Red Lodge Budget Process Didn’t Pass Muster

The audited financial statements for the City of Red Lodge for the year ended June 30, 2022, reveal that the City of Red Lodge has a problem with its budget process. The finding and response contained in the financial statement are included in their entirety below:

“Criteria: Accurate preparation of the budget is necessary to ensure that the government is appropriately funded, fiscally responsible and is in compliance with state budget laws.

Condition: During review of the budget document examples were found where the budget appropriation on the tax levy requirements schedule did not agree with the total budget in the budget document detail and examples were found where the cash available did not agree with the prior years ending working capital.

Cause: Procedures are not in place to provide for the proper preparation and review of the budget document.

Effect: The budget document and the tax levy requirements schedule are incorrect, and were not prepared in accordance with state law.

Recommendation: The finance committee, mayor and employees involved in the budget preparation process should receive formal training and familiarize themselves with the budget document and its related requirements. Once the budget document haas been prepared, it should be reviewed and approved by those with sufficient knowledge of the budget and its requirements.

Response: Care will be taken when preparing the City’s annual budget. Further, review processes will be put in place to ensure the budget is properly prepared and in compliance with state law.”

When asked what the City has done to meet the recommendation and follow through on the response, the City Clerk, Loni Hanson, responded:

“The Administration committee has been involved in budget meetings with department heads over the last couple of months.  Before the final budget is approved, the admin committee will verify all numbers (cash, tax revenue, non-tax revenue, expenditures) are accurate.”

Further questions asked were: What specific steps were taken to meet the recommendation and response in item 2022-007 of the 2022 audit? Did the people involved with the budget receive the recommended formal training? What process does the Admin Committee use to verify the numbers are accurate? Jody Ronning, Chair of the Administration and Finance Committee replied:

“This year’s budget process is similar to last year’s budget process except that admin and finance will be more involved in the checks and balances when the budget is finalized. Admin and finance committee is here to support and help the admin department but we do not have the authority to direct staff. We will offer help in verifying that all ending balances are carried forward and if an invoice comes in late that will affect those balances a journal entry and a budget amendment will be approved by city council.  This is happening now so that probably isn’t a big change.  We will dedicate one of our public admin and finance meetings specifically to compliance and accuracy before the final vote of city council. The city treasurer and mayor are always in attendance at our admin and finance meetings and we have developed a good working relationship so I don’t foresee any issues moving forward.  Admin and Finance meetings are 9:00AM the second and fourth Tuesday of each month and are always open to the public”

“Additional Training has not happened yet and will be a future conversation for council and the city on who best to receive that training, staff, admin committee or the mayor or all of the above.  Other considerations by council/city could  be a third party accounting firm to review the budget for compliance but cost may be an issue as the  general fund is an extremely tight budget and this is where the funds will have to be spent on training /professional accounting support.  Currently the city is paying for the annual audit to catch any issues so that they can be corrected moving forward, so having another professional accounting review/audit may be overkill at this point.  Red Lodge is growing and so are her needs especially budget needs.  Stability of a qualified city manager would alleviate many of the issues in the budget process and will hopefully create fewer negative findings in the audit. Citizens of Red Lodge will have the opportunity to decide next year if they want to keep the existing form of council/mayor form of government or explore other forms of government such as a city manager form of government.”

The City of Red Lodge is hosting a public meeting to review the 2023-2024 budget and answer the public’s questions regarding the City’s budget this Thursday, June 20, at 5:30 p.m. at City Hall at 1 South Platt.