Moose Lake Star Gazette - Serving Carlton and Pine Counties Since 1895

By A. R. Vander Vegt
Moose Lake Star-Gazette 

Clean audit in Sturgeon Lake

 

November 15, 2018



An “outstanding (voter) turnout” was reported by Clerk Carole Lahti at Sturgeon Lake’s regular city council meeting on Friday, November 9. Lahti also noted an uptick in registration. “A lot of people who registered to vote were young people — 18, 19, 20.”

With that, the council canvassed Sturgeon Lake’s election results. In January, Todd Danelski will take up the mantle as mayor. Adam Langhorst and Rick Lewis will begin as councilors, replacing Diane Jacobson and Russell Correira.

Audit findings presented

Bart Rodberg, the senior director from RSM in Duluth, presented 2017 audit findings.

The audit process, Rodberg explained, includes understanding operations and processes, assessing risk, conducting audit procedures, evaluation, reporting to the council, with an ultimate objective to “express an opinion on the financial statements.”

After a report, it is the council’s responsibility to conduct financial oversight in statements, compliance, hiring a qualified accountant and conducting independent audits. Additionally, the council is responsible for oversight of policies and procedures, internal controls, and to assess risk management.

Audit results came out clean. Rodberg reported no disagreements came about with the management, no limitations were imposed on the audit scope and the adjustments suggested were made.

In total, 17 adjustments were made to the financial statements. These adjustments decreased the net position by $350,839, according to Rodberg.

Council members had several questions about the adjustments.

Councilor Jessica Langhorst inquired, “What do we do to fix the amount of adjustments? Or is it normal in small cities?”

Rodberg said making adjustments is “typical,” but the amount made “runs the gamut.” Part of the work of an audit is to make sure numbers are correct. Adjustments, then, are technically “non-audit work.”

A primary issue recurring in the adjustments was that of depreciation. Councilor Marsha Helfman noted that had depreciation been accounted for in some of their financial records, the amount of adjustments would have been reduced.

Rodberg shared that in the general fund, assets have increased since 2015. Ninety percent of those assets are cash. “That’s good to see,” Roberg said. The fund balance parallels the assets, which trend upward steadily.

In contrast, assets in the water fund are on the downward trend, “because (the) depreciation of capital assets.” The fund balance follows the slope, though not as drastically. In 2013, there were $3,137,001 in assets and deferred outflows compared to $2,762,044 in 2017. The fund balance has gone from $1,241,182 in 2013 to $1,147,036 in 2017.

Rodberg highlighted the income statement for the water fund, which is running at a loss. It’s not because cash isn’t coming in, he said. It’s depreciation and maintenance. Expenses in the water fund increased from $174,494 in 2016 to $189,465 in 2017. The revenue for those years came in at $157,432 and $152,939, respectively.

Rodberg also presented a 20-year cash flow projection for water and sewer. To accomplish this, RSM took 2017 numbers and stretched them out to 2038. What he found, and what was expected, was “once the debt is gone, you’ll be golden.” However, “until then, you’re running a deficit. You can’t sustain it.” This projection is only true as long as the numbers — water/sewer charges, property tax, payroll, repairs and maintenance, etc. — do not change, for better or worse.

The audit revealed a question of Minnesota legal compliance. Two transactions totaling $10,729 were made to an interested officer prior to authorization by the city council. Additionally, the audit report noted, an affidavit was not filed at time of payment stating all required elements.

According to Minnesota state statute, in order to prevent local officials from profiting from their positions with a local jurisdiction, some extra precautions are required. The council must adopt a resolution “setting out the essential facts” of the contract price and its comparison to other similar services. An affidavit needs to be filed with the clerk, according to state statute, which states name, itemization of services provided, contract price, reasonable value, interest of the officer involved, and that the services being offered are as low as or lower than similar services.

In a previous draft of audit findings presented to the city, it was stated that RSM noted three transactions totaling $21,457. In reality, it was two transactions totaling $10,729. Rodberg said it was “highly unusual” that a mistake like that slips through. That error had been corrected in the final report to the council.

Other concerns arose in internal control deficiencies, including preparation of financial statements, backdating checks, and journal entry review and approval. Turnover within city offices contributed to some of these deficiencies, it was noted.

Though the report came out clean, Helfman looked forward to making changes. “The goal is to not repeat the same mistakes.”

 

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