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2010 Special Purpose Report (restated)CITY OF NEW HOPE HENNEPIN COUNTY, MINNESOTA Special Purpose Audit Reports on Single Audit, Internal Controls, and Compliance with Laws and Regulations Year Ended December 31, 2010 CITY OF NEW HOPE HENNEPIN COUNTY, MINNESOTA Table of Contents Independent Auditor's Report on Schedule of Expenditures of Federal Awards (Restated) Page Schedule of Expenditures of Federal Awards (Restated) 2 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 3--4 Independent Auditor's Report on Compliance With Requirements That Could Have a Direct and Material Effect on Each Major Program and Internal Control Over Compliance in Accordance With OMB Circular A -133 (Restated) 5-6 Independent Auditor's Report on Compliance With Minnesota State Laws and Regulations 7 Schedule of Findings and Questioned Costs (Restated) 8 -9 MMKR CERTIFIE[ PUBLIC ACCOIIN'I'ANTS INDEPENDENT AUDITOR'S REPORT ON SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (RESTATED) To the City Council City of New Hope, Minnesota PRINCIPALS Thomas M. Montague. CPA , rhomas A. Karnowski, CPA Paul A. Radosevich, CPA William 1. Lauer, CPA James H. Eichren, CPA Aaron J. Nielsen, CPA Victoria L. Holinka, CPA We have audited the financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City of New Hope, Minnesota (the City) as of and for the year ended December 31, 2010, which collectively comprise the City's basic financial statements, and have issued our report thereon dated May 12, 2011. These basic financial statements are the responsibility of the City's management. Our responsibility is to express opinions on these basic 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 Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the basic financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the basic financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall basic financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. Our audit was performed for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by the U.S. Office of Management and Budget Circular A -133, Audits of States, Local Governments, and Nonprofit Organizations, and is not a required part of the basic financial statements. The Schedule of Expenditures of Federal Awards is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. As discussed in Note 3 to the Schedule of Expenditures of Federal Awards, the Schedule of Expenditures of Federal Awards originally issued May 12, 2011 has been restated to correct a misstatement. May 12, 2011, except for the Capitalization Grants for Drinking Water State Revolving Funds (CFDA No. 66.468), as to which the date is May 21, 2012. -I- Malloy, Montague, Karnowski, Radosevich, & Co., P.A. 5353 Wayzata Boulevard • Suitc 410 , Minncapolis, MN 55416 • Tcicphonc: 952- 545.0424 • Tcicfax: 952. 545 -0569 • www.mmkr.com CITY OF NEW HOPE Schedule of Expenditures of Federal Awards (Restated) Year Ended December 31, 2010 Federal Federal Federal Grantor /Pass- Through Grantor /Program Title CFDA No. Expenditures U.S. Department of Justice Direct Bulletproof Vest Partnership Program 16.607 $ 4,609 U.S. Department of Transportation Passed through Minnesota Department of Transportation Minimum Penalties for Repeat Offenders for Driving While Intoxicated 20.608 7,425 ARRA — Highway Planning and Construction 20.205 556,366 U.S. Environmental Protection Agency — Office of Water Passed through the state of Minnesota Public Facilities Authority Capitalization Grants for Drinking Water State Revolving Funds 66.468 $ 411,739 Total federal awards $ 980,139 Note 1: The Schedule of Expenditures of Federal Awards is prepared on the accrual basis of accounting in accordance with the requirements of OMB Circular A -133, Audits of States, Local Governments, and Nonprofit Organizations. Therefore, the amounts presented in this schedule may differ from the amounts presented in, or used in the preparation of, the City's basic financial statements. Note 2: All pass - through entities listed above use the same CFDA numbers as the federal grantors to identify these grants, and have not assigned any additional identifying numbers. Note 3: The City restated the Schedule of Expenditures of Federal Awards for the year ended December 31, 2010 to include expenditures for the Capitalization Grants for Drinking Water State Revolving Funds (CFDA No. 66.468) that were not previously reported. This resulted in an additional major federal program award compliance audit as identified in the Schedule of Findings and Questioned Costs (Restated). -2- MMKR CERTIFIE[ PUBLIC ACCOIJN'I'ANTS INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL PRINCIPALS Thomas M. Nlonraguv, C1 , rhomas A. Karnowski, CPA Paul A. Radosevich, CPA William J. Lauer, CPA James H. Eichren, CPA Aaron J. Nielsen, CPA Victoria L. Holinka, CPA OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the City Council City of New Hope, Minnesota We have audited the financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City of New Hope, Minnesota (the City) as of and for the year ended December 31, 2010, which collectively comprise the City's basic financial statements, and have issued our report thereon dated May 12, 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 on the effectiveness of the City's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over financial reporting. 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 and correct, misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the City's financial statements will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. (continued) -3- Malloy, Montague, Karnowski, Radosevich, & Co., P.A. 5353 Wayzata Boulevard • Suitc 410 , Minncapolis, MN 55416 • Tcicphonc: 952- 545.0424 • Tcicfax: 952. 545 -0569 • www.mmkr.com 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 matters that we reported to management of the City in a separate letter dated May 12, 2011. This report is intended solely for the information and use of the City Council, management of the City, others within the City, 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. May 12, 2011 -4- MMKR CERTIFIE[ PUBLIC ACCOIIN'I'ANTS INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL PRINCIPALS Thomas M. Nionrague, C1 Thomas A. Karnowski, CPA Paul A. Radosevich, CPA William 1. Lauer, CPA James H. Eichren, CPA Aaron J. Nielsen, CPA Victoria L. Holinka, CPA OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A -133 (RESTATED) City Council and Management City of New Hope, Minnesota Compliance We have audited the compliance of the City of New Hope, Minnesota (the City) with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A -133 Compliance Supplement that could have a direct and material effect on each of its major federal programs for the year ended December 31, 2010. The City's major federal programs are identified in the summary of audit results section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs is the responsibility of the City's management. Our responsibility is to express an opinion on the City's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A -133, Audits of States, Local Governments, and Nonprofit Organizations. Those standards and OMB Circular A -133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the City's compliance with those requirements. As described in item 2010 -1 in the accompanying Schedule of Findings and Questioned Costs (Restated), the City did not comply with requirements regarding reporting that are applicable to its major program Capitalization Grants for Drinking Water State Revolving Funds, CFDA No. 66.468. Compliance with such requirements is necessary, in our opinion, for the City to comply with the requirements applicable to that program. In our opinion, except for the noncompliance described in the preceding paragraph, the City, complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended December 31, 2010. -5- (continued) Malloy, Montague, Karnowski, Radosevich, & Co., P.A. 5353 Wayzata Boulevard • Suitc 410 , Minncapolis, MN 55416 • Tcicphonc: 952- 545.0424 • Tcicfax: 952. 545 -0569 • www.mmkr.com Internal Control Over Compliance The management of the City is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered the City's internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A -133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over compliance. Our consideration of internal control over compliance was for the limited purpose described in the preceding paragraph of this section and was not designed to identify all deficiencies in internal control over compliance 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 discussed below, we identified certain deficiencies in internal control over compliance that we consider to be material weaknesses and other deficiencies that we consider to be significant deficiencies. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. We consider the deficiency in internal control over compliance described in the accompanying Schedule of Findings and Questioned Costs (Restated) as item 2010 -1 to be a material weakness. The City's responses to the findings identified in our audit are described in the accompanying Schedule of Findings and Questioned Costs (Restated). We did not audit the City's responses and, accordingly, we express no opinion on the responses. This report is intended solely for the information and use of the City Council, management of the City, 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. -xi(a_z� , ` /L wt� ,��.o -lea, 2�a- a� cc E P , A A - May 12, 2011, except for the Capitalization Grants for Drinking Water State Revolving Funds (CFDA No. 66.468), as to which the date is May 21, 2012. W MMKR CERTIFIE[ PUBLIC ACCQIIN'I'ANTS INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH MINNESOTA STATE LAWS AND REGULATIONS City Council and Management City of New Hope, Minnesota PRINCIPALS Thosrnas M. Nionrague, C1 , rhomas A. Karnowski, CPA Paul A. Radosevich, CPA William J. Lauer, CPA James H. Eichren, CPA Aaron J. Nielsen, CPA Victoria L. Holinka, CPA We have audited the financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City of New Hope, Minnesota (the City) as of and for the year ended December 31, 2010, which collectively comprise the City's basic financial statements, and have issued our report thereon dated May 12, 2011. We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the provisions of the Minnesota Legal Compliance Audit Guide for Political Subdivisions, promulgated by the Office of the State Auditor pursuant to Minnesota Statute § 6.65. Accordingly, the audit included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. The Minnesota Legal Compliance Audit Guide for Political Subdivisions covers seven main categories of compliance to be tested: contracting and bidding, deposits and investments, conflicts of interest, public indebtedness, claims and disbursements, miscellaneous provisions, and tax increment financing. Our study included all of the listed categories. The results of our tests indicate that, for the items tested, the City complied with the material terms and conditions of applicable legal provisions. This report is intended solely for the information and use of the City Council, management of the City, and the state of Minnesota and is not intended to be, and should not be, used by anyone other than these specified parties. May 12, 2011 -7- Malloy, Montague, Karnowski, Radosevich, & Co., P.A. i3i3 Wayzata Boulevard • Suitc 410 . Minncapoks, MN 55416 • Tcicphonc: 952- 545.0424 • Tcicfax: 952. 545 -0569 • www.mmkr.com CITY OF NEW HOPE Schedule of Findings and Questioned Costs (Restated) Year Ended December 31, 2010 A. SUMMARY OF AUDIT RESULTS This summary is formatted to provide federal granting agencies and pass - through agencies answers to specific questions regarding the audit of federal awards. Financial Statements What type of auditor's report is issued? X Unqualified Qualified Adverse Disclaimer Internal control over financial reporting: Material weakness(es) identified? Yes X No Significant deficiencies identified? Yes X None reported Noncompliance material to the financial statements noted? Yes X No Federal Awards Internal controls over major federal award programs: Material weakness(es) identified? X Yes No Significant deficiencies identified? Yes X None reported Type of auditor's report issued on compliance for major programs? U.S. Department of Transportation ARRA — Highway Planning and Construction 20.205 Unqualified U.S. Environmental Protection Agency — Office of Water Capitalization Grants for Drinking Water State Revolving Funds 66.468 Qualified Any audit findings disclosed that are required to be reported in accordance with Section 510(a) of OMB Circular A -133? X Yes No Programs tested as major programs: Program or Cluster CFDA No. U.S. Department of Transportation ARRA — Highway Planning and Construction 20.205 U.S. Environmental Protection Agency Capitalization Grants for Drinking Water State Revolving Funds 66.468 Threshold for distinguishing between type A and B programs: $ 300,000 Does the auditee qualify as a low -risk auditee? Yes X No -8- CITY OF NEW HOPE Schedule of Findings and Questioned Costs (Restated) (continued) Year Ended December 31, 2010 B. FINDINGS —FINANCIAL STATEMENT AUDIT None. C. FINDINGS — MAJOR FEDERAL AWARD PROGRAMS AUDIT MATERIAL WEAKNESS IN INTERNAL CONTROL OVER COMPLIANCE AND REPORTABLE INSTANCES OF NONCOMPLIANCE - CAPITALIZATION GRANTS FOR DRINKING WATER STATE REVOLVING FUNDS (CFDA No. 66.468) 2010 -1 Internal Control Over Reporting Criteria — Management is responsible for establishing and maintaining effective internal controls over compliance with requirements applicable to federal programs, including separately tracking federal expenditures within the finance system and accurately preparing the Schedule of Expenditures of Federal Awards (SEFA). Condition — During the City of New Hope, Minnesota's (the City) 2011 audit, it was determined that there was one federal grant for which the City had not properly reported expenditures of $411,739 on its 2010 SEFA. Questioned Costs —None. Context — This is a current year finding. Cause — The City did not record grant revenue and expenditures in the year they were required to be recorded. Effect — Noncompliance with the reporting requirements could be viewed as a violation of the award agreement. Recommendation — We recommend that the City review its internal controls over reporting and verify completeness of expenditures reported on the SEFA. Management's Response — There is no disagreement with the audit finding. The City will review its internal controls over reporting make any necessary changes to assure proper reporting of all federal awards expenditures on its SEFA in the future. D. FINDINGS — MINNESOTA LEGAL COMPLIANCE AUDIT None. E. SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS — MAJOR FEDERAL AWARD PROGRAMS AUDIT In