International Falls City Council approves 2025 audit after auditor flags ambulance fund deficit and airport borrowings

At a special meeting, the International Falls City Council unanimously approved the city's 2025 annual audit after a presentation by Ryan Schmidt, a partner at Schlenner Wener and Co., who said the audit produced an unmodified (clean) opinion but raised concerns about interfund borrowings and the ambulance fund.

Schmidt told the council the audit procedures — sampling and detailed testing of the city's 2025 financial records — supported a clean opinion. "We've given you what's called an unmodified opinion this year," he said, adding that the audit went smoothly with no unusual transactions noted.

The presentation also flagged recurring internal control and reporting matters. Schmidt said auditors prepared year-end adjustments to convert some balances to accrual accounting and noted a lack of segregation of duties in the city's accounting function, a common issue for municipalities of this size. He described the ambulance fund as a particular concern: "That deficit has grown in recent years," Schmidt said, and without a formal repayment plan "we consider that to be a deficiency in internal reporting."

Schmidt provided specifics: general fund revenues exceeded budget by about $435,000 while expenditures exceeded budget by roughly $215,000, leaving an overall increase in general fund balance of about $225,000. He reported the city's unrestricted fund balance at about 52% of annual budgeted expenditures, above the city's 50% policy minimum.

On enterprise and capital issues, Schmidt said airport-related borrowings climbed sharply in 2025 (about $3.5 million at year end) and that changes to the funding model since roughly 2022–23 made it difficult to distinguish temporary borrowing (to be repaid when grant dollars arrive) from permanent local financing. "In reality part of this probably should be permanent funding," he said, noting the result that receivables tied to grants are now smaller than amounts borrowed for airport projects.

Schmidt said the ambulance fund's cash deficit grew by about $585,000 from 2024 to 2025 and that the total shortfall in 2025 had reached about $2.2 million. Because the general fund lacked free cash this year, the ambulance deficit was financed by borrowing from capital outlay and the permanent improvement fund rather than the general fund.

Council discussion focused on whether there was ongoing work to address the ambulance debt. A council member asked whether the auditor was aware of steps taken; Schmidt confirmed he was and said the books for the year reflected the council's prior resolution committing to a long-term repayment plan. Counselor Holden moved to approve the audit and Counselor Wagner seconded; the motion passed unanimously.

The council did not take further action at the meeting on the ambulance deficit or airport funding changes beyond the discussion recorded in the audit presentation. With no additional business, the chair adjourned the special meeting.