The city of Princeton has received the highest level of assurance possible regarding the results its 2018 financial audit.
Jackie Knowles, representing professional services firm BerganKDV, provided an audit review for city leaders June 27.
The city’s unmodified opinion is clean and best it can receive, Knowles reported last week.
While there were no findings related to state compliance issues, Knowles did report two internal control findings.
Lack of segregation of accounting duties within a small city staff was one of the findings mentioned by Knowles and monitoring of liquor store inventories was another other finding.
“There is some overlap of one person doing multiple accounting duties,” she said. “It’s common in a small-sized or mid-sized city.”
Regarding the liquor story inventory, Knowles said her firm does test counts that can project shortfalls.
According to Knowles, there a difference of about $15,000 in inventory that was reported. She also suggested the city close out any inactive fund balances with transfers from other funds.
“Your 2018 general fund revenues increased by about 4 percent, an increase of about $145,000,” Knowles said. That was due to the general fund’s increased share of the levy.
There was a large decrease in expenditures of about 9.5 percent, she added. “That was mainly for capital-related items, and there were a number of improvements done in 2017, at city hall and the public works facility.”
The city’s fund balance increased by about 8 percent as a result of activity for the year. Because revenues and expenditures tend to grow, BerganKDV likes to look at fund balance as a percentage of expenditures, Knowles explained.
Princeton’s policy is to have 30 to 50 percent of the next year’s budgeted expenditures in its fund balance by year’s end; the number reported in the 2018 audit is 67.3 percent.
“We don’t consider that to be excessive,” Knowles said. “Some cities have higher policies. It all depends on what each individual council approves, but the 30 percent to 50 percent does match the Minnesota Officer of State Auditor guidelines.”
For 2018, the city’s budget-to-actual results show revenues that were very close in total to what was budgeted, Knowles said.
However, there were some off-setting variances between property taxes and intergovernmental revenues.
“Property taxes were over-budget, being conservative in relation to your budget, and intergovernmentals were under because of previous money budgeted for fire aid,” she said.
That revenue previously came into the city, then went out to the fire association, but now that the fire association is under covered under Public Employees Retirement Association, Knowles said that money just goes directly there.
City expenditures ended up being under budget by about 12 percent. Most categories were very close the budgeted amount, and general government was under budget, as it is consistently year after year, Knowles reported.
“The bottom line is was you anticipated a very small change in fund balance of only $465, and when you modified the budget, you anticipated the fund balance going up about $214,000, and it went up $200,000, so transfers were not needed,” she said.
Looking at tax capacity and rates for the last five years, the city of Princeton has been pretty consistent, Knowles said. Taxcapacity has increased at a higher rate than the levy during the same period, so the city’s tax rate has come down.
The city’s liquor fund reported another strong year in 2018, with sales up about 6.6 percent, Knowles said.
Cost of sales increased as well, rising about 6.5 percent. Operating expenses also rose with an increase in salaries, and the city’s share of the employee’s net pension liability for PERA.
“You did report your highest year of operating income out of the last five years at about $484,000,” she added.
Gross operating revenues and profit in the city’s airport fund were down about $7,000. Money going into this fund fluctuates based on fuel sales.
Operating expenses were down in the airport fund about $22,000. This fund does receive significant grant money, about $250,000, Knowles said.
Operating revenues in the sewer fund were up about $75,000, some of that was sewer access charges, and there was also an increase in usage, Knowles reported.
Operating expenses were up about $180,000, and there was an increase in salaries, with an additional full-time employee hired. Chemical and supply costs were also up. Operating income of about $69,000.
“You are covering all of your depreciation costs in this fund, and budgeting for future replacement and repairs,” Knowles said.
City Manager Robert Barbian said staff was working to take care of the audit issue involving the liquor store inventory.
“The city is taking solid steps to put in an inventory system, and bring on an additional assistant manager, and that calls for further action later,” Barbian told city leaders.“Those are two good steps that I think should bring things closer in line.”