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City auditor issues clean opinion; warns water and sewer fund relies on ARPA transfers, recommends rate study
Summary
Auditors presented an unmodified (clean) opinion on fiscal year 09/30/2025 financials, highlighted a $5.4M recognition of grant funds as deferred outflows and a transfer of ARPA monies into the water and sewer fund; auditors recommended a rate study to align user rates with system costs.
Auditors from Golub Morgan Petty presented their required communication letter and the city's financial statements for the fiscal year ended 09/30/2025 and issued an unmodified, or clean, audit opinion on the city's financial statements.
The auditor identified ongoing significant audit risks (management override and improper revenue recognition) and walked the council through major account changes: a reported increase in business-type current assets driven primarily by about $5.4 million in upfront grant funding (recorded as a deferred outflow until spent) and escrowed funds related to a debt issuance. The auditor said the changes explained the large balance increases in the water and sewer fund.
The audit presentation noted the government side showed a small decrease in net position while the water and sewer fund showed an increase driven largely by transfers from the governmental side, including ARPA funds. "This is an unmodified or a clean audit opinion," the auditor said.
The auditor also said the water and sewer system had a reported operating loss when depreciation was considered and that transfers and grant proceeds masked otherwise negative operating results. He urged the council to consider a water/sewer rate study soon to ensure rates cover system upkeep and debt service: "I think it's something you need to look at very soon." The auditor flagged outstanding bonds and described restricted funds and debt-service requirements the council must monitor.
Council members asked for clarifications about sales tax revenues, cash and investment balances, outstanding debt schedules, and whether the city's cash position provided a cushion; the auditor said general fund cash and investments were strong and that overall the council had managed expenses downward when revenues were below budget.
The council accepted the audit documentation and approved the engagement letters on the updated firm letterhead as part of normal procedure.
