Audit committee accepts FY2025 financial report after auditors give "clean" opinion; members flag reserve and investment issues

The Churchill County audit committee voted unanimously on Jan. 5 to accept the county's FY2025 comprehensive annual financial report after auditors issued an unmodified ("clean") opinion on the county's financial statements.

"We issue an unmodified or a clean opinion on the financial statements that is presented materially correct in our opinion, and that is the highest opinion that we can provide," Kelly Jones, audit director presenting the report, told the committee. Jones said the auditors found no material weaknesses or significant deficiencies in internal control and no instances of noncompliance among the federal programs tested; she described Churchill County as a "low risk auditee."

Committee members commended staff for the work and for receiving recognition from the Government Finance Officers Association; one member said it was the twentieth year the county received the GFOA certificate. At the same time, members pressed staff and auditors about several financial details, notably a substantial decline in the general fund and differences in investment yields across funds.

Why the general fund fell

Committee member Alan asked about a roughly 25% drop in the general fund, noting the fund was at a 10-year low. Auditors and county staff attributed the decrease primarily to the expiration and spending-down of ARPA/COVID-era intergovernmental funds that boosted revenue in prior years. Jones said the county's ending general fund balance for the reporting period was about $6,000,002.91, down from roughly $8,500,000 the prior year, and that the county's unassigned fund balance was about $1,400,000 — approximately 0.6 months of operating reserves. Jones noted the GFOA recommendation of about two months of operating reserves and said management had assigned fund balances related to the FY2026 budget that could be reallocated to increase unassigned reserves.

Other fund highlights

Auditors reported on several other major funds. The special ad valorem capital projects fund had a total fund balance around $26.3 million for capital projects. The CC Communications telephone fund had an unrestricted balance of about $8.3 million, which auditors said equates to roughly 9.5 months of operating reserves; the broadband fund reported about $3.3 million unrestricted (about nine months). The wastewater enterprise unrestricted net position was about $1.6 million, equal to roughly 17 months of operating expenses. The opioid settlement fund, created in FY2024, had an ending restricted balance of about $523,000.

Investment yields and policy questions

A substantial portion of committee discussion focused on cash, investments and the county's investment policy. Alan reviewed the cash-and-investments note and compared returns across funds, calculating a roughly 5.12% yield for governmental cash balances and materially lower yields in some proprietary/business-type funds. He said his "bar napkin" math indicated CC Communications missed about $495,000 of potential interest income relative to the governmental rate.

Alan also cited language in the county's investment policy setting limits on security maturities (securities must have a demand feature within five years) and an average maturity cap ("shall not exceed 30 months") and asked whether the auditors tested maturity or duration to confirm compliance. Auditors responded they had prepared the required footnote schedules but did not calculate an average maturity or duration to the level of detail requested and therefore could not confirm whether the investment portfolio as presented complied with that 30-month average maturity guideline.

Sherry, county staff, said the county uses multiple investment companies for its holdings and that some investments showing longer maturities on statements came from those firms. Auditors said some long-dated holdings appeared in schedules from private managers (identified in the workpapers as from firms pronounced by staff as "Buckhead and Morgan Investments" in the presentation), and auditors said they did not see call provisions in the statements they reviewed. Auditors said they did not find instances of noncompliance in the federal programs tested but did not represent they had tested the portfolio's average maturity.

Fleet maintenance accounting

Alan also questioned whether fleet maintenance ideally should be operated through an internal service fund rather than recorded primarily in the general fund. County staff said management had decided to charge departments for fleet maintenance as needed rather than establish an internal service fund because the billings were small; auditors and committee members agreed that as the dollar amounts grow the county should reassess the structure.

Committee action and next steps

After discussion, Alan moved to "accept the audit reports as submitted and forward the information to the Board of County Commissioners." The motion was seconded by Wade Connor and passed by voice vote, recorded as "Motion carries 3 to 0." Jones said the auditors would forward the report to the Board of County Commissioners and the state Department of Taxation.

What the committee plans next

Committee members asked staff and auditors to follow up on specific details they raised: clarifying the average maturity/duration of the county's investments and how funds held for CC Communications are allocated between cash accounts and higher-yield investments; monitoring the general fund reserve level as ARPA funds continue to be expended; and reassessing fleet accounting treatment if billings grow materially.

The audit committee adjourned at 3:05 p.m.