While the City of Santa Fe’s fiscal year 2022 audit—which city officials made public on Friday—shows five fewer findings than its FY 2021 report, auditors still identified 17 areas of varying concern with the city’s financial practices—12 of which were repeat findings from prior audits, an outcome State Auditor Joseph Maestas describes in a statement provided to SFR as “concerning.”
Of those findings, Maestas writes, “the more notable findings relate to a lack of internal controls and budgetary compliance.”
In total, auditors found six material weaknesses, defined as ones that indicate a “reasonable possibility…that a material misstatement of the city’s financial statements will not be prevented, or detected and corrected on a timely basis.”
Of those six material weaknesses, two related to federal grant requirements. In one case, auditors found the city had been unable to provide an accurate schedule of amounts expended from federal awards due to not setting up its financial system properly to “identify and segregate grant funding sources and expenditures” and due to turnover in grants management personnel. The city, which agreed with this and all the auditors’ findings, says it has hired a grants manager and is in the process of testing an upgraded system with full implementation for fiscal year 2025.
In the other federal grant finding—a new one—auditors found that 14 out of 18 transactions tested did not include appropriate approval by the Santa Fe Regional Airport manager and that “the city is not following procedures to ensure the appropriate approvals are being conducted on all purchases or retaining the supporting documentation to ensure purchase is allowable.” The city again noted the hiring of grant manager, as well as “key vacancies and personnel changes at the Airport during FY22 resulted in insufficient staffing to allow for robust internal controls.”
Auditors also found a material weakness in the city’s financial close-out and reporting process and said the city lacks an “effective internal control structure” such that the city “is not adhering to a monthly or quarterly accounting close schedule.” Auditors also noted repeat material weaknesses over control of cash balances and a new “significant deficiency” (considered less “severe” than a material weakness) over payroll controls.
Other types of noncompliance issues identified in the audit include:
• The city did not adjust its yearend payable balances to the Santa Fe Solid Waste Management Agency and Buckman Direct Diversion Project.
• The city had less pledged collateral coverage than was needed for compliance under state statute for a deposit held by Guadalupe Credit Union at June 30, 2022 (the required collateral was $8,901; the collateral provided was $0).
• The city’s former finance director remained as a signer on the Guadalupe Credit Union bank account even after her employment ended.
• Auditors tested two emergency procurements the city used for consulting services, neither of which appeared to meet the requirements of an emergency (view a spreadsheet of all the auditors’ findings here).
“Of course, the other notable finding which has persisted is the late submittal of their audit report,” Maestas says in his statement, while noting that the city’s 2022 audit “should not be considered reflective of the current condition of the city’s stewardship of taxpayer money as it only addresses FY 2022, which ended on June 30, 2022. We look forward to receiving the FY 2023 report, which is considered late.”
That city has said its FY23 audit, which was due to the state on Dec. 15, will be ready by May 15, 2024. The FY 2022 audit was more than eight months late. The city’s 2021 fiscal year audit also was late, as were ones for 2020, 2019 and 2018.
The late 2023 audit, Maestas adds, means the city “is still non-compliant for the purposes of receiving capital outlay. We will require a progress report regarding the late FY ‘23 audit report on March 15, 2024—which we require from all entities with late audits—that will further clarify any obstacles in completing the audit and provide a projected submittal date. Obviously, that report will be most reflective of the current state of financial management at the City of Santa Fe.”
Overall, the COVID-19 pandemic, software issues and staffing are cited repeatedly in the 2022 audit as contributing factors for the issues identified. In a news release, the city says it has “taken action to fill key positions, improve business practices, update critical software, and get caught up on financial reporting.” Specifically, the city has hired a finance director, grants manager, purchasing officer, controller and accounting officer. In addition, the Munis ERP system “was successfully upgraded in January 2023,” the city says, and the “new version of the system provides additional functionality needed to improve business practices through modernization and automation.”
While a few of the cited items had timeline completion dates timed to the end of 2023, several, according to the audit, are pending in 2024.
Carr Riggs & Ingram CPAs are scheduled to present the FY22 audit report to the city’s audit committee on Jan. 25, to the Finance Committee on Jan. 29 and to the City Council on Jan. 31. The FY22 audit, like the 2021 audit, received an “unmodified opinion,” which essentially means the auditors concluded the financial statements are presented fairly and abide by general financial accounting practices.
“The dedicated and professional staff of the city have been working diligently to get caught up on audits,” City Finance Director Emily Oster says in a statement. “These efforts show in the results of the Fiscal Year 2022 audit. I am especially proud of the improvements in our compliance with federal grant requirements. This audit report shows substantial progress towards achieving our goal of timely and accurate financial reporting.”
Mayor Alan Webber issued a comparable statement, describing the 2022 audit as showing “real, substantial progress for our city,” adding: “Two audits down, one to go.”