The city of Santa Fe’s lingering financial woes continued into fiscal year 2020, according to an external audit that cited problems with internal financial controls and identified 12 repeat findings from the previous year, including tardiness and issues with some federal grant reporting.
The audit, released Monday, reported 21 findings — including 10 “significant” issues and eight “material” deficiencies.
Albuquerque-based accounting firm CliftonLarsonAllen completed the audit, which was submitted to the State Auditor’s Office about 10 months late. The late 2019 audit, in comparison, wasn’t submitted to the state until the beginning of fiscal year 2021.
State Auditor Brian Colón said last year Santa Fe’s financial accounting was concerning enough that his office would keep an eye on the city going forward.
“As soon as the City of Santa Fe submitted its draft audit report my staff worked diligently to complete a thorough and then ultimately, a final review,” Colón said in a statement. “Today the audit report was released and made publicly available. As I have previously expressed to the City there are significant concerns raised in the audit report and the City should take immediate action to address and remedy the findings so the City’s constituents will be best served.”
Colón had been particularly concerned with negative findings surrounding the city’s reporting for federal programs, which he previously said could put the city in jeopardy of losing out on future federal grants.
In its response to the 2020 audit, city management attributed repeat findings to the tardiness of the 2019 audit, saying staff could not take corrective action in fiscal year 2020. The city said it will have corrective measures in place for the repeat findings by Feb. 1.
Finance Director Mary McCoy also cited an understaffed financial department due to the pandemic, which she said made accounting difficult.
The newly released audit comes about four years after the release of the McHard Report, which found a number of inadequacies with the city’s internal financial controls.
McCoy said the findings of the McHard Report led to a decision to implement a new IT system to oversee city finances: the Tyler Munis Financial and Human Capital Management System. Fiscal year 2020 was the first year the system was used for an audit, she said.
The switch to Munis was blamed for a number of findings, including the audit’s delay. According to CliftonLarsonAllen, a lack of periodic accounting throughout the year made the city ill prepared for an audit of its financial statements.
“City personnel had to reconcile all accounts for the entire fiscal year,” the company said.
Raul Anaya, principal with CliftonLarsonAllen, agreed with McCoy’s interpretation at a City Council Finance Committee meeting Monday, but added the Santa Fe’s most recent delay is the longest he has experienced.
“Any time you run into audit findings, it’s usually the result of somebody forgetting something, someone not supervising something or someone dropping the ball, and I think that was the case,” he said. “That was amplified by — I think the biggest thing — was a new system implementation combined with COVID and staffing shortages.”
Assistant Finance Director Alexis Lotero told the committee the abrupt loss of the city’s accounting officer, a key position when it comes to managing the year-end close process, further limited the department’s ability to submit a timely report.
McCoy said the Finance Department had a 40 percent vacancy rate last year, but she couldn’t provide a figure on current vacancies. The city has funded additional positions and has unfrozen others, some of which already have been filled. A grant manager position hasn’t been filled.
“We have had an extreme difficulty finding qualified applicants for these positions,” McCoy told the Finance Committee. The disbursal of $17.5 million in COVID-19 assistance funds created additional work for an already short-staffed department, she added.
During a review of the city’s expenditures from federal awards, auditors found multiple instances in which expenditures were not properly reported. An initial schedule of expenditures provided to the auditors reported about $7 million had been spent; however, the final in a series of reports listed expenses of $4.1 million.
According to the audit, the city failed to calibrate Munis to identify federal expenditures in its financial records.
During a test on federal grant reporting, auditors found the city did not have adequate internal controls in place to comply with requirements for federal Community Development Block Grants/Entitlement Grants. “Also, there is a lack of communication between the Finance and Program personnel,” the audit said.
Auditors found the city could lose out on federal grant reimbursements by failing to claim expenditures within a 60-day period. And they cited a nearly $200,000 grant that was never spent.
CliftonLarsonAllen recommended the city designate employees to reconcile grant activities and funds, which the city agreed to do.
McCoy said the city has not received any indication from the federal government that it is at risk of losing out on future federal grants.
Auditors found numerous problems with other financial reports, including significant deficiencies in internal controls over investment income allocation, cash balances, interfund activities, accounts payable and compensated absences for employees.
But McCoy said the city received an unmodified opinion on its audit, which means the State Auditor’s Office had no issue with the city’s financial statements. Based on statements in the audit, she said, the city has improved its financial standing.
The City Council has allocated $500,000 for an accounting firm to assist with the fiscal year 2021 audit, which is due in December. And according to a PowerPoint presentation at the Finance Committee meeting, the city already has started the year-end close process for fiscal year 2021, which ended June 30.
Completing the 2020 audit put the city in a better position to submit its next audit in a timely manner, McCoy said.