The inability to complete an audit of the Chadron Public Library Foundation accounts resulted in an adverse opinion for the City of Chadron in its 2017-18 audit, which was presented to the council Monday.
Michael Hoback of Almquist, Maltzahn, Galloway and Luth presented the audit to the council and explained that the decision that the foundation’s funds needed to be included in the review came too late in the process for the firm to thoroughly audit those funds.
There were multiple discussions as to whether the Library Foundation falls within the legal definition of a separate component unit, said City Manager Greg Yanker. Because the foundation holds a significant amount of funding that is solely for the benefit of a city facility, the auditing firm concluded that it’s records should be subject to review, Hoback said.
“We felt it should be included in our financials as a component unit,” Yanker added. The foundation board cooperated with the city in providing its financial data, but there simply was not enough time for the auditors to review it in its entirety.
“The amount by which this departure would affect the assets, net position and revenues of the aggregate discretely presented component units has not been determined,” the audit report reads. “In our opinion, because of the significance of the matter…the financial statements referred to above do not present fairly the financial position of the aggregate discretely presented component units of the City of Chadron, Nebraska, as of September 30, 2018, or the changes in financial position thereof for the year.”
The auditing firm provided several benchmarks to the city, comparing its financial standing to other cities with populations ranging from 3,000 to 10,000. Those benchmarks determined that the city needs to focus on building cash reserves again and needs to either increase revenues or decrease spending in the wastewater department.
For cities in Chadron’s comparison group, the auditor’s recommend they have just over $2 million in general fund cash reserves and another $1 million in cash reserves in its business-activity funds (water and wastewater). Chadron ended 2018 with $410,000 in its general fund reserves, $1.6 million short of best practices.
“We’re spending down our cash,” Hoback said.
The city had $2.3 million in general fund reserves in 2014 and reached its lowest point in 2016 when it had just $362,000 in reserves. It’s business-activity funds ended 2018 with $1.7 million in reserves, which is above the audit firm’s recommendation, but still lower than last year’s $2 million reserve.
“Keep an eye on those,” Hoback said.
The City of Chadron changed its budgeting approach last year, moving from a mindset of being statutorily balanced to being fiscally balanced, where revenues in equal expenses out. While the 2018-19 cash reserves will likely still be down when this fiscal year concludes due to some carryover projects from 2017-18, Yanker said the reserves should begin increasing after that.
As far as the wastewater department is concerned, Hoback said his firm recommends that cities like Chadron operate at a 15% margin of operating income to total operating revenue. The city’s water and wastewater funds both fall below that recommendation, but the wastewater fund is in worse shape.
“It is operating at a loss,” Hoback said.
In other areas of the audit, Hoback noted that the city’s sales tax revenue is robust and that its accounting practices are sound given that they had to make only six adjustments in how items were recorded.
“Six entries is amazing. Most of the time we have 20-30 entries so to only have six is an outstanding job,” he said.
He also pointed out that the city remained within budget for the 2017-18 fiscal year.
“We did contain the spending. We didn’t go over budget in either one of those funds,” he said, referring to the separate governmental and business-activity funds.