BELDING — The city of Belding was issued a clean audit report.
Peter Haefner, a partner with Grand Rapids-based accounting firm Vredeveld Haefner, gave a presentation on the city’s audit report for fiscal year ending June 30, 2016, during Tuesday’s Belding City Council meeting.
The general fund budget has approximately $1.2 million to complete the fiscal year. General fund revenues for the current budget year are estimated at $2.3 million, and the city has spent $1.08 million to date since the prior fiscal year ended.
According to Haefner, the financial statements the firm reviewed were in keeping with the generally accepted accounting principles, which is “the highest opinion you can receive.”
“The state of Michigan requires that municipalities follow generally accepted accounting principles, so that’s very positive,” he said.
Haefner said the net position, which “reflects all the assets and liabilities of the governmental activities of the city,” has changed from previous years but that the city recently made a funds transfer to invest in capital.
“You invest in capital; street projects, fire engines, improvements to facilities and (the net position) line will increase. Over time, that (net position) line will decrease as investments are depreciated over their estimated useful lives,” he said. “As debt gets paid, the (net position line) will go up.”
Haefner’s presentation showed that the city has less unrestricted funds as part of the net position than in previous years but points to the investment in capital for city projects as the reason for that decrease.
“You put investment into your infrastructure for the community,” he noted.
According to Haefner, the primary source of revenue for the city is property taxes, which make up about 47 percent of revenue. State funding comprises about 16 percent while various grants make up about 20 percent.
Haefner said the city saw an increase in revenue from property taxes, as did many other municipalities the accounting firm works with.
“We see a slight increase here after immense pressure and decline over time when we had the poor economy and housing prices were going down and businesses were closing so that’s a positive,” he said. “The other positive there is you don’t see any increase on the state side with income tax share. It’s positive you’ve been able to maintain a strong general fund balance in this environment.”
The water fund for the city saw a loss in the 2015-2016 fiscal year, as well as in the previous year.
“Over time, you ultimately have to have a slight income in order to have capital to invest in your system,” he said.
Haefner noted the audit did show a material weakness over internal controls over financial reporting and the controls over the reporting of the financial statements.
“We identified the fact that there is a material weakness with the system of internal controls for financial reporting and it relates to the preparation of the financial statements,” he said. “If we find an adjustment during the performance of the audit it’s an indication there’s a material weakness in the internal controls over financial reporting.”
The material weakness, which boils down to some small errors in the financial statements that the accounting firm needed to rectify, is not uncommon according to Haefner. He said about half the municipalities the firm deals with as clients have the same material weakness.
“It’s the inability to prepare this entire document without error, basically,” he said.
Mayor Ron Gunderson was concerned about the material weakness and the implications it could have.
“Is it because information isn’t readily available at that time and it has to be searched out or is it redundancy?” he asked.
Haefner said occasionally there will be an entry that’s incorrect of the firm will find something to adjust in accruals.
“It’s not impropriety. It’s just there were errors in the initial data,” he said.
Haefner said audit reports for municipalities and school districts are submitted to the Michigan Department of Treasury. Associated with that is a checklist to check for different issues governing bodies might have and on that checklist is a “check” associated with accurate financial reporting.
“I would suspect it’s the most common in the state of Michigan and it’s a repeat finding,” he said. “We bring that to your attention. The alternative to having that to some extent is to bring in another CPA firm … to have them assist with preparation of the financial statements. It’s very costly to do so.”
Haefner said that the Michigan Department of Treasury likely will not even attempt to address the material weakness as it is a common occurrence throughout the state.