Auditor gives Gunter unmodified FY23 opinion while council and public press for clearer finances after water-system sale to Mustang

An independent auditor told the Gunter City Council that the city’s fiscal year 2023 financial statements received an unmodified (clean) audit opinion, but the presentation prompted detailed questions from council members and residents about the city’s sale of its water and sewer system to Mustang and related long-term revenues.

The auditor, Austin Henderson of the audit firm (auditor), presented the FY23 report and described the accounting treatment of the October 2022 sale of the water/sewer system. Henderson said the city recognized a loss on sale after discounting the receivable and moving certain assets and liabilities to Mustang; he said the net effect left the city’s overall net position largely unchanged. "We did not find any outright fraud," Henderson told the council, but he also described a significant amount of work and correcting journal entries needed to reach the final statements.

The audit matters mattered to residents and council because Mustang’s payment schedule means most proceeds will arrive over time. Henderson described an agreement structure that included a $500,000 down payment in FY23 plus reimbursements of principal and interest Mustang assumed, and a long-term receivable that is presented at present value. He said "there's a balloon payment" at the end of the term and that Mustang is making limited principal payments now; the auditor noted there is no contractual interest charged in the agreement as presented.

Why it matters: The arrangement moves what had been a revenue-generating utility into a multi-year receivable, affecting the city’s annual operating profile and available cash for projects. Henderson pointed to a roughly $650,000 present-value discount related to the receivable and a reported loss on sale of assets in the water/sewer fund; he also explained that sanitation/solid waste operations were moved into the general fund for FY23 accounting.

Council members and a resident pressed for clarity about what revenue is still coming to the city. A resident who identified themselves as a customer asked about franchise-fee charges on Mustang bills; the reply from council and staff clarified that the line-item franchise fee for using city right-of-way flows to the city and that typical annual receipts from those fees are in the low five-figure range, not the multi-thousand-dollar transfers residents had feared.

Henderson said auditors performed risk-based testing and made a number of journal entries during the audit to arrive at the final figures. He identified procurement documentation issues as a notable control weakness in the year under audit, saying a material level of adjustments was required and that staff and the auditors had extensive follow-up specifically on the Mustang transaction. "We report what we find," he said about procurement and internal-control issues.

On the bookkeeping details: total governmental net position exceeded liabilities by roughly $6.7 million at year-end, the auditor reported; governmental fund balances rose about $4.8 million overall and the unassigned general-fund balance was listed at roughly $2.8 million. Henderson also noted that sales tax revenues showed a decline in the audit year and that investment income increased compared with the prior year.

Next steps and records: Henderson said the audit report and related governance letters will be posted to the city website. Council members and staff discussed following up on procurement policies and internal controls and said they will begin working toward the FY24 audit soon.

The presentation lasted through questions from council and the public and concluded with the auditor offering contact information for follow-up.

Ending: Council members asked staff to post the audit report for public review and to pursue follow-up on procurement practices and the accounting treatment of long-term receivables tied to the water and sewer sale.