For months, the Menahga City Council has been wrangling with an audit of fiscal year 2020.
The Minnesota Office of the State Auditor (OSA) even granted an extension to the city to submit the audit.
It was finally approved at their Sept. 27 meeting, but at a higher cost due to the city’s inability to reconcile its main checking account.
The council inspected the final, 111-page audit, which was due to OSA Sept. 30.
Dean Birkeland of CarlsonSV CPAs and Advisors of Fergus Falls said the firm gave a “clean, unmodified” opinion of the 2020 audit.
Birkeland said City Administrator Curt Kreklau and Deputy Clerk Tanya Edwards had reviewed and approved the draft copy.
Council member Durwin Tomperi asked if auditors were able to reconcile cash payments and the city’s bank accounts.
Birkeland replied, “The city has a fair amount of accounts. You’ve got investment accounts. You’ve got some other bank accounts. All of those are reconciled, except the main checking account.”
He reminded the council that bank reconciliation was not achieved last year and that incurred additional charges.
“This year, we had a similar situation, where the bank reconciliation did not tie into the books,” Birkeland continued, noting that CarlsonSV pushed the audit – originally scheduled for early April – to a later date to allow the city to rectify its books.
“We never did receive a bank reconciliation, so we really went into the bank account and reconciled it as close as we could,” Birkeland said.
As a result, Birkeland said CarlsonSV spent “a lot” of time on the audit. The cost will be double to 2.5 times the normal amount, he said, estimating the final bill at more than $35,000.
Council member Art Huebner asked if the city has ever had reconciled bank accounts.
Birkeland replied that CarlsonSV began auditing city finances in 2017, and bank records were reconciled for fiscal years 2017 and 2018, but not 2019 or 2020.
Huebner asked why they aren’t reconciling, suggesting it has something to do with the city’s financial software program, called Banyon.
For several years, Kreklau has insisted that Banyon had technical glitches after a software update. He and Edwards were hired in June 2019.
Birkeland explained most software programs, including Banyon, have a monthly bank reconciliation function with a printed report. He added the city successfully reconciled accounts using Banyon in 2017 and 2018. The last time it was reconciled, to his knowledge, was May 2019.
Many of the adjustments to the city’s 2020 accounting were related to cash, Birkeland said, including at the liquor store. A total of 57 adjustments were made this year and 56 last year, which Birkeland called “sizable” and “uncommon.”
In the audit findings, it’s recommended that Kreklau and Edwards reconcile general ledger accounts for cash and cash equivalents on a monthly basis so that errors do not accumulate.
Huebner commented, “I don’t appreciate the push on our administration when it’s a software problem.”
As of Dec. 31, 2020, the city’s governmental-wide revenues were $2,825,071, while expenses were $3,453,844. The city’s total bonded debt increased by $631,000.
Since the city’s total net position decreased by $628,773, Mayor Liz Olson asked if this should be concerning to the council.
Birkeland said it depends on why the position decreased. According to the audit, a “large portion of the city’s net position (40 percent) reflects its investment in capital assets (e.g. land, land improvements, buildings, equipment and infrastructure), less any related debt used to acquire those assets that is still outstanding.”
Thirty-four percent of the city’s net position “represents resources that are subject to external restrictions on how they may be used,” he said.
Property taxes and intergovernmental revenues accounted for 31 percent of the total revenue for the year, according to the audit.
At the end of 2020, the city’s total fund balance was $1,842,991. The general fund decreased by $296,671 from the prior year. The debt service fund increased $1,985,662. The capital projects fund increased $231.
The city’s business-type activity funds – water, sewer and liquor – decreased the city’s net position by $321,479. The losses, respectively, were $178,264, $42,939 and $110,005.
Birkeland mentioned that three years of losses at a municipal liquor store will garner the state’s attention into operations. Northbound Spirits has seen net losses for two consecutive years.
Revenues were $127,470 higher than budgeted, primarily due to more than $100,000 in CARES Act funding related to COVID-19. Actual expenditures exceeded the budget by $603,078. The audit states this was due to administration expenditures that were higher than anticipated as well as a new fire tanker truck purchase that was not budgeted.
During the audit, CarlsonSV noted some bills were not paid within 35 days of receipt. This is a violation of Minnesota Statute and incurs finance charges as well.
Local Government Aid (LGA) in 2020 was $399,477. For 2021, LGA was $412,550 and will be $419,542 in 2022.
A positive factor bearing on the city’s future is that it qualified for PFA financing to construct a new water tower in 2022. The estimated cost is approximately $1,100,000. The city has more than $400,000 in its water fund reserves.
The council approved the audit 3-2, with Huebner and council member Robyn Keranen opposed.
In other business, the council did as follows:
Approved a preliminary levy of $675,454 – an increase of 42.7 percent or approximately $205,000. “Obviously, we’re not going to do that,” Kreklau said of the final levy, which will be approved in December. He attended the meeting remotely. Kreklau noted that the council approved a 0 percent increase last year.
Learned from Public Works Director Ron Yliniemi that two contractors are providing cost estimates for maintenance of the pond and spillway on Spirit Lake, but work on the eroded area cannot be completed until spring.
Huebner objected to Olson taking minutes of the meeting. She said the city attorney should have informed the council that when the city administrator and deputy clerk are absent from the meeting, then it is the mayor’s responsibility.
Olson read portions of the city’s bylaws, reminding council members to not be insulting, threatening or disruptive during a meeting or she would call a five-minute recess. When Huebner interrupted the audit report, Olson called for a recess.