City Audit

6/3/10

The Montrose City Council met in April to discuss the 2009 City Audit.  The auditor said the city is doing the right things.

They identified a material weakness in Material Audit Adjustments. "During [the] audit, adjustments were needed to reverse prior year accounts payable and record current year accounts payable."  These adjustments should be identified and made by city staff. This issue was caused because staff hadn't reviewed and recorded all prior and current year accounts payable. The effect is that a misstatement would be likely and not be caught by internal controls. "The audit firm cannot serve as a compensating control for this deficiency." It then states that the response from the city staff is that they have reviewed and understand the journal entries completed by the auditors and will complete these entries in the future.

To correct the misstatements required 24 journal entries, an $80,902 entry to reverse prior year accounts payable, and another entry to this year accounts payable of $64,476. It is noted that there were no disagreements with management during the audit.
A significant deficiency, which is less severe than a material weakness, was in the preparation of financial statements. The Auditor prepares the financial statements; which isn't unusual for a city of this size.

There was a case when the city had $18k in uncollaterized deposits. Per MN Statutes, the City is required to have pledged collateral equal to 110% of the deposit not covered by insurance. This was cause by a wire transfer of $279k from the State at the end of the year. The city is meeting with the bank to ensure this doesn't occur again.
For the 2008 audit, they had reported limited segregation of duties that appears to have been resolved.

The General fund balance increased $163,134 from 2008.
In the capital project funds, AUAR shows a deficit of -$256k, Intersection Study of -$174k, City Hall -$113, and Safe Routes to School -$52 with a total deficit of -$419k. It is noted that the city intends to eliminate the City Hall fund deficit with future transfers from the General fund supported by the tax levy.

The Fund Balance as a percent of next year's budget increased significantly from 2009 to 2010 of 18.8% to 41.2% respectively. The average is 55%, so the city has seen improvement but is below the average.
Revenues exceeded the budget by $63,200. All sources exceeded the budget, except for intergovernmental which had a -$46k variance. The largest positive was taxes which exceeded by $61k.

Expenditures were $141k under budget. All were under budget with general government and public works the largest. I believe it was noted at the meeting that a large percent of the savings was due to not paying overtime or raises.  At the tax meeting earlier this year, Montrose city staff had said this had saved the city approximately $52,000.  The city has about 7 staff.