By Gene Felder
In the Aug. 13 Indy article “City Severs Ties with Current Auditors,” it includes a quote from me that says: “Assistant city manager Gavin Curran emailed me and answered, ‘Yes, that’s true.’”
I don’t want to give the wrong impression that it is possible to get a straight answer from the city.
My questions were written in a letter to Mayor Sue Kempf on July 25, which included: “Is it true that for six years the City Finance Department did not complete a year-end audit on time and that in 2023, the completed audit was over a year late?”
On Aug. 2, the assistant city manager Gavin Curran emailed a 249-word answer, which was basically, “Yes, it is true.” But you be the judge. He wrote:
“Timing of the Audit and ACFR: The finance team’s goal is to meet the City Council’s goal of finalizing the audit and issuing the city’s annual comprehensive financial report (ACFR) by December each year. The December deadline is important as it minimizes changes to the independent auditor’s team, ensures the ACFR is issued well before the March 31 deadlines for federal single audits and assessment district bond requirements, and before the finance staff begins the budget process. It is important to note that, under the existing contract, the independent audit firm is responsible for preparing the ACFR for city staff to review. There have been years when the preparation of the report was delayed through no fault of the staff.
Historical ACFR Release Timeline
Before 2017, the Finance Department consistently issued the ACFR in December.
For fiscal years 2017-18 and 2018-19, the release was delayed to January, seven months following the end of the fiscal year.
The pandemic and staff turnover pushed the release dates further: FY 2019-20: February 2021; FY 2020-21: March 2022; FY 2021-22: May 2023; FY 2022-23: March 2024.
While not an excuse, the City Finance Division lost several long-term employees with over 20 years of experience to retirement or promotion shortly before and during the pandemic. While unavoidable, the loss of institutional knowledge and the change in these key positions did impact the division. The prior year audit report can be found on the Finance Division webpage.”
I also asked: “Is it correct that the auditor found regarding “Internal Control over Financial Reporting” that the City had “deficiencies in internal control?” “Is it correct that in April 2024, assistant city manager Gavin Curran terminated Eide Bailly, the auditor who had been our auditor for two years, without consulting the City Audit Committee or the City Council?” and “Was Question 13 in the RFP for a new auditor answered honestly, which was: “Did the Auditors identify any noncompliance, significant deficiencies of material weaknesses in the FY 2022-23 audit?”
Try and find the answers below, the rest of Mr. Curran’s email included:
“Material Weakness: The auditors did identify a material weakness in the Finance Department’s internal controls for the year-end closing process. The material weakness was noted due to the large number of audit adjustments to our general ledger identified and corrected during the in-office review of our work.
To address this issue, the Finance Division added an Accounting Supervisor this past year and hired a former finance director part-time to help with the year-end closing process and provide the additional review necessary to avoid these reporting findings. This would be in addition to an independent internal control and process improvement review requested by the City Council.
Also, as in past years, the Citizens’ Audit Revenue and Investment Advisory Committee will review the ACFR, audit letter and the audit findings. The Committee will have the opportunity to review the letters, discuss the material findings with the Finance Department, discuss the corrective action plan, and meet independently with Eide Bailly, the prior year’s auditors, to ask questions about the audit and the material finding. A report of the Committee’s findings will be presented to the City Council shortly after that. Prior reports can be found on the Committee webpage.
RFP Error: During the RFP process, an error occurred in the response to participants, incorrectly stating that there were no material audit findings. This mistake was later corrected. All audit firms that participated in the RFP interview process were provided with the audit letters, including the letter noting the material finding and the corrective action plan.
Decision to Not Continue with Eide Bailly: The decision was made not to renew the contract following an audit planning meeting in April. During this meeting, Eide Bailly informed staff that the Fiscal Year 2023-24 audit would not be completed until March 2025. Despite stressing the importance of a December deadline, Eide Bailly again indicated that meeting the December deadline was not possible. While changing auditors is never an easy decision, it was one that needed to be done quickly to make sure a new audit firm could be in place in time to have the ability to meet the December timeline. Getting a new audit firm in place requires an RFP, outreach, review of the proposals submitted, interviews by staff and the Audit Committee, and a final recommendation to the City Council. A recommendation to award an audit contract is expected to go before the City Council on Aug. 13.”
- I attended the Aug. 7 Audit Committee meeting, where we were told that Mr. Curran did fire the auditors criticizing his finance department without any consultation with the Audit Committee or the City Council.
- A lesson to learn is, maybe stop asking questions. So, at the Aug. 13 City Council meeting, I made the following statements:
- The fiscal year ends June 30, and the audit is to be completed by an outside audit firm by Dec. 31. This was successfully done in 2016 and 2017, but not since 2017.
- The audit is to be formally presented to the city council before the end of the following fiscal year. This was successfully done in 2016, but apparently not since 2016.
- Has the outside auditor reported issues or findings with city procedures, internal controls, cash and investments or other matters? Yes, in every single year 2016 through 2023.
- Did the auditor specifically report issues with year-end closing procedures? Apparently, yes, for every single year since 2016.
Issues have been ongoing for sufficient years where the poor performance should have been addressed. The IT department should, by now, have an improved accounting system. Certainly, it is not appropriate to have Mr. Curran, the person being criticized by the auditor, be in a position to fire the auditor.
Gene is treasurer of Laguna Residents First, treasurer of the Laguna Canyon Conservancy, president of the Top of the World Neighborhood Association, and serves as an alternate on the Coastal Greenbelt Authority. He is the former president of the Laguna Beach Historical Society and was co-author with Foster J. Eubank of the Arcadia Publishing book “Laguna Beach, Then & Now.” Gene graduated from Cal State Fullerton with a degree in business administration and went on to earn a master’s degree from UCLA.
