North St. Paul reviews 2024 audited financial report; auditors flag escrow reconciliations and fiber fund shortfall

North St. Paul City officials on May 20 reviewed the city’s 2024 audited financial statements and management report from audit firm LB Carlson LLP, which issued clean opinions on the basic financial statements but identified several areas for attention including escrow/deposit reconciliations, isolated payroll documentation issues, and a large deficit in the fiber‑optic fund.

The management report, presented by Jackie Heagle, partner with LB Carlson, said the auditors issued “clean opinions on the basic financial statements” and noted that ‘‘all the information in that annual comprehensive financial report does rest with the city.’’ The audit also included a compliance review of coronavirus state and local fiscal recovery funds (CSLFRF); that compliance letter was returned with no issues, the auditor said.

Why it matters: the audit affirms that the city’s financial statements are fairly presented, but it also highlights operational weaknesses that could affect residents and future budgets—most notably a recurring reconciliation task for customer deposit and escrow accounts and a long‑standing deficit in the fiber fund that council members described as difficult to eliminate without transfers from other funds.

Auditor findings and recommendations were largely positive on core accounting controls but specific items drew attention. Heagle told council that two of 40 disbursements tested were paid after the 35‑day payment period required by state statute and recommended continued attention to timely vendor payments. She also said a prior finding about a group insurance procurement (a request‑for‑proposal requirement for group plans covering 25 or more employees) was not an issue in 2024 but remains something to track on a five‑year cycle.

On internal controls and other observations, the report singled out three operational matters to address: deposit and escrow reconciliations, stronger documentation of payroll withholdings (an isolated W‑4 entry/withholding documentation issue was found), and monitoring of several funds with deficit balances. Heagle noted that the fiber‑optic enterprise fund’s unrestricted deficit “at year end is about 1,900,000,” and reminded the council to continue reviewing options for that fund.

City staff explained the practical limits on fixing the fiber shortfall. During discussion a council member said the city has “holes in the ground” from partial fiber installations and limited commercial demand, and the finance staff estimated remaining long‑term obligations tied to multi‑year agreements will likely leave the city with “somewhere in the vicinity of $1,500,000” to $1,900,000 of deficit when agreements expire. Staff said the only immediately viable source to fully cover the deficit would be a transfer from the electric fund, but emphasized that the fiber fund has shown a modest annual improvement (about $62,000 in 2024).

The auditors also reviewed government‑wide and fund‑level results. The report showed an overall increase in the city’s net position of about $6.3 million for 2024, with governmental activities up about $4.2 million and business‑type activities up about $2.0 million. Governmental fund balances increased about $2.7 million, and the general fund ended the year with an unassigned balance equal to roughly 57 percent of the subsequent year’s budgeted expenditures—above the city’s 50 percent fund balance policy.

Staff and council discussed use of federal recovery (CSLFRF/ARPA) dollars. Finance staff said the city received roughly $1.366 million in CSLFRF funds, and that last year council approved using those dollars for public safety expenditures that qualified under federal guidance; those expenditures were recorded in a pandemic response special revenue fund for 2024 and were part of the audit testing. Staff said the CSLFRF expenditures had to be spent or encumbered by the end of 2024 to comply with the federal timeline and that council previously approved moving the remaining balance into the street maintenance fund, with a forthcoming resolution expected to change that allocation based on a later facilities assessment and capital improvement plan.

Council members asked for additional historical context on taxable market value and per‑capita revenue/expenditure trends; the auditors showed a 7.8 percent increase in the city’s taxable market value for 2024 and noted revenue per capita at about $1,330 for the year, driven in part by one‑time CSLFRF spending. Enterprise funds were mixed: electric, water, surface water, and wastewater posted positive operating results; solid waste posted an operating loss near $100,000 in 2024; and the fiber fund remains in deficit but improved slightly from the prior year.

City staff outlined next steps: the audit and accompanying annual comprehensive financial report will be presented on the council consent agenda later that evening for formal acceptance; staff will continue work to reconcile deposit and escrow accounts and strengthen payroll documentation procedures; and the city manager and finance director said they will return with quarterly updates and the proposed 2026 budget in July. Council members emphasized the escrow reconciliation item as a recurring area to fix and asked staff to develop or confirm a standard operating procedure and a stable assignment of responsibilities between community development and finance.

The workshop concluded with appreciation from council and staff for the audit work and internal efforts; the council adjourned after routine motions later in the meeting.