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Audit shows unplanned increase in Park Rapids' financial position

The city received an "unmodified" opinion on its 2021 financial statements.

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Park Rapids City Hall
Park Rapids Enterprise file photo
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The Park Rapids City Council on Oct. 11 received an “unmodified” opinion in an audit of its 2021 financial statements.

Caroline Stutsman with accounting firm BerganKDV presented the report, explaining that “unmodified” is the highest possible opinion and means the firm believes the city’s financial statements are fairly stated.

Regarding internal controls, she noted issues with lack of segregation of accounting duties due to the size of city staff, as well as some significant dollar adjustments and a couple “reconciling or process” issues.

In an audit of the city’s legal compliance, Stutsman said the firm found no issues.

The city’s general fund revenues increased 1.3% from the prior year, she reported, with decreases in tax and miscellaneous revenue and increases in intergovernmental revenues and local government aid (LGA).

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Also on the increase were charges for services, with more rental housing permits last year, Stutsman said.

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According to this chart showing the five-year trend in Park Rapids' general fund revenues, intergovernmental aid increased significantly. According to an audit report presented to the city council on Oct. 11, 2022, this was due to American Rescue Plan funds and other grants.
Contributed / City of Park Rapids

City expenditures decreased 1.8% in 2021, Stutsman reported. Areas of increase included general government and public safety, due in part to increased building inspection and personnel costs, while capital outlay went down after squad car purchases in 2020.

Comparing general fund budget to actual, Stutsman said the city expected the fund balance to decrease by about $100,000, but it actually increased $596,000. She attributed this to revenues being 29.4% over budget, especially in intergovernmental revenue.

“That has to do with the additional state and federal money that was received this past year,” she said, mentioning American Rescue Plan funds and Small City Assistance and Minnesota Housing grants.

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The City of Park Rapids' general fund expenditures went down from 2020 to 2021. As audit director Caroline Stutsman explained on Oct. 11, 2022, there was less capital outlay than in 2020, when the police department purchased some squad cars.
Contributed / City of Park Rapids

Meanwhile, total expenditures also went over budget by $348,000, or 9.8%, Stutsman said. A big part of that was capital outlay to purchase self-contained breathing apparatus and for the Career Path project, which were not budgeted for.

Stutsman compared the city’s end-of-year, unassigned general fund balance of over $3 million, or 78% of this year’s operating expenses, to the city’s policy to maintain a reserve of at least 50% of operating expenses.

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This five-year chart of Park Rapids's general fund revenues, expenditures and fund balances shows that city expenses held about level from 2020 to 2021 while revenues and balances continued their upward trend.
Contributed / City of Park Rapids

The city’s tax capacity increased 5% in 2021, she said, while the levy increased about 0.25%, resulting in a decrease in the tax capacity rate.

In enterprise funds, Stutsman reported, water fund revenues went up about 7.5% and expenditures up about 5.4%, leading to a loss due to depreciation. She said water revenues are currently covering 64% of the depreciation expense, and the fund’s unrestricted net position decreased by $300,000 last year.

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Meanwhile, she said, sewer fund revenues were up about $22,000 and expenditures down about $14,000, a net loss with revenue covering about 30% of depreciation and the unrestricted net position going down about $135,000. Stormwater fund revenues were down about $9,000 and expenditures were up about $20,000, a 46% decrease in unrestricted net position while fully covering depreciation.

Regarding the liquor fund, Stustman said, sales and cost of sales went up about 2% each, and gross profits ended the year at 26.3%. The liquor store’s net position increased by about $300,000.

Council member Erika Randall made a motion to approve the audit report, and it passed unanimously.

MORE RELATED COVERAGE:
Department heads gave a report on the past year or two at a city council workshop on Jan. 24.

Robin Fish is a staff reporter at the Park Rapids Enterprise. Contact him at rfish@parkrapidsenterprise.com or 218-252-3053.
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