STATE OF MINNESOTA Office of the State Auditor Rebecca Otto State Auditor CARLTON COUNTY CARLTON, MINNESOTA FOR THE YEAR ENDED DECEMBER 31, 2013 Description of the Office of the State Auditor The mission of the Office of the State Auditor is to oversee local government finances for Minnesota taxpayers by helping to ensure financial integrity and accountability in local governmental financial activities. Through financial, compliance, and special audits, the State Auditor oversees and ensures that local government funds are used for the purposes intended by law and that local governments hold themselves to the highest standards of financial accountability. The State Auditor performs approximately 160 financial and compliance audits per year and has oversight responsibilities for over 3,300 local units of government throughout the state. The office currently maintains five divisions: Audit Practice - conducts financial and legal compliance audits of local governments; Government Information - collects and analyzes financial information for cities, towns, counties, and special districts; Legal/Special Investigations - provides legal analysis and counsel to the Office and responds to outside inquiries about Minnesota local government law; as well as investigates allegations of misfeasance, malfeasance, and nonfeasance in local government; Pension - monitors investment, financial, and actuarial reporting for approximately 730 public pension funds; and Tax Increment Financing - promotes compliance and accountability in local governments’ use of tax increment financing through financial and compliance audits. The State Auditor serves on the State Executive Council, State Board of Investment, Land Exchange Board, Public Employees Retirement Association Board, Minnesota Housing Finance Agency, and the Rural Finance Authority Board. Office of the State Auditor 525 Park Street, Suite 500 Saint Paul, Minnesota 55103 (651) 296-2551 [email protected] www.auditor.state.mn.us This document can be made available in alternative formats upon request. Call 651-296-2551 [voice] or 1-800-627-3529 [relay service] for assistance; or visit the Office of the State Auditor’s web site: www.auditor.state.mn.us. CARLTON COUNTY CARLTON, MINNESOTA For the Year Ended December 31, 2013 Audit Practice Division Office of the State Auditor State of Minnesota This page was left blank intentionally. CARLTON COUNTY CARLTON, MINNESOTA TABLE OF CONTENTS Exhibit Page Introductory Section Organization 1 Financial Section Independent Auditor’s Report 2 Management’s Discussion and Analysis 5 Basic Financial Statements Government-Wide Financial Statements Statement of Net Position 1 12 Statement of Activities 2 13 Fund Financial Statements Governmental Funds Balance Sheet 3 14 Reconciliation of Governmental Funds Balance Sheet to the Government-Wide Statement of Net Position--Governmental Activities 4 18 Statement of Revenues, Expenditures, and Changes in Fund Balance 5 19 Reconciliation of the Statement of Revenues, Expenditures, and Changes in Fund Balance of Governmental Funds to the Government-Wide Statement of Activities--Governmental Activities 6 21 Fiduciary Funds Statement of Fiduciary Net Position 7 22 Notes to the Financial Statements 23 Required Supplementary Information Budgetary Comparison Schedules General Fund A-1 55 Special Revenue Funds Road and Bridge Fund A-2 58 Human Services Fund A-3 59 Notes to the Required Supplementary Information 60 CARLTON COUNTY CARLTON, MINNESOTA TABLE OF CONTENTS Exhibit Page Financial Section (Continued) Supplementary Information Nonmajor Governmental Funds 61 Combining Balance Sheet B-1 62 Combining Statement of Revenues, Expenditures, and Changes in Fund Balance B-2 63 Budgetary Comparison Schedules Forfeited Tax Special Revenue Fund B-3 64 Debt Service Fund B-4 65 Fiduciary Funds 66 Combining Statement of Changes in Assets and Liabilities - All Agency Funds C-1 67 Other Schedule Schedule of Intergovernmental Revenue D-1 71 Management and Compliance Section Schedule of Findings and Questioned Costs 73 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 95 Report on Compliance for Each Major Federal Program and Report on Internal Control Over Compliance 98 Report on the Schedule of Expenditures of Federal Awards in Accordance with OMB Circular A-133 101 Schedule of Expenditures of Federal Awards D-2 103 Notes to the Schedule of Expenditures of Federal Awards 106 Introductory Section This page was left blank intentionally. CARLTON COUNTY CARLTON, MINNESOTA ORGANIZATION AS OF DECEMBER 31, 2013 Term Expires Elected Commissioners Board Chair Robert Olean District 4 January 2015 Board Member Marv Bodie District 2 January 2015 Board Member Dick Brenner District 1 January 2017 Board Member Thomas Proulx District 3 January 2017 Board Member Gary Peterson District 5 January 2017 Attorney Thomas H. Pertler January 2015 Auditor/Treasurer Paul Gassert January 2015 Coroner Ricard Puumala, M.D. January 2015 Sheriff Kelly Lake January 2015 Appointed Assessor Marci Moreland January 2017 Recorder Kristine Basilici January 2015 Registrar of Titles Kristine Basilici January 2015 Highway Engineer Mike Tardy March 2014 Veteran Services Officer Duane Brownie January 2015 Surveyor William Hayden December 2014 County Coordinator Dennis Genereau Ongoing Page 1 This page was left blank intentionally. Financial Section This page was left blank intentionally. STATE OF MINNESOTA OFFICE OF THE STATE AUDITOR SUITE 500 (651) 296-2551 (Voice) 525 PARK STREET (651) 296-4755 (Fax) REBECCA OTTO SAINT PAUL, MN 55103-2139 [email protected] (E-mail) STATE AUDITOR 1-800-627-3529 (Relay Service) INDEPENDENT AUDITOR’S REPORT Board of County Commissioners Carlton County Carlton, Minnesota Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of Carlton County, Minnesota, as of and for the year ended December 31, 2013, and the related notes to the financial statements, which collectively comprise the County’s basic financial statements, as listed in the table of contents. 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 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 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 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 County’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 County’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. Page 2 An Equal Opportunity Employer We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Basis for Adverse Opinion on Governmental Activities As discussed in Note 1.D.4. to the financial statements, Carlton County has not reported capital assets, including infrastructure assets, in the governmental activities and, accordingly, has not reported depreciation expense on those assets and has not eliminated the related capital expenditures. Accounting principles generally accepted in the United States of America require that capital assets, including infrastructure assets, be capitalized and depreciated, which would increase the assets, net position, and expenses of the governmental activities. The amount by which this departure affects the assets, net position, and expenses of the governmental activities is not reasonably determinable. Also, as discussed in Note 1.D.7. to the financial statements, Carlton County has not reported its other postemployment benefits (OPEB) liability in the governmental activities and, accordingly, has not reported an expense for the current period change in the net OPEB obligation. Accounting principles generally accepted in the United States of America require that OPEB obligations, which arise from an exchange