Mackinaw City's 2006-07 Audit Report Positive
By Paul Gingras

Mackinaw City's finances are in the black again this year, reported Annette Eustice of the Cheboygan-based Rehmann Robson accounting firm, who presented the highlights of the village's 2006/2007 audit at the Thursday, June 21, meeting of the Mackinaw City Village Council. The audit was approved at the next meeting, Thursday, July 5, with credit given to Village Manager Jeff Lawson for helping expenditures come in $35,000 less than budgeted. Rehmann Robson offered several suggestions to improve village business practices.

The general fund balance ended the fiscal year February 28 at $518,524, which is "a very healthy fund balance," Ms. Eustice said.

"The fund balance represents approximately 40% of this year's expenditures," and small municipalities should shoot for 10% to 25%," she told the council. "Therefore, you are on the high end, which is very good."

Small municipalities should retain as much revenue as possible because they can be hit hard when a need arises for sizable, unexpected expenditures, she explained.

The audit states that the village's general fund increased $91,534 last year, and the village paid off $362,195 of its long-term debts.

"This is a tribute to Council and management of the fiscal expenditures of the village," Ms. Eustice said. "It is a very difficult time for all municipalities. To be able to come in under budget, and to add to your fund balance as opposed to taking away from it, is very good."

To protect the village, Rehmann Robson suggested Mackinaw City make a number of adjustments to its business practices, such as annually authorizing personnel to sign checks to ensure that any disbursement by the village is done with the best possible oversight. The village has not authorized check signers annually, in the past.

At President Robert Heilman's suggestion, Council voted to wait until the first week of October to authorize new check signers, owing to a Village Council election Tuesday, September 11, that could change the membership of village elected officers, and therefore the list of official check signers.

The auditor also suggested the village annually assess and reauthorize which financial institutions it uses to manage its money.

Ms. Eustice said the village should create an "uncollectible accounts policy" to manage ambulance bills. Charges for ambulance services are periodically written off after all forms of payment have been exhausted, Ms. Eustice explained. She suggested the village establish the precise point when "all means of collection of the outstanding balance have been exhausted [and] to identify an employee or group of employees" to review accounts "before they are recorded."

Mackinaw City should change the way it records employee information, by keeping almost all information about a given employee in one file, rather than keeping forms, such as W-4s, in separate files, Rehmann Robson suggested. Further, changes in employee pay rates that take place during the year should be signed by the village manager.

Village department heads should sign their employees' time cards "to avoid fraudulent or unauthorized time [that] may be charged to the Village," the auditors suggested.

At the July 5 meeting, Mr. Lawson said he had addressed these suggestions. He said he would create a new operating agreement with the Mackinaw City Skating Association, which pays $34,000 annually to use the Mackinaw City Recreation Center. The agreement is still in place, but the last signed document is dated March 31, 2003.

The Village should act to better prepare for fluctuating employee benefit costs, Ms. Eustice said.

According to Rehmann Robson, skyrocketing costs for fringe benefits could lead to large bills that the village may not be prepared for, unless it establishes its fringe benefit rate when it creates its annual budget. Certain village funds "are charged a fringe rate each payroll period," according to the audit report, and the revenue is used to pay for fringe benefits.

This year, the village made adjustments to address this problem prior to the end of the fiscal year. The fringe rate had been set too low to gather sufficient revenue to cover fringe benefits.

Owing to rapidly changing benefit costs, the auditors suggested the rate be adjusted at least quarterly or semi-quarterly.

The village does not have the resources to produce a financial analysis on par with the one the company was hired to create, Rehmann Robson noted. By federal standards, according to the auditor, municipalities should be able to do so, but 90% of Rehmann's customers, many of them municipal governments, cannot produce such reports, Ms. Eustice said.

In correspondence with the audit firm, the Village stated that state budget cuts do not allow Mackinaw City sufficient funding to hire a year-around professional to create such reports. At the meeting with Ms. Eustice, board members noted that such an employee would be idle for the majority of the year, and paying for one could "put someone out of a job," Mr. Heilman said.

"We have this discussion everywhere we go," Ms. Eustice explained, noting that the issue was not brought up as a criticism of Mackinaw City.

It is "unrealistic" for small municipalities to have such an employee on hand, she said, adding that the village generated good internal data, and that only large municipal governments have personnel on hand capable of creating the detailed documents that accounting firms like Rehmann are hired to provide.