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This includes $2.8 million in debt reduction funds, $1.6 million in the general fund, $1.2 million in capital improvement funds, $1.5 million in enterprise funds, and $0.2 million in special revenue funds.

The audit was presented to the city council last week. The city's financial picture is very good, said city administrator Steve Helget.

In 2003 and 2004, the city endured a loss of aid from the state, and had to make budget adjustments to accommodate the loss, said Helget. But the city has recovered from the loss, he added. "We weathered it well," said Helget. "It wasn't easy, but we did it."

Debt service funds, used to repay bond issues, had a balance of over $2.8 million. Currently the city has 10 outstanding bonds.

Funds for capital improvements include: $476,400 for water and sewer improvements; $198,000 for street and sidewalk improvements; $163,400 for general improvements; $137,730 for pre-areation replacement at the city sewer pond: $130,200 for park improvements; $53,000 for police purchases; $28,700 for emergency services improvements; $16,100 for liquor store improvements; and $2,150 for airport improvements.

Most of the city's business-type funds are doing quite well, including the liquor fund that showed a profit again.

The sewer fund, however, was unable to keep up with equipment depreciation, according to the audit. The audit recommended adjusting sewer rates for customers.

If the city does decide to increase sewer rates, it would not be done until officials begin to make the 2006 budget, then any changes would likely be made in small increments instead of all at once, Helget said.

During the state-mandated audit, auditors looked at spending practices as well as accounting practices. Federally-mandated changes in the audit method this year included dividing all of the city's funds into two types, business-type (liquor store fund, sewer fund, etc.) and governmental funds. In addition, the city had to establish a value and a depreciation schedule for everything it owned with a value of more than $5,000. The audit took into consideration depreciation before figuring the city's net assets.

Auditors did find some reportable violations of state statutes.

Auditors reported the city to the state for keeping administrative fines for traffic violations. State statute requires that the state receive any fines for violations of state offenses like speeding or not wearing seat belts.

However, the city does not plan to stop the practice until the legislature makes a decision on its legality, said Helget. A bill in the legislature would have legalized the practice, but it was not addressed during the regular session, he added. It is not known whether it will be addressed during the special session.

Another reportable offense addressed by the audit was the practice of holding city-paid birthday parties for city employees, a practice that has ended, said Helget.