Lynnwood's auditors told the City Council on Oct. 20 that the city's 2024 financial statements and federal grant compliance received unmodified (clean) audit opinions, while an accountability audit found the city generally complied with state requirements but flagged electronic funds transfer controls after a payroll phishing loss.

Jun Li, the audit supervisor, and Zhi Hua Hu, lead auditor for the engagement, presented the city's exit conference covering the accountability audit, the financial statement audit and the federal single audit. "We are issuing an unmodified clean audit opinion to the city's financial statements," Zhi Hua Hu said.

The auditors said they found no material weaknesses or significant deficiencies in internal control for the financial statement audit and no instances of noncompliance material to the statements. For the single audit of federal grants, they reported an unmodified opinion on compliance for major programs, naming the Coronavirus State and Local Fiscal Recovery Funds (ARPA/SLFRP) and the Outdoor Recreation Acquisition, Development and Planning program as the two major programs audited; combined expenditures for those programs totaled about $8,800,000 and represented roughly 90% of Lynnwood's federal spending in 2024.

Jun Li said the accountability audit's work covered six risk-focused areas and concluded the city's operations complied "in all material respects" with applicable laws and policies for the items reviewed. However, the auditors issued a management letter (a communication below the level of a formal finding) on payroll electronic funds transfer procedures after city staff reported a phishing incident that resulted in about $7,000 being paid to a fraudulent account.

The management letter recommended updating the city's electronic funds transfer policy to include all elements required by the state budgeting, accounting and reporting manual, improving staff training on verification steps and ensuring consistent adherence to verification procedures. "Management letter is only referenced but not published in the audit report," Jun Li said, noting management letters are used to communicate control deficiencies that are important but not material.

Finance Director Michelle Meyer told councilmembers that the items the auditors identified as uncorrected misstatements were immaterial and that the audit team had shared those items with staff for correction in future statements. The city also participated in the Government Finance Officers Association (GFOA) certificate of achievement program; auditors said the related review was completed and a letter was provided for the city's use.

Councilmembers asked clarifying questions about misallocation of budget lines and what an "accountability audit" covers. Meyer explained the city routinely addresses minor aggregations and misstatements by adjusting accounting entries and that the accountability audit, a Washington state requirement, is broader than the financial statement audit and can include a range of operational topics such as payroll, residency requirements and police overtime.

The auditors said the exit packet and draft accountability report would be posted publicly in about a week. They also noted the next audit covering the three parts (accountability, financial statements, federal programs) is scheduled for spring 2026 and provided a projected cost estimate in the exit materials.