Auditor issues clean opinion but warns Jefferson to address water and sewer funding; recommends rate study

The city’s independent auditor presented the required-communications letter and financial statements for the fiscal year ended Sept. 30, 2025, and issued an unmodified — or “clean” — opinion on the city’s financial statements.

Kevin Cashin of Golub, Morgan & Petty told the council the audit identified the usual significant risks auditors flag — management override of controls and improper revenue recognition — and described major balance-sheet changes driven by grant receipts and debt activity. Cashin said the business-type (water and sewer) fund showed a large increase in current assets — driven mostly by up-front grant receipts — that appears on the other side as deferred outflows until the money is spent.

“This is an unmodified or a clean audit opinion,” Cashin said. He also warned that transfers from government funds (notably ARPA) into the water and sewer fund produced a positive net result for the year; without those transfers the water and sewer fund would have reported an operating loss. The auditor emphasized the system’s capital needs and aging infrastructure and told the council: “It’s been several years since you had a rate study done. I think it’s something you need to look at very soon.”

Cashin cited these specifics: an increase in business-type current assets of roughly $2.176 million and about $5.4 million in grant funds recognized as deferred outflows pending expenditure; capital-asset additions in the enterprise fund of roughly $911,000; and a net pension asset position in the city’s TMRS pension plan. He told the council that, given the age of parts of the water system and the potential for storm-related damage, the city will likely need to borrow for improvements and to consider rate increases to cover debt service.

Council members asked detailed budget questions (sales-tax shortfalls versus spending reductions) and about unrestricted cash available for operations. The auditor pointed to pages in the packet showing general fund cash and investments and a schedule of outstanding bonds, and recommended exploring low-interest programs and rate-study resources available through state partners.

What happens next: the audit will be finalized in the council packet, staff will post the engagement/rep letter as required, and the council indicated it should prioritize a water/sewer rate study and monitor the effect of ARPA and grant transfers on fund balances.