CalHFA audit shows clean opinions; auditors flag allowance and new GASB guidance

The California Housing Finance Agency (CalHFA) received unmodified opinions this year on both its agency financial statements and federal awards, CalHFA staff and auditors told the agencyaudit committee on Feb. 20.

At a standing-room discussion of the fiscal year ended June 30, 2024, Oksana Glushenko, CalHFA comptroller, said auditors had signed off on the audit on Dec. 9. Auditor Mandy Merchant of CliftonLarsonAllen (CLA) told the committee the opinion on the financial statements and the single-audit reports on federal awards were "unmodified," and that the audit produced no findings, material weaknesses or significant deficiencies.

The result means CLA issued a clean opinion for the agencyfinancial statements and federal programs. Merchant said the engagement produced no audit adjustments and no changes to the audit plan. "We did not have any significant difficulties, no disagreements," she told the committee. Glushenko noted the agency also received the Government Finance Officers Association certificate of excellence in financial reporting for the seventh consecutive year.

Why it matters: Clean opinions indicate the auditors found the agency's financial statements were presented fairly in all material respects and that federal program compliance testing did not identify reportable deficiencies. But auditors and staff pressed the committee to maintain focus on key estimates and liabilities that carry forward risk.

Allowance for loan losses and portfolio monitoring

Auditors identified the allowance for program loan losses as a significant management estimate that bears continued scrutiny. Merchant and CLA senior associate Liz Richardson described the allowance methodology as a combination of portfolio look-backs (monetary unit and other sampling) and individual identification of problem loans. Merchant said CLA samples hundreds of confirmations and uses monetary-unit sampling for material coverage.

Committee members pressed staff on the size and sufficiency of the allowance. Merchant pointed the committee to Note 5 in the financial statements, where management details the allowance for program loan losses and its underlying methodology. In discussion, CalHFA staff said the allowance was arrived at using historical performance and a tiered approach for loans in workout or delinquency status; staff cited an example overall allowance balance discussed during the meeting.

New audit standards and GASB 101

CLA auditors flagged that new auditing standards on technology (AU-C modernization) and heightened IT testing added communication and work to the 2024 engagement. On accounting standards, CLA highlighted GASB 101 as the principal forthcoming change that may affect CalHFA's reporting; GASB 101 addresses compensated absences and asks governments to align recorded liabilities with policy and the estimated probability that leave will be taken or paid out. CLA said most agencies would see a small or modest impact; it has begun outreach and will issue guidance to clients.

Pension and OPEB matters

Auditors reminded the committee that pension and other postemployment benefits (OPEB) are actuarial estimates supplied by the State Controller's Office or other statewide actuaries. Glushenko and CLA said staff maintained close coordination with the Controller's Office to obtain actuarial inputs, which aided timely completion of the audit.

Audit process and single-audit scope

CLA described a risk-based approach to the engagement that emphasized loan receivables, revenue recognition and program compliance testing for federal awards. Merchant noted the firm performs onsite testing (about one week on-site) supplemented by remote procedures and that confirmatory responses from borrowers have a high return rate because CalHFA assists with follow-up.

Committee direction and next steps

Directors asked staff to bring additional work-product to future committee meetings to help the committee carry out its oversight role, including a closer look at the allowance calculation and historical performance so members can assess whether the allowance is sufficient for the portfolio. The committee also asked staff to return to the March meeting with follow-ups on compensated-absence exposure and any policy implications for workforce scheduling and budgeting.

Bottom line: CLA delivered clean audit opinions and no findings for FY2024. The committee praised staff and auditors but requested more data and recurring reporting on allowance sensitivity and the OPEB/pension inputs that underpin significant actuarial estimates.