Independent auditor reports clean FY25 audit; finance director proposes using one-time fund balance to pay off COP debt

McMahon & Associates presented the district's draft fiscal-year-2025 audit during the Dec. 8 board meeting and described standard audit phases — planning, fieldwork and reporting — and the firm's procedures for confirming bank balances, testing internal controls and reviewing capital assets and payroll processes. Paul Baucus, CPA, said the audit produced a clean opinion and that the finance team made the required supporting work papers available.

"We added $1,200,000 to the ending fund balance in the general fund at fiscal year end June 30, 2025," Director of Finance Stephanie Juno told the board, summarizing the draft financial statements. She said the district's general fund balance at year-end brings the fund-balance-to-expenditures ratio to about 30% and that the finance team is comfortable with that level.

Juno proposed that the board consider using the newly added fund balance to pay off a 2014 certificate of participation (COP) loan. She said the COP was originally about $3.8 million and currently stands at roughly $1.38 million; payoff this spring would reduce reserves to roughly 22% (about $12 million) but would "free up that $200,000 in cash flow for every year going forward," Juno said, and would avoid paying about $50,000 a year in interest. She asked board members to consider the option and directed them to contact her between now and Jan. 9 if they want the payoff included in an amended FY26 budget.

Auditor Paul Baucus noted one recommended control improvement: better segregation of duties between payroll and HR to reduce the risk that a single person could complete an entire transaction cycle. He said this was a common, fixable recommendation and did not rise to a material concern.

Why it matters: A decision to use one-time fund balance to pay debt is a strategic, near-term trade-off between maintaining reserves and reducing recurring debt service. Paying the COP would free operating cash going forward and reduce interest expense, but it would also lower the district's reserves prior to any new capital borrowing tied to the employee-housing project.

Next steps: The audit draft will be finalized and submitted to required state and federal entities. The board asked staff for a work session on the COP payoff option at the Jan. 12 meeting (scheduled as a workshop item) and asked Stephanie Juno to prepare pros-and-cons analysis for board consideration.