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City auditor gives Brainerd a clean opinion but flags fund-balance shortfall
Summary
CliftonLarsonAllen presented an unmodified (clean) opinion on Brainerd's 2025 financial statements but reported a material audit adjustment and a segregation-of-duties deficiency; staff said the city's unassigned fund balance is about 30% of operating expenditures, below the 35'to'50% policy target.
Mary Reedy, lead auditor with CliftonLarsonAllen, told the City Council that auditors issued an unmodified (clean) opinion on the city's 2025 basic financial statements, but identified a material audit adjustment and a significant deficiency in internal control.
"We issue an unmodified or a clean opinion on the basic financial statements," Reedy said, summarizing the audit team's conclusion. She and city finance staff described one corrected adjustment tied to MnDOT state aid accounting: about $1.8 million of prior-period recognition that should be recorded as a deferred inflow and recognized as revenue as it is earned.
Connie (city finance staff) outlined the city's fund balance position, saying total fund balance at Dec. 31 was about $5,036,000 and unassigned balance was roughly $4,144,000, which equates to about 30% of 2025 operating expenditures. The city's policy target for unassigned fund balance is 35% to 50% of operating expenditures.
"At December 31, the unassigned fund balance was at 30% of operating expenditures and we are out of compliance of our policy," Connie said, noting the city is monitoring the deferred inflow and revenue-recognition changes required by GASB. Auditors also noted one significant deficiency related to segregation of duties; staff said they will continue working with auditors to strengthen controls.
Council accepted the audit report later in the meeting on a motion by Councilmember Johnson; the motion passed by roll call vote.
