OBSERVER Photo by M.J. Stafford It’s cold and snowy outside Dunkirk City Hall these days — and inside, the city’s finances are in a long-duration storm, according to its 2024 audit.

A multimillion dollar negative fund balance. Expenditures well past the budget. Confusing and incomplete recordkeeping.

The bad news cascades through the city of Dunkirk’s official 2024 audit, conducted by Drescher and Malecki and issued in late October.

The audit was months late, with city officials admitting that their own poor record-keeping played a role. However, it was reportedly the key item needed in the city’s quest to get its debt certified so it can access the state’s Fiscal Recovery Act deficit funding.

Judging by some of the information in the Drescher and Malecki audit, City Hall is desperately thirsting for the approximately $18 million the deficit bonds could provide.

For example, the city is running a fund balance deficit, aggregated across all its budget funds, of $8,679,655. That’s worse, by more than $2.6 million, than the 2023 deficit of $6,301,023. The general fund has a $5,611,467 balance deficit, just by itself.

The audit bluntly states, “These deficits are anticipated to (be) remedied through future property tax revenue, rate increases, and deficit bonds.”

The city blew well past its budgeted expenditures in 2024, spending $19,779,969 against a budgeted $16,378,672. Meanwhile, “overall revenues for governmental activities decreased 8.9% from the prior year, largely due to the city utilizing less federal aid.”

While Dunkirk’s total bonded indebtedness decreased by $1,525,274 due to scheduled principal payments, the city still owes $28,954,715 to pay off on bonds and notes. The audit notes the city issued $12,731,307 in revenue anticipation notes in 2024.

“The city has experienced net operation deficits” in its budget funds, the audit states. “Because of these deficits, the city does not have adequate levels of available fund balance to provide liquidity necessary to meet expenditures prior to the receipt of revenues, thereby necessitating the issuance of the revenue anticipation notes.”

The document is mostly the typical audit material of numerous and various financial tables and statements. Much of it makes for rather dry reading.

It gets much more interesting at the end, when Drescher and Malecki calls out Dunkirk’s government for several “material weaknesses in internal control.”

For one, “the city’s accounting system of internal controls does not provide reliable accounting information in a reasonable amount of time after year-end or on an ongoing basis.”

That’s an effect of Dunkirk failing to have, or follow, “formal policies and procedures documented for critical accounting cycles” such as cash receipts and accounts receivable.

The auditors also blast Dunkirk over its deteriorated fund balance. They flash one chart that’s anything but dry, showing the city’s cratering fund balance figure over the past five years. The city’s fund balance went from negative $101,915 in 2020 to minus $1,042,608 in 2021 and minus $3,678,906 in 2022, before hitting the even worse figures of 2023-24.

The city consistently spent more than it took in over that time, according to the chart. Its expenditures in 2020 were a whopping $6,403,046 more than its revenues. The same line reads $1,569,966 more expenditures than revenues for 2021, $2,636,298 for 2022, $2,622,117 for 2023, and $2,486,209 in 2024.

“We noted that the city had expenditure accounts that had overspent their respective budget without approved budget amendments or transfers approved by the Common Council,” Drescher and Malecki go on to state. “In addition, the city appears to have undertaken large-scale capital projects with no apparent funding source, relying on funding from the operating funds, which is not available or budgeted.”

None of the issues outlined in the audit are all that new, and the city worked on several responses in 2024. It enacted a new financial affairs office, removing an elected treasurer from the equation, in the hopes of professionalizing its accounting. Another move Dunkirk made was adding new records and payroll systems that all city departments can access and use.

The full 2024 audit is on the city of Dunkirk’s website. It’s in a group of audits located on the Finance and Treasury page under the Departments subsection of the Government section.