GUN CLUB LAKE WATERSHED MANAGEMENT ORGANIZATION

Transcription

1 GUN CLUB LAKE WATERSHED MANAGEMENT ORGANIZATION EAGAN, MINNESOTA FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2012 STUART J. BONNIWELL CERTIFIED PUBLIC ACCOUNTANT

2 GUN CLUB LAKE WATERSHED MANAGEMENT ORGANIZATION EAGAN, MINNESOTA FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2012

3 TABLE OF CONTENTS Page Organization - Members of the Board of Managers and Advisors - Independent Auditor's Report 1-2 BASIC FINANCIAL STATEMENTS Exhibit Government-Wide Financial Statements A - Statements of Net Assets - Governmental Activities 4 B - Statements of Activities - Governmental Activities 5 Fund Financial Statements C - Balance Sheets - Governmental Fund - General Fund 6 D - Statements of Revenues, Expenditures and Changes in Fund Balance - Governmental Fund - General Fund 7 Notes to Financial Statements 8-16 Required Supplementary Information General Fund - Statement of Revenues, Expenditures and Changes in Fund Balance - Budget and Actual 17

4 MEMBERS OF THE BOARD OF MANAGERS AND ADVISORS BOARD OF MANAGERS Position City Gerald Engelke Chair Eagan Jeffrey Sluiter Vice Chair Eagan George Fell Manager Inver Grove Heights John Molinaro Manager Mendota Heights Vacant Manager Eagan Wayne Sames Alternate Eagan Bill Klein Alternate Inver Grove Heights Don Mockenhaupt Alternate Mendota Heights ADVISORS Eric Macbeth - City of Eagan Todd Hubner - WSB & Associates, Inc. Joel Jamnik - Campbell Knutson, P.A. Brian Watson - Dakota County Soil & Water Conservation District Administrator Engineer Attorney Consultant

5 STUART J. BONNIWELL Certified Public Accountant 7101 York Avenue South Office: (952) Suite 346 Fax: (952) Minneapolis, Minnesota INDEPENDENT AUDITOR'S REPORT Board of Managers Gun Club Lake Watershed Management Organization Eagan, Minnesota I have audited the accompanying financial statements of the governmental activities and the General Fund of the Gun Club Lake Watershed Management Organization as of and for the year ended December 31, 2012, which collectively comprise the Gun Club Lake Watershed Management Organization s basic financial statements as listed in the table of contents, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility My responsibility is to express opinions on these financial statements based on my audit. I conducted the audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Organization s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Organization s internal control. Accordingly, I express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant estimates made by management, as well as evaluating the overall financial presentation of the financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinions. Opinions In my opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities and the General Fund of the Gun Club Lake Watershed Management Organization as of December 31, 2012, and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the United States of America. -1-

6 Board of Managers Gun Club Lake Watershed Management Organization Other Matters My audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Gun Club Lake Watershed Management Organization s financial statements as a whole. The budgetary comparison information presented on page 17 is not a required part of the basic financial statements, but is supplementary information 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. This information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements, or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In my opinion, this information is fairly stated in all material respects in relation to the financial statements as a whole. Management of the Gun Club Lake Watershed Management Organization has elected not to present the Management Discussion and Analysis that the Government Accounting Standards Board has determined is necessary to supplement the basic financial statements. However, the Management Discussion and Analysis is not a required component of the basic financial statements of the Gun Club Lake Watershed Management Organization. Stuart J. Bonniwell Certified Public Accountant Minneapolis, Minnesota January 25,

7 BASIC FINANCIAL STATEMENTS

8 STATEMENTS OF NET ASSETS GOVERNMENTAL ACTIVITIES DECEMBER 31, 2012 AND 2011 Exhibit A ASSETS Cash $ 46,985 $ 33,390 Due from Other Governmental Units - Grants Receivable 9,000 Total $ 46,985 $ 42,390 LIABILITIES AND NET ASSETS Liabilities Accounts Payable $ 7,717 $ 4,423 Net Assets Unrestricted 39,268 37,967 Total $ 46,985 $ 42,390 See Accompanying Notes to Financial Statements. -4-

9 STATEMENTS OF ACTIVITIES GOVERNMENTAL ACTIVITIES FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 Exhibit B Governmental Activities Expenses $ 35,561 $ 60,489 Revenues Charges for Services - - Operating Grants and Contributions 35,600 44,600 Capital Grants and Contributions - - Total Program Revenues 35,600 44,600 Net Revenues (Expenses) 39 (15,889) General Revenues - Other 1, Change in Net Assets 1,301 (14,912) Net Assets Beginning of Year 37,967 52,879 Net Assets End of Year $ 39,268 $ 37,967 See Accompanying Notes to Financial Statements. -5-

10 BALANCE SHEETS GOVERNMENTAL FUND - GENERAL FUND DECEMBER 31, 2012 AND 2011 Exhibit C ASSETS Cash $ 46,985 $ 33,390 Due from Other Governmental Units - Grants Receivable 9,000 Total $ 46,985 $ 42,390 LIABILITIES AND FUND BALANCE Liabilities Accounts Payable $ 7,717 $ 4,423 Fund Balance Assigned 14,200 Unassigned 25,068 37,967 39,268 37,967 Total $ 46,985 $ 42,390 See Accompanying Notes to Financial Statements. -6-

11 Exhibit D STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE GOVERNMENTAL FUND - GENERAL FUND FOR THE YEARS ENDED DECEMBER 31, 2012 AND Revenues Member Assessments $ 35,600 $ 35,600 Grants and Other Aids 9,000 Other Revenues 1, Total Revenues 36,862 45,577 Expenditures Current - General Government Work Program 16,734 42,126 Administration 16,550 13,306 Insurance and Other 2,277 2,657 Grant Matching Funds 2,400 Total Expenditures 35,561 60,489 Revenues Over (Under) Expenditures 1,301 (14,912) Fund Balance Beginning of Year 37,967 52,879 Fund Balance End of Year $ 39,268 $ 37,967 See Accompanying Notes to Financial Statements. -7-

12 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 Note 1. Significant Accounting Policies A. General Statement The Gun Club Lake Watershed Management Organization (the WMO) was established on June 1, 1985 in response to the Metropolitan Surface Water Management Act of This law requires surface water planning and management for all watershed areas in the seven county Twin Cities metropolitan area. The Gun Club Lake WMO is a joint powers organization consisting of three cities, Eagan, Inver Grove Heights and Mendota Heights, established to cooperatively regulate and manage the natural surface water in the Gun Club Lake Watershed. The WMO is governed by a five-member board of managers; the managers are comprised of citizens appointed by representatives of the member cities. The WMO has prepared a Watershed Management Plan which was approved by the Minnesota Board of Water and Soil Resources. The purpose of the Watershed Management Plan is to protect, preserve and use natural surface water and ground water storage and retention systems; minimize public expenditures necessary to control flooding and water quality problems; identify and plan to effectively protect and improve water quality; prevent flooding and soil erosion; promote ground water recharge; protect and enhance fish and wildlife habitat and water recreational facilities; establish uniform local policies and controls regarding surface water and ground water management; and secure other benefits associated with proper management of surface and ground water resources. The accounting and reporting policies of the WMO relating to the accompanying financial statements conform to accounting principles generally accepted in the United States of America as applied to governmental units by the Governmental Accounting Standards Board (GASB). GASB is the accepted standard setting body for establishing governmental accounting and financial reporting principles. Following is a summary of the more significant accounting policies. B. Reporting Entity In accordance with generally accepted accounting principles and GASB pronouncements, the financial statements of the WMO (the primary government) are required to include activities of its component units or other organizations over which the WMO exercises significant influence or financial accountability. Significant influence or accountability is based primarily on operational, nature and significance of their financial relationships with the WMO such that exclusion of such activities would cause the WMO s financial statements to be misleading or incomplete. GASB has set forth criteria to be considered in determining financial accountability. These criteria include appointing a voting majority of the organization s governing body; and (1) the ability of the WMO to impose its will on that organization or (2) the potential for the organization to provide specific benefits to or impose specific financial burdens on the WMO. The WMO has considered all potential organizations and determined that the WMO has no such component units or organizations that meet the GASB criteria for inclusion. C. Government-Wide and Fund Financial Statements The government-wide financial statements, consisting of the Statement of Net Assets and the Statement of Activities (changes in net assets) report information on all of the non-fiduciary activities of the WMO as a whole. Governmental activities, which normally are supported by member assessments and other revenues, are reported separately from business-type activities, which rely to a significant extent on service charges and fees for support. All activities of the WMO are reported as governmental activities. The WMO has no business-type activities. -8-

13 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 Note 1. Significant Accounting Policies, continued C. Government-Wide and Fund Financial Statements, continued The Statement of Activities demonstrates the degree to which the direct expenses of a given program or function are offset by program revenues. Direct expenses are those that are clearly identifiable with a specific program or function. Program revenues include: 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given program or function, and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular program or function. Other revenue items not properly included among program revenues are reported instead as general revenues. Separate fund financial statements are provided for the General Fund, which is the only governmental fund maintained by the WMO. D. Measurement Focus, Basis of Accounting and Basis of Presentation The government-wide financial statements are reported using the economic resources (cost of service) measurement focus and the accrual basis of accounting. The economic measurement focus means all assets and liabilities (whether current or non-current) are included on the statement of net assets and the operating statements present increases (revenues) and decreases (expenses) in net total assets. Revenues are recorded when earned and expenses are recorded when the liability is incurred, regardless of the timing of related cash flows. Grants and similar items are recognized as revenue when all eligibility requirements imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the WMO considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Revenue sources not susceptible to accrual are recorded only when received because they are not measurable until collected. Reimbursements from grants are considered available if they are collected within one year of the end of the current fiscal period. Intergovernmental revenues, charges for services and investment income associated with the current fiscal period are considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available when received by the WMO. Expenditures are generally recorded when the liability is incurred, as under accrual accounting. Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on the accrual basis when the exchange occurs. On the modified accrual basis, revenue is recorded in the year in which the resources are measurable and become available. Non-exchange transactions, in which the WMO receives value without directly giving equal value in return, include grants, entitlements, and contributions. Revenues from these sources are recognized in the year in which all eligibility requirements have been satisfied. Eligibility requirements include timing requirements, which specify the year when resources are required to be used or the year when use is first permitted; matching requirements, in which the WMO must provide local resources to be used for a specified purpose; and, expenditure requirements, in which the resources are provided to the WMO on a reimbursement basis. On the modified accrual basis, revenue from non-exchange transactions must also be available before it can be recognized. -9-

14 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 Note 1. Significant Accounting Policies, continued D. Measurement Focus, Basis of Accounting and Basis of Presentation, continued Deferred revenue in the fund financial statements and unearned revenue in the government-wide financial statements arise when assets are recognized before revenue recognition criteria have been satisfied. Grants and entitlements received before eligibility requirements are met are also recorded as deferred revenue. Under the modified accrual basis, receivables that will not be collected within the available period have also been reported as deferred revenue. Entitlements and shared revenues are recorded at the time of receipt or earlier if the susceptible to accrual criteria are met. Revenues from reimbursement based grants are recognized as revenue when the qualifying expenditures have been incurred and all other grant requirements have been met. The accounts of the WMO are organized on the basis of funds, each of which is considered a separate accounting entity with a self-balancing set of accounts. The WMO uses funds to report on its financial position and the results of its operations. The WMO segregates transactions related to certain government functions or activities in separate funds to aid financial management and to demonstrate legal compliance. Government resources are allocated to and accounted for in individual funds based upon the purposes for which resources are to be spent and the means by which spending activities are controlled. Governmental funds are those funds through which most governmental functions typically are financed. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. The measurement focus of governmental funds is on the sources, uses and balance of current financial resources. The WMO has only one governmental fund, the General Fund. The General Fund is the WMO s primary operating fund and accounts for all financial resources and expenditures. The General Fund was determined to be a major fund for financial reporting purposes. When both restricted and unrestricted resources are available for an allowable use, it is the WMO s policy to use restricted resources first, then unrestricted resources as they are needed. E. Budgets and Budgetary Control A plan of financial operation for the WMO is established in the budget adopted by the Board of Managers. The budget outlines proposed expenditures and the means of financing them. On or before July 1 of each year, the Board needs to adopt a budget for the ensuing year which includes a statement of the assessment to be provided by each member City. The budget is subsequently submitted to each member City for its review and approval. The budget of the General Fund is adopted on a basis consistent with generally accepted accounting principles. Budgetary amounts shown in the individual statement of revenues, expenditures and changes in fund balance of the General Fund are as originally adopted or as subsequently amended. The General Fund utilizes the same basis of accounting for budgetary purposes and actual results. Budgeted expenditure appropriations lapse at year-end. In addition, outstanding encumbrances expire at year-end. No revisions to the budget were made during the year. -10-

15 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 Note 1. Significant Accounting Policies, continued F. Deposits and Investments Deposits and investment balances include demand deposits and temporary investments with a maturity date of less than three months from acquisition date. Investment income is recognized as earned. As of December 31, 2012, the WMO maintained no investments. With respect to the investment of funds, the WMO follows Minnesota Statutes. G. Receivables Receivables are recorded for services provided by the WMO during the year. Receivables, if any, are reported at gross with no allowance for uncollectible accounts provided against the receivables. H. Inventories Inventories of expendable supplies held by governmental fund types are recorded as expenditures when purchased (purchase method). The WMO does not maintain significant amounts of inventories of materials and supplies. I. Prepaid Items Payments made for services, except for insurance, that reflect costs applicable to periods beyond the current period are recorded as prepaid items. A reserve for prepaid items, if any, is recorded to signify that a portion of the fund balance is not available for subsequent expenditures. J. Capital Assets Capital assets, which include property, buildings and improvements, equipment, and other infrastructure assets, are reported in the governmental activities column in the government-wide financial statements. Capital assets are defined by the WMO as assets with an original cost of $5,000 or more with an estimated useful life in excess of one year. Such assets are recorded at historical cost when acquired or constructed, or estimated historical cost if actual cost not available. Donated capital assets are valued at their estimated fair value on the date received. As of December 31, 2012, the WMO does not own any capital assets as defined above. Infrastructure assets constructed by the WMO are subsequently transferred to other governmental units. These assets are recorded as an expense in the accompanying financial statements rather than being capitalized. K. Net Assets and Fund Balances Net assets (equity) represent the difference between assets and liabilities in the government-wide financial statements. Net assets are displayed in three components: a) Invested in capital assets, net of related debt This component consists of capital assets net of accumulated depreciation and reduced by the amount of outstanding balances of bonds or other debt that are attributable to the acquisition, construction or improvement of those assets. -11-

16 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 Note 1. Significant Accounting Policies, continued K. Net Assets and Fund Balances, continued b) Restricted net assets Net assets with constraints placed on the use either by 1) external groups such as creditors, grantors, or laws or regulations of other governments; or 2) law through constitutional provisions or enabling legislation are reflected in this component. c) Unrestricted net assets All other net assets that do not meet the definition of restricted or invested in capital assets, net of related debt. In the fund financial statements, governmental fund equity is classified as fund balance. Fund balance is divided into five classifications based primarily on the extent to which the WMO is bound to observe constraints imposed on the use of resources reported in the governmental funds. These classifications are as follows: Nonspendable Consists of amounts that cannot be spent because the assets are not in spendable form, such as prepaid items. Restricted Restricted amounts are related to externally imposed constraints established by creditors, grantors or contributors; or constraints imposed by state statutory provisions. Committed Committed amounts are constrained for specific purposes that are internally imposed by formal action of the Board of Managers. These committed amounts cannot be used for any other purpose unless the Board removes or changes the specified use by taking the same type of action it utilized to previously commit these amounts. Assigned Assigned amounts are intended to be used by the WMO for specific purposes but do not meet the criteria to be classified as restricted or committed. In the General Fund, assigned amounts represent intended uses established by the governing body itself or by an official delegated by the governing body. Unassigned This is the residual classification for the General Fund and also may reflect negative residual amounts in other funds. The WMO expends restricted amounts first when both restricted and unrestricted fund balance is available. Additionally, the WMO would first use committed, then assigned, and lastly unassigned amounts of unrestricted fund balance when expenditures are made. L. Use of Estimates The preparation of these financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures or expenses during the reporting period. Actual results could differ from those estimates. -12-

17 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 Note 1. Significant Accounting Policies, continued M. Reconciliation of Government-Wide and Fund Financial Statements Governmental funds are reported using the modified accrual basis of accounting. Under this method, governmental funds report only current assets and current liabilities. In the government-wide financial statements, all funds are reported using the accrual basis of accounting. The governmental fund balance sheet would include a reconciliation between fund balances of governmental funds to net assets of governmental activities. The governmental fund statement of revenues, expenditures and changes in fund balance would also include a reconciliation between net changes in fund balances total governmental funds and changes in net assets of governmental activities as reported in the government-wide statement of activities. The WMO does not have any reconciling items between governmental funds and the government-wide financial statements. N. Comparative Information Comparative total data for the prior year has been presented in the government-wide financial statements and the individual fund financial statements in the accompanying report to provide a further understanding of the changes in the financial position of the WMO. Financial data for the prior year is presented in the operating statement of the General Fund, which is required supplementary information, in order to provide a comparison of current year s operations with the budget and prior year s operations. Note 2. Stewardship, Compliance and Accountability A. Budgetary Information A plan of financial operation for the WMO is established in the budget adopted by the Board of Managers. The budget outlines proposed expenditures and the means of financing them. The budget is prepared by the WMO Administrator based on anticipated requirements of the WMO. On or before July 1 of each year, the Board needs to adopt a budget for the ensuing year which includes a statement of the assessment to be provided by each member City. The budget is subsequently submitted to each member City for review and approval. B. Fund Equity Revenues exceeded expenditures for the year by $1,301 increasing the fund equity of the WMO to $39,268 as of December 31, A portion of the fund equity has been assigneded to specific activities of the WMO and the remaining fund equity is considered unassigned and designated for other activities of the WMO. Note 3. Deposits and Investments A. Deposits Cash and deposits of $46,985 reported at December 31, 2012 represent the carrying amount and bank balance of the WMO s deposits in a bank checking account. -13-

18 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 Note 3. Deposits and Investments, continued A. Deposits, continued In accordance with applicable Minnesota Statutes, the WMO maintains deposits at depository banks authorized by the Board of Managers, all of which are members of the Federal Reserve System. The following is considered the most significant risk associated with deposits. Custodial Credit Risk In the case of deposits, this is the risk that in the event of a bank failure, the WMO s deposits may be lost. Minnesota Statutes require that WMO deposits be protected by federal deposit insurance, surety bond or collateral. The market value of collateral pledged must equal 110% of the deposits not covered by federal deposit insurance or bonds. Authorized collateral includes U.S. treasury bills, notes, and bonds; issues of U.S. government agencies; general obligation securities of any state or local government rated A or better; irrevocable standby letters of credit issued by the Federal Home Loan Bank; and time deposits fully insured by any federal agency. Securities pledged as collateral are to be held in safekeeping in an account at a trust department of a commercial bank or other financial institution other than the financial institution furnishing the collateral. The WMO has no additional deposit policies addressing custodial credit risk. At December 31, 2012, WMO s bank deposits were covered by federal depository insurance. B. Investments The WMO maintained no investments during the year, but may invest funds as authorized by Minnesota Statutes. Investments are subject to various risks, the following of which are considered the most significant. Custodial Credit Risk For investments in securities, this is the risk that in the event of failure of the counterparty to an investment transaction (typically a broker-dealer), the WMO would not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The WMO does not have a formal investment policy addressing this risk, but typically limits its exposure by purchasing insured or registered investments, or by the control of who holds the securities. Credit Risk This is the risk that an issuer or the counterparty to an investment will not fulfill its obligations. The WMO follows Minnesota Statutes with regards to credit risk of investments. The WMOs investment policies do not further address credit risk. Concentration of Credit Risk This is the risk associated with investing a significant portion of the WMO s investments (considered 5 % or more) in the securities of a single issuer, excluding U.S. guaranteed investments (such as U.S. treasuries), investment pools and mutual funds. The WMO s investment policies do not limit the concentration of investments. At year-end, the WMO s investments do not include 5% or more in securities of a single issuer. Interest Rate Risk This is the risk of potential variability in the fair value of fixed rate investments resulting from changes in interest rates (the longer the period for which the interest rate is fixed, the greater the risk). The WMO does not have an investment policy limiting the duration of investments. -14-

19 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 Note 4. Fund Equity At December 31, 2012, $10,000 of the General Fund s equity has been assigned to fund the 2013 budget adopted by the Board of Managers. The primary purpose of this reserve is to provide matching funds required by grant provisions. An additional amount of $4,200 was designated to fund the estimated remaining balance of the update to the WMO s Watershed Management Plan required by the State of Minnesota. Note 5. Member Contributions In accordance with the provisions of the Joint Powers Agreement, individual members agreed to contribute each year to the General Fund based on the budget adopted for the year. Each member s percentage share is based on an average of the following two percentages: (1) The percentage of the total assessed valuation of all real property within the watershed which lies within the member s boundaries, and, (2) The percentage of the total area in the watershed which lies within the member s boundaries. In 2012, the WMO received $35,600 in member contributions, which amounted to 96.6% of actual revenues. Member contributions for 2013 are $35,600 as provided in the budget approved for Note 6. Related Parties The WMO continued its contract with the Dakota County Soil & Water Conservation District to provide administrative assistance and services, education and outreach assistance, and implementation of water quality projects. In 2012, the contract was for a total of $16,150. The amount paid for these services was $11,275 and $10,333 in the years ended December 31, 2012 and 2011, respectively. A similar contract for $15,960 has been entered into with this agency for The majority of the administrative functions of the WMO are performed by staff members of the City of Eagan. During 2012 and 2011, the WMO reimbursed the City of Eagan $11,925 and $12,010, respectively, for services provided. Under terms of an agreement with the City of Eagan, the WMO and the City were sharing costs of a water runoff improvement project. This project was completed in 2011 and the WMO s final share of the costs related to this project of $30,483 was paid to the City in Note 7. Commitments and Contingencies A. Credit Risk Financial instruments that potentially subject the WMO to credit risk are cash and cash equivalents, investments and receivables. The WMO attempts to limit its exposure related to cash and investments by following state statutes regarding types of investments, insurance and collateral. Receivables, if any, are due primarily from other governmental agencies. -15-

20 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 Note 7. Commitments and Contingencies, continued B. Risk Management The WMO is exposed to various risk of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The WMO participates in the League of Minnesota Cities Insurance Trust (the Trust), a public entity risk sharing pool for its general property and casualty, workers' compensation and other insurance coverage. The Trust operates as a common risk management and insurance program for cities throughout Minnesota. The WMO pays an annual premium to the Trust for its insurance coverage. The Trust agreement provides that the Trust will be self-sustaining through member premiums and will reinsure through commercial companies for claims in excess of certain limits. There has been no significant reduction in insurance coverage from the previous year. In addition, there has been no settlement of claims in excess of the WMO's insurance coverage in any of the prior three years. C. Federal and State Funds In past years, the WMO has received financial assistance from state and local government agencies in the form of grants. The disbursement of funds received under these programs generally requires compliance with the terms and conditions specified in the grant agreements and are subject to audit by the grantor agencies. Any disallowed expenditures resulting from such audits may constitute a liability of the WMO. However, in the opinion of management, any such disallowed expenditures will not have a material effect on the financial position of the WMO at December 31, D. Litigation The WMO is not aware of any existing or pending lawsuits, claims or other actions in which the WMO is a defendant. Note 8. Subsequent Events Management of the WMO has evaluated other subsequent events through January 25, 2013, the date which the financial statements were available to be issued. No events were noted subsequent to December 31, 2012 which may have had an adverse affect on the financial statements being reported on. -16-

21 REQUIRED SUPPLEMENTARY INFORMATION GENERAL (OPERATING) FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL FOR THE YEARS ENDED DECEMBER 31, 2012 AND Variance- Favorable 2011 Budget Actual (Unfavorable) Actual Revenues Member Assessments $ 35,600 $ 35,600 $ - $ 35,600 Grants and Other Aids 9,000 Insurance Dividend 700 1, Interest and Other Revenues Total Revenues 36,300 36, ,577 Expenditures Work Program Clean Water Runoff Reduction Project 30,483 Watershed Management Plan 1,800 4,279 (2,479) Community Sponsored Programs 4,000 4,000-4,000 Education and Outreach 3,600 3,600-3,600 Other Programs Administrative Activities 6,600 4,855 1,745 4,043 16,400 16,734 (334) 42,126 Organizational Administration Staff Services 15,000 15,078 (78) 11,655 Engineering Services 1,900 1, ,340 Other Services (176) ,100 16, ,306 Insurance 2,300 2, ,657 Grant Matching Funds ,400 Contingency and Other Total Expenditures 36,300 35, ,489 Revenues Over (Under) Expenditures $ - 1,301 $ 1,301 (14,912) Fund Balance Beginning of Year 37,967 52,879 Fund Balance End of Year $ 39,268 $ 37,967

22 STUART J. BONNIWELL Certified Public Accountant 7101 York Avenue South Office: (952) Suite 346 Fax: (952) Minneapolis, Minnesota COMMUNICATION WITH THOSE CHARGED WITH GOVERNANCE Board of Managers Gun Club Lake Watershed Management Organization I have completed the audit of the financial statements of the Gun Club Lake Watershed Management Organization as of and for the year ended December 31, 2012, and have issued my report thereon dated January 25, Professional standards require that the auditor provide you with information regarding our responsibilities under generally accepted auditing standards, as well as other information related to the planned scope and timing of the audit. The following constitutes my communication of such matters related to the audit. Auditor s Responsibility Under Generally Accepted Auditing Standards The objective of a financial statement audit is the expression of an opinion on the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with accounting principles generally accepted in the United States of America. The audit, conducted in accordance with generally accepted auditing standards, is designed to obtain reasonable, rather than absolute, assurance about whether the financial statements are free of material misstatement and are prepared in accordance with accounting principles generally accepted in the United States of America. My audit of the financial statements does not relieve management or the Board of Managers of their responsibilities. Planned Scope and Timing of the Audit The audit included obtaining an understanding of the Gun Club Lake Watershed Management Organization and its environment, including internal control, sufficient to assess the risks of material misstatement of the financial statements and to design the nature, timing, and extent of further audit procedures. Material misstatements may result from (1) errors, (2) fraudulent financial reporting, (3) misappropriation of assets, or (4) violations of laws or governmental regulations that are attributable to the Organization or to acts by management or employees acting on behalf of the Organization. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; therefore, the audit involved judgment about the number of transactions to be examined and the areas to be tested. The audit was performed according to the planned scope and timing as previously discussed with management. Qualitative Aspects of Accounting Policies Management is responsible for the selection and use of appropriate accounting policies. Significant accounting policies used by the Gun Club Lake Watershed Management Organization are described in Note 1 to the financial statements. There were no new accounting policies adopted nor were there any changes in significant accounting policies or their application during the year.

23 Board of Managers Gun Club Lake Watershed Management Organization I noted no transactions entered into by the Gun Club Lake Watershed Management Organization during the year that were both significant and unusual and of which, under professional standards, I am required to inform you. In addition, there were no transactions for which there is a lack of authoritative guidance or consensus. Accounting estimates are an integral part of the financial statements prepared by management and are based on management s knowledge and experience about past and current events and assumptions regarding future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. Gun Club Lake Watershed Management Organization does not have any particularly sensitive estimates affecting its financial statements. The disclosures in the financial statements (notes to the financial statements) are neutral, consistent and clear. Certain financial statement disclosures can be particularly sensitive because of their significance to financial statement users. The Organization does not have any particularly sensitive disclosures in its financial statements. Difficulties Encountered in Performing the Audit No significant difficulties were encountered in dealing with management in performing and completing the audit. Corrected and Uncorrected Misstatements Professional standards require the auditor to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. None of the misstatements detected as a result of audit procedures and corrected by management were material, either individually or in the aggregate, to the financial statements taken as a whole. The audit of the financial statements resulted in no audit adjustments, except for the normal entries associated with the conversion of cash basis statements to the accrual method of presentation, that I considered significant enough to be recorded by the Gun Club Lake Watershed Management Organization to prevent the financial statements from being misleading. It is important to recognize that for management purposes, the Organization maintains its accounting records using the cash basis of accounting throughout the year. In my judgment, none of the audit adjustments proposed, whether recorded or unrecorded by the Organization, either individually or in the aggregate, indicate matters that could have a significant effect on the financial statements. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a financial accounting, reporting, or auditing matter, whether or not resolved to my satisfaction, that could be significant to the financial statements or the auditor s report. I am pleased to report that no such disagreements arose during the course of the audit. Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters. If a consultation involves the application of an accounting principle to the Gun Club Lake Watershed Management Organization s financial statements or a determination of the type of auditor s opinion that may be expressed on those statements, professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To my knowledge, there were no such consultations with other accountants.

24 Board of Managers Gun Club Lake Watershed Management Organization Other Matters We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management prior to retention as auditor. However, these discussions occurred in the normal course of our professional relationship and my responses were not a condition to being retained as auditor. * * * This information is intended solely for the use of the Board of Managers and management of the Gun Club Lake Watershed Management Organization and is not intended to be and should not be used by anyone other than these specified parties. Stuart J. Bonniwell Certified Public Accountant