Contending financial management of the city is improving each year, Santa Fe Mayor Alan Webber on Monday downplayed the findings of a recent outside audit that uncovered “significant deficiencies” and other weaknesses in internal controls.
“At the top line, at the highest level, we got an ‘unmodified’ opinion,” Webber said during his weekly news conference. “I say it’s the top line. It’s also the bottom line. When you get an unmodified opinion, it means basically that the auditor has said, ‘We are giving you a clean bill of health,’ and that’s what every city audit filing hopes for.”
However, State Auditor Brian Colón said a big piece of the city’s financial management is ailing. Colón said last week the city continues to have problems meeting its obligations for federal funds, which he called “deeply concerning.”
Auditors issued a “qualified” opinion on the city’s management of federal programs, which means it failed to completely follow general accounting and reporting standards — a problem that could jeopardize future federal funding.
“The findings related to the federal awards were severe and material enough to modify the audit opinion, and I remain deeply concerned,” Colón said Monday in a statement.
Colón reiterated his office will continue to keep a “close eye” on the city and “its necessary improvements and progress in improving their financial affairs.
“To be clear,” Colón added, “there are two opinions rendered for the [fiscal year] 2019 City of Santa Fe audit – one over the financial statements and one over compliance with the major federal awards. The city received a modified opinion over the federal awards. This is deeply concerning for the present and for future opportunities to work with the federal government on important projects.”
The unflattering audit of the city’s finances for the fiscal year ending June 2019 identified 21 deficiencies, weaknesses and other compliance issues. They ranged from failing to perform a year-end reconciliation that resulted in misstatements of about $1 million in the city’s utility receivable accounts to inadequate controls to address fraud risks within the payroll disbursement process.
The city was also six months late in submitting its audited financial statements, the audit noted.
“The city was not prepared for an audit of its financial statements in a timely manner, due most significantly to the lack of a periodic accounting close schedule during the year,” the audit states. “As such procedures had not been performed, city personnel had to reconcile all accounts for the entire fiscal year.”
Though the audit identified 21 significant deficiencies, material weaknesses and other compliance issues, the city still received an “unmodified” opinion.
“Audit opinions are based on materiality, which means errors or other issues may exist that are not considered material and allow the financial statements to be deemed materially accurate,” according to the Office of the State Auditor.
Nearly half of the findings were connected to the city’s financial management and accounting of federal grant programs. The audit found the city “lacks established internal controls and procedures over financial grant management to ensure compliance with applicable compliance requirements,” which the Webber administration hopes a new centralized Grants Management Division will help resolve.
“In the budget that the council voted for, there is a centralization of the grants management activity or function in the Finance Department to remedy that problem going forward,” Webber said.
The new division, however, is part of a proposed reorganization the City Council still has to consider. City officials declined to explain last week and again Monday how they would remedy the situation if city councilors didn’t approve the proposed reorganization.
During his news conference, Webber said the city “dispersed” grant management to the different departments receiving the grants.
“Some were better at managing the grants than others, and that model of dispersing the management of the federal grants left us vulnerable to the findings … in the audit that said in some cases the management was better than in others and in some places it wasn’t adequate,” he said.
While Webber said financial management of the city is improving, “That doesn’t mean we can’t get better.
“I don’t think we’ve got all of the work done that needs to be done,” he said.
Webber also said his administration takes the findings and recommendations from the Office of the State Auditor “very seriously.”
“The city manager was on the call with the auditor’s team going over [the audit], and she emphasized in that call that the tone from the top is very important,” the mayor said. “The tone from the top from this city government is that we take our financial reporting responsibilities very seriously, and we are on an improvement program that continues to go forward, not just with annual audits but with audits during the course of the year. I think we’re making progress.”