City Council accepts audit showing clean opinion; auditor flags year-end close and insurance reserve

The City Council voted to accept the city's annual financial audit after an audit firm representative said the report contained an unmodified (clean) opinion and no reportable internal-control or compliance deficiencies.

"In our opinion, the accompanying financial statements referred to above present fairly in all material respects the respective financial positions," the audit presenter said, summarizing the independent auditor's report. The council approved the audit by voice vote.

The auditor delivered a high-level review of the government-wide and fund financial statements, noting the city's overall net position rose to about $93,000,000, an increase of about $2,800,000 from the prior year. On the government-wide balance sheet, governmental activities showed relatively flat total assets and decreased liabilities; business-type activities (utility funds) saw about $1,650,000 in asset growth and a decline in liabilities of roughly $418,000.

The auditor said auditors found no internal-control weaknesses that required reporting and no compliance findings. "We didn't identify any deficiencies in internal control that we'd have to report on, and there was also no compliance issues, that we identified," the presenter said.

In a management letter included with the audit, auditors noted that the city does not maintain a staff-prepared system for drafting the financial statements and notes; the auditor's firm prepared those materials. The auditors described that practice as common among smaller municipalities but noted it raises independence considerations that are mitigated by an independent reviewer and by reviewing and obtaining approval on all audit adjustments from city staff.

Auditors recommended the city strengthen its year-end close process to reduce the number of audit adjustments. Examples the presenter cited included accounts-payable cutoffs, accrued payroll and incurred-but-not-reported health-insurance claims. The presenter said formalizing a year-end checklist and having the city post routine year-end adjustments prior to audit fieldwork would reduce adjustments and make interim financial reports closer to audited results.

The audit presentation also highlighted specific fund results and recent transactions: the street fund showed a loss of about $458,000 driven principally by a roughly $1,600,000 transfer to the capital projects fund for the Forest Street project; the water fund operated at a loss when capital outlay for that project is allocated; and the electric fund is the largest proprietary fund and has reserves that could absorb upcoming increases in purchased-power costs without immediate rate action.

Auditors also flagged a roughly $300,000 decrease in the city's self-insurance reserve for employee health insurance. The presenter said that decline was driven mainly by a reduction in premium contributions (the employees' and the city's share), which reduced monthly funding to the reserve by an estimated $25,000 to $30,000 per month.

The presenter warned the council to monitor forthcoming federal-expenditure totals because of a change to the single-audit threshold. Historically the city had remained below the $750,000 threshold that triggers a federal single audit; the presenter said the threshold increased to $1,000,000 for the current fiscal year but cautioned that planned or ongoing projects funded with federal money'including expanded transit services, remaining ARPA funds planned for a wastewater-treatment-plant project (the presenter said the ARPA contribution is "around $500,000"), and park grants'could cause the city to exceed that threshold and require a single audit for the fiscal year. The presenter said if a single audit is required the city must document federal program compliance and contractor requirements (for example, Davis-Bacon prevailing-wage rules) carefully.

After questions, a council member moved and the council seconded approval of the audit. The motion passed by voice vote.

City staff were instructed to ensure the audit is submitted to the state by the stated deadline and to continue monitoring the insurance reserve, year-end close processes, and federal expenditures tied to major projects.