External auditor issues unmodified opinion on Phenix City FY2023 financials; notes recurring reporting deficiencies

An external auditor told the Phenix City Council that the city's fiscal year 2023 financial statements received an unmodified ("plain") audit opinion and showed positive operating and fund balances, while the auditor also reported recurring deficiencies in the city's financial reporting process.

The auditor said, "a plain audit opinion on the financial statements saying that they are presented fairly in accordance with generally accepted accounting principles." The report covered government-wide statements, fund-level statements and a single-audit of federal awards.

Why this matters: a clean audit opinion signals that the city's audited financial statements are materially correct under accounting rules, a factor used by rating agencies and lenders. At the same time, the auditor identified internal-control weaknesses that could affect timely reporting and require corrective action.

The audit presentation highlighted several headline figures for the fiscal year ending Sept. 30, 2023. On the government-wide statement of net position, the auditor reported total assets of about $171.8 million and total liabilities of roughly $105.8 million, leaving a total net position near $74.6 million, of which about $27.7 million was unrestricted. For the city's business-type activity (public utilities), the auditor reported roughly $94.2 million in total assets and a net position of about $39.5 million, with approximately $5.9 million unrestricted.

At the fund level, the general fund's total assets were reported at about $61.7 million and total liabilities a little over $2.0 million, producing a fund balance of about $59.3 million and an unassigned balance of approximately $49.1 million. The auditor said general-fund revenues totaled about $55.9 million for the year, including approximately $38.5 million in sales and use taxes, which represented an increase of about $3.5 million from the prior year. Total general-fund expenditures were reported at about $40.7 million, producing an increase in fund balance for the year of about $14.4 million.

The auditor described the utilities fund operating results as positive: operating revenues near $15.6 million and operating expenses around $12.8 million, producing operating income of about $2.8 million. Nonoperating activity and a grant recognized near year-end raised the overall change in net position to roughly $5.16 million; the auditor said that excluding the one-time grant, net income would have been about $3.2 million.

The auditor also described the cash-flow and capital picture: cash provided by operations was about $4.1 million, noncapital financing inflows were about $2.4 million, and the city spent about $12.9 million overall on cash outflows, including roughly $10 million in capital asset additions. As a result, unrestricted cash rose while total cash declined from about $19.7 million at the beginning of the year to about $13.6 million at year-end because restricted cash was largely spent on capital projects.

On internal controls and compliance, the auditor reported a clean opinion on federal compliance and the single-audit of federal awards, stating that the city expended about $2.8 million in federal awards during the year, including roughly $1.9 million that flowed through the utilities capital project. However, the auditor said the report included material weaknesses related to the financial reporting process, noting delayed reconciliations (bank and other accounting reconciliations) and limited segregation of duties; the auditor called these the same three deficiencies reported in prior years and linked some delays to recent software changes.

Council members asked whether the positive results would affect the city's credit rating. The auditor declined to predict rating actions but said stronger financials generally "certainly won't hurt the rating" and noted that rating agencies consider measures such as median household income among other metrics.

The presentation closed with council remarks praising the finance team's conservative approach, use of grants and bond proceeds to fund capital improvements, and emphasis on continued careful stewardship of resources. No formal votes or motions were recorded during the audit presentation.

The council was invited to ask follow-up questions and the auditor offered to provide additional details from the audit report and accompanying notes, including schedules for debt, pension liabilities and the schedule of expenditures of federal awards.