City auditors say 2021 financial statements near completion, flag material weaknesses

An outside auditor told the Ithaca City Common Council on June 18 that the city's 2021 financial audit is close to completion but will include continuing findings and at least one material weakness.

"So my name is Dwayne Shoen, audit partner with Insural. I'm here just to give you, give you all an update to kinda where we stand, in terms of, completion, of the 2021 audit," Dwayne Shoen said, opening the council's audit presentation.

The audit partner told council members the team is still awaiting several pieces of information from city staff needed to finalize the report and financial statements. "At this point, at this point, we are waiting, for the city to provide the last few pieces of information we need for the audit report. Once we get those, we'll be able to, get to finalization," Shoen said.

Why it matters: The audit will include management comment(s) that continue prior-year findings and at least one material weakness, which can affect public confidence and influence lenders' assessment of municipal fiscal controls.

Shoen said that some areas flagged in past audits remain unresolved. "We found some fairly significant differences in the fixed asset records... We, upgraded it, if you will, to a material weakness," he said, describing discrepancies between recorded fixed assets and supporting records.

He summarized the draft financial results the auditors have prepared. On a government-wide basis, the audit shows a reduction in net position of about $3.3 million, principally from pension and post-employment benefit reporting adjustments. On a fund basis, the auditors reported an overall increase in combined fund balances for fiscal 2021 of about $10.5 million, with a roughly $6 million increase reported for the general fund and a $5.1 million increase in the capital projects fund driven largely by a smaller bond anticipation note in 2021 versus 2020.

Shoen said some audit adjustments were proposed and corrected by management during the audit process, and those adjustments increased reported general-fund balance by about $1.9 million. He also noted additional, less severe issues: "There is 1 significant deficiency with respect to review of ARPA reporting," and a compliance issue tied to a late single-audit filing.

Council members pressed for timing: Alderson (Alderperson) Brown asked whether the auditor's repeated reference to "finalized" meant the report for 2021 only; Shoen confirmed it did. When asked for a completion date Shoen replied he could not give one until the outstanding information ' including general-fund encumbrances and leased-asset details ' is delivered.

Council interest and next steps: Councilors sought clarity on the causes of the multi-year audit lag. Shoen cited pandemic-related staffing disruptions that delayed completion of the 2020 audit and said those effects "kinda just... snowballed." He said city controller staff and outside consultants are now working to produce trial balances for subsequent years so audits for 2022'24 can proceed more quickly.

Several council members asked whether improved accounting systems and a permanent controller would help; Shoen agreed that better integration of capital-project and fixed-asset records into the city's accounting system would reduce delays.

The council did not take any formal action on the audit at the meeting; Shoen said the auditors will issue the final audit report and management letter once the outstanding documents are received and reviewed.