Richmond auditor issues clean opinion on city financial statements but disclaims on housing authority; auditors note payroll control weakness

Richmond City Council received the city's Annual Comprehensive Financial Report for the year ended June 30, 2024, and heard an audit presentation Feb. 4 from Badawi & Associates that issued an unmodified (clean) opinion on the city's government-wide financial statements while disclaiming an opinion on parts of the Richmond Housing Authority (RHA) records that remain incomplete.

The independent auditor, Ahmed Badawi, told the council the city's financial statements are "fairly stated in all material respects" for most funds but that the firm could not issue an opinion on RHA business-type activities because key records were not available for audit. He said the RHA audit work is ongoing and that the city has been writing off unsupported balances as part of a multi-year reconciliation effort.

The audit matters matter because the ACFR is the city's official, audited record of resources, liabilities and performance for the fiscal year. Voters, creditors and grantors rely on the ACFR to assess fiscal stability. Badawi said Richmond ended the year with an unrestricted general fund balance that represents about five months of expenditures and that the city's overall net position remains negative largely because of long-term pension and OPEB obligations.

Key findings and context - Audit opinion: Badawi & Associates issued an unmodified audit opinion for most city financial statements. For RHA and related component units the firm's opinion was disclaimed because prior-year and supporting records were incomplete, delaying an opinion on RHA fiscal years that predate the current cleanup effort. Badawi said the RHA audit work is expected to continue and that staff and auditors have weekly status meetings. - Pension and OPEB exposure: The auditors highlighted sensitivity of pension liabilities to discount-rate assumptions. Using the actuarial discount rate cited in the auditor's presentation, city pension liabilities were shown at about $371 million; a 1-percentage-point decrease in the discount rate would raise the liability materially. The auditors and staff said the city has policies to allocate year-end surplus dollars to pension and OPEB funding and noted the city also collects a 1% pension override on the property-tax bill to help meet obligations. - Internal control deficiency: The audit identified a recurring significant deficiency that arises when personnel action forms (hiring, terminations, pay changes) are not submitted to payroll promptly. That delay has led to prior overpayments; auditors said the outstanding recoverable amount had fallen to approximately $139,000. Badawi and staff said improvements are underway in payroll notification and staffing. - ARPA and other grant timing: Staff told the council the American Rescue Plan Act (ARPA) funds the city received have been obligated (contracted/encumbered) by the federal deadline and that approximately $3.4 million remains to be spent; the city has until Dec. 31, 2026, to liquidate obligations. - RHA repositioning and write-downs: City Manager Shasta Curl told the council the city previously recorded a roughly $15 million write-down associated with repositioning RHA assets and that the city has been subsidizing operations as HUD-required transitions and cleanups proceed.

What council members asked and staff responses Council Member Jimenez asked for a line-by-line explanation of why expenditures were lower than budgeted and whether vacancy savings represent recurring revenue; staff replied they will present budget-to-actual details at midyear budget review. Badawi explained the audit's scope focuses on record accuracy and short-term resource sufficiency (roughly the next 12 months) rather than long-term fiscal planning.

Staff and next steps Finance Director Andrea Miller and the auditor said audit adjusting entries were posted and management concurred with recommendations. Staff committed to provide a midyear budget-to-actual briefing that breaks down vacancy savings, ARPA project timing, outstanding negative fund balances in certain reimbursable funds (engineering grants and outside-funded services) and a plan for finishing the RHA audit backlog.

Ending Council members thanked staff and auditors for the work and asked for follow-up materials on reimbursements for engineering grants, pension payment sources and a timeline for ARPA-funded projects. The presentation and the ACFR are available in the meeting packet.