The City of Menahga received a “clean” 2018 audit report.

Dean Birkeland of CarlsonSV CPAs and Advisors of Fergus Falls said they found the city’s financial statements presented fairly in all material respects. He further reported they “encountered no significant difficulties in performing and completing our audit” and any known misstatements were corrected.

Birkeland presented the audit to the city council at their Aug. 13 meeting. Due to city staff turnover, he noted the audit took longer than usual.

Key financial highlights listed for the 2018 fiscal year are as follows:

  • The city’s assets and “deferred outflows of resources” exceeded its liabilities and deferred inflow by $7,279,967, as of Dec. 31, 2018.

  • The city’s total net position decreased by $173,165.

  • Total revenues were $2,535,538, while expenses totaled $2,708,703.

  • At the close of 2018, the city’s funds had a combined ending balance of $1,295,370, an increase of $39,976 compared to the prior year.

  • The city’s total bonded debt decreased by $389,000.

The city’s two largest sources of revenue are property taxes (38.7 percent) and state aid (33.3 percent).

Its biggest expenses are public safety (37.5 percent), general government (22.2 percent) and public works (18.2 percent).

The city received a $14,196 increase in Local Government Aid (LGA) in 2018. The city expects $373,135 in LGA in 2019 and $399,477 in 2020.

Birkeland said the city’s funds – general fund, debt service, capital projects, nonmajor governmental funds – are “in pretty good shape.” Capital outlay expenditures exceeded revenue by $114,330, but the other three funds had $108,066 in excess revenue.

The water and sewer funds saw net income losses of $227,501 and $4,730, respectively. The liquor store fund earned a net income of $60,198, of which $42,083 was transferred out to other city funds.

As with most small cities with limited staff, Birkeland found Menahga does not have internal control resources and lacks segregation of duties. Ninety-five percent of cities have similar findings, he said.

Accounting firm proposal rejected

Abdo, Eick & Meyers Financial Solutions (AEM) offered to streamline the city’s budget process, develop council reports, create an investment policy, attend council meetings, respond to a credit rating agency, and review its chart of accounts and existing processes when using financial software – at a cost of $38,750.

City Administrator Curt Kreklau said the council could pick and choose which services it wants from an itemized list. He said, in his opinion, the chart of accounts could be improved so the city could manage its money better. If the city’s bond rating drops, it could cost 2 percent, Kreklau said.

AEM’s proposal states the city would be responsible for providing dedicated staff to participate in the process.

In July, the city paid $32,323 AEM for temporary financial help while searching for a new city administrator and deputy clerk. Liimatta said, that fee, combined with AEM’s proposal and what the city is paying its administrative staff, means the city would spend $80,000 on accounting by the end of this year. “I think that’s too steep,” she said, noting the city has tech support through Banyon, neighboring cities, hands-on training and the League of Minnesota Cities.

Council member Art Huebner said the city needs professional services “for a guaranteed set of books. It’s that simple.”

Huebner made a motion to hire AEM, and council member Robyn Keranen seconded.

Council member Tim Ellingson said, “I thought we spent the last seven months hiring new people to do the job. . .We shouldn’t be in this situation. I thought we hired people to do the job. It was getting done before everything happened perfectly fine. We just heard the audit report.”

Huebner argued the audit was fine, but not the accounting books.

“I’m just saying we can improve our game,” Kreklau added.

“For $40,000?” Ellingson asked.

Kreklau said he has five years of accounting experience and can do a city budget. Given the recent contention about city finances, he recommended bringing in an objective third party for best accounting practices and “get out of this conflict.”

“We’re paying a lot of money for our accounting department,” Liimatta said. “I’m opposed to it.”

The motion failed 2-3, with Liimatta, Ellingson and council member Karol Andreasen opposed.

In other business, the council did as follows:

  • Parks reported that a 20-some-year-old beer cooler and heating/conditioning equipment failed at the municipal liquor store and needs to be replaced. A lightning strike took out three TVs, internet and cameras. She asked the council to revisit remodeling proposals for the liquor store as well.

  • Approved paying a $10,000 sponsorship to The Economic Alliance for 2019.

  • Approved a $4,00 quote from Ulteig Engineering to design drainage improvements for First Street West and Balsam Avenue.

  • Waived a $5,644 city special assessment on tax-forfeited land on Twin Lakes Road, at the request of Tom Murphy, who is purchasing the property.