Auditor issues disclaimer on 2024 revenues and expenditures but gives clean balance sheets; council told to fix reconciliations and staffing

The City Council reviewed the city's 2024 audit at a special meeting on June 23 where external auditor Dwayne Sh of Sero told council members the firm could not form an opinion on the statements of revenues, expenditures and changes in fund balance but did give a clean opinion on the balance sheets.

"We issued a disclaimer of opinion on the operating statements . . . because we could not get sufficient evidence to come to an opinion on the revenues, expenditures and changes in funds," Dwayne said, explaining that unresolved beginning fund balances from 2023 and difficulties reconciling certain revenues — notably water and sewer receipts — prevented the firm from reaching an opinion on those sections of the report.

The auditor characterized the result as an improvement from 2023, when the city received an adverse opinion, because the 2024 balance sheets and ending net position were reliable enough for an unmodified opinion. "We're comfortable with the assets, the liabilities, and the ending fund balance and the ending net position," he said.

But the audit flagged several recurring deficiencies. The report noted the general fund was overspent by about $1.8 million in 2024, largely because grant revenues and the related spending had not been added to the adopted budget. The auditor also described persistent problems with late or missing reconciliations — including interfund "due to/due from" entries, cashbook reconciliations not tied to the general ledger, and stale allowance accounts for loans receivable — that required significant audit adjustments.

Dwayne told the council that some adjustments were materially large: audit adjustments increased sewer fund assets by almost $4 million and raised capital projects fund liabilities by several hundred thousand dollars. He urged the council to ensure finance has adequate staffing and that reconciliations are performed routinely rather than as a year-end catch-up.

"The more that can be done to get those reconciliations done more timely, the more of these issues can be found internally and the less of them that you'll find externally," he said.

Council members pressed on next steps. Officials said they have engaged an outside firm to assess processes and that staff are already working on reconciling past entries. The finance director search was under way, with council members emphasizing the need for overlap so incoming staff retain institutional knowledge.

Dwayne also noted the firm had postponed the federal single audit portion (required for federal fund recipients) until later this year because of scheduling. He identified roughly $8.42 million of new debt in 2024 and said the audit showed the city near its constitutional debt limit at the time of audit (about 91%); he added that certain exclusions could change that percentage.

On reserves and fund balances, the auditor said the general fund ended 2024 with an approximately $400,000 deficit but that higher-than-budgeted revenues materially reduced the net budget variance for the year to about $34,000.

Council members asked whether the problems would carry forward to the 2025 audit. Dwayne said a clean 2025 opinion is possible if the city provides timely documentation of 2025 activity and preserves reliable ending balances; he cautioned that continued turnover and delayed reconciliations increase the risk of repeated findings.

Council and staff outlined immediate actions: complete the external process assessment, implement its recommendations, continue reconciling accounts (including interfund balances), complete the federal single audit, and proceed with hiring and onboarding finance leadership to preserve institutional knowledge. The auditor said these steps would improve the chance of a cleaner opinion for 2025.

The meeting closed with council leadership saying they would receive the outside assessment results at a future meeting and that staff would present follow-up steps to address the audit findings.