By Barbie Porter

Editor

The Frazee Liquor Store has struggled to turn a profit over the past decade. However, 2020 appears to have pushed profits up to almost $30,000.

The good news came as the Frazee City Council reviewed its annual audit during the June meeting.

Auditor Colleen Hoffman attributed the profit to a reduction in labor costs with the on-sale closed during the pandemic, and increased sales at the off-sale. She added the liquor store venue also has almost no depreciation left.

The numbers show the liquor store reported sales totaling $582,817. Cost of goods were $387,314, bringing the gross total profit to $195,503. There was also  miscellaneous operating revenue of $2,030 that bumped the total gross profit and operating revenues to $197,533.

The operating expenses totaled $167,853. The top three expenditures were: personnel services, $90,983; utilities, $22,357 and miscellaneous, $21,557.

After expenses were subtracted from the gross profit, the operating income was $29,680. There was also a $112 investment earning noted, which increased the income to $29,792.

The store started with a net position on Jan. 1, 2020 of $23,053 and closed the year with a net position of $52,845.

Frazee Event Center 

makes the most of forced 

closure with renovation

The Frazee Event Center didn’t have the same profitable experience. The venue is used for wedding receptions, community gatherings and events, so the pandemic’s restriction on the number of people allowed to gather in a certain area prevented the venue from making a profit.

The event center reported sales in 2020 of $11,786. Cost of goods subtracted $1,881 and miscellaneous revenue added $9,523 for a total gross profit and operating revenues of $19,428 in 2020.

The operating expenses totaled $85,418. The top expenses were repairs and maintenance of $35,553. While the venue was closed because of the pandemic, the city council approved replacing the old floor tiles with a vinyl wood. The other top two expenses were depreciation of $17,271 and utilities, $10,783.

The result of more expenditures than income recorded an operating income loss of $65,990. 

Water and sewer funds 

are deemed healthy

The sewer fund recorded operating revenues of $217,772. There was also a non-operating revenue that totaled $2,276 from special assessments and investment earnings. 

The expenses totaled $155,931. The top three expenditures were personnel services, $93,471, depreciation, $29,808 and utilities, $15,934.

Once expenses were deducted from revenues the total income for 2020 in the sewer fund was $64,117.

The sewer fund started 2020 with a net position of $694,959 and closed the year with $759,076.

The water enterprise fund collected $241,139 in operating revenues. In non-operating revenues, the fund collected about $1.34 million. 

The operating expenses totaled $183,388. The top three expenses were: $109,593 in personnel services, $51,407 in depreciation and $8,896 for miscellaneous.

The net position of the water fund to start 2020 was about $1.21 million. To close out the year, the net position was about $2.61 million.

General budget 

As for the overall budget, the audit showed the city planned for revenues to total $1.22 million. At the end of the year, the totals came in at $1.35 million.

  The revenue gained ground with intergovernmental aid. The anticipated amount was $600,370. The city collected an additional $124,684 for a total of $725,054. 

The taxes expected of $400,940 in 2020 were lower than anticipated and came in at $375,733.

When it came to expenditures, the audit breaks expenses into categories. The categories were:

• Total general government, which pays for the mayoral and council salaries, financial administration, elections, assessor and planning commission. 

The expected expense in 2020 for total government was $284,315. The actual expense was $408,608.

The over expenditures came with financial administration. The expected amount to spend was $222,954 and the actual expense was $366,331.

Elections also accounted for an additional $2,101 more than the $1,946 that was budgeted.

• Public safety, which includes police, fire, fire relief association and the rescue squad had a budget for 2020 of $453,720. The actual expenditures came in under budget with a total of $381,928. 

The $71,792 reduction in anticipating spending is attributed to the fire department, who was $81,253 under the $142,550 it budgeted. The rescue was also $1,731 under its budget on the year of $5,200.

• Highways and streets includes the street department, snow removal and street lighting. The category had an anticipated budget of $166,400. The actual amount spent was $116,663. The savings were noticeable in the street department category, which anticipated $135,950 in expenditures and only spent $89,962.

• Sanitation includes recycling and solid waste. The expected expense for 2020 was $76,060. The actual expense was $102,575, which put the category $26,515 over budget. The majority of the over expenditure was in the category of solid waste, which accounted for $24,684 of the unanticipated expenditures.

• Culture and recreation had a budget of $36,375 for 2020 and spent $16,825, coming in under budget by $19,550.

• General Fund. After the capital outlay, debt service and so forth are removed the city reported a general fund balance to start 2020 of $742,876. The city closed 2020 with an $82,325 increase to the fund balance for a total of $855,201.

Four findings 

reported in audit

  The audit presents any findings out of accordance with government standards at the end of the document.

The findings included the expected ones of lack of segregation of duties and internal controls. For municipalities the size of Frazee, these are common marks as hiring additional people to provide adequate segregation of duties would be a financial burden.

The other findings reported included:

• Audit adjustments. 

Each fund of the city is required to have a self-balancing set of accounts to reflect activity throughout the year.

“During our audit, we identified material adjustments in several funds,” the audit stated. “Cash accounts require adjustments to identify actual cash balances. These adjustments resulted in significant changes to amounts originally reported in the city’s financial statements.”

The cause was stated to be transactions for debt payments and special assessment settlements that required adjustment to correct the funds.

The city administrator, who was Denise Anderson at the time of the audit, provided a response in the audit: “The city continuously reviews its process for posting transactions in the city’s ledgers to increase efficiency. The city has purchased new accounting software in an attempt to provide the necessary information in the required format.

• Deficit cash balances. According to the audit, each fund of the city should maintain a positive cash balance. At the end of 2020 the audit reported two funds had deficit cash balances. Those funds were the 2016 improvements and refunding debt service fund of $40,624 and the southeast area street and utilities debt service fund of $64,617.

The cause was stated to be special assessments that were levied over a period of time to provide for debt service payments, and when taxpayers are delinquent there is not enough cash flow to cover annual debt payments. 

It was noted in the audit that this issue was previously reported and not resolved.

The city administrator response in the audit was: “The city is aware of the deficit in certain accounts. The city has made progress by closing the inactive capital projects funds with deficit balances and will continue to strive for resolution of this issue.”

The corrective action planned in the audit was stated to be, “The city will eliminate the temporary cash balance deficits by transferring from another fund to maintain a positive cash balance in compliance with Minnesota Statute.”