City staff outlines repayment plan after state audit error; audit completion targeted for early February

City staff reported to the Finance Committee that a clerical error in state audit submissions inflated several reimbursement claims, creating an unexpected shortfall the city will repay through reductions to future reimbursements rather than a lump-sum payment.

Staff said the mistake involved an item (a printer valued at about $8,000) for which a quantity or year field was entered incorrectly, converting the claim into a multi‑million‑dollar submission. That single data error produced roughly $125,000 in overstated reimbursements this audit cycle; staff said additional small errors remain and estimated an additional roughly $120,000 may be recovered from prior‑year processing in the next reimbursement cycle.

"They have found a way to try and impact this city as least as possible," Speaker 1, a city finance staff member, said of state auditors, adding that the state proposed offsetting future reimbursements for categories such as homestead exemptions, tree‑growth classifications and solar‑credit reimbursements.

Staff said the city will not receive the full expected reimbursements for those categories while the state recovers the incorrect payments, but that the repayment schedule is intended to be budget‑neutral over time. "We expect to be fully paid back, but we won't be receiving those reimbursements for those categories," Speaker 1 said.

The committee sought clarity on timing. Staff said the 2024 audit‑year corrections will be addressed by the end of the current calendar year; processing of the 2023 amounts remains pending and could extend into the next fiscal year. "We anticipate about another $120,000 or so" tied to the 2023 processing, Speaker 1 told the committee.

Committee members pressed how the shortfall will affect the municipal budget. Staff said the city’s undesignated fund balance and cash‑flow analysis mean the issue should not create an immediate budget deficit: "I don't expect it to be a budget buster," Speaker 1 said. Staff also noted an earlier surplus that had been inappropriate and emphasized steps to reconcile accounts and improve the budgeting process.

To speed audit completion, staff has engaged consultant Sue Lazar to assist with reconciliations — in particular water and sewer billing — and aims to submit requested materials to auditors in December and to have the FY25 audit completed by early February. "My goal right now is kind of like the early February time frame," Speaker 7, a finance team member, said.

Why it matters: the reimbursement corrections reduce near‑term inflows and will change reimbursement timing for programs that help lower property tax bills for qualifying taxpayers. Committee members said they want prior‑year audits finalized before the next budget is approved so council decisions rest on complete financial information.

Next steps: staff will continue reconciliations, work with the auditors and post timing updates for the council and public; staff also flagged three internal priorities — reconciliations/audits, establishing a true undesignated fund balance, and fixing assessing/commitment timing — as the focus for the coming budget cycle.