County auditors issue clean federal-aid opinion but find material weaknesses in local financial reporting

Humboldt County auditors reported an otherwise clean set of results for the county's fiscal 2022-23 financial statements but flagged two material weaknesses that county leaders said they are addressing.

The county's external auditor, CliftonLarsonAllen partner Brianne Weiss, reported an unmodified ("clean") opinion on the county's financial statements and on federal programs, but identified two repeat material weaknesses: incomplete financial information for a discretely presented component unit (the Fortuna-area fire protection district) and errors in receivable recording, including about $16 million in property tax receivables that auditors said should have been reported in the general fund rather than custodial funds.

Why it matters: A clean opinion on federal awards preserves the county's ability to receive federal dollars, while the material weaknesses point to process and accounting controls the county must strengthen before future audits. Auditors said the county has made progress but that additional work is needed to eliminate the repeat findings.

What auditors found and recommended

- Component unit reporting: The auditors said the fire protection district's financial information was not presented in a form the county could rely on for inclusion in the county's financial statements. CliftonLarsonAllen described that as an on-going, repeat issue. County staff said they have discussed paths to resolution with the district and expect improvements but were not able to include the district's information for the 2023 statements.

- Receivables and cash receipts: The audit identified cash receipts received after June 30 that should have been recorded in fiscal 2023 (about $5 million) and $16 million of property tax receivables that were booked in custodial funds instead of the general fund; auditors moved those amounts during the audit. The firm listed a repeat finding and recommended the county disaggregate receivables in its general ledger so the balances are tracked in more specific accounts.

- Management letter items: Auditors also recommended streamlining the county's many governmental trust funds (more than 20 held) to reduce complexity and risk of human error, and urged the county to disaggregate receivables for clarity.

- Single audit: The federal programs (single audit) opinion was unmodified and auditors reported no findings in that area.

- Risk areas and upcoming standards: Auditors reiterated broad audit risks that affect many governments, including management override of controls and estimates related to pensions and other post-employment benefits. They also flagged the county's implementation of new GASB standards as a continuing area for attention and noted several upcoming GASB pronouncements that may affect future audits.

County response and board action

Interim Auditor-Controller Michael Levinson told the board management is working to resolve legacy issues, and the county has already taken steps to address receivable tracking and component-unit reporting. Board members asked clarifying questions about the effect of the $16 million receivable adjustment on the general fund; Levinson said the entry reflected a timing/recording issue related to the county's teeter plan and did not change the county's available resources for that year.

The board voted to receive and file the audit reports. The motion was recorded as received and filed at the meeting with no changes to the auditors' opinions.

What officials said

Interim Auditor-Controller Michael Levinson, who presented the audit information, told the board the county had made meaningful progress on long-running audit items but that the two material weaknesses remained for 2023.

Next steps

County staff and auditors said they will continue implementation of improved receivable accounting and pursue a path to include the fire protection district's information in future financial statements. The county also plans to review and prioritize implementation actions around the management letter recommendations.

Ending: The board formally received the auditors' reports and asked staff to return with updates on remediation steps during the next audit cycle.