Watertown City Audit Earns Clean Opinion as 2025 Finances Show Strong Reserves and Utility Profits

Northeast Radio SD News – Watertown, SD - The City of Watertown received high marks on its 2025 finances, earning a “clean, unmodified opinion” from the accounting and advisory firm Eide Bailly.

Brian Stavenger, a partner with the firm, presented the executive summary of the 2025 Annual Comprehensive Financial Report (ACFR) remotely during the August 3, 2026, City Council meeting. The presentation marked the second year of Eide Bailly’s auditing relationship with the city.

Stavenger noted that the audit process went incredibly smoothly this year, crediting city staff for their preparation of the nearly 160-page financial document.

The primary objective of the audit was to provide reasonable assurance that the city’s financial statements are free of material misstatement.

·         The city received a clean, unmodified opinion, meaning all accounting rules were properly followed and all required disclosures were included.

·         Because the city expended over $13 million in federal funds in 2025, a separate federal audit was required, which also returned a clean, unmodified opinion regarding compliance and internal controls.

Stavenger pointed out three minor findings, which were identical to the 2024 audit. He explained that these carried over primarily because the 2024 audit was completed late in 2025, leaving the city with little time to implement changes before the new year.

The findings included proposed adjustments to material journal entries, a need for better segregation of duties regarding year-end reconciliations, and a lack of formal review documentation on federal awards. Stavenger assured the council that a strong game plan is now in place to alleviate these issues going forward.

City Financial Health and Reserves

The audit provided a broad look at the city’s overall financial health, highlighting stable revenues and consistent cash balances.

·         Citywide Unrestricted Cash: The city holds just under $100 million in unrestricted cash and investments, a figure that has remained consistent over the last three years.

·         General Fund: Revenues have remained fairly flat over the last three years with a slight uptick in 2025, while expenditures have continually increased due to rising operating costs and wages.

·         Fund Balance: The unrestricted fund balance (reserves) at the end of 2025 represented about 61% of the city’s general fund expenditures.

Councilman Brent Mohrmann asked how long the city could operate on those reserves if no new revenue came in. Stavenger clarified that the 61% fund balance equates to just over seven months of operating capacity. While this is a slight drop from the eight-month capacity seen in recent years, it remains well above the 50% minimum target recommended for municipalities.

Municipal Utilities and Sewer Operations

The presentation also highlighted the strong financial standing of Watertown Municipal Utilities (WMU) and the city’s sewer fund.

·         WMU (Electric, Water, Gas): All three funds were profitable in 2025, generating approximately $10 million in operating income. When adjusted for non-cash depreciation, the cash-basis operating income sits at about $13.5 million. The funds hold just under $50 million in cash and investments.

·         Sewer Fund: The sewer fund also showed strong profitability, with a $2.9 million operating income (or $4.7 million when adding back depreciation). Roughly 92% of the sewer fund’s net position is tied up in infrastructure.

Following the presentation, Councilman Dan Schutte made a motion to accept the 2025 audit, which Councilman Michael Heuer seconded. The council voted unanimously to approve the motion.

Note: There were no matching agenda documents attached for review.

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