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City audit delayed; auditors flag water and sewer cash deficits and $5M reserve recommendation
Summary
Finance Director Sullivan told the finance committee that the city’s independent audit is delayed and auditors have flagged persistent water and sewer fund cash deficits; auditors recommended a $5 million nonspendable reserve to address the issue, which would reduce the city’s unassigned fund balance from roughly $29 million to $24 million.
At the April 8 finance committee meeting Finance Director Sullivan reported that the city’s annual audit is delayed and that auditors have raised a material concern about the water and sewer enterprise funds.
Sullivan said the audit firm has experienced ownership and staffing changes (Melanson → Markham → CBIZ) and new testing requirements following acquisitions, which contributed to the delay in producing a draft audit. Sullivan said he expects a draft audit by the end of the next week and a final audit by the end of the month.
More substantively, Sullivan said auditors are concerned about the water and sewer funds’ negative cash position, which auditors view as not improving quickly enough. As a result, auditors recommended designating a $5,000,000 nonspendable reserve from the city’s unassigned fund balance to cover contractual obligations tied to the deficit. Sullivan explained that a “nonspendable” designation restricts that portion of the fund balance from normal use.
Sullivan said the city’s reported unassigned fund balance at year-end was approximately $29,000,000; applying the recommended $5,000,000 reserve would lower that figure to about $24,000,000. He told the committee staff will continue to work with auditors, consider user-rate adjustments for water and sewer, and identify cost-control opportunities; debt service is a significant driver of the funds’ cash needs. Sullivan said the city expected to use some undesignated fund balance in FY24 and planned additional use in FY26 to stabilize the tax rate.
Committee members asked questions and were advised that staff will continue to coordinate with auditors and report back; no formal vote was taken on the audit findings or designation at the April 8 meeting.
