The Audit Advisory Committee of Fort Smith, Arkansas met to review the draft of the 2025 Annual Comprehensive Financial Report (ACFR). External auditors from Forvis Mazars and the Chief Financial Officer presented financial highlights, audit opinions, and fund performance. The committee discussed the city's financial condition, including improvements in net position, water and sewer fund performance, and concerns about the parking garage and solid waste fund. The audit received an unmodified (clean) opinion.
We're gonna call the meetings order and audit advisory committee at seven o'clock on uh July 9th and D and Field and Share. We're gonna go around and introduce themselves that way we can get the voices for the reporting. Russ Barron, Citizen Fort Smith. Amanda Strange, Director of Internal Audit. Andrew Richards, Chief Financial Officer. Katie Flores, senior manager with Forbes and SARS. David Hallman, I'm on the audit partner, for instance, the water board member. Who's going to get signed as one of the directors? The law in the citizen. All right. And now that we've done the roll call on the agenda, the only item in business is the review of review the draft of the 2025 AFCR report. And so that said, I'll throw it over to David. Alright, well, um, thank you for for allowing us to be here and go over this. So as far as where we're at in the audit process, so we we have reviewed the act for uh Andy's at for we've suggested a few changes, he's made a few changes, added some stuff. So we are in the process of doing our final tie outs and our file to make sure that we've captured everything, all the adjustments that Andy made while preparing the YAC for. So after that, we you know we we've already done our initial review. Um we think it's in good shape, and so I think Andy is going to walk the committee through a few financial highlights on the financial statements themselves, and then Katie's gonna discuss our audit results, and then we can have any questions you have to talk about. So one just one clarification item for you, sir. The draft we're using is the June 28th draft. Is that the version? Thank you. Did you update it prior to that? Or was it was it June 28th? June 28th is the is the most recent draft that I've yeah, I think I think you got a draft initially. Um it was missing um the library's financial state, which is a component unit that we do not audit. Um take credit for for them doing the audit. So that was put in, and I think um you made a couple of adjustments since that draft. So this is this is draft number three, 2025 Act for 628. Yes. Yes. That is the one. All right. Okay, so I'll I'll kind of give a high level overview and then um address a couple things that I want to point out to the to the committee and the board members on the committee, and then um whatever questions, specific items you want to go over. I'll take those questions and we'll go from there. Uh I guess I'll just start on page 26 of the draft is is a government wide financial analysis. And so I like I like to review that with you because it has um it has 25 and 24 comparative together and it's a very high level, so you can see um so usually work from the bottom up on these type on the on these type of things. So like total net position for 2025. We ended up with one billion one hundred and eight million, and uh um that was up from a million sixty-nine or one billion sixty-nine billion um for the year. So um I think we had about a thirty-eight million dollar increase in our total financial position for the uh for the government, and then looking at the components of net position. Um you know, we had an increase in our investment in capital assets from 909 million to 949. So we had about a 40 million dollar uh increase in our infrastructure and other uh long-term assets. The restricted net position is relatively the same. It's 105 million compared to 109. Um, you know, most of that is gonna be um sewer consent decree restricted about 31 million dollars of that is restricted for that's the cash for the um that we have on hand that we can use for for the consent decree. Um the un the unrestricted net position or deficit uh decrease slightly. We're at 53.8 million and 24, and we ended up at 48.9 million in 25. 31 million dollars of that is restricted for that's the cash for the um that we have on hand that we can use for for the consent decree um the un the unrestricted net position or deficit uh decrease slightly we're at 53.8 million and 24 and we ended up at 48.9 million in 25 um and then kind of looking at that piece further that'd be you know that's our basically our net assets that we have to use um you know on our different programs so that's you know it's kind of this similar to our working capital or for the long-term approach our fund balance unrestricted fund balance similar to that so um so the unrestricted deficit the governmental activities had a 20 point six million dollar deficit that was up from 9.5 million dollars um from 24 so you know I think that's that doesn't surprise me I think that and a lot of that is just because we were spending um you know we had we talked about this last year and it pretty much starting at this point last year and then and all the way through the rest of the year we worked on reducing our operating expenses and talking about a structurally balanced operating budget and so um you know we're seeing that here um where we ended up with 25 so we're taking that um even further a big piece of this deficit though would typically when you when I look at these and this is pretty common for most cities is when you have an unrestricted deficit you're like well that's horrible well the net pension liabilities that the cities have recorded which ours is uh about sixty five million dollars you know that is a you know that's not something that you use for capital it's you know it's a considered an operating type liability so that hits this net position so the so the deficit itself is in large part because we have 60 my uh 65 million dollars in net pension liabilities that's the police and fire pension apers for the court clerk and primarily loppy and the two old plans that Lope has those pension liabilities are getting it's the position our positions in those pension liabilities are getting better they're improving so even they're still large but they're but you know they've I think we've maybe seen some reduction um from the prior year you I know you're looking at that if I remember the right yeah there's been a substantial reduction if you go back a few years and it's been going down every year as long as the stock market holds up this year you'll see you'll see the same thing this year. Now one thing I like to be clear on though is like when you spend four million dollars for the building and when you spend two million dollars on that land out on Mazar effectively that increases your deficit it it I I believe it goes into investment capital assets and creates an additional larger deficit. So those both are one time one time right so that you know you see so I just say that to say you know having this deficit is not you know an a rare thing it's pretty common among cities that have these pensions you know the the liabilities are going to be paid off way in the future and they're not they don't back like a at a capital asset or anything so that's not a common so you see like our our business type activities which is you know primarily uh water and sewer and solid waste the unrestricted um net position was 69.5 million and at the end of 25 it was 63.3 million dollars in 24 so we you know we saw we'll see improvement in the water and sewer fund because of water rate increases and the sewer and um I think solid waste stayed fairly level there so um I mean overall those look good the long-term liabilities we should see um an increase in long-term liabilities for governmental activities 101 million in 24 now it's 193.5 million because of the sales tax bond issue that we that was done for the um for our consent sewer consent decree and so you'll see that increase there um and then we should see an increase in current assets and governmental activity so it was 180 million in the first top line there for 24 for governmental activities 180 million compared to 270 million so that is primarily the proceeds from that bond issue so that's what's driving that so um so pretty uh otherwise you know fairly consistent we're seeing you know in overall improvement in our financial condition as we continue to invest in our infrastructure um I'll just point that out governmental activities 476 million in the capital assets net investment capital assets compared to 490 million so that's about a 26 billion million dollar improvement so that's going to be streets infrastructure um being capitalized and or spent on streets primarily um so um so if you want to look at the next page 27 shows our changes in net position for the year probably probably reiterate some of the same things that we saw uh pointed out So that's about a 26 billion million dollar improvement.