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HOW THE NEW LAW AFFECTS CITIES'
<br />FINANCIAL REPORTS:
<br /> STATE PLANNING AGENCY
<br /> STATE AUDITOR
<br />
<br /> Legislation to improve the aecoracy and timeliness of city {'mancial
<br />information passed the 1978 Legislature. Chapter 787 of the 1978
<br />Minnesota Laws grows out of recommendations made in a report issued
<br />by the State Planning Agency entitled, "City Financial Reporting." The
<br />legldation was the product of discussion of the planning agency's report
<br />by the League of Cities, the Municipal Finance Officers' Association, the
<br />Minnesota Society of Certified Public Accountants, the Office of the
<br />State Auditor, and the State Planning Agency -- all of which supported
<br />the legislation.
<br /> The law affects the manner in which both statutory and chart~
<br />cities and the State Auditor report [.manclal data.
<br /> The law does four things: (1) It sets deadlines for all cities to report
<br />financial data to the State Auditor. (2) It requires cities over 2,500
<br />population to submit financial information in conformance with
<br />generally aocepted accounting principals (GAAP) -- which means on a
<br />modified or full-accrual basis of accounting. (3) It requires cities under
<br />2,500 population to report financial information in a form and style
<br />prescribed by the State Auditor. (4) It makes the State Auditor
<br />responsible for developing forms cities should follow when reporting;
<br />insm'ing that reports or audits conform to GAAP, and enforcing this
<br />¢~nformity if necessary.
<br /> What cities mast do to comply with the law:
<br /> All clti~s are reqtfired to adopt the calendar year as their fiscal year.
<br />A. Cities over 2,500 population.
<br />Wlmt cities must do to comply with the law:
<br />
<br />All titles are required to adopt the calendar year as thelr fiscal year.
<br />
<br />A. Cities ov~ 2,500 population.
<br />
<br /> ,,~1. Prepare a financial report in a form pres~ilaed by the State
<br /> Auditor covering the previous year's op~atlons.
<br /> ~'2. Present the financial report to the City Council, make copies
<br /> available to the public, publish the report or a sununary of the
<br /> report in a local newspaper, and send the report to the State
<br /> Andltor.
<br /> .~._~Prepare financial reports that accurately presmt the clty'~
<br /> , financial position and conform__t~..G._AA~_, i.e,,.bl~ based on a
<br /> __n.n.n.n.n.n.n.nl~fied or full-accrual basis of accounting.
<br /> ~. Submit to the State Auditor within 180 days after the dose of the
<br /> fiscal year audited financial statements which have been attested
<br /> to by a certified public accountant, a public accountant, or the
<br /> State Auditor. Audked financial statements may be accepted by
<br /> the State Auditor in lieu of financial reports. This is interpreted
<br /> to mean that if the audited fmancial statements conform to
<br /> GAAP, then the State Auditor will accept them htste~d of
<br /> financial reports. The State Auditor's Off.me, with the support of
<br /> the State Planning Agency, has issued an implementation and
<br /> enfomement policy it intends to follow regarding his provision.
<br /> ,,~. The State Auditor will continue to audit 1Wmneapolis, St. Paul,
<br /> and Duluth.
<br />
<br />B. Cities less than 2,500 population:
<br />
<br /> 1. May voluntarily comply with the same requirements for cities
<br /> over 2,500 population, i.e., submit either £manclal reports in
<br /> crmformance with GAAP or audits, or;
<br /> 2. May prepare detailed financial stat~nents in a style and form
<br /> prescribed by the State Auditor, ['de the statement in cities'
<br /> rices, present the statement to the city ceuncfls within 45 days
<br /> after the fiscal year, publish the statement in a newspaper within
<br /> 60 days, and submit the statement to the State Auditor within 90
<br /> days after the close of the fiscal year.
<br />
<br />,C. The State Auditor will
<br />
<br /> 1. Supervise the conversion of all city flseal years to a calendar year
<br /> and insure that flnandal activities are reported in accordance
<br /> .with law. This will be accomplished in training sessions
<br /> .throughout the State during 1978. The training will be directed
<br /> by the State Planning Agency in cooperation with the Office of
<br /> the State Auditor.
<br /> 2. Prescribe summary forms for [.man,iai statements for cities.
<br /> These forms will be mailed dh-eiztly to cities before January,
<br /> 1979 and will bo made available during th~ training sessions.
<br /> 3. Enforce requirements that cities over 2,500 population file audit
<br /> reports within 180 days o! year end, and that the reports are in
<br /> accordance with generally accepted accounting principles
<br /> ~GAAPt.
<br />
<br /> Cities with a fiscal year that docs not correspond with the calendar
<br />year w~l receive special instructions from the State Auditor for con-
<br />va-ting to the calendar year. Howeva-, cities on a fiscal year are eh-
<br />mm-aged to change to a calendar year as of December 31, 1978. This
<br />can be accomplished by reporting on a shorter fiscal period during 1978.
<br />The issue of-reporting forms and sununary financial reports will bo
<br />addressed by a spedal task force being assembled in cooperation with the
<br />State Planning Agency, the League of 1VF_mnesota Cities, the ]VFmnesota
<br />Society of Certified Public Accountants, and the Municipal Finance
<br />Officers Association.
<br /> Audit reports for the 1978 calendar year should be filed with the
<br />Municipal Reporting Unit of the Office of the State Auditor by June 30,
<br />1979. Individual cities will he contacted ff the reports are not filed on a
<br />timely basis. Extensions may be granted under reasonable cir-
<br />atmstances. If cities have not made any arrangements for an audit, this
<br />office will appoint an audit firm to do the vmrk, and the cost will be
<br />char~ed to the city.
<br /> All audit reports received in 1979 will be reviewed for adherence to
<br />GAAP. During the [.n'st year letters will be issued to the cities identifying
<br />any areas of significant non-compliance. Cities and their auditors will be
<br />expected to make the appropriate changes in the financial reports for the
<br />1979 reporting year.
<br /> Any audit reports received in 1980 for the 1979 reporting year will
<br />not be accepted unless they are in substantial compliance with GAAP.
<br />Reports with minor variances Imm GAAP will be acoeptecl contingent
<br />upan making appropriate changes in the next reporting period.
<br />
<br /> It isimportant that cities take note of this new legislation because ff
<br />cities fail to comply with the provisions of the law, the State Auditor's
<br />Office is authorized to send its own personnel or contract with private
<br />fin-ms to complete and file financial reports or f'mancial statements. The
<br />cost for this is to be paid by the cities and can be deducted imm state
<br />m~mlclpal aids or other state-shared taxes due to the city.
<br />
<br /> Chapter 787 represents a major commitment to improved £mancial
<br />reporting for Minnesota cities. The cooperation and support of public
<br />accounting profession and city clerks and f'mance officers is essential to
<br />the efficient implementation and effective e~forcernent of the legislative
<br />act.
<br />
<br />Training
<br />
<br /> Fiay-thonm~a dollars {$50,000) was appropriated to the State
<br />Planning Agency to help cities meet the new requirements. The planning
<br />agency intends to use this money to provide detailed technical assistance
<br />in the form of training programs to cities to help them report ['mancial
<br />activities on a modif'~l accamal basis. Those dries that at presmt do not
<br />report in conformance with GAAP will be the major focus of the
<br />planning agency's training programs.
<br />
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