BY MARK J. CRAWFORD
Starke’s audit for Fiscal Year that ended Sept. 30, 2023, recognized significant improvement, with auditors praising staff and staff giving credit to the support of the commission.
The audit report was presented to the commission by Caleb Perla, a partner at Powell and Jones CPA. He began with the city’s two governmental funds, the general fund and the transportation trust fund.
Total assets of these two funds were $7.2 million, according to the balance sheet, which surpassed $3.05 million in liabilities, resulting in a fund balance of nearly $4.2 million, which Perla referred to as the city’s net worth. Excluding nonspendable funds for prepaid items, and funds restricted for public safety and road improvements, left nearly $3 million unassigned and available to spend for ongoing operations, he said.
“The unrestricted fund balance as a percentage of your operating expenditures is 57%, which equates to 6.9 months of operating reserves, which is in excess of the GFOA minimum required amount of two months. So, you have plenty of sufficient reserves to fund ongoing operations,” Perla said.
GFOA refers to the Government Finance Officers Association.
According to Perla, the governmental fund balances have been trending upward and experienced a “substantial increase.”
Looking at the balance sheet for the two governmental funds, there was a total of $4.7 million in revenue to the general fund and transportation trust fund, with expenditures of almost $5.4 million, leaving a deficit of more than $699,000. Grants and transfers raised the revenue by $1.3 million, resulting in a net change in fund balance of nearly $628,000, helping increase the combined governmental fund balance from $3.5 million to the previously stated $4.2 million.
Among those transfers was an $837,000 from the city’s enterprise fund. Without that transfer of utility revenue to subsidize general government spending, Perla said the general fund would not have been able to stand on its own.
Looking specifically at the enterprise fund, it ended 2023 with a slightly higher net position of $27.65 million, up from $27.57 million. Net position is the difference between assets and liabilities, including the deferred inflow and outflow of resources, with Starke’s assets totaling $44.8 million and liabilities totaling $17.2 million. Of the $27.57 million net position, $16.8 million is invested in capital assets, with nearly $10.8 million in unrestricted funds.
“This unrestricted balance represents 80% of your operating expenditures in one year, which is 9.6 months, so sufficient reserve, once again, for your proprietary funds,” Perla said.
The modest improvement in net position was impacted by an operating loss, with utility expenses of nearly $13.5 million surpassing utility revenue around $13.4 million. There was also the transfer of revenue to the general fund. Nonoperating revenue from interest and intergovernmental grants helped make up the difference.
Perla also explained that accrual-based accounting includes noncash expenses like depreciation of capital assets.
“That’s not necessarily cash out the door, which is why I included this operating cash flow number down here, which shows that you’re operating at a positive cash flow of $826,000 per year, which is sufficient to fund your transfers and other operations,” he said.
Ideally, the city would be earning enough over time to fund replacement of its assets. However, Perla said, the city uses grant funding that doesn’t come from its own pockets to address infrastructural needs.
“So, it’s OK to run a slight loss here as long as you keep an eye on it, as long as you have those grants to come in and fund the replacement of that infrastructure,” he said.
The trending net position for the city’s utility fund is slightly positive each year, according to Perla.
Auditors also performed an audit of the city’s expenditures of federal and state grant and loan awards and found the city complied with requirements for the use of those funds. This included funds received for the wastewater treatment plant and wastewater collection system.
Finally, Perla noted “substantial improvement” in the number of findings the city needs to address. Down from 10 findings two years ago and three last year, Perla said there was just a single finding for 2023. It related to the preparation of the schedule of expenditures of federal awards and state financial assistance.
Auditors found there were expenditures improperly excluded from the schedule, which necessitated revision. Auditors recommended city staff responsible for the schedule familiarize themselves with the requirements and perform a second review of the schedule before submitting it to auditors.
The city agreed in the need for better reporting.
“The city has seen significant expansion through numerous capital projects over prior years due to backlogged projects that have led to greater complexity in yearend reporting. The city will continue to work towards ensuring proper schedules are kept in preparation for the audit as well as continuing to track ongoing grant expenditures to ensure accuracy of financial reporting,” the management stated in its response.
There was also a recommendation to improve inventory tracking by performing monthly reconciliations. Management agreed, saying staff continue to be trained to correctly monitor inventory following the implementation of new software and ensure accuracy between the software and general ledger.
Perla concluded by thanking the city for assistance with the audit.
“I want to say thank you to James (Hughes) and the finance team, who are all doing an excellent job and were very helpful during our audit, as well as the rest of the city staff, the city manager and administrative officer. And we’ve just been grateful to have the privilege of working on your audit, and we look forward to another even better audit for next year,” he said.
Commissioners also thanked staff, as did Chief Administrative Officer Jimmy Crosby. Crosby also thanked the city commission, saying commissioners have never failed to support staff and both of their managers in doing what needs to be done.
