Park Rapids receives clean audit report for 2019

Caroline Stutsman, CPA with BerganKDV, presented the city council on Oct. 27 with an "unmodified opinion" of the city's financial statements, the best opinion an auditor can offer.

Caroline Stutsman, CPA with BerganKDV (on screens) presents the city's 2019 audit report on Tuesday to Park Rapids City Council members Liz Stone and Erika Randall, interim administrator Betty Thomsen, Mayor Ryan Leckner, Treasurer Jeremy Jude (facing forward) and council members Tom Conway and (not pictured) Bob Wills. (Robin Fish/Enterprise)

The Park Rapids City Council received an “unmodified opinion” Oct. 27 in an audit report about its 2019 financial statements.

Caroline Stutsman, CPA with BerganKDV, described this opinion as “the highest level that you can receive, … meaning, we believe the financial statements are fairly stated in all material respects as of Dec. 31, 2019.”

The firm also audited city staff’s internal control over financial reporting and issues relating to compliance with government standards. Stutsman noted two findings:

  • A lack of segregation of accounting duties, which is a common issue for small cities that have a small financial staff.

  • Material audit adjustments, which Stutsman said are to be expected with new accounting personnel still learning their duties.

Thirdly, the firm audited the city’s compliance with a checklist of Minnesota statutes. Stutsman reported no findings relating to these legal compliance issues.
Stutsman then presented an overview of the city’s finances in 2019.


General fund revenues and expenditures

During 2019, overall city revenues increased nearly 18 percent, from $3.3 million in 2018 to $3.9 million.

“Taxes increased a bit, just in relation to an increase in the levy,” said Stutsman. “Miscellaneous revenues increased about $134,000; that was the result of an increase in investment income, with markets just having a better year. The largest increase, though, was in your intergovernmental revenues.”

She correlated this with a pass-through grant to the Headwaters Regional Development Commission to build the Meadowview Apartments.

General Fund Revenues (Courtesy of the City of Park Rapids)

Total general fund expenditures increased nearly 14 percent last year, from $3.2 million in 2018 to $3.6 million.

Again, the largest area of growth was capital outlay and other expenditures. “That’s where economic development expenditures are located, and that’s where the flow-through of that grant passed through,” said Stutsman.


Public works expenses decreased by about $45,000 due to less street overlay costs and a vacant staff position.

“Public safety continues to be the largest component within the general fund, at 44.1 percent,” she said.

General Fund Expenditures (Courtesy of the City of Park Rapids)

Budget-to-actual and fund balances

In a comparison of last year’s budget to the actual results, the audit report showed that the city’s actual excess of revenues over expenditures exceeded the budget by more than $230,000.

Again, intergovernmental revenues and economic development expenditures exceeded the budgeted amounts due to the pass-through grant to the HRDC.

Charges for services were $48,000 over budget due to an increase in fire calls in 2019. Miscellaneous revenues were $145,000 over budget due, again, to “taking a conservative approach within the budget for that interest income,” Stutman said.


General Fund Revenues, Expenditures and Fund Balances (Courtesy of the City of Park Rapids)

The net general fund balance increased more than $250,000 for the year.

Stutsman said the total general fund balance, as of the end of 2019, is over $3.2 million.

“Of that balance, $2.2 million is what’s considered unassigned, or what’s available for future operations,” she said. “Your policy indicates that you would have no less than 50 percent of your operating expenditures in that unassigned fund balance at the end of the year. If we run that calculation for 2019, you’re at 66.2 percent.”

General Fund Cash and Total Fund Balances (Courtesy of the City of Park Rapids)


Tax capacity and enterprise funds

In 2019, the city’s taxable tax capacity decreased by a little over 2 percent, Stutsman said, while the levy increased about 5 percent. As a result, the city’s tax capacity rate increased.

In a discussion of the city’s water, sewer, stormwater and liquor store funds, Stutsman explained how comparing “operating income without depreciation” and “operating income/loss with depreciation” help a city analyze how much of its revenue an enterprise fund is using to cover operating costs and how much it is setting aside to replace depreciating assets.

Another way to analyze how a fund is doing, she said, is to look at its unrestricted net position, or what the net value of the fund’s capital assets after deducting its depreciation and debt. This amount represents what’s available for future operations.

Water fund operating revenues have increased by about $30,000 and expenses have increased by about $20,000 during the past five years, she said. Meanwhile, the operating income/loss comparison shows that the water fund is covering 67 percent of its depreciation expense.

The water fund’s cash balance increased by about $88,000 in 2019. Compared to 2018, the water fund’s unrestricted net position increased by $86,000. “So, we’re going in the right direction there, as far as what’s available for future operations,” said Stutsman.

Water Fund (Courtesy of the City of Park Rapids)

Sewer fund operating revenues decreased by about $12,500 and expenses by about $15,000, while its cash decreased about $250,000 and the unrestricted net position $80,000 compared to 2018.


Stutsman said the sewer fund’s operating income is covering about 20 percent of the fund’s depreciation expense. “That is somewhat common, when we see sewer funds vs. water funds,” she said. “But it’s something to consider, to analyze your revenue streams and the future replacement of those assets.”

Sewer Fund (Courtesy of the City of Park Rapids)

Regarding stormwater funds, Stutsman said operating revenues were “pretty consistent, changing only about $2,000. Operating expenses decreased about $27,000,” due to larger repairs in 2018.

Over a five-year period, the stormwater fund’s revenues increased about $8,500 while expenditures increased more than $33,000, the audit report stated.

The stormwater fund fully covered its depreciation expense out of operating revenues, while its cash and unrestricted net position both increased by about $46,000.

Stormwater Fund (Courtesy of the City of Park Rapids)


The liquor fund’s gross profit percentage dipped slightly from 2018 to 2019 but remains consistent with a five-year comparison, hovering around 25 percent.

Liquor Store Gross Profit Percentage (Courtesy of the City of Park Rapids)

Liquor sales in 2019 were down about $96,600 (3.1 percent), while the cost of sales went down $48,000 (2.1 percent), resulting in an operating income of $266,674.

The liquor fund’s cash increased about $345,000 and the unrestricted net position improved by about $232,000. Stutsman said this was because the liquor fund did not make a transfer to the general fund last year, as in it has some previous years.

Liquor Fund (Courtesy of the City of Park Rapids)

Debt service obligations

Stutsman presented a graph showing the amount of debt service principal and interest payments each year from 2020 to 2039.

Under its current indebtedness, the city is scheduled to make payments decreasing by steps, from approximately $1.3 million per year in the next few years to less than $100,000 per year by 2039.

Stutsman reported that the city’s total general obligation bond debt, outstanding as of the end of 2019, is nearly $14 million, including interest totaling $2.27 million.

Annual General Obligation Debt Service Principal and Interest Payments (Courtesy of the City of Park Rapids)

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