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Auditor gives Lake of the Woods School District a clean opinion but warns of negative fund balance and meal-reporting error
Summary
An external audit found Lake of the Woods School District’s FY24 financial statements fairly stated, but flagged a negative unassigned fund balance (~$177,000), a $137,000 School Readiness deficit and a meal-reimbursement reporting error; auditors and board discussed steps to avoid statutory operating debt.
Sarah, an audit manager with Brady Marks and Associates, told the Lake of the Woods School District board on Nov. 25 that the district’s FY24 financial statements received a clean opinion. “The district received a clean opinion,” she said, adding that the draft report is in quality review and likely to be submitted to the state without numerical changes.
Sarah highlighted key year-over-year movements: general fund revenues rose by about $654,000 while general fund expenses fell roughly $23,000. The general fund ended the year with an overall fund balance of about $680,322, she said. Debt service decreased by roughly $13,875, with an ending balance near $224,000. Food service posted a modest surplus (fund balance up about $14,288) and community service increased by about $257,000, driven largely by a transfer from the pool levy.
But the auditor also flagged worrying balances. “The unassigned fund balance is actually negative,” Sarah said, estimating that the district’s unassigned balance was about $177,000 as of June 30, 2024. She further noted a $137,000 deficit in the School Readiness fund and recommended that “the district develop a plan to eliminate that deficit within the next couple years.”
Sarah described control and procedure items common in small districts: segregation of duties, the need for superintendent and business manager review when auditors assist with statement preparation, and a specific new finding tied to meal-claim submissions. “Some of the October 2023 meals were not reported to the state,” she said, noting the district is working with the Minnesota Department of Education to correct the submission and expecting reimbursement; she recommended adding a second monthly review of meal claims.
Board members and staff pressed for practical steps. Jim Lion, a board member, asked what the board could do beyond urging staff to communicate; Sarah recommended active board review of monthly disbursement listings and quarterly budget-to-actual reports. She cautioned that continued negative trends could trigger statutory operating debt (SOD) status — which occurs when negative fund balance reaches 2% of expenditures — and said the district’s current SOD metric was about 1.27%.
Superintendent (name not specified in the record) and staff said they will model options, continue cuts already implemented and consider increased transparency through the finance committee. The superintendent proposed incorporating the finance committee into regular working sessions so board members can review expenditures and ask questions earlier in the process.
Board members also discussed operational items raised during the audit review, including verifying a timber-sale deposit linked to the school forest and confirming budget assumptions used in recently made cuts. The board approved the fiscal year 2024 audit later in the meeting by voice vote.
What happens next: auditors expect to submit the finalized audit to the state this week; district staff said they will develop a written plan to address the School Readiness deficit, tighten meal-claim procedures, and increase board-level budget oversight through quarterly reporting or by folding the finance committee into the working session schedule.
