City auditors issue unmodified opinion on Waterloos 2024 statements, flag one material weakness and deficit funds

Auditors from Bergen KDV told the Waterloo City Council at a work session that they issued an unmodified opinion on the city's 2024 financial statements but reported one material weakness and a separate finding under the Iowa legal-compliance checklist related to deficit fund balances.

The unmodified opinion means the auditors concluded the financial statements "are fairly presented in all material respects," Dustin Elpats, senior audit manager with Bergen KDV, said. Elpats told council members the audit also identified "one internal control finding at the material weakness level" tied to required material audit adjustments the auditors made when they received the city's initial financial information.

The finding does not alter the audit opinion but is a required disclosure, Elpats said. He also described the single-audit work the firm performed because the city expended more than $750,000 in federal funds: the auditors selected five larger federal programs for testing and "had no findings related to any of that test work on those individual programs." Elpats noted the state auditors checklist produced one Iowa legal-compliance finding for several funds in significant deficit; the firm is required to report that to the council.

Auditors reported the city's general fund balance increased 15% year over year to an ending balance Elpats gave as $41,500,000, the highest level in the five-year comparison the firm presented. The unassigned portion of that balance represents about 37% of general fund expenditures, roughly equivalent to four and a half months of operating costs, he said. Asked whether that reserve is appropriate, Elpats said, "I would say 20 to 35% is typically what I see as kind of a sweet spot," adding that Waterloos mix of self-insured health insurance and an ambulance enterprise can justify a higher reserve for cash-flow fluctuations.

Elpats summarized notable year-over-year revenue and expenditure changes: intergovernmental revenue rose about $1.5 million largely because the city recognized more ARPA (federal coronavirus relief) spending in fiscal 2024; "use of money and property" rose roughly $1 million from better market conditions; miscellaneous revenue increased about $3.3 million, which Elpats tied to increased speed-camera revenue; and charges for services fell about $3.5 million due to fewer ambulance charges. On the expenditure side, overall spending increased by about $6.4 million year over year, with general government costs up about $3.6 million (driven by higher self-insurance claims) and public safety up about $2.5 million from salary and benefit increases.

The audit presentation also reviewed the two enterprise funds, with the sewer fund showing about $1 million more in revenues and $1.6 million higher expenses, the latter attributed to increased sewer repairs. Elpats explained the firm's practice of reporting both income including depreciation and income without depreciation to show the difference between accounting depreciation and cash available for capital replacement.

Council members did not take action on the audit beyond receiving the report and asking questions during the work session. Earlier in the meeting the council approved the agenda and the minutes from the Jan. 6, 2025 work session.

Ending: The auditors' communication letter and charts were made available as attachments; city staff and the auditors indicated the materials contain the detailed schedules and graphs referenced during the presentation.