TAWAS CITY – In their final meeting of 2020, the Tawas City Council addressed the municipality’s financial audit and some revised plans for the pier rehabilitation project, along with acknowledging the term expirations for council members Kane Kelly and Jill VanDriessche.
As for the money matters, they voted to receive and file the 2019-2020 audit report, for the fiscal year (FY) ending June 30, 2020.
“We received an unmodified opinion, which is the best opinion available,” City Manager Annge Horning said of the information, prepared by Stephenson & Company, P.C.
According to the firm, this means that after they performed their audit, they believe the numbers in the financial statements are materially correct and can be relied upon.
Stephenson & Company provided an overview of the city’s major funds, those being the general, major street, local street, sewer and water funds.
As has been reported, the general fund accounts for the majority of public services which are provided to a community. One of the largest revenue contributors – at more than $1 million in Tawas City – are property taxes.
Auditors note that the city’s general fund is very healthy and, if expenditures remain the same as in 2020, the municipality could operate an estimated 311 days on its fund balance.
Augmenting this, Horning said there is just over $2 million in the fund balance that the city could operate with, without any income coming in. “So our general fund is very healthy. We’re in a good position, as of the end of the fiscal year.”
Auditors state that the general fund revenue stayed consistent, only decreasing in total about 1.8 percent, or $34,795. Property taxes remained consistent with the prior FY, increasing $30,716, while state grants remained consistent with last year, as well.
They also report that Tawas City’s charges for services revenue jumped about $13,000, due to fire contract fees increasing approximately $11,000.
Street benefit reimbursement revenue decreased roughly $13,000.
Fire response fees climbed approximately $23,000 and miscellaneous fees decreased about $9,500, due to insurance revenue on a fire claim in the prior year for the former Tawas Area Chamber of Commerce building.
The firm also notes that street equipment rental revenue charged to the other funds decreased about $22,000.
When it comes to the general fund expenditures, these increased about 51 percent, or $825,000.
The overview from Stephenson & Company reads that the large jump in this fund consisted of a $726,328 increase in capital outlay. Included in capital outlay was the purchase of a fire truck, $552,636; a new department of public works (DPW) truck, with accessories, $37,877; engineering on the Tawas City Shoreline Park pier project, $196,262; and $25,774 on the Anchor Park restroom renovation and some costs (prior to closing) for the purchase of 541 Lake St. of $15,719. Additionally, public safety expenditures went up $118,613, due to the purchase of self-contained breathing apparatus gear for fire department personnel.
The fund balance in the general fund decreased $184,960, after transfers to the GOLT Refunding Bond Fund of $126,712 and local street fund of $100,000.
In terms of the general fund budget, revenue was approximately $3.5 million lower than the original and $3.6 million lower than the final budgets. This was mainly the result of federal grants being less than expected, due to the pier project progressing slower than anticipated.
Expenditures were about $3.3 million less than the original and $4 million less than the final amended budget. Again, auditors say that this is associated with the progression of the pier project.
Among the other financial highlights in the report, the city’s assets exceeded its liabilities by $18,188,806. The total net position increased by $237,170, due to revenues exceeding expenses. The most significant changes in activities from the prior year included the city spending $120,365 on replacement firefighting gear from the general fund and the contract fee from the Tawas Utility Authority increasing by $125,000, which is covered by the sewer fund.
According to auditors, the city’s governmental funds had a combined ending fund balance of $2,745,231 this year, which is a decrease of $162,166. Of this amount, $1,082,493 is available for spending (unassigned fund balance) on behalf of its citizens. The general fund 2019-2020 FY end fund balance is $2,075,927.
The firm also notes that Tawas City’s capital assets total more than $20 million. These are comprised of buildings and improvements, machinery and equipment, vehicles, infrastructure and land owned by the municipality.
Another primary fund is the major street fund, for which the fund balance increased about $37,000, to an ending balance of approximately $461,000.
Auditors state that the fund balance represents more than 100 percent of current year expenses. As they have noted in the past, they do not have a recommendation for a minimum fund balance in this fund, as the money is to be spent on roads. These types of projects are expensive so, if the city spends more than the fund balance, and what is expected as revenue in the next year, the general fund may have to subsidize.
The overview also includes details on Tawas City’s local street fund. For this, auditors wrote that the fund balance decreased about $33,000 – which included a $100,000 transfer from the general fund – to an ending fund balance of approximately $89,000.
Again, they don’t recommend a minimum balance on this type of fund, since these dollars are meant to be spent on roads.
Stephenson & Company gave a summary of the city’s sewer and water funds, as well, which are known as enterprise funds. This means that they may be used to account for any activity for which a fee is charged to external users (citizens) for goods and services.
In other words, these are funded by the users and not by general tax dollars.
With the sewer fund, there was an operating loss of roughly $11,000 and the fund net income was about $1,400. Charges for services revenue increased almost $55,000, mainly due to a rate increase of 86¢ per 1,000 gallons for taxed users, and $1.99 per 1,000 gallons for non-taxed users. Auditors say that this is despite a decrease in usage of approximately four percent, due to COVID-19.
Expenditures included about $43,000 of depreciation, which is a non-cash expense relating to the wear and tear on capital assets.
The ending net position, or fund balance, totals more than $2.5 million. However, auditors explained that this does not equate to cash balance, as it includes infrastructure of the sewer system.
The cash balance in the sewer fund was about $841,000 at year-end, equating to an increase of approximately $37,000.
The water fund had operating income of about $131,000. Charges for services revenue decreased by roughly $19,000 this FY. There were no rate increases, and usage dropped 4.7 percent as a result of COVID-19.
Appropriations included about $105,000 of depreciation that – as is the case with the sewer fund – is a non-cash expense associated with the wear and tear on capital assets. Also similar to the sewer fund, the water fund’s ending net position of more than $7.5 million does not equate to cash balance, since it includes the infrastructure of the system.
The cash/investment balance in the water fund was $1,120,000 at year-end, which represents an increase of about $208,000.
Along with auditing the numbers to make sure they are materially correct, the other main part of the annual audit is to report any internal control matters, for which there were two findings this FY.
One involves financial statement preparation controls, and is a repeat comment. The overview on this, from Stephenson & Company, reads as follows:
“Management has decided it is not cost effective to send staff to training for a once a year process. As such, the City contracts with its auditors to prepare the financial statements, which is allowed. One hundred percent of my governmental clients have this comment. The State of Michigan does not expect corrective action on this comment.”
“And the other comment they had this year were internal controls over financial software applications, which is something we are addressing in city hall,” Horning told the council.
“It’s just changing limits on access to computer programs,” she said, of the new comment from auditors.
For example, she mentioned the employee tasked with utility billing for the city. “We’ll have to lock her out of being able to change the utility billing rates, and have somebody else do that.” The same goes for the staff member in charge of payroll. “We’ll have to lock her out of adjusting people’s pay rates, and have somebody else have access to that. So, that is something that we’re working to take care of in-house.”
Auditors state that they obtained an understanding of internal controls, or checks and balances, over the financial software and its use. Limiting access to modules and access within modules protects the integrity of the data and reduces the risk of fraud.
They note that during that process, it was determined that city staff did not have a clear understanding of access by employees to each module – payroll, accounts payable, utility billing, general ledger – or within a module the rights each employee had. Therefore, they recommended that the city re-evaluate the needs of each user and limit access to modules and within modules to only those necessary to complete their jobs.
In separate business at their Dec. 21, 2020 meeting, the council agreed to some changes involving the Shoreline Park pier project.
Horning began with an update and explained that the city does not yet have a signed agreement with its engineer, Foth Infrastructure & Environment, for the construction oversight. “And the money that we had paid them previously has been exhausted. So they are not working for us at this time.”
She said that there is a revised bridge plan, though, which was shared by the contractors, Great Lakes Dock & Materials, as well as information on the floating dock structure.
As reported, the contract amount for the pier work totals more than $4.7 million, but city officials have been exploring their options for reducing this price tag.
Horning reminded the council that the original specifications for the project entailed fixed docks. “So this will have a floating dock structure. Both of them are money savings changes for the city,” she said, in reference to the dock and bridge adjustments.
However, at the time of the meeting, she said the committee involved in this had not had an opportunity to discuss the changes. The group is comprised of Horning, DPW Director Gus Oliver, Mayor Ken Cook and Councilman Mike Russo.
Horning said that as long as the committee has an opportunity to discuss the changes and are okay with them, she would like council authorization to allow the committee to move forward with ordering those items, so they don’t hold up the project. “Because the construction of the floating dock system and the bridge is going to take some time.”
She added that the adjustments to the bridge will result in a savings of about $165,000, while the dock changes will drop the price by approximately $37,000.
“I would certainly support that, from my perspective, a $200,000 savings,” said Mayor Pro Tem Brian McMurray.
“As would I,” agreed Russo, who moved to authorize the committee to proceed with the proposed changes, upon their review. The motion passed 6-0, with VanDriessche not in attendance.
In other matters, VanDriessche had requested at the prior council meeting to be excused from the Dec. 21 event. She shared that she couldn’t guarantee she would be at a location which has internet access on that date, in order to take part in the virtual meeting. “If I am, I will happily join; if not, I would ask to be excused.”
Horning pointed out that, if VanDriessche wasn’t able to participate on Dec. 21, then Dec. 7 would be her last meeting with the council. “Thank you, Jill.”
“If this is your last meeting, thank you very much for serving the city and being here with us,” Cook echoed at that time. “It’s been a pleasure, and hopefully you’re with us the next meeting.”
As reported, VanDriessche was appointed to a two-year council term in January 2019, filling the vacancy which was left after Danna White stepped down in August 2018.
The terms for both VanDriessche and Kelly, who also previously served as mayor, expired this January. Kelly’s latest term on the council began in January 2017, after he was elected to the role that prior November.
“I want to thank Kane and Jill for their service and what they did for the council. We appreciate them being a part of everything we’ve gotten done this year,” remarked Councilman Jon Studley, during the Dec. 21 meeting.
Fellow council members expressed their appreciation to Kelly and VanDriessche, as well, for their service and contributions to the city.
Also attending the meeting was Tawas City Fire Chief Steve Masich who, on behalf of the department, recognized Kelly for his unwavering support during all his years of community service.
“I really enjoyed being part of the city council and growing with the city. It’s been a great experience,” Kelly said. “I appreciate all the thank yous for that.”