Auditors give Pueblo a clean 2024 opinion but flag grant-reporting weaknesses

Matt Marino, the engagement partner for the city's external auditors, told the Pueblo City Council that the firm issued an unmodified, or "clean," opinion on the City of Pueblo's 2024 financial statements but found material weaknesses tied to grant accounting and reporting.

The finding matters because the weaknesses relate to federally funded programs overseen in the city's financial statements and the single-audit process; auditors said they will follow up on management's remediation plans next year.

Marino and Max Haberkorn, the engagement manager, told the council the firm audited the city's financial statements, reviewed internal controls and performed a single audit of federal programs. "We did issue an unmodified or a clean opinion on the financial statements," Marino said. The auditors also issued a management letter and detailed a material weakness in grant accounting arising from two grants that were not recognized or recorded as deferred amounts in the city's accounting records.

The single-audit work covered four programs: the fiscal recovery (ARPA) funds, the highway planning and construction program, the HOME program and the Community Development Block Grant (CDBG). Auditors identified a separate material weakness related to CDBG reporting: the city failed to submit required subrecipient reporting to the federal financial-transparency system for at least one subaward. Marino characterized the errors as nonintentional and said management has implemented a revised accounting process and provided a management action plan; auditors said they will test remediation next year.

Auditors also described the largest technical change this year as the implementation of Governmental Accounting Standards Board guidance on compensated absences (GASB Statement on compensated absences), which required the city to measure potential future payouts for vacation and other leave. Marino said the new guidance shifts the accounting from recognizing only amounts expected to be paid in cash at year-end to recognizing amounts that are "more likely than not" (a 50% or greater threshold) to be paid out in the future, making the liability more of a projection than a simple cash pay-out. The city engaged an actuary to perform the required calculations, and auditors said management adjusted multiple funds and disclosures to implement the standard.

During questions, a council member asked whether the new accounting constituted a contingent liability and whether auditors could quantify the change; Marino said the standard does not set a single dollar amount to report and that the measure reflects judgments and estimates about employees' future leave usage and about payroll-related costs.

On ARPA (fiscal recovery) funds, a council member asked whether the city had spent the allocation properly and whether any money remained. Marino said the auditors examined the fiscal recovery program, deemed it a high-risk program for audit purposes, and did not identify findings related to improper use or control weaknesses for that program. He said the allotment was spent according to the grant terms and that the auditors did not report improper use.

Marino said the audit team filed extensions with the state and the Government Finance Officers Association to allow time for the compensated-absences work, and that management and the auditors cooperated throughout the process. He emphasized that findings are not unusual and that the key is whether management remediates them promptly to avoid repeated findings in future filings to the federal audit clearinghouse.

Next steps: council materials include the management letter and the city's action plan to address the grant-accounting and CDBG-reporting weaknesses; auditors said they will follow up in the next audit cycle to test whether those controls have been implemented.