Seaside auditor reports clean 2022-23 opinion but flags material weakness in fund transfers

At a Seaside work session, auditor Rick Prew of Kearny Thompson told council members the citys fiscal 2022-23 financial statements received an unmodified, or "clean," opinion, while the audit also included a material weakness in internal control related to a large adjustment between funds.

Prew said the firm issued three audit reportsthe financial statement audit, testing under Oregons minimum standards, and a report under government auditing standardsand that each received a clean opinion. "We rendered an unmodified opinion a clean opinion," he said, adding that the city is "in sound financial condition."

The auditor told the work session the material weakness arose because auditors needed to propose a sizable adjustment moving money between funds after a bond issuance and repayment. "The only reason it's considered that is because it's a large number of adjustment that we made between funds," Prew said, and he emphasized the finding reflected the size of the adjustment rather than a solvency concern.

Prew also described several routine adjustments and some non-attest accounting assistance the auditors provided, such as help tracking depreciation schedules; he stressed management approves estimates and that auditors rely on outside actuaries for valuations of pension liabilities. On the latter, he said the pension obligation is a long-term estimate and not an immediate cash call on the city.

Council members and staff discussed ways to reduce reporting complexity. Prew noted the audit packet includes separate budget-to-actual pages for dozens of funds (the transcript referenced "40 something" funds) and suggested the city could consider consolidating similar funds to simplify accounting, though he cautioned against changing fund structure at the same time as a major accounting-system implementation.

Prew also warned that spending of federal American Rescue Plan funds can trigger a federal "single audit" if total federal expenditures reach $750,000 in a year; he said that requirement can increase audit time and estimated additional cost at about $6,000 to $7,000. "If you have expenditures of $750,000 or more from federal funds, ... that kicks in a single audit," he said.

The presiding councilmember said the audit will appear on the evening agenda for official acceptance and should be posted to the city's website after that action. No formal approval or vote on the audit occurred during the work session.

The citys finance staff were credited repeatedly for addressing the transition to new procedures and for assembling the audit materials, and both auditors and council members described the overall result as a positive, albeit time-consuming, first year under the recent staffing and system changes.

What comes next: the audit will be formally accepted at the council meeting scheduled for the evening session and the report will be made available to the public, per the councilmembers remarks at the close of the work session.