City audit yields clean opinion but flags accounting change, loan paperwork and subrecipient monitoring

John Archer, the auditor from Schlunner Winner and Company, told the Little Falls City Council on July 21 that the city’s 2024 financial statements earned an unmodified, or “clean,” audit opinion while also identifying several items for management attention.

Archer said the city’s audit procedures supported a clean opinion: “based on the procedures that we perform, what opinion that we’re giving ... we’re able to give an unmodified opinion or a clean opinion.” He said adoption of a new Governmental Accounting Standards Board statement on compensated absences (GASB 101) required the city to record additional liabilities for paid time off and similar items, and that change increased current liabilities by nearly $700,000 on the audited statements.

That accounting standard change and other audit observations matter for the city’s reported financial health. Archer said the general fund balance rose by about $58,000 to $1.5 million, but the fund balance as a share of annual expenditures declined to 19.1 percent — below the council’s 35–50 percent policy target — because budgeted expenditures increased faster than the fund balance.

The auditors also identified two loan‑related issues. Archer reported that some economic development loans were disbursed before agreements were signed and that one 2023 loan had been omitted from the loan schedule; that omission required a restatement to the beginning‑of‑2024 numbers. Archer recommended changing procedures so agreements are signed before funds are dispersed.

The audit included a federal single‑audit because the city’s $1.5 million HUD grant passed through to the school district and pushed the city over the federal threshold. Archer said the single‑audit opinion on federal programs was unmodified but that auditors noted one compliance deficiency: the city lacked documented policies for monitoring subrecipients. He said auditors provided sample monitoring policies and that the city would likely bring them to the council for approval.

Council members asked questions about specific funds and projects. Archer explained that some capital project funds — notably the clubhouse project — carried deficit cash balances and that the clubhouse capital project showed an ending deficit of about $2.23 million that the city plans to close out and re‑fund appropriately. He also said the golf course fund’s reported $2.42 million increase in net position largely reflected a $2.52 million capital contribution; when normalized for that contribution the golf course would show a modest operating decrease.

Archer said water and wastewater utilities posted positive changes in net position driven largely by recent rate increases and, in the wastewater fund’s case, higher depreciation tied to completed plant assets. He told the council that benchmarking and guidance from the state auditor informed the team’s view that the city’s debt level is on the higher side relative to comparable cities, though council members and staff use multiple metrics when planning.

No formal council action was taken during the work session; the audit presentation concluded with staff and council discussion and direction to incorporate audit recommendations into financial practice and to bring required monitoring policies forward for review.