The Pagosa Area Water and Sanitation District (PAWSD) Board of Directors heard and accepted the results of the district’s 2023 audit at its July 25 meeting.
PAWSD auditor Ronny Farmer of rfarmer LLC presented the audit results and began by asking the board if it had any big-picture questions about the audit.
The board members stated they did not.
The audit documents indicate that the overall audit was clean, with an unmodified opinion and no issues detected.
Farmer explained that the audit was different from previous PAWSD audits since it included an audit of internal controls and compliance with rules and regulations for contracts, and a single audit of controls and compliance concerning PAWSD’s loan from the state of Colorado in addition to the normal financial audit.
Farmer stated that, in the general fund, PAWSD’s investment income in 2023 rose compared to 2022.
He added that the fund balance in the general fund is substantially higher than the “rule-of-thumb” threshold that the general fund balance should be more than 30 percent of the annual operating expenses.
According to the audit documents, PAWSD’s general fund balance at the end of 2023 was $1,768,572 compared to expenditures of $885,456.
PAWSD board member Glenn Walsh noted that the general fund balance has been increasing and the district has been avoiding transferring money to its enterprise funds to allow it to receive more grant revenue.
He asked what expenses could be paid for from the general fund without the money needing to be transferred to the enterprise funds and thus reducing how much grant funding the district could accept.
Farmer replied that the general fund could pay for a wide range of district expenses and that PAWSD could shift costs such as staff salaries to the general fund out of the enterprise fund.
He added that the revenues of the enterprise funds are based on fees for services and that, if the district reduces its expenses in those funds, it might have to examine reducing its fees.
Walsh commented that there would likely be compensating increases in expenses in the wastewater fund.
Farmer moved to discussing the water and wastewater enterprise funds, noting that there would be no depreciation on construction projects that PAWSD has in progress until they are completed.
He stated that the water enterprise fund saw a $4,635,817 increase in its net position, and the wastewater fund lost $547,134.
Farmer indicated that these changes include a substantial amount of depreciation and that, with the depreciation taken out of the wastewater fund, it would have a profit of about $400,000.
He stated that the water fund lost $1,024,611 in cash when examining the fund’s operating expenses, capital and associated financing costs and other expenses on a cash basis while the wastewater fund lost $327,526 when examined in the same way.
He commented that the cash-flow statement is a helpful metric for assessing if fee changes are needed in an enterprise fund and recommended that the fee structure particularly needs to be changed in the wastewater fund due to it losing money on operations in 2023.
Walsh commented that the board has already significantly changed the fee structure.
The PAWSD board voted to significantly increase rates and capital investment fees for water and wastewater in February.
Farmer concluded that each fund has a sufficient amount of cash, but that adjustments were necessary to prepare for the future and their impact will have to be monitored.
He explained that the district did not overspend its budget in any of its funds in 2023, which he commented is “good.”
Farmer stated that the district had to undergo a single audit due to spending more than $750,000 in federal funds through its loan for the construction of the Snowball water treatment plant expansion.
He indicated that the single audit did not uncover any issues, although PAWSD did not qualify as a low-risk auditee due to not having undergone a single audit in the past two years.
He added that this distinction would have a minimal impact on PAWSD since it only has one program that would have to be audited and, even with a low-risk auditee designation, this would still have to be audited.
Farmer stated that the single audit and the audit of PAWSD’s controls and compliance related to grants revealed no issues.
Walsh asked if Farmer had any comments about places that PAWSD could improve its financial procedures.
Farmer stated that he did not have any recommendations and feels that PAWSD’s policies are effective.
He added that PAWSD could potentially make its use of staff time more effective by reducing the number of bills reviewed by PAWSD Business Manager Aaron Burns since he felt some of these reviews might be unnecessary.
“That’s not a bad report if the only criticism is that our [chief financial officer] is working too hard,” Walsh said.
The board then moved to accept the 2023 audit, which passed unanimously.
Following approving the audit, the board briefly discussed the high level of interest income the district is collecting and the savings the district is accumulating due to having PAWSD District Manager/Engineer Justin Ramsey act as the owner’s representative for the Snowball water treatment plant project before moving on to the next agenda item.
josh@pagosasun.com
