Politics & Government

City Auditors Say Ferndale in 'Sound Financial Condition'

Council members heard the city finance audit report Monday night.

According to Ferndale's financial auditors, Abraham & Gaffney, the city is in sound financial condition.

The auditors examined the city's financial statements of governmental activities, business-type activities, major funds and any remaining fund information dealing with these items for the fiscal year ending June 30, 2011.

"The purpose of an audit is give you an opinion, or opinions, as to whether the financial statements are fairly presented in accordance to (general accounting practices)," said Aaron Stevens, who presented the Abraham & Gaffney audit to Ferndale's City Council. "The purpose of an audit is not to detect fraud or give you an opinion on your internal controls."

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As a by-product of the audit, however, Stevens said that if fraud is detected, the firm has the responsibility to report it to the council. No discrepancies were found, Stevens reported.

The presentation focused on the city's major funds, specifically the general fund, which provides funding to public safety and other general governmental operations.

Find out what's happening in Ferndalewith free, real-time updates from Patch.

The audit found that the city's operating fund has a reserve that is 26 percent, or $4.465 million, of its annual expenditures in 2011. That's up from 21 percent in 2010.

Stevens said the firm recommends that municipalities have 20 percent of their expenditures in reserve, which he said is about two months of operating if revenue were to dry up unexpectedly.

"I would not consider 26 percent to be excessive by any means, especially today with the uncertainty you have surrounding your revenue sources: Taxable value is expected to decline, personal property taxes could be eliminated altogether, decline in state shared revenues, and interest rates are still low," Stevens said.

He also reported that though the city's revenue ($16.99 million) in the general fund decreased about 6 percent from the previous year, its expenditure ($16.57 million) also decreased by about 12 percent. "I think you made the cuts that were necessary and brought the expenditures down, which added to the fund balance," he said.

The decrease in revenue, according to the audit, was a result of "property taxes, intergovernmental revenues and investment earnings." The decrease in expenditures came from "planned staffing reductions resulting in decreases to payroll and related benefits."

During the past five years, Ferndale has added to the fund balance in 2007, '08 and '11 and used the fund balance in '09 and '10.

"Along the five-year period, you maintained a healthy fund balance, but it's going to have its highs and lows," Stevens said.

Read the full audit here.

Financial highlights as presented by Abraham & Gaffney

  • The total net assets of Ferndale exceeded its liabilities at the close of the fiscal year 2011 by $38,656,741. Of this amount, $22,732,609 is invested in capital assets (net of related debt); $2,176,912 is restricted for specific purposes such as public safety, highways and streets, debt service payments and other purposes; and $13,747,220 may be used to meet the government’s ongoing obligations to its citizens and creditors.
  • Ferndale's combined net assets in primary government activities increased $2,070,974 as a result of this year's operations. Net assets of our governmental activities increased by $1,296,608, and net assets of our business-type activities increased by $774,366.
  • As of the close of the fiscal year 2011, Ferndale's governmental funds showed combined fund balances of $9,383,656, a decrease of $1,547,866 from the prior year. Approximately 48 percent of this amount, or $4,465,251, is available for appropriation at the government’s discretion, which is in the reserved fund balance.
  • General fund revenues decreased by $1,170,000, or 6.4 percent, primarily due to the decrease in property taxes, intergovernmental revenues and investment earnings. General fund expenditures decreased approximately $2,306,664, or 12.2 percent, primarily due to planned staffing reductions, resulting in decreases to payroll and related benefits.
  • At the end of fiscal year 2011, the unassigned (reserved) fund balance for the general fund was $4,465,251, or 26.2 percent of total general fund expenditures and other financing uses.
  • Ferndale's total long-term debt decreased by approximately $3,775,000 during the fiscal year 2011.
  • Ferndale invested more than $4,129,000 in capital improvements for the year, including the purchase of a fire truck; renovations of the library; upgrade of water meters and meter-reading systems; and renovation of several sewer lines and water mains. These renovations and upgrades were the result of the Ferndale's Capital Improvement Program (CIP). The CIP is used as a long- and short-term planning guide when considering the need for capital improvements and the related funding for those improvements.
  • Ferndale maintained its A+ credit rating by Standard & Poor’s based on the city's solid financial position. This rating was upgraded in 2008 from its previous BBB+ rating.


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