funds will become unrestricted in the year 2010. -41- City of Blair, Nebraska NOTES TO FINANCIAL STATEMENTS - CONTINUED September 30, 2010 NOTE F. NET ASSETS — CONTINUED Com»lunity Betterment - The City has sponsored a licensed Keno operation and the restricted funds are the accumulation of net proceeds to be used only for community betterment projects. Capital Projects - The TIF 2 fund balance is restricted to development projects within the TIF 2 area. NOTE G. PENSION PLANS The City has three pension plans covering substantially all of its employees. Employees other than policemen are covered by a defined contribution plan, either a 414(h) or 457(b) plan. Policemen are covered under a defined contribution plan established by the statutes of the State of Nebraska. The 414(h) pension plan was established on April 1, 1996 and last restated on August 25, 2008 (effective January 1, 2008). All contributions from a minimum of 3% up to 6% of gross wages in employee contributions and up to a 6% match of gross wage in contributions from the City are invested with an investment manager. The employees must have accumulated six months of service, be at least age 21, and work 40 hours per week to participate in the plan. Employees are 100% vested in employer contributions after six years of service. The plan is a single employer plan with the City maintaining fiduciary responsibility for it. Contributions for the year ended September 30, 2010, totaled $170,690 which consisted of $85,345 contributed by employees and $85,345 contributed by the City. Contributions are expected to remain relatively level from year to year. The City may amend, modify, or terminate the 414(h) plan. Funds in the plan cannot be diverted to any purposes other than for the exclusive benefit of the participants or their beneficiaries or estates. The 457(b) pension plan was established on July 1, 2008. The 457(b) plan allows employees to contribute additional dollars to their pension above the 414(h) requirement and match. The City will contribute a maximum snatch of 6% based on a one-to-one match. -42- City of Blair, Nebraska NOTES TO FINANCIAL STATEMENTS - CONTINUED September 30, 2010 NOTE G. PENSION PLANS - CONTINUED between the 457(b) and 414(h) plans. An employee can contribute voluntary pre-tax amounts up to the legal limits as established by IRS code. The plan is a single employer plan with the City maintaining fiduciary responsibility for it. Contributions for the year ended September 30, 2010, totaled $65,338 which consisted of $54,115 contributed by employees and $11,223 contributed by the City. Contributions are expected to remain relatively level from year to year. The City may amend, modify, or terminate the 457(b) plan. Funds in the plan cannot be diverted to any purposes other than for the exclusive benefit of the participants or their beneficiaries or estates. The policemen are covered under a defined contribution plan established by the statues of the State of Nebraska. Policemen terminating before retirement age receive payment for their contributions to date of termination plus interest accrued and the vested portion of the City's contributions based on the statues of the State of Nebraska. The City has fiduciary responsibility for the plan and it is a single employer plan only. Contributions of $112,270 for 2010, were 12% of gross wages, which complies with statutory requirements. The City contributed 6% of gross wages and the policemen contributed 6%. The City expects contributions to remain relatively level from year to year. The contributions are not actuarially determined. All qualifying police payroll was covered in 2010. NOTE H. CONTRACT RECEIVABLE In April 1984, the City contracted to sell its electrical transmission and distribution generating facilities to the Omaha Public Power District. The terms of the agreement were as follows: Omaha Public Power District agreed to buy the City facilities for the sum of $5.95 million. The terms of payment shall be $1.0 million payable at the date of the contract and the balance of $4.95 million amortized over thirty years at nine percent interest per annum, with annual payments of $481,815 commencing in April 1985. This contract is unsecured. This contract also provided for the Omaha Public Power District to supply electrical service directly to the City and its residents. The transfer of electrical services was completed on September 30, 1984. -43- City of Blair, Nebraska NOTES TO FINANCIAL STATEMENTS - CONTINUED September 30, 2010 NOTE I. LANDFILL CLOSURE The City has closed its landfill operations. All material closing and monitoring costs were accrued over the remaining life of the landfill. The Landfill closed October 31, 1993 and any remaining monitoring costs will be paid from City funds but are not anticipated to be material to the financial statements. NOTE J. SPECIAL ASSESSMENTS RECEIVABLE The City's special assessments outstanding as of September 30, 2010, are composed of special assessment principle of $2,868,310. The delinquent special assessments at September 30, 2010 are 9% of those outstanding. No special assessments have been pledged to specific debt, although special assessments principle and interest is reserved for various purpose bonds payments only. NOTE K. CONCENTRATION OF CREDIT RISK All of the receivables of the City proprietary funds and special assessments in the debt service fund are from the local Blair area, thereby creating a concentration of credit risk. If the Blair area economy was depressed, this could have an adverse effect on the collection of the outstanding accounts receivable. Cargill, Inc. is a major water customer for the City. Cargill, Inc. represents 83.5% of water sales for the year ended September 30, 2010. Although Cargill represents 83.5% of water sales, the City has a contract with the company that secures a minimum monthly revenue stream for payment of the water debt through June 2032, which minimizes the risk for payment of water bonds. NOTE L. SELF INSURANCE The City's Self Insurance Fund is used to account for employee health, dental, and vision liability claims and is accounted for as an internal service fund. Claims expense as reported in the fund was reported based on actual expenses paid during the year fiscal year ended September 30, 2010. The City has not recorded a liability for insurance claims expected to be paid in future years, as the amount of these future claims cannot be reasonably estimated. For the fiscal year ending September 30, 2010, the Self Insurance Fund received inter -fund premiums of $587,686 from various City departments in monthly payments. Additionally, the fund received premiums $175,419 from employees of the City. Claims expense for the year, which totaled $879,963, exceeded the total premiums of $116,858 received by the fund. This $116,858 was covered in whole or part by reinsurance and reserves. City of Blair, Nebraska NOTES TO FINANCIAL STATEMENTS - CONTINUED September 30, 2010 NOTE L. SELF INSURANCE - CONTINUED The City has purchased insurance for claims expenses incurred over a certain dollar amount each year in order to limit its risk of loss. The cost of this insurance for the fiscal year was $150,400. For the year ended September 30, 2010, the City received $281,398 in insurance recoveries fi-om claims. These recoveries have been reported as other operating revenues in the statement of revenues, expenses, and changes in fund net assets, proprietary funds. NOTE M. GASBS No. 54 In March 2009, the Governmental Accounting Standards Board (GASB) approved Statement No. 54, Fund Balance Reporting and Gove»nmental Fund Type Definitions (Statement). Certain significant changes in the Statement will require the following: Fund balances for each of the City's governmental funds (General Fund, Special Revenue Funds, Capital Projects Fund, and Debt Service Fund) will be displayed in the following Classifications depicting the relative strength of the spending constraints placed on the purposes for which resources can be used: Nonspendable fund balance—amounts that cannot be spent because they are either not in a spendable form (such as inventories and prepaid amounts) or are legally or contractually required to be maintained intact. Restricted fund balance—amounts that can be spent only for specific purposes because of constraints imposed by external providers (such as grantors, bondholders, and higher levels of government), or imposed by constitutional provisions or enabling legislation. Connnitted fund balance—amounts that can be spent only for specific purposes determined by a formal action of the government's highest level of decision- making authority. Assigned fund balance—amounts the government intends to use for specific purposes that do not meet the criteria to be classified as restricted or committed. Unassigned ,fund balance—amounts that are available for any purpose; these amounts can be reported only in the City's General Fund. -45- City of Blair, Nebraska NOTES TO FINANCIAL STATEMENTS - CONTINUED September 30, 2010 NOTE M. GASBS No. 54 - CONTINUED The Statement also establishes several new presentation and disclosure requirements, including requirements related to stabilization arrangements (i.e., "rainy day" amounts). In addition, the Statement clarifies the definitions of the various types of governmental funds. Interpretations of certain terms within the new definition of special revenue funds may affect which activities the City can report in special revenue funds. The provisions of GASBS No. 54 must be implemented by the City no later than the fiscal year beginning October 1, 2010. Implementation will require the City to restate existing fund balances for the governmental funds. -46- SUPPLEMENTAL INFORMATION City of Blair, Nebraska BUDGETARY COMPARISON SCHEDULE GENERAL FUND AND MAJOR SPECIAL REVENUE FUNDS For the year ended September 30, 2010 REVENUES Taxes Charges for services Interest income Other revenues Total revenues EXPENDITURES Administration Police Department Fire Department Parks Department Library Swimming Pool Zoning Animal control Donated Funds Total expenditures REVENUES OVER (UNDER) EXPENDITURES OTHER FINANCING SOURCES (USES) Operating transfers - in Operating transfers - out REVENUES AND OTHER FINANCING SOURCES OVER (UNDER) EXPENDITURES AND OTHER SOURCES Original and Variance Final Favorable Budget Actual (Unfavorable) $ 3,497,000 $ 3,455,109 $ (41,891) 407,250 469,715 62,465 2,800 3,701 901 1,555,714 884,300 (671,414) 5,462,764 4,812,825 (649,939) 2,913,070 718,238 2,194,832 1,696,506 1,661,614 34,892 242,160 280,883 (38,723) 495,318 438,111 57,207 506,060 293,228 212,832 51,200 55,101 (3,901) 308,021 288,615 19,406 93,797 83,329 10,468 114,711 29,680 85,031 6,420,843 3,848,799 2,572,044 (958,079) 964,026 1,922,105 1,422,000 1,123,505 (298,495) (2,018,500) (1,749,769) (268,731) (1,554,579) 337,762 $ 1,354,879 17 FUND BALANCE - September 30, 2009 1,277,087 " FUND BALANCE - September 30, 2010 $ (277,492) An explanation of the differences between budgetary inflows and outflows and revenues and expenditures determined in accordance with generally accepted accounting principles follows: The budget fund balance at the beginning of the year is a based on cash reserves rather than fund balance. Accrual adjustments made because the City budgets for revenues and expenditures on the cash basis, rather than on the modified accrual basis. Adjustments for expenses paid out of the general fund that were for other 1,614,849 2,709,445 (845,296) funds, 508,532 General Fund Balance $ 3,987,530 See independent auditor's report. -48- City of Blair, Nebraska BUDGETARY COMPARISON SCHEDULE GENERAL FUND REVENUES For the year ended September 30, 2010 OTHER REVENUES State grants Original and 79,008 Variance Federal grants Final 9,694 Favorable Donations Budget Actual (Unfavorable) REVENUES 40,000 178,313 138,313 Taxes 543,464 578,990 35,526 Property tax $ 1,288,000 $ 1,206,302 $ (81,698) Sales tax 1,700,000 1,708,448 8,448 Motor vehicle tax 134,000 125,922 (8,078) Occupation and franchise tax 280,000 249,643 (30,357) Other taxes 95,000 164,794 69,794 Total 3,497,000 3,455,109 (41,891) Charges for services Business licenses and permits 181,450 222,049 40,599 Library 14,000 14,929 929 Equipment rental 19,000 21,862 2,862 Cemetery lots 15,000 7,800 (7,200) Grave openings 22,000 20,900 (1,100) Towing 21,000 17,505 (3,495) Rescure Squad 110,000 139,794 29,794 Other fees and charges 4,200 4,267 67 Sales of fireworks 15,000 15,000 - RV park 5,600 5,609 9 Total 407,250 469,715 62,465 INTEREST INCOME 2,800 3,701 901 OTHER REVENUES State grants 76,000 79,008 3,008 Federal grants 810,000 9,694 (800,306) Donations 86,250 38,295 (47,955) Reimbursements 40,000 178,313 138,313 Other miscellaneous revenue 543,464 578,990 35,526 Total 1,555,714 884,300 (671,414) Total revenues $ 5,462,764 $ 4,812,825 $ (649,939) See independent auditor's report. -49- City of Blair, Nebraska BUDGETARY COMPARISON SCHEDULE STREET FUND For the year ended September 30, 2010 An explanation of the differences between budgetary inflows and outflows and revenues and expenditures detennined in accordance with generally accepted accounting principles follows: The budget fund balance at the beginning of the year is a based on cash reserves rather than fund balance. (117,620) Accrual adjustments made because the City budgets for revenues and expenditures on the cash basis, rather than on the modified accrual basis. (1,604,974) Street Fund Balance S 63,686 See independent auditors report. -50- Original and Variance Final Favorable Budget Actual (Unfavorable) REVENUES Highway allocation S 550,000 S 525,859 S (24,141) Property taxes 269,500 256,623 (12,877) Other taxes 98,500 99,998 1,498 Incentive payment 6,000 6,000 - State maintenance agreement 22,000 27,248 5,248 In -Lieu of tax 10,000 10,744 744 Homestead exemption - 10,365 10,365 Interest income 750 23 (727) Other revenue 1,657,000 407,172 (1,249,828) Total revenues 2,613,750 1,344,032 (1,269,718) EXPENDITURES Salaries 354,670 339,307 15,363 FICA 25,000 23,934 1,066 Employee insurance 116,116 96,154 19,962 Retirement 20,400 18,964 1,436 Legal 8,000 3,142 4,858 Auditing 8,600 7,727 873 Engineering 10,000 102,763 (92,763) Office expense 5,250 3,934 1,316 Utilities 7,000 10,090 (3,090) Telephone 2,400 2,757 (357) Travel 5,000 6,393 (1,393) Training 1,200 2,322 (1,122) Insurance 19,000 10,837 8,163 Maintenance 44,750 41,548 3,202 Street lighting 158,000 173,556 (15,556) County fees - 2,798 (2,798) Car expense 2,000 3,330 (1,330) Contract mowing 16,000 16,472 (472) Gas, diesel, and oil 28,000 36,886 (8,886) Materials and supplies 146,100 163,037 (16,937) Rental 10,000 4,199 5,801 Capital outlay Equipment 140,000 143,900 (3,900) Street improvements 1,399,000 728,385 670,615 Total expenditures 2,526,486 1,942,435 584,051 REVENUES OVER (UNDER) EXPENDITURES 87,264 (598,403) (685,667) OTHER FINANCING SOURCES (USES) Payment of warrant liabilities (851,000) 769,732 1,620,732 Operating transfers - in 763,500 1,518,996 755,496 REVENUES AND OTHER FINANCING SOURCES OVER (UNDER) EXPENDITURES AND OTHER SOURCES (236) 1,690,325 S 1,690,561 FUND BALANCE - September 30, 2009 95,955 95,955 FUND BALANCE - September 30, 2010 S 95,719 1,786,280 An explanation of the differences between budgetary inflows and outflows and revenues and expenditures detennined in accordance with generally accepted accounting principles follows: The budget fund balance at the beginning of the year is a based on cash reserves rather than fund balance. (117,620) Accrual adjustments made because the City budgets for revenues and expenditures on the cash basis, rather than on the modified accrual basis. (1,604,974) Street Fund Balance S 63,686 See independent auditors report. -50- City of Blair, Nebraska BUDGETARY COMPARISON SCHEDULE KENO FUND For the year ended September 30, 2010 GROSSPROCEEDS PRIZES Declared prizes Unclaimed wins Net Prizes paid NET HOLD ALLOWABLE EXPENSES PAID Lottery Operator's Commission NET KENO PROCEEDS EXPENSES PAID BY CITY State taxes Other expenses TOTAL EXPENSES PAID PROCEEDS AVAILABLE FOR DISTRIBUTION TRANSFER FROM (TO) PRIZE RESERVES COMMUNITY BETTERMENT - Direct TRANSFER TO GENERAL TRANSFER TO STREET TRANSFER TO DEBT SERVICE NET AFTER TRANSFERS Beginning Keno account Fund balance Interest Reimbursements KENO ACCOUNT FUND BALANCE PRIZE RESERVE FUND RECONCILIATION FOR THE REPORTING PERIOD Beginning reserve balance Increase in reserve Withdrawals from reserve Ending reserve balance (deficit) Original and Variance Final Favorable Budget Actual (Unfavorable) $ - $ 862,624 $ 862,624 - 658,783 658,783 -(2,317) (2,317) - 656,466 656,466 - 206,158 206,158 - (120,767) (120,767) 80,000 85,391 5,391 17,600 17,252 348 3,200 100 3,100 20,800 17,352 3,448 59,200 68,039 8,839 - (5,437) (5,437) 70,000 7,000 (63,000) 61,000 35,000 (26,000) 41,000 30,000 (11,000) 25,000 10,000 (15,000) (137,800) (19,398) 118,402 129,348 129,348 - 100 122 22 $ (8,352) $ 110,072 $ 118,424 See independent auditor's report. -51- $ 41,547 21,236 (15,800) $ 46,983 "&— S & ASSOCIATES, L.L.C. Certified Public Accountants I Consultants INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GO VERNMENT A UDITING STANDARDS Honorable Mayor and Members of the City Council City of Blair, Nebraska We have audited the financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of City of Blair, Nebraska (the City), as of and for the year ended September 30, 2010, which collectively comprise the City's basic financial statements and have issued our report thereon dated February 2, 2011. We conducted our audit in accordance with auditing standards generally accepted in the United States 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 as 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 of 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 preceding paragraph and was not designed to identify all deficiencies in internal control over financial reporting that might be significant deficiencies, or material weaknesses and therefore, there can be no assurance that all deficiencies, significant deficiencies, or material weaknesses have been identified. However, as described in the accompanying schedule of findings and responses, we identified a certain deficiency in internal control over financial reporting that we consider to be a material weakness and another deficiency that we consider to be a significant deficiency. Westroads Pointe 11015 N.98th St. rte 200 I Omaha, NE 68114 I T402.390.2480 I F A deficiency in internal control 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 material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. We consider the deficiency 10-01 described in the accompanying schedule of findings and questioned costs to be a material weakness. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider the deficiency 10-02 described in the accompany schedule of findings and questioned costs to be a significant deficiency. Compliance and Other Matters As part of obtaining reasonable assurance about whether the City's financial statements are 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. We noted certain other matters that we reported to management of the City, in a separate letter dated February 2, 2011. The City's response to the findings identified in our audit is described in the accompanying schedule of findings and responses. We did not audit the City's response and, accordingly, we express no opinion on it. This report is intended solely for the information and use of management, City Council, others within the entity, and federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. Hayes & Associates, L.L.C. Omaha, Nebraska February 2, 2011 - 53 - City of Blair, Nebraska SCHEDULE OF FINDINGS AND RESPONSES - CONTINUED For the year ended September 30, 2010 Finding 10-02 Continued: Effect - Reliance on informal information from City Administrator and City Treasurer on majority of City's accounting procedures and information. Recommendation - We recommend that the City formalize and maintain a policy and procedures manual. This manual should include all key areas of activities, including administration and operations. A policy and procedures manual will document how the City operates and will support cross -training and reduce training issues relating to employee turnover. Officials Response - The City has drafted up formal policy and procedure documents in the current fiscal year. These documents are still in draft stage but the City anticipates that they will be formally adopted during the next fiscal year. -55- City of Blair, Nebraska SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS For the year ended September 30, 2010 Finding 09-01: Condition - The City of Blair keeps it books on a cash basis and relies on its auditors to prepare the financial statements. Recommendation - The City of Blair may consider gathering the necessary expertise to prepare a required set of financial statements in a format acceptable for GAAP reporting. Current Status — Unresolved, see finding 10-01 Finding 09-02: Condition - Employees do not have documentation of procedures to support their job duties. Recommendation - We recommend that the City formalize and maintain a policy and procedures manual. This manual should include all key areas of activities, including administration and operations. A policy and procedures manual will document how the City operates and will support cross -training and reduce training issues relating to employee turnover. Current Status — Unresolved, see finding 10-02 -56-