Vadnais Heights officials were surprised when an auditor hired by the city this summer informed them that they were responsible for operations of the Vadnais Sports Center and for overseeing its financial condition.

The report also found that the facility, which has two hockey rinks and a turf field under the state's second-tallest dome, suffered from "significant deficiencies in internal control over financial reporting," sloppy recordkeeping and had been lax in checking user permits.

Those findings were provided to state Auditor Rebecca Otto, who in late October sent Mayor Marc Johannsen a letter urging city officials to make corrections and report back to her office by Jan. 15.

"We certainly hope that they will," Otto said. "If they don't follow up, we will. They have some work to do."

City Administrator Gerry Urban said the city has acknowledged the findings and is fixing the problems.

The reason officials were surprised initially is because the city hired the nonprofit Sports Facility Development and Management Group to operate the $26 million facility at Hwy. 61 and County Road E. Consequently, the city thought the management group had responsibility for the financial aspects.

That created some confusion by both parties and led to checks totaling $110,000 being deposited into management group's account instead of the sports center's account. One of those was an insurance check for $79,000 to cover costs when its dome collapsed last December.

"They didn't know what to do with it," Urban said. "There was no money siphoned off."

"Since it was not clear which entity owned the VSC, the management company was not sure where the money should have been deposited," said the audit prepared by the Edina firm of Abdo Eick & Meyers, which has done previous city audits. "This significantly raises the risk of misappropriation."

The funds -- all accounted for -- have been transferred into the center's account. The city will take over the account and reimburse the management company for employee salaries and other expenses. It also has set up a Finance and Operations Committee to keep tabs on the balance sheet, Urban said.

The audit also found that equipment belonging to the center had been titled in sports center's or management's group name instead of the city's. In addition, some advertising and licensing agreements were not signed and others were not properly filed.

The list of eight findings also noted that since customers are not given wristbands or receipts, there is no way to track whether facility users had paid admission.

Another shortcoming is that there was very little oversight of agreements with user groups to be sure they were nonprofit. More than 97 percent of users must be nonprofit to enable the city to keep its bonds tax-exempt. The city will take over that responsibility, Urban said.

None of the problems came to light until this summer when the firm's auditor delivered the findings. That is when officials learned the city was responsible for the center's operations.

"That was news to us," Urban said. "He said this is a capital asset and that you have to account for it on city books."

Urban said many of the problems can be attributed to the fact that not all processes and procedures were in place when the arena opened in November 2010. He said many of problems have or are being addressed and the goal is to have them "cleaned up by the end of the year."

"Did we like seeing or hearing that? No," he said. "But things are not as bad as they sound."

Procedures aside, the arena might face its biggest trouble in February when a bond and interest payment in excess of $1 million is due. The arena used a $127,000 loan from the city to make its August bond payment. Urban is uncertain if the center will be able to make the February payment.

"It will be close," he said. "Maybe with a bit of luck. We are coming into some good months. We need to make a lot of hay."

Tim Harlow • 651-925-5039 Twitter: @timstrib