Finance Committee - July 14, 2026

City of Amery Finance Committee The City of Amery does not discriminate on the basis of race, color, national origin, sex, religion, age or disability in employment or provision of services, programs or activities. NOTE: Upon reasonable notice, the City of Amery will accommodate the needs of disabled individuals through aids or services. For additional information or to request this service, contact the Clerk-Treasurer’s office at (715) 268-3410 by Noon the previous day so that arrangements can be made. Pursuant to Wisconsin Statutes 19.84, Notice is hereby given to the public that a meeting of the Finance Committee of the City of Amery will be held on: July 14, 2026 @ immediately following Public Safety Committee which begins at 4pm at 104 Maple St. W, Amery, WI. Call to Order Adoption of Agenda Agenda Items 1. City Financials and Budget Update 2. Fiscal Year 2025 Annual Comprehensive Financial Report Technical Review 3. Adjournment *Committee meetings are open for all members of the Amery City Council to attend. There may be a quorum of City Council members present, but only members of the Finance Committee will be acting on agenda items. All other Council members will be present for informational purposes only. Respectfully Submitted; Taylor Larson Clerk-Treasurer **Posted: July 9, 2026 on the city website (www.amerywi.gov); and at Amery City Hall, Amery Public Library, and the Amery Police Department. 104 Maple Street W., Suite A Office: 715.268.7486 Amery, WI 54001 Fax: 715.268.4870 1 TO: Finance Committee FROM: Alex Mansfield, City Administrator DATE: July 2, 2026 RE: FY2025 Annual Financial Report — Technical Review for Finance Committee This memo supplements the Council memo on acceptance of the FY2025 Annual Financial Report (AFR). It is written for the Finance Committee and covers AFR structure, statement-level findings, the adjusting journal entry (AJE) process, internal control communications, and management letter recommendations. All figures and findings reference the final draft AFR dated December 31, 2025, prepared by Lauterbach and Amen, LLP (L&A). I. Audit Opinion and Auditor Communications Opinion Type L&A issued an unmodified (clean) opinion on the City's FY2025 financial statements, the highest -quality result available. No material errors or misstatements were found across any major fund, governmental activities, business-type activities, or aggregate nonmajor funds. The opinion is dated May 21, 2026. (AFR, p. 1) The auditor's report also discloses one material omission: the City did not include a Management's Discussion and Analysis (MDA) section. GASB considers MDA required supplementary information, and its absence is a departure from GAAP , though the opinion on the basic financial statements is unaffected. Given the City's S&P bond rating context, adding MDA to the FY2026 report would provide analytical narrative that rating agencies use when assessing financial management quality. This has been noted and will be provided in the future. (AFR, p. 2) SAS 114 — Communication to Those Charged with Governance L&A's SAS 114 letter confirms the following findings relevant to the Finance Committee. (SAS 114 Letter, pp. 1-3) • Accounting policies: No new accounting policies were adopted, and the application of existing policies was consistent with the prior year. • Sensitive accounting estimates: Three estimates were flagged as particularly sensitive: depreciation and amortization useful lives on capital assets, actuarial assumptions underlying the WRS net pension liability, and the estimated landfill postclosure obligation. L&A concluded all three are reasonable in relation to the financial statements as a whole. • Misstatements: Material misstatements detected during audit procedures were corrected before issuance. The only remaining item is an immaterial factual difference of $11,997 on taxes receivable, evaluated and waived under the iron curtain method. • No disagreements with management arose, and management did not consult outside accountants during the engagement. • Required supplementary information (RSI): L&A applied limited procedures to all RSI schedules and found no inconsistencies with the basic financial statements. SAS 115 — Internal Control Over Financial Reporting 104 Maple Street W., Suite A Office: 715.268.7486 Amery, WI 54001 Fax: 715.268.4870 2 The SAS 115 letter identifies two internal control findings. (SAS 115 Letter, p. 1) • Material Weakness: The FY2025 audit produced a material restatement to fund balance, detected by auditing procedures rather than by city staff. Land previously classified as held for resale in the General Fund was reclassified to a capital asset because the City has no intent to sell it within one year. This corrected a $250,780 overstatement of the FY2024 General Fund beginnin g balance. The root cause: the GAAP conversion ( translating Workhorse fund records into GASB -compliant government-wide statements) is performed entirely by L&A, so material reclassifications like this one are identified during the audit rather than before it. (AFR, p. 46; SAS 115 Letter, p. 1) • Significant Deficiency: The audit produced a high volume of material adjusting journal entries detected by auditing procedures rather than prepared by staff. This finding and the material weakness share the same root cause: the absence of a city-prepared GAAP conversion workbook. (SAS 115 Letter, p. 1) Both findings are structural rather than symptomatic of error or mismanagement. The corrective path is to build city-side GAAP conversion capacity, which Administration has identified as a near-term priority to scope with L&A. II. AFR Structure and Financial Statement Overview The FY2025 AFR contains five layers: the Independent Auditor's Report; Basic Financial Statements (government-wide statements, fund financial st atements, and notes); Required Supplementary Information; Other Supplementary Information; and Supplemental Schedules for individual debt instruments. Each layer provides progressively more granular detail. Government-Wide Financial Statements Government-wide statements present the City as a single economic entity on the full accrual basis. All long-term assets, deferred outflows, long-term liabilities, and deferred inflows are included regardless of current-period spendability. Two statements make up this tier. Statement of Net Position (SNP). The SNP is the government-wide balance sheet as of December 31, 2025. (AFR, pp. 6-7) Item Governmental Business-Type Total Total Assets $22,345,168 $23,371,268 $45,716,436 Total Liabilities $12,763,147 $15,046,914 $27,810,061 Total Deferred Inflows $3,962,705 $293,556 $4,256,261 Net Investment in Capital Assets $5,695,395 $7,355,709 $13,051,104 Restricted Net Position $774,959 $178,563 $953,522 Unrestricted Net Position $47,832 $645,245 $693,077 Total Net Position $6,518,286 $8,179,517 $14,697,803 The governmental unrestricted net position of $47,832 warrants attention. It is the government -wide residual after netting all governmental assets against all liabilities and restricted amounts. The figure improved sharply from a ($1,750,000) deficit in FY2024, a turnaround of approximately $1.8 million, but it remains thin by S&P's General Obligation rating criteria for small municipalities. Sustained improvement 104 Maple Street W., Suite A Office: 715.268.7486 Amery, WI 54001 Fax: 715.268.4870 3 in the General Fund unassigned balance is the most direct lever the City controls to support its current rating. The Sewer Utility's net position increased by $2,411,505 in FY2025, driven by $2.1 million in capital grants and $180,551 in capital contributions tied to WWTP construction. This is a one -time event and does not reflect the utility's typical annual operating performance. Statement of Activities (SOA). The SOA presents the cost of each governmental function, reduced by program revenues directly tied to it. For FY2025: (AFR, pp. 8-9) • Total governmental activities expenses were $5,653,121, with $1,578,723 recovered through program revenues, leaving a net cost of $4,074,398 to be supported by general revenues. • General revenues totaled $4,694,123, producing a net change in governmental activitie s net position of $619,725. • Public Safety (net cost $1,408,890) and General Government (net cost $940,867) carry the largest subsidy burden. Fund Financial Statements — Governmental Funds Governmental fund statements use the modified accrual basis, presenting only current financial resources. The primary measure is fund balance rather than net position. Six major governmental funds are reported individually: General, CDBG Housing Revolving Loan, Library, Debt Service, Tax Incremental District #6, Capital Improvements, and Tax Incremental District #10. (AFR, pp. 10-16) Fund Ending Balance Change FY25 Status General Fund $1,604,928 +$247,100 Improving Unassigned balance only $593,450 +$593,450 Below 40% policy target Library $102,655 +$44,056 OK CDBG Housing Revolving Loan $246,468 ($15,020) Restricted Debt Service $0 $0 Pass-through TID #6 ($937,767) +$307,924 Deficit — improving Capital Improvements $686,923 +$1,602,080 Resolved TID #10 ($40,798) ($12,353) Deficit — monitor Nonmajor Funds (net) $301,780 +$169,010 See notes Several items in the fund statements require technical clarification: • General Fund nonspendable balance of $1,011,478: This consists of $24,290 in delinquent tax receivables and $987,188 in advances to TID #6 and TID #10, neither of which is available for operations. The spendable General Fund balance is $593,450, entirely unassigned. (AFR, p. 45) • General Fund restatement ($250,780): The beginning fund balance was reduced to remove land previously classified as held for resale. Capital assets are not reported in governmental fund statements, so the land now appears only at the government-wide level. The asset itself still exists. (AFR, p. 46) • Capital Improvements Fund recovery: The fund moved from a ($915,157) deficit to a $686,923 positive balance through $2,160,000 in new debt issuance, $23,472 in bond premium, and 104 Maple Street W., Suite A Office: 715.268.7486 Amery, WI 54001 Fax: 715.268.4870 4 $21,200 in asset disposals, not from operating revenues. The positive balance is restricted for capital purposes. (AFR, p. 15) • General Fund debt service actual vs. budget: Budget anticipated $589,563 in debt service payments from the General Fund; actual was $9,020. The full amount was transferred to the Debt Service Fund, where $636,799 was spent. This presentation difference produces the Funds Over Budget finding for the Debt Service Fund. (AFR, p. 59; Management Letter, p. 3) Governmental Fund Reconciliations Two reconciliation statements bridge governmental fund balances to the government-wide net position. The Reconciliation of Total Governmental Fund Balance to Net Position adds $16,444,085 in net capital assets and subtracts long-term liabilities of ($12,188,288), yielding governmental activities net position of $6,518,286. The Reconciliation of Changes in Fund Balances to the Statement of Activities adjusts for capital outlay capitalization versus depreciation, deferred revenue timing, pension items, and the net effect of debt issuance and retirement. (AFR, pp. 12, 16) Proprietary Fund Financial Statements The Water and Sewer utilities are accounted for on a full accrual basis. Three statements are presented: Statement of Net Position, Statement of Revenues, Expenses, and Changes in Net Position, and Statement of Cash Flows. (AFR, pp. 18-21) The Sewer Utility's working capital position is the central concern here. Current assets of $1,253,731 against current liabilities of $2,055,258 produce a working capital deficit of ($801,527). The utility's policy requires a reserve equal to 25% of operat ing expenses ($215,578 minimum), so the total shortfall is ($1,017,105). The deficit is largely driven by retainage payable ($374,079) and accounts payable ($1,287,585) from WWTP construction. Administration should provide a forward projection showing when those payables settle and what working capital looks like afterward. (AFR, p. 19; Management Letter, p. 1) The Sewer Utility's long -term debt changed substantially in FY2025. The $5,000,000 Revenue Bonds of 2023 were retired; $11,526,201 in Clean Water Fund Revenue Bonds of 2025 were issued at 2.31% through maturity in 2054. Annual principal ranges from $382,816 in FY2026 to $537,333 in FY2054. Total obligation: $13,226,185 in principal and $4,407,131 in interest. A rate review is needed to confirm the utility can service this debt from user fees. (AFR, pp. 39, 43) Fiduciary Fund Statement The only fiduciary fund is the Tax Collection Custodial Fund, which holds $2,577,523 in property taxes receivable for distribution to other governments. Net position is zero because all assets are offset by deferred inflows. This fund has no effect on City operating finances. (AFR, pp. 22-23) III. Notes to the Financial Statements — Key Disclosures The notes are an integral part of the basic financial statements. The following disclosures are of particular relevance to the Finance Committee. Fund Balance Policy Note 3 states that the General Fund must maintain a minimum working capital reserve equal to 50% of current budgeted operating expenditures. The Management Letter calculates non-compliance differently, using 40% of FY2024 actual expenditures ($3,835,513), which produces a minimum threshold of $1,534,205. The City's unassigned balance of $593,450 falls ($1,539,184) short of that thr eshold. Administration should clarify the operative policy language, whether 40% or 50% and actual or budgeted, 104 Maple Street W., Suite A Office: 715.268.7486 Amery, WI 54001 Fax: 715.268.4870 5 so that compliance reporting is consistent with the adopted policy document. (AFR, p. 45; Management Letter, p. 1) Long-Term Debt — Legal Debt Margin The City's constitutional GO debt limit is 5% of the 2025 equalized value of $375,002,700, or $18,750,135. Debt applicable to the limit as of December 31, 2025 totals $11,051,501, leaving a legal debt margin of $7,698,634. The new $2,730,000 in promissory notes issued in FY2025 reduced that margin from the prior year. Revenue bonds do not count against the limit. The City will track this figure as capital plans for 2026 and beyond are developed. (AFR, p. 44) Interfund Advances The General Fund has advanced $987,188 to other funds: $859,410 to TID #6 and $127,778 to TID #10. Both are classified as nonspendable fund balance, reducing the General Fund's spendable reserves. Repayment depends on those districts generating sufficient increment revenue, so the TID #6 recovery trajectory and TID #10 development activity bear directly on this. (AFR, p. 35) WRS Pension Liability The City's net pension liability (WRS) as of December 31, 2025 is $175,060, measured at the December 31, 2024 measurement date using a 6.80% discount rate. Sensitivity testing shows that a 1% decrease in the discount rate would increase the liability to $1,642,295; a 1% increase would produce a net pension asset of ($867,367). The WRS remains well-funded at the state level, which contains City-specific pension risk. (AFR, pp. 49, 53) Deferred outflows and inflows related to pensions total $1,047,689 and ($515,319), respectively. The net deferred amount of $532,370 will be recognized as additional pension expense in future periods: $103,813 in FY2026 and $361,258 in FY2027. The Finance Committee should expect elevated pension expense in those two years. (AFR, p. 50) Capital Assets Governmental capital assets increased from approximately $16.0 million (restated) to $16.4 million net, driven by $1,327,159 in additions ($910,416 in infrastructure, $361,697 in machinery and equipment) offset by $925,249 in depreciation. Business -type capital assets increased from $10.5 million to $20.6 million net, primarily reflecting the WWTP construction work-in-progress balance of $15,217,144. (AFR, pp. 36-37) Landfill Postclosure Liability The City carries an estimated landfill postclosure liability of $629,257, reduced by $500 during FY2025. This represents future costs for site monitoring and care. No current-year cash outlay is required, but the estimate should be reviewed for changes when the outside consultant next updates it. (AFR, p. 41) IV. Adjusting Journal Entries — Volume, Composition, and Implications The FY2025 audit produced 63 adjusting journal entries (AJEs). The Finance Committee should understand the structural causes. Why 63 AJEs Four factors drove the volume, not widespread accounting errors: 104 Maple Street W., Suite A Office: 715.268.7486 Amery, WI 54001 Fax: 715.268.4870 6 • WWTP project closeout: Multiple large entries were required to classify sewer construction costs, grant draws, loan proceeds, and retainage correctly. AJEs 2, 3, and 4 alone involve reclassifications totaling more than $25 million across the sewer fund. • GAAP conversion performed by auditors: Because the City has no year -end GAAP conversion workbook, L&A prepares the entries needed to translate Workhorse's modified accrual records into GASB -compliant government-wide statements. These are structural, not error -correcting, entries. • Commingled cash allocation: The City's pooled cash structure requires allocation entries across funds that Workhorse does not generate automatically. • Multi-fund complexity: Interfund activity, transfers, and TID accounting across governmental, enterprise, and fiduciary funds generate recurring adjustments each year. Entries Warranting Monitoring • AJE 60 — Land Reclassification (source of the SAS 115 material weakness): This entry reduced the General Fund beginning balance by $250,780 to remove land incorrectly carried as held for resale. It is a one -time catch-up, but the underlying gap, no formal year -end asset classification review, will recur without a written policy and close checklist. (AFR, p. 46; SAS 115 Letter, p. 1) • AJE 6 — WRS Late Fee ($9,908): Records a WRS late payment penalty as a General Fund expenditure. A single occurrence could be a payroll processing timing issue. If it appears again in FY2026, it warrants investigation of the WRS remittance workflow. (AJE Schedule) • AJE 21 — Cell Tower Rent Coding: Tower lease rent was coded to the wrong account and required an audit reclassification. This is a recurring coding error correctable through a standing journal entry template or a Workhorse account configuration change. (AJE Schedule) • AJE 40 — TID #10 Grant and Developer Reimbursement Accounting: As TID #10 development activity grows, grant draw timing and developer reimbursement accounting will need more rigorous tracking. This category will expand in complexity over the next several audit cycles. (AJE Schedule) V. Management Letter — Findings, Status, and Response Analysis The Management Letter dated May 21, 2026 contains one new recommendation and six prior recommendations carried forward. (Management Letter, pp. 1-4) New Finding: IT Security L&A flagged cybersecurity risk for the first time. No breach or incident was identified during audit procedures. The finding is proactive and tracks a sector -wide trend in local government audits. L&A identified five risk areas: ransomware and phishing, MF A (multi-factor authentication) gaps, vendor and third-party exposure, backup and recovery adequacy, and staff training. (Management Letter, p. 1) MFA is the most immediately actionable item. Most modern cloud platforms, including Microsoft 365 and standard financial management systems, support MFA at no added cost. Administration will develop a short-term MFA implementation plan, review vendor contracts for security language, and set a schedule for annual backup testing. A documented incident response procedure reviewed by staff annually satisfies this recommendation at the City's scale. Finding 1 (Prior): Fund Balance Non-Compliance 104 Maple Street W., Suite A Office: 715.268.7486 Amery, WI 54001 Fax: 715.268.4870 7 Both the General Fund and Sewer Utility fall below their policy thresholds. The General Fund unassigned balance of $593,450 is ($1,539,184) short of the auditor -calculated 40% minimum. The Sewer Utility working capital deficit of ($801,527) is ($1,017,105) below the 25% minimum. The Management Letter notes that the policy was revised during FY2025, which changed the calculation methodology between years. Administration should provide a projected timeline for when Sewer Utility construction payables settle and what working capital looks like at that point. (Management Letter, p. 1) Finding 2 (Prior): Collateralization of Deposits — Resolved This finding is closed. In the prior year, $115,667 in deposits lacked adequate insurance or collateralization. The issue was corrected and L&A confirmed it will not be repeated. (Management Letter, p. 2) Finding 3 (Prior): Commingled Cash Cash pooling is common and legally permissible. The audit concern is the allocation method: the current process results in some funds carrying negative allocated cash balances in Workhorse, which misrepresents their financial positions. The fix is a sub-ledger configuration change that assigns each fund a correct proportional share of the pooled balance. This should be designed with L&A and Workhorse support involved. (Management Letter, p. 2) Finding 4 (Prior): Funds Over Budget The following funds exceeded their approved budgets in FY2024 or FY2025: (Management Letter, p. 3) Fund FY2024 FY2025 Note General Fund $200,084 — Resolved FY2025 Library $167,663 — Resolved FY2025 Debt Service — $47,236 Transfer timing — see Section II Capital Improvements $20,607 $311,882 New debt-funded projects TID #7 $15,833 — Resolved FY2025 TID #8 — $11,077 Minor; TID #8 no longer in deficit TID #9 $2,696 — Resolved FY2025 TID #10 — $1,035,517 Valley View West Development Project - finished The TID #10 overrun of $1,035,517 is the largest variance by far, driven by $1,027,067 in capital outlay against a $0 budget for that line. The 2025 budget did not anticipate the infrastructure activity completed in FY2025. Finding 5 (Prior): Funds with Deficit Fund Balances Deficit fund balance status as of December 31, 2025: (Management Letter, p. 3) Fund FY2024 FY2025 Trajectory TID #6 ($1,245,691) ($937,767) Improving; $250K transfer-in received Capital Improvements ($915,157) $686,923 Resolved via new debt issuance TID #7 ($75,498) ($18,369) Improving; near resolution TID #8 ($55,193) — Resolved FY2025 104 Maple Street W., Suite A Office: 715.268.7486 Amery, WI 54001 Fax: 715.268.4870 8 TID #10 ($28,445) ($40,798) Slight increase; monitor TID #6's deficit is supported by $859,410 in General Fund advances and an active recovery plan. Property tax increment of $278,762 was recognized in FY2025, and $1,593,000 in notes payable remains to be retired. Full resolution depends on continued increme nt growth within the district. TID #7 at ($18,369) should close in FY2026 absent unexpected expenditures. (AFR, p. 40; Management Letter, p. 3) Finding 6 (Prior): Account Reconciliations — Library and Police The Library and Police bank accounts were not reconciled within Workhorse through the end of FY2025, resulting in unrecorded interest income, donations, and expenses in the general ledger. Both accounts have been brought into compliance in 2026 . This should be treated as a pending confirmation, not a resolved finding, until L&A signs off. (Management Letter, p. 3) VI. Upcoming GASB Standards — Implementation Requirements Two new GASB standards take effect for the City's FY2026 financial statements and require action before year-end close. GASB Statement No. 103 — Financial Reporting Model Improvements Effective for periods beginning after June 15, 2025, GASB 103 revises several core reporting components. For Amery, the most significant changes involve revised MDA presentation requirements, which directly affect the City given the current MDA omission; classification of unusual or infrequent items; proprietary fund statement presentation; and budgetary comparison formats. (Management Letter, p. 4) GASB Statement No. 104 — Disclosure of Certain Capital Assets Also effective for FY2026, GASB 104 requires separate note disclosures for certain capital asset categories, including assets held for sale. This intersects directly with the AJE 60 land reclassification issue. The City should establish a written capital asset classification policy before the FY2026 close to ensure consistent, auditable treatment going forward. (Management Letter, p. 4) VII. Recommended Finance Committee Action Items Administration recommends the Finance Committee direct the following actions before the FY2026 audit: • Clarify fund balance policy language — reconcile the 40% vs. 50% and actual vs. budgeted thresholds so compliance reporting is unambiguous. • Establish a mid -year budget amendment protocol — formalize a process for presenting supplemental appropriation resolutions when capital or TID expenditures are projected to materially exceed approved budgets. • Prepare for GASB 103 and 104 — work with L&A to map required changes for FY2026 and add MDA to the FY2026 AFR. The FY2025 AFR reflects genuine financial progress alongside identifiable structural weaknesses in the City's accounting processes. Administration is prepared to discuss any of these items in detail at the Finance Committee's direction.