Item 3.8 Adopting the Annual Comprehensive Financial Report
Request for
City Council Action
DEPARTMENT INFORMATION
ORIGINATING DEPARTMENT REQUESTOR: MEETING DATE:
Administration City Administrator/Finance Director Flaherty June 9, 2025
PRESENTER(s) REVIEWED BY: ITEM #:
Consent 3.8 – Financial Statements
STRATEGIC VISION
MEETS: THE CITY OF OTSEGO:
X Is a strong organization that is committed to leading the community through innovative communication.
Has proactively expanded infrastructure to responsibly provide core services.
Is committed to delivery of quality emergency service responsive to community needs and expectations in a
cost-effective manner.
Is a social community with diverse housing, service options, and employment opportunities.
Is a distinctive, connected community known for its beauty and natural surroundings.
AGENDA ITEM DETAILS
RECOMMENDATION:
City staff are recommending that the City Council adopt a resolution adopting the annual comprehensive financial
report.
ARE YOU SEEKING APPROVAL OF A CONTRACT? IS A PUBLIC HEARING REQUIRED?
No No
BACKGROUND/JUSTIFICATION:
The City annually prepares an Annual Comprehensive Financial Report (the Report). In accordance with Minnesota
Statutes, the financial statements within the City’s Report must be audited on an annual basis. Said audit has been
completed by BerganKDV, who reviewed the results of the audit with the City Council during a special meeting at 6PM
on June 9, 2025. A short summary of each of the three documents attached is below:
The Report
This is a comprehensive document regarding the finances of the City of Otsego and is prepared by the City. The Report
includes narrative discussion, financial statements, note disclosures, statistical tables, and much more. Maybe the
most important aspect of the Report is the Independent Auditor’s Report which is issued by BerganKDV. The audit
report outlines that the City has received an Unmodified opinion, also known as a clean opinion, and is the best
opinion that can be given.
Communications Letter
This document is prepared by BerganKDV and is a blend of required communications and summary financial analysis.
This was the primary source for the discussion during the special meeting.
Reports on Internal Control and Compliance
This document contains reporting required by BerganKDV on other aspects of the City’s audit. This document contains
multiple components:
1) Report on Government Auditing Standards
2) Report on Minnesota Legal Compliance (MN Statutes)
SUPPORTING DOCUMENTS ATTACHED:
• Communications Letter
• Reports on Internal Control and Compliance
• Annual Comprehensive Financial Report
o Note, due to the size of this document, it will only be available in electronic format.
o https://www.otsegomn.gov/ArchiveCenter/ViewFile/Item/56
• Resolution 2025-24
POSSIBLE MOTION
PLEASE WORD MOTION AS YOU WOULD LIKE IT TO APPEAR IN THE MINUTES:
Motion to adopt Resolution 2025-24 adopting the annual comprehensive financial report for the year ended
December 31, 2024.
BUDGET INFORMATION
FUNDING: BUDGETED:
Fund 101 – General – Finance (41600)
Yes
City of Otsego
Wright County, Minnesota
Communications Letter
December 31, 2024
City of Otsego
Table of Contents
Report on Matters Identified as a Result of
the Audit of the Basic Financial Statements 1
Significant Deficiency 3
Required Communication 4
Financial Analysis 9
Emerging Issues 20
1
Report on Matters Identified as a Result of
the Audit of the Basic Financial Statements
Honorable Mayor, Members of the
City Council and Management
City of Otsego
Otsego, Minnesota
In planning and performing our audit of the financial statements of the governmental activities,
business-type activities, each major fund, and the aggregate remaining fund information of the City
of Otsego, Minnesota, as of and for the year ended December 31, 2024, in accordance with auditing
standards generally accepted in the United States of America and the standards applicable to
financial audits contained in Government Auditing Standards, issued by the Comptroller General of
the United States, we considered the City's internal control over financial reporting (internal control)
as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of
expressing our opinions on the financial statements, but not for the purpose of expressing an opinion
on the effectiveness of the City's internal control. Accordingly, we do not express an opinion on the
effectiveness of the City's internal control over financial reporting.
Our consideration of internal control was for the limited purpose described in the preceding
paragraph and was not designed to identify all deficiencies in internal control that might be material
weaknesses or significant deficiencies and, therefore, material weaknesses or significant deficiencies
may exist that have not been identified. In addition, because of inherent limitations in internal
control, including the possibility of management override of controls, misstatements due to error, or
fraud may occur and not be detected by such controls. However, as discussed below, we identified a
certain deficiency in internal control that we consider to be a significant deficiency.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to prevent,
or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a
combination of deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of the City's basic financial statements will not
be prevented, or detected and corrected, on a timely basis. A reasonable possibility exists when the
likelihood of an event occurring is either reasonably possible or probable as defined as follows:
• Reasonably possible. The chance of the future event or events occurring is more than remote
but less than likely.
• Probable. The future event or events are likely to occur.
We did not identify any deficiencies in internal control that we consider to be material weaknesses.
A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over
financial reporting that is less severe than a material weakness, yet important enough to merit
attention by those charged with governance. The significant deficiency identified is stated within
this letter.
2
The accompanying memorandum also includes financial analysis provided as a basis for discussion.
The matters discussed herein were considered by us during our audit and they do not modify the
opinion expressed in our Independent Auditor's Report dated May 29, 2025, on such statements.
The purpose of this communication, which is an integral part of our audit, is to describe for the
Members of the City Council and management and others within the City and state oversight agencies
the scope of our testing of internal control and the results of that testing. Accordingly, this
communication is not intended to be and should not be used for any other purpose.
St. Cloud, Minnesota
May 29, 2025
3
City of Otsego
Significant Deficiency
Lack of Segregation of Accounting Duties
The City had a lack of segregation of accounting duties due to a limited number of office employees.
Adequate segregation of accounting duties is in place when the following four areas of a transaction
have been separated: authorization, custody, recording, and reconciliation. Examples of functions
within the City that demonstrate this lack of segregation of accounting duties include, but are not
limited to, the following:
• Cash Receipts – The Utility Billing Clerk and Accountant have access to initiate and record
receipts. The Utility Billing Clerk is also responsible for depositing cash receipts. The
Accountant is also involved in the reconciliation process and has full access to the general
ledger.
• Utility Billing Process – The Utility Billing Clerk is responsible for handling customer payments,
depositing payments received.
• Disbursements – Due to small staff the City allows access to other employees to perform
disbursement related activities in order to fill in for normal roles and responsibilities in the
absences of other staff. In the absence of the Accountant, the Utility Billing Clerk has access
to record and cut checks and has access to blank checks.
• Financial Reporting and Journal Entry Process – The Finance Director and Accountant have full
access to the general ledger and can make adjustments without review during the monthly
and year-end financial closing process.
Management and the City Council must remain aware of this situation and management should
continually monitor internal control, including changes that occur.
4
City of Otsego
Required Communication
We have audited the basic financial statements of the governmental activities, business-type
activities, each major fund, and the aggregate remaining fund information of the City as of and for
the year ended December 31, 2024. Professional standards require that we advise you of the
following matters related to our audit.
Our Responsibility in Relation to the Financial Statement Audit
As communicated in our engagement letter, our responsibility, as described by professional
standards, is to form and express opinions about whether the basic financial statements prepared by
management with your oversight are presented fairly, in all material respects, in accordance with
accounting principles generally accepted in the United States of America. Our audit of the basic
financial statements does not relieve you or management of its respective responsibilities.
Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain
reasonable, rather than absolute, assurance about whether the basic financial statements are free of
material misstatement. An audit of the basic financial statements includes consideration of internal
control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City's
internal control over financial reporting. Accordingly, as part of our audit, we considered the
internal control of the City solely for the purpose of determining our audit procedures and not to
provide any assurance concerning such internal control.
We are also responsible for communicating significant matters related to the audit that are, in our
professional judgement, relevant to your responsibilities in overseeing the financial reporting
process. However, we are not required to design procedures for the purpose of identifying other
matters to communicate to you.
Generally accepted accounting principles provide for certain Required Supplementary Information
(RSI) to supplement the basic financial statements. Our responsibility with respect to the RSI, which
supplements the basic financial statements, is to apply certain limited procedures in accordance
with generally accepted auditing standards. However, the RSI was not audited and, because the
limited procedures do not provide us with sufficient evidence to express an opinion or provide any
assurance, we do not express an opinion or provide any assurance on the RSI.
Our responsibility for the supplementary information accompanying the basic financial statements,
as described by professional standards, is to evaluate the presentation of the supplementary
information in relation to the basic financial statements as a whole and to report on whether the
supplementary information is fairly stated, in all material respects, in relation to the basic financial
statements taken as a whole.
Our responsibility with respect to the other information in documents containing the audited basic
financial statements and auditor's report does not extend beyond the basic financial information
identified in the report. We have no responsibility for determining whether this other information is
properly stated. This other information was not audited, and we do not express an opinion or provide
any assurance on it.
5
City of Otsego
Required Communication
Our Responsibility in Relation to Government Auditing Standards
As communicated in our engagement letter, part of obtaining reasonable assurance about whether
the basic financial statements are free of material misstatement, we performed tests of the City's
compliance with certain provisions of laws, regulations, contracts, and grant agreements,
noncompliance with which could have a direct and material effect on the determination of basic
financial statement amounts. However, the objective of our tests was not to provide an opinion on
compliance with such provisions.
Planned Scope and Timing of the Audit
We conducted our audit consistent with the planned scope and timing we previously communicated
to you.
Compliance with All Ethics Requirements Regarding Independence
The engagement team, others in our firm, as appropriate, our firm, and our network firms have
complied with all relevant ethical requirements regarding independence.
Significant Risks Identified
We have identified the following significant risks of material misstatement:
• Risk of Improper Revenue Recognition – Revenue recognition is considered a fraud risk on
substantially all engagements as it is generally the largest line item impacting a City's change
in fund balance or net position.
• Risk of Misappropriation of Assets – If duties cannot be appropriately segregated within
finance department, there is a risk of misappropriation of assets.
• Risk of Management Override of Controls – Management override of internal control is
considered a risk in substantially all engagements as management may be incentivized to
produce better results.
• Pension Valuation – Net Pension Liability, Deferred Outflows of Resources Related to Pensions,
and Deferred Inflows of Resources Related to Pensions – These are generally material to the
financial statements and involve significant estimates.
• Recording of Capital Assets and Related Payables – Due to the significant capital activity there
is a risk of error in recording capital assets and related payables.
• Capital Assets Valuation - Capital assets and related depreciation are material to the financial
statements and involve significant estimates.
Qualitative Aspects of the City's Significant Accounting Practices
Significant Accounting Policies
Management has the responsibility to select and use appropriate accounting policies. A summary of
the significant accounting policies adopted by the City is included in the notes to the basic financial
statements. There have been no initial selection of accounting policies and no changes to significant
accounting policies or their application during 2024. No matters have come to our attention that
would require us, under professional standards, to inform you about (1) the methods used to account
for significant unusual transactions and (2) the effect of significant accounting policies in
controversial or emerging areas for which there is a lack of authoritative guidance or consensus.
6
City of Otsego
Required Communication
Qualitative Aspects of the City's Significant Accounting Practices (Continued)
Significant Accounting Estimates and Related Disclosures
Accounting estimates and related disclosures are an integral part of the basic financial statements
prepared by management and are based on management's current judgements. Those judgements
are normally based on knowledge and experience about past and current events and assumptions
about future events. Certain accounting estimates are particularly sensitive because of their
significance to the basic financial statements and because of the possibility that future events
affecting them may differ markedly from management's current judgements. The most sensitive
estimates affecting the basic financial statements relate to:
Net Pension Liability, Deferred Outflows of Resources Related to Pensions and Deferred Inflows of
Resources Related to Pensions – These balances are based on an allocation by the pension plans
using estimates based on contributions.
Depreciation – The City is currently depreciating its capital assets over their estimated useful
lives, as determined by management, using the straight-line method.
We evaluated the key factors and assumptions used to develop the accounting estimates and
determined that they are reasonable in relation to the basic financial statements taken as a whole
and in relation to the applicable opinion units.
Financial Statement Disclosures
Certain basic financial statement disclosures involve significant judgment and are particularly
sensitive because of their significance to financial statement users. The basic financial statement
disclosures are neutral, consistent, and clear.
Significant Difficulties Encountered during the Audit
We encountered no significant difficulties in dealing with management relating to the performance
of the audit.
Uncorrected and Corrected Misstatements
For the purposes of this communication, professional standards require us to accumulate all
known and likely misstatements identified during the audit, other than those that we believe are
trivial, and communicate them to the appropriate level of management. Further, professional
standards require us to also communicate the effects of uncorrected misstatements related to
prior periods on the relevant classes of transactions, account balances or disclosures, and the
basic financial statements taken as a whole and each applicable opinion unit.
Uncorrected misstatements or matters underlying those uncorrected misstatements could
potentially cause future-period financial statements to be materially misstated, even though the
uncorrected misstatements are immaterial to the financial statements currently under audit.
• Right to use assets and lease liabilities are understated.
In addition, professional standards require us to communicate to you all material, corrected
misstatements that were brought to the attention of management as a result of our audit
procedures. None of the misstatements detected as a result of audit procedures and corrected by
management were material, either individually or in the aggregate, to the basic financial
statements taken as a whole.
7
City of Otsego
Required Communication
Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a
matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting,
or auditing matter, which could be significant to the City's basic financial statements or the
auditor's report. No such disagreements arose during the course of our audit.
Representations Requested from Management
We have requested certain written representations from management, which are included in the
management representation letter.
Management's Consultations with Other Accountants
In some cases, management may decide to consult with other accountants about auditing and
accounting matters. Management has informed us that, and to our knowledge, there were no
consultations with other accountants regarding auditing and accounting matters.
Other Significant Matters, Findings, or Issues
In the normal course of our professional association with the City, we generally discuss a variety of
matters, including the application of accounting principles and auditing standards, significant events
or transactions that occurred during the year, operating and regulatory conditions affecting the City,
and operational plans and strategies that may affect the risks of material misstatement. None of the
matters discussed resulted in a condition to our retention as the City's auditor.
Other Information Included in Annual Reports
Pursuant to professional standards, our responsibility as auditors for other information, whether
financial or nonfinancial, included in the City's annual reports, does not extend beyond the
information identified in the audit report, and we are not required to perform any procedures to
corroborate such other information.
We applied certain limited procedures to the RSI that supplements the basic financial statements.
Our procedures consisted of inquiries of management regarding the methods of preparing the
information and comparing the information for consistency with management's responses to our
inquiries, the basic financial statements, and other knowledge we obtained during our audit of the
basic financial statements. We did not audit the RSI and do not express an opinion or provide any
assurance on the RSI.
With respect to the supplementary information accompanying the financial statements, we made
certain inquiries of management and evaluated the form, content and methods of preparing the
information to determine that the information complies with accounting principles generally
accepted in the United States of America, the method of preparing it has not changed from the
prior period, and the information is appropriate and complete in relation to our audit of the
financial statements. We compared and reconciled the supplementary information to the
underlying accounting records used to prepare the basic financial statements or to the basic
financial statements themselves.
We were not engaged to report on the other information accompanying the basic financial
statements but are not RSI. Such information has not been subjected to the auditing procedures
applied in the audit of the basic financial statements, and accordingly, we do not express an
opinion or provide any assurance on it.
8
City of Otsego
Required Communication
Other Information Included in Annual Reports (Continued)
Our responsibility also includes communicating to you any information which we believe is a material
misstatement of fact. Nothing came to our attention that caused us to believe that such information,
or its manner of presentation, is materially inconsistent with the information, or manner of its
presentation, appearing in the basic financial statements.
9
City of Otsego
Financial Analysis
The following pages provide graphic representation of select data pertaining to the financial position
and operations of the City for the past five years. Our analysis of each graph is presented to provide
a basis for discussion of past performance and how implementing certain changes may enhance
future performance. We suggest you view each graph and document if our analysis is consistent with
yours. A subsequent discussion of this information should be useful for planning purposes.
General Fund
The following graph summarizes the past five years of General Fund revenues, expenditures, and
fund balance. For the year ended December 31, 2024, revenues for the City's General Fund totaled
$9,202,031. This represents an increase of $1,045,690, or 12.8%, from 2023. General Fund
expenditures totaled $9,083,094 in 2024, which is an increase of $1,345,695 or 17.4%, from 2023.
Revenue and expenditure activity, combined with net other financing sources of $437,000, resulted
in an increase in fund balance of $555,937 in 2024.
The ending General Fund balance of $5,537,452 is further broken down into spending categories;
$351,229 is for nonspendable fund balances which is made up of $149,029 of prepaid items and
$202,200 of assets held for resale. In addition, $294,193 is assigned for insurance deductibles and
$69,614 is assigned for educational programs. An amount of $180,133 is restricted for public safety
purposes. This leaves $4,642,283 available for spending on any purpose, which is considered
unassigned fund balance. The City's policy is to maintain a minimum fund balance in the General
Fund of 45.0% of the subsequent years' expenditures. The fund balance at December 31, 2024,
represents 55.7% of 2025 budgeted expenditures of $9,940,102.
2020 2021 2022 2023 2024
Total Revenues $9,055,697 $7,805,004 $7,832,257 $8,156,341 $9,202,031
Total Expenditures 6,657,325 6,401,090 7,107,925 7,737,399 9,083,094
Fund Balance 5,987,733 5,199,901 4,951,443 4,981,515 5,537,452
$-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
$9,000,000
$10,000,000
General Fund
10
City of Otsego
Financial Analysis
General Fund Revenues
Trends for each of the City's major revenue classifications over the past five years are graphically
portrayed in the bar chart below.
As stated earlier, General Fund revenues increased $1,045,690, or 12.8%, from 2023. Taxes increased
$1,107,381 due to an increased tax levy. Licenses and Permits increased $323,697 due to more
permits being issued in 2024. Intergovernmental revenues decreased $362,198 due to one time public
safety aid received from the state in 2023. Other sources of revenue stayed consistent with the prior
year.
2020 2021 2022 2023 2024
Investment Income $177,948 $(48,486)$(149,701)$295,571 $274,351
Other 61,688 86,065 117,335 87,939 75,770
Intergovernmental 1,396,214 88,037 107,732 575,521 213,323
Charges for Services 257,198 427,809 476,632 272,290 282,489
Licenses and Permits 2,532,789 2,529,588 2,123,810 1,544,769 1,868,466
Taxes 4,629,860 4,721,991 5,156,449 5,380,251 6,487,632
$(2,000,000)
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
General Fund Revenues
11
City of Otsego
Financial Analysis
General Fund Revenues (Continued)
The allocation of revenues by source within each major classification is presented below for 2024 and
2023. The City continues to rely on tax revenue as the majority of its General Fund revenue,
accounting for 70.5% of its total revenue in 2024. Licenses and Permits increased by 1.4% due to
more permits being issued in 2024. Intergovernmental revenues decreased by 4.8% due to receiving a
one-time public safety aid from the state in 2023. Other sources of revenue were fairly consistent
with the prior year.
Taxes
70.5%Intergovernmental
2.3%
Licenses and
Permits
20.3%
Charges for
Services
3.1%
Investment
Income
3.0%
Other
0.8%
2024 General Fund Revenues
Taxes
66.0%Intergovernmental
7.1%
Licenses and
Permits
18.9%Charges for
Services
3.3%
Investment
Income
3.6%
Other 1.1%
2023 General Fund Revenues
12
City of Otsego
Financial Analysis
General Fund Revenues Budget and Actual
The graph below outlines the budget and actual results for General Fund revenues.
Taxes Intergovernmental Licenses and
Permits
Charges for
Services
Investment
Income Other
Budget $6,456,793 $461,984 $1,657,040 $258,515 $106,920 $52,200
Actual 6,487,632 213,323 1,868,466 282,489 $274,351 75,770
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
$5,000,000
$5,500,000
$6,000,000
$6,500,000
$7,000,000
2024 General Fund Revenues
Budget and Actual
Overall, actual revenue exceeded budgeted revenue by $208,579 or 2.3%. Intergovernmental revenue
was under budget $248,661 due to anticipating additional grants in 2024. Licenses and permits was
$211,426 over budget due to budgeting conservatively for building permit activity. Investment
income was over budget $167,431 due to better than anticipated market conditions. The remaining
revenue sources were consistent with budgeted amounts.
13
City of Otsego
Financial Analysis
General Fund Expenditures
As discussed previously, total General Fund expenditures increased $1,345,695 or 17.4%, from 2023.
Public works expenditures increased $197,239 due to additional staff and an additional vehicle.
Public safety expenditures increased $717,791 due to an increase in the County contract, and a full
year of the Emergency Services Director in 2024. General government expenditures increased
$283,179 due to a increased wages and benefits in 2024 with a new IT staff and other new staff
positions. Parks and recreation expenditures increased $148,674 due to adding an additional full time
staff.
2020 2021 2022 2023 2024
General Government $1,419,635 $1,358,500 $1,574,091 $1,678,407 $1,961,586
Public Safety 2,667,435 2,879,409 3,080,382 3,323,208 4,040,999
Public Works 1,204,664 1,287,788 1,503,871 1,694,596 1,891,835
Parks and Recreation 699,793 784,145 857,852 949,400 1,098,074
Economic Development 665,798 91,248 91,729 91,788 90,600
$-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
$9,000,000
$10,000,000
General Fund Expenditures
14
City of Otsego
Financial Analysis
General Fund Expenditures (Continued)
The following charts illustrate the allocation of General Fund expenditures by program/function. The
allocation of total expenditures by program was consistent with the prior year.
General
Government
21.6%
Public Safety
44.5%Public Works
20.8%
Parks and
Recreation
12.1%
Economic
Development
1.0%
2024 General Fund Expenditures
General
Government
21.7%
Public Safety
42.9%
Public Works
21.9%
Parks and
Recreation
12.3%
Economic
Development
1.2%
2023 General Fund Expenditures
15
City of Otsego
Financial Analysis
General Fund Expenditures Budget and Actual
The graph below outlines the budget and actual results for General Fund expenditures.
General Government Public Safety Public Works Parks and Recreation Economic
Development
Budget $2,120,045 $4,029,903 $2,035,838 $1,129,706 $104,960
Actual $1,961,586 4,040,999 1,891,835 1,098,074 90,600
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
2024 General Fund Expeditures
Budget and Actual
Overall, actual expenditures were under budgeted amounts by $337,358, or 3.6%. General
Government had the largest variance, coming in $158,459 under budget. This variance is due to
budgeting conservatively and having unused contingencies. Public works expenditures were under
budget by $144,003 due to conservative budgeting for fuel and repairs and maintenance, and staff
vacancies. The other functions were consistent with the budgeted amounts.
16
City of Otsego
Financial Analysis
Tax Capacity, Levy, and Rates
The chart below graphs the tax capacity, certified tax levy, and City tax rate for 2020 through 2024.
Comparing 2020 through 2024, the City's tax capacity has increased $18,400,617, or 89.8%, to
$38,897,895. The City's certified levy increased $1,794,512, or 24.9%, over the same time frame. As
a result, the City's tax capacity rate has decreased from 35.1% in 2020 to 23.1% in 2024. When
comparing 2023 to 2024 the chart indicates that with a levy decrease of $341,262 the tax rate
decreased from 29.6% to 23.1% due to a $7,347,463 increase in the total tax capacity.
$7,194,249 $7,828,425 $8,585,005 $9,330,023 $8,988,761
$20,497,278
$22,591,258
$24,852,871
$31,550,432
$38,897,895
35.10%34.65%34.55%
29.57%
23.11%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
50.00%
$-
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
$45,000,000
2020 2021 2022 2023 2024
Tax Capacity, Levy, and Rates
Tax Levy Total Tax Capacity Tax Capacity Rate
17
City of Otsego
Financial Analysis
Water Fund
2020 2021 2022 2023 2024
Operating Revenues $2,013,487 $2,873,324 $2,904,563 $3,517,118 $2,976,498
Operating Expenses 1,289,632 1,854,678 2,168,129 2,341,225 2,391,611
Operating Income with
Depreciation 723,855 1,018,646 736,434 1,175,893 584,887
Operating Income without
Depreciation 1,352,583 1,722,474 1,495,022 2,058,476 1,578,051
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
Water Fund
The Water Fund experienced operating income of $584,887 in 2024. This is the fifth consecutive year
with an operating income in the five years presented. We have also illustrated the operating income
for the past five years with depreciation, a non-cash expense, factored out of operating expenses. In
2024, the City experienced operating income of $1,578,051 with depreciation expense factored out
of operating expenses. Depreciation expense amortizes the original cost of fund capital assets over
their estimated useful lives.
In 2024, operating revenues decreased $540,620, or 15.4%, while operating expenses increased
$50,386, or 2.2%. Revenues decreased due to decreased usage. Operating expenses increased due to
a wellfield study and increased depreciation expense.
After factoring in non-operating items and capital contributions, in the form of connection fees and
developer and governmental fund contributions, and transfers, the net position in this fund increased
by $4,751,749. Unrestricted net position was $11,238,902 at December 31, 2024.
18
City of Otsego
Financial Analysis
Sewer Fund
2020 2021 2022 2023 2024
Operating Revenues $2,469,354 $3,028,939 $3,539,069 $4,082,829 $4,476,296
Operating Expenses 2,414,741 2,785,098 3,447,706 3,535,347 4,063,708
Operating Income (Loss) with Depreciation 54,613 243,841 91,363 547,482 412,588
Operating Income without Depreciation 1,080,702 1,310,055 1,619,767 2,124,040 2,053,544
$-
$250,000
$500,000
$750,000
$1,000,000
$1,250,000
$1,500,000
$1,750,000
$2,000,000
$2,250,000
$2,500,000
$2,750,000
$3,000,000
$3,250,000
$3,500,000
$3,750,000
$4,000,000
$4,250,000
$4,500,000
$4,750,000
Sewer Fund
In 2024, the Sewer Fund generated an operating income for the fifth time in the five years
presented. In 2024, the Sewer Fund experienced an operating income of $412,588 with depreciation.
Operating revenues increased $393,467 or 9.6% over the prior year, while operating expenses
increased $528,361, or 14.9%. The increase in operating revenues was due to an increase in rates,
number of customers, and usage. The increase in operating expenses was due to increased
depreciation expense and utility and chemical costs related to the increased usage.
The operating income in 2024 was a result of increasing rates to assist in covering operating expenses
and has experienced an increase in users. Without depreciation, operating income totaled
$2,053,544 We recommend the City continue to monitor operations and fee structures of this fund to
ensure positive operating results.
After factoring in non-operating items, capital contributions, in the form of connection fees and
developer and governmental fund contributions, and transfers, the net position in this fund increased
$14,775,886. Unrestricted net position was $32,523,959 at December 31, 2024.
19
City of Otsego
Financial Analysis
Storm Water Fund
2020 2021 2022 2023 2024
Operating Revenues $120,579 $122,200 $137,178 $143,961 $157,131
Operating Expenses 138,985 188,245 218,612 224,368 335,501
Operating Income (Loss) with Depreciation (18,406)(66,045)(81,434)(80,407)(178,370)
Operating Income (Loss) without
Depreciation 77,164 70,273 96,782 114,369 65,905
$(200,000)
$(100,000)
$-
$100,000
$200,000
$300,000
$400,000
Storm Water Fund
The Storm Water Fund experienced an increase in operating revenues of $13,170 or 9.1% from 2023
due to more customers. Operating expenses increased, $111,133 or 49.5% from 2023 to 2024 due to
increases in depreciation expense due to a large number of capital assets being recently added. The
fund experienced an operating loss of $178,370 in 2024. Without depreciation included in operating
expenses, the fund experienced operating income of $65,905.
After factoring in non-operating items, capital contributions from developers and governmental funds
and transfers, this fund's net position increased by $1,698,249. Unrestricted net position was
$939,354 at December 31, 2024.
20
City of Otsego
Emerging Issues
Executive Summary
The following is an executive summary of financial related updates to assist you in staying current on
emerging issues in accounting and finance. This summary will give you a preview of the new
standards that have been recently issued and what is on the horizon for the near future. The most
recent and significant updates include:
• Accounting Standard Update – GASB Statement No. 102 – Certain Risk Disclosures
GASB has issued GASB Statement No.102 relating to risk disclosures. The disclosures will
provide users with timely information regarding certain concentrations or constraints and
related events that have occurred or have begun to occur that make a government vulnerable
to a substantial impact.
• Accounting Standard Update – GASB Statement No. 103 – Financial Reporting Model
Improvements
GASB has issued GASB Statement No. 103 relating to changes in financial reporting
requirements. The changes provide clarity, enhance the relevance of information, provide
more useful information for decision-making, and provide for greater comparability amongst
government entities.
• Accounting Standard Update – GASB Statement No. 104 – Disclosure of Certain Capital
Assets
GASB has issued GASB Statement No. 104 relating to capital asset disclosures. The disclosures
required by this Statement provide users of the financial statements with essential
information about certain types of capital assets.
The following are extensive summaries of the current updates. As your continued business partner,
we are committed to keeping you informed of new and emerging issues. We are happy to discuss
these issues with you further and its applicability to your City.
21
City of Otsego
Emerging Issues
Accounting Standard Update – GASB Statement No. 102 – Certain Risk Disclosures
The objective of this Statement is to provide users of government financial statements with
information about risks related to a government's vulnerabilities due to certain concentrations or
constraints that is essential to their analyses for making decisions or assessing accountability.
This Statement provides definitions for concentration and constraint. A concentration as a lack of
diversity related to an aspect of a significant inflow of resources or outflow of resources. A
constraint is a limitation imposed on a government by an external party or by formal action of the
government's highest level of decision-making authority.
This Statement requires a government to assess whether a concentration or constraint could present
a risk of financial difficulty. The City will need to make a disclosure in the notes to the financial
statements if all three of the following criteria are true:
• The City knows about the concentration or constraint prior to financial statement issuance.
• The concentration or constraint makes the City vulnerable to risk of a substantial impact.
• An event or events associated with the concentration or constraint that could cause a
substantial impact have either (1) happened; (2) started to happen; or (3) are more likely
than not to start happening within 12 months of the financial statements being issued.
If a government determines the above criteria for disclosure have been met, it should disclose
information in notes to financial statements in sufficient detail to enable users of financial
statements to understand the nature of the circumstances disclosed and the government's
vulnerability to the risk of a substantial impact. Disclosures are required for the government as a
whole as well as any opinion unit in the financial statements that includes outstanding revenue debt.
Disclosures can be combined to avoid unnecessary duplication (e.g., a subsequent event footnote).
GASB Statement No. 102 is effective for fiscal years beginning after June 15, 2024. Earlier
application is encouraged.
Information provided above was obtained from www.gasb.org.
22
City of Otsego
Emerging Issues
Accounting Standard Update – GASB Statement No. 103 – Financial Reporting Model
Improvements
The objective of this Statement is to improve key components of the financial reporting model to
enhance its effectiveness in providing information that is essential for decision making and assessing
a government's accountability. This Statement also addresses certain application issues.
This Statement addresses 5 areas of the financial statements (1) Management's Discussion and
Analysis (MD&A), (2) Unusual or Infrequent Items, (3) Presentation of the Proprietary Fund Statement
of Revenues, Expenses, and Changes in Fund Net Position, (4) Major Component Unit Information,
and (5) Budgetary Comparison Information.
This Statement continues the requirement that the MD&A precede the basic financial statements as
part of the Required Supplementary Information (RSI). This Statement requires that the information
presented in MD&A be limited to the related topics discussed in five sections: (1) Overview of the
Financial Statements, (2) Financial Summary, (3) Detailed Analyses, (4) Significant Capital Asset and
Long-Term Financing Activity, and (5) Currently Known Facts, Decisions, or Conditions. The
Statement stresses that detailed analyses should explain why balances and results of operations
changed, rather than stating amounts and "boilerplate" discussions.
This Statement describes unusual or infrequent items as transactions and other events that are either
unusual in nature or infrequent in occurrence. Furthermore, governments are required to display the
inflows and outflows related to each unusual or infrequent item separately as the last presented
flow(s) of resources prior to the net change in resource flows in the government-wide, governmental
fund, and proprietary fund statements of resource flows.
This Statement requires that the proprietary fund statement of revenues, expenses, and changes in
fund net position continue to distinguish between operating and nonoperating revenues and
expenses. The Statement provides clarification regarding operating and nonoperating revenues and
expenses. Also, this Statement requires that a subtotal for operating income (loss) and noncapital
subsidies be presented before reporting other nonoperating revenues and expenses.
This Statement requires governments to present each major component unit separately in the
reporting entity's statement of net position and statement of activities if it does not reduce the
readability of the statements. If the readability of those statements would be reduced, combining
statements of major component units should be presented after the fund financial statements.
This Statement requires governments to present budgetary comparison information using a single
method of communication - RSI. Governments also are required to present (1) variances between
original and final budget amounts and (2) variances between final budget and actual amounts. An
explanation of significant variances is required to be presented in notes to RSI.
GASB Statement No. 103 is effective for fiscal years beginning after June 15, 2025. Earlier
application is encouraged.
Information provided above was obtained from www.gasb.org.
23
City of Otsego
Emerging Issues
Accounting Standard Update – GASB Statement No. 104 – Disclosure of Certain Capital Assets
The objective of this Statement is to provide users of government financial statements with essential
information about certain types of capital assets.
This Statement requires certain types of capital assets continue to be disclosed separately in the
capital assets note disclosures including presentation of capital assets by major class and separate
disclosure of lease assets, subscription assets, and intangible right-to-use assets.
This Statement requires additional disclosures for capital assets held for sale. A capital asset is held
for sale if (a) the government has decided to pursue the sale of the capital asset and (b) it is
probable that the sale will be finalized within one year of the financial statement date.
Governments should disclose (1) the ending balance of capital assets held for sale, with separate
disclosure for historical cost and accumulated depreciation by major class of asset , and (2) the
carrying amount of debt for which the capital assets held for sale are pledged as collateral for each
major class of asset.
GASB Statement No. 104 is effective for fiscal years beginning after June 15, 2025. Earlier
application is encouraged.
Information provided above was obtained from www.gasb.org.
City of Otsego
Wright County, Minnesota
Reports on Internal Control and Compliance with
Government Auditing Standards and
Legal Compliance
December 31, 2024
City of Otsego
Table of Contents
Report on Internal Control Over Financial Reporting and on Compliance
and Other Matters Based on an Audit of Financial Statements Performed in
Accordance with Government Auditing Standards 1
Minnesota Legal Compliance 3
Schedule of Findings and Responses on Internal Control 4
1
Report on Internal Control Over Financial Reporting
and on Compliance and Other Matters Based on an Audit of
Financial Statements Performed in Accordance with
Government Auditing Standards
Independent Auditor's Report
Honorable Mayor and Members
of the City Council
City of Otsego
Otsego, Minnesota
We have audited, in accordance with auditing standards generally accepted in the United States of
America and the standards applicable to financial audits contained in Government Auditing
Standards issued by the Comptroller General of the United States(Government Auditing Standards),
the financial statements of the governmental activities, the business-type activities, each major
fund, and the aggregate remaining fund information of the City of Otsego, Minnesota as of and for
the year ended December 31, 2024, and the related notes to financial statements, which collectively
comprise the City's basic financial statements and have issued our report thereon dated May 29,
2025.
Report on Internal Control over Financial Reporting
In planning and performing our audit of the financial statements, we considered the City's internal
control over financial reporting (internal control) to determine the audit procedures that are
appropriate in the circumstances for the purpose of expressing our opinions on the financial
statements, but not for the purpose of expressing an opinion on the effectiveness of the City's
internal control. Accordingly, we do not express an opinion on the effectiveness of the City's internal
control.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to prevent,
or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a
combination of deficiencies, in internal control such that there is a reasonable possibility that a
material misstatement of the City's financial statements will not be prevented, or detected and
corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of
deficiencies, in internal control that is less severe than a material weakness, yet important enough
to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of
this section and was not designed to identify all deficiencies in internal control that might be
material weaknesses or significant deficiencies and therefore, material weaknesses or significant
deficiencies may exist that were not identified. Given these limitations, during our audit we did not
identify any deficiencies in internal control that we consider to be material weaknesses. We did
identify a certain deficiency in internal control, described in the accompanying Schedule of Findings
and Responses that we consider to be a significant deficiency as audit finding 2024-001.
2
Report on Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City's financial statements are free
from material misstatement, we performed tests of its compliance with certain provisions of laws,
regulations, contracts, and grant agreements, noncompliance with which could have a direct and
material effect on the determination of financial statement amounts. However, providing an opinion
on compliance with those provisions was not an objective of our audit, and accordingly, we do not
express such an opinion. The results of our tests disclosed no instances of noncompliance or other
matters that are required to be reported under Government Auditing Standards.
City's Response to Finding
Government Auditing Standards requires the auditor to perform limited procedures on the City's
response to the finding identified in our audit is described in the accompanying Schedule of Findings
and Responses. The City's response was not subjected to the other auditing procedures applied in the
audit of the financial statements and, accordingly, we express no opinion on the response.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and
compliance and the results of that testing, and not to provide an opinion on the effectiveness of the
City's internal control or on compliance. This report is an integral part of an audit performed in
accordance with Government Auditing Standards in considering the City's internal control and
compliance. Accordingly, this communication is not suitable for any other purpose.
St. Cloud, Minnesota
May 29, 2025
3
Minnesota Legal Compliance
Independent Auditor's Report
Honorable Mayor and Members
of the City Council
City of Otsego
Otsego, Minnesota
We have audited, in accordance with auditing standards generally accepted in the United States of
America, and the standards applicable to financial audits contained in Government Auditing
Standards, issued by the Comptroller General of the United States, the financial statements of the
governmental activities, the business-type activities, each major fund, and the aggregate remaining
fund information of the City of Otsego, Minnesota as of and for the year ended December 31, 2024,
and the related notes to basic financial statements, and have issued our report thereon dated
May 29, 2025.
In connection with our audit, nothing came to our attention that caused us to believe that the City
failed to comply with the provisions of contracting – bid laws, depositories of public funds and public
investments, conflicts of interest, public indebtedness, claims and disbursements, miscellaneous
provisions, and tax increment financing sections of the Minnesota Legal Compliance Audit Guide for
Cities, promulgated by the State Auditor pursuant to Minnesota Statutes § 6.65, insofar as they
relate to accounting matters. However, our audit was not directed primarily toward obtaining
knowledge of such noncompliance. Accordingly, had we performed additional procedures, other
matters may have come to our attention regarding the City's noncompliance with the above
referenced provisions, insofar as they relate to accounting matters.
The purpose of this report is solely to describe the scope of our testing of compliance and the results
of that testing, and not to provide an opinion on compliance. Accordingly, this communication is not
suitable for any other purpose.
St. Cloud, Minnesota
May 29, 2025
4
City of Otsego
Schedule of Findings and Responses on Internal Control
CURRENT AND PRIOR YEAR INTERNAL CONTROL FINDING:
Audit Finding 2024-001
Criteria:
Internal control that supports the City's ability to initiate record, process and report financial data
consistent with the assertions of management in the financial statements requires adequate
segregation of accounting duties.
Condition:
The City had a lack of segregation of accounting duties due to a limited number of office employees.
Adequate segregation of accounting duties is in place when the following four areas of a transaction
have been separated: authorization, custody, recording, and reconciliation. Examples of functions
within the City that demonstrate this lack of segregation of accounting duties include, but are not
limited to, the following:
1. Cash Receipts – The Utility Billing Clerk and Accountant have access to initiate and record
receipts. The Utility Billing Clerk is also responsible for depositing cash receipts. The
Accountant is also involved in the reconciliation process and has full access to the general
ledger.
2. Utility Billing Process – The Utility Billing Clerk is responsible for handling customer payments,
depositing payments received.
3. Disbursements – Due to small staff the City allows access to other employees to perform
disbursement related activities in order to fill in for normal roles and responsibilities in the
absences of other staff. In the absence of the Accountant, the Utility Billing Clerk has access
to record and cut checks and has access to blank checks.
4. Financial Reporting and Journal Entry Process – The Finance Director and Accountant have full
access to the general ledger and can make adjustments without review during the monthly
and year-end financial closing process.
Context:
This finding impacts the internal control for all significant accounting functions.
Effect or Potential Effect:
The lack of adequate segregation of accounting duties could adversely affect the City's ability to
initiate, record, process, and report financial data consistent with the assertions of management in
the financial statements.
Cause:
There are a limited number of office employees.
Recommendation:
Continue to review the accounting system, including changes that may occur. Implement segregation
whenever practical.
Views of Responsible Officials and Planned Corrective Action:
The City is aware of the limited segregation of duties as a result of our limited number of staffing.
The City is committed to an environment with strong internal controls and is constantly evaluating
the system and implementation of compensating controls when available.
1
CITY OF OTSEGO
COUNTY OF WRIGHT
STATE OF MINNESOTA
RESOLUTION NO: 2025-24
ADOPTING THE ANNUAL COMPREHENSIVE FINANCIAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 2024
WHEREAS, the City annually prepares an Annual Comprehensive Financial Report (ACFR); and
WHEREAS, the ACFR contains the financial statements for the City of Otsego which have been prepared in accordance with
accounting principles generally accepted in the United States of America (GAAP), as applied to governmental units by the
Governmental Accounting Standards Board (GASB); and
WHEREAS, the financial statements have been subjected to a statutorily required audit, which has been conducted by
BerganKDV, an independent CPA firm; and
WHEREAS, BerganKDV opined that the financial statements present fairly, in all material respects, the respective financial
position of the City of Otsego for the year ended December 31, 2024; and
WHEREAS, said ACFR and the documents summarizing the audit process have been distributed to and discussed with the City
Council on June 9, 2025.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF OTSEGO, MINNESOTA:
1. That the Annual Comprehensive Financial Report (ACFR) for the City of Otsego for the year ended December 31, 2024,
and all supporting documentation, is hereby adopted as the official financial record for said fiscal year.
ADOPTED by the Otsego City Council this 9th day of June, 2025.
MOTION BY:
SECONDED BY:
IN FAVOR:
OPPOSED:
CITY OF OTSEGO
__________________________________
Jessica L. Stockamp, Mayor
ATTEST:
__________________________________
Audra J. Etzel, City Clerk