Mankato receives clean 2024 audit; finance staff report reserves, one isolated control lapse

The City of Mankato received an unmodified — or "clean" — opinion on its 2024 financial statements, Abby Schmidt, a manager with auditing firm ABDO, told the City Council on July 14.

Schmidt said auditors also performed single-audit testing because the city expended more than $750,000 in federal funds and that the work included American Rescue Plan Act (ARPA) and FEMA programs. "We issued an unmodified or clean opinion again for 2024," Schmidt said. "We did not have any instances of noncompliance or issues with internal controls in either of those programs that we tested."

The clean opinion matters because it affirms that the city’s financial statements can be relied upon by users, including bond raters and grantors. Schmidt and council members said the city is meeting the fund balance policy set by council — a target reserve of 40% to 55% of next year’s budgeted expenditures — and that the city’s position improved in 2024.

Key findings and figures

- Fund balance and reserves: Auditors reported the city is “right in the middle” of its 40%–55% fund balance policy. Council members noted that steady reserves support the city’s bond rating.

- General fund performance: Revenues exceeded budget by about $2.4 million, driven in part by higher market values, investment income and increased permits and charges tied to a new Walmart distribution center. On the expense side, departments were under budget, with public works savings tied to a milder winter. The city budgeted a $200,000 decrease in fund balance but recorded a positive change of approximately $1.5 million for 2024, Schmidt said.

- Transfers and capital: The city budgeted roughly $2.7 million in transfers out but transferred about $5.4 million, using savings to fund future capital improvements and to meet fund-balance targets.

- Special revenue funds: Auditors said remaining ARPA funds were obligated as required. The report noted restricted housing trust funds and about $3.1 million in cash across related funds; much of the reported fund balance is driven by receivables rather than cash.

- Enterprise funds: The Water Fund reported about $2.8 million in cash reserves ahead of a planned water-plant enhancement project in 2026–27. The Wastewater Fund showed a roughly $2.6 million increase related to timing at the water resource recovery facility while the city continues to pursue a PFA loan reimbursement. The Mass Transit Fund saw intergovernmental revenue increase after a change in Minnesota statute increased the state operating contract from $1.9 million to $2.7 million for 2024. The airport covered operating costs and had roughly $75,000 in cash flow for the year.

- Other funds and items: The Mayo Clinic Health Systems Event Center remains in a cumulative deficit but improved cash by about $310,000 and net position by about $70,000 year over year. The refuse fund’s deficit is driven primarily by capital purchases and related depreciation, not operating losses. The stormwater fund’s cash increased to about $1.2 million, aided by a general-fund transfer for Highland Park Ravine stabilization work. Internal-service funds showed expected depreciation effects; the equipment replacement fund recorded about $2 million in depreciation.

Controls and next steps

Schmidt told the council auditors identified one internal control issue brought to staff attention: an employee approved a streetlight contract for a riverfront project without going through the city’s proper internal approval channels. Auditors said they tested additional projects and found no other noncompliance. "We did perform testing on multiple other projects to ensure this was an isolated incident," Schmidt said, and she added the city is conducting an independent review of controls to mitigate future risk. No findings were issued in the audit report, she said.

The auditors also presented a 10-year debt service snapshot showing relatively stable borrowing needs, while cautioning that borrowing costs could rise with higher interest rates.

Council reaction and follow-up

Council members asked follow-up questions about reserves, bond ratings and the timing of borrowing. A council member noted that maintaining fund-balance targets has helped with bond-rating discussions. City staff and auditors said the PFA loan work and the independent internal-controls review are ongoing; no additional audit findings were reported.

The council took no formal vote on the audit itself at the July 14 meeting; the audit presentation concluded and the council moved to other business.