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Council accepts city audit; auditor flags interfund borrowing, internal-control items
Summary
Auditor Ryan Schmidt presented the 2024 financial audit, reporting an unmodified (clean) opinion but noting common internal-control observations and a flagged issue for interfund borrowings tied to the ambulance fund; the council unanimously approved the audit.
The International Falls City Council on Monday accepted the city’s 2024 financial audit after an online presentation by Ryan Schmidt of Schleiner, Wenner and Co., who said the firm issued an unmodified — or clean — opinion.
“We gave you this year is what's called an unmodified opinion that is a clean opinion,” Schmidt said during his presentation. He told the council the audit went smoothly and commended city staff for their responsiveness.
Schmidt described several recurring internal-control observations common in municipalities the size of International Falls, including audit-year adjustments (cash-to-accrual conversions), lack of segregation of duties in small accounting departments, and the external preparation of the financial statements by the auditing firm. He also flagged interfund borrowings as a notable issue, citing the ambulance fund’s growing deficit and its borrowing from the general fund.
On the ambulance fund, Schmidt said the fund’s deficit increased by about $267,000 in 2024, leaving a fund-balance deficit of roughly $1,300,000 and about $1,600,000 in cash borrowed from the general fund at year-end. Schmidt cautioned that if the receivable from the ambulance fund were judged uncollectible, the city’s unassigned general-fund ratio would fall materially below its policy target.
The audit also reviewed statutory compliance checklists for Minnesota and reported no compliance exceptions.
Councilor Kaler moved to approve the 2024 audit as presented; Councilor Wagner seconded. The council voted unanimously to accept the audit. Council members and the mayor expressed that the audit’s clean opinion should temper ongoing public insinuations about misappropriation of funds.
Schmidt recommended the council and staff consider the ambulance fund’s long-term plan for repayment and noted options the city may pursue to manage interfund borrowing. No formal corrective action or ordinance was adopted at the meeting; the approval accepted the audit report and invited staff and council to pursue corrective budgeting or policy measures as appropriate.
Key figures from the audit presentation included: general-fund revenues exceeded budget by about $665,000 and expenditures exceeded budget by about $1.3 million (some of that difference related to GAAP lease accounting). The city’s unassigned fund-balance ratio was reported slightly above the council’s 50% policy when calculated against budgeted expenditures but fell to the low 40s when measured using actual expenditures, and would drop further under a worst-case write-off of the ambulance receivable.
