City auditors give Lansing an unmodified opinion but flag pension, OPEB and control weaknesses

Bill Tucker, an auditor with Maynard, Costerison & Company, told the Lansing Committee of the Whole on Jan. 27 that the firm issued an unmodified, or clean, opinion on the city's June 30, 2024 financial statements.

The auditors said they issued clean opinions on nine opinion units, including government-wide statements and the city's five major funds. "An unmodified clean opinion is the best opinion you can receive," Tucker said, adding that the opinion means the statements are presented in accordance with generally accepted accounting principles.

The audit presentation highlighted two large long-term liabilities: a combined net pension liability of roughly $378 million and net other post-employment benefits (OPEB) obligations around $209 million. Tucker told the council the city's defined benefit pension plan showed about $146 million in net pension liability and roughly 53% funding; the police and fire retirement plan had nearly $232 million in net pension liability and about 57% funded. For OPEB, the employer retirement system had just over $45 million (about 51% funded) while the police and fire OPEB was about $151 million and roughly 28% funded.

Tyler Baker, also with Maynard Costerison, reviewed the governmental fund results. He said the general fund ended the year with a total fund balance just over $40.6 million and an unassigned fund balance of about $31.3 million, roughly 20% of annual operating expenditures. "Our recommendation ... is in that 15 to 20% minimum unassigned fund balance, which you guys are at," Baker said.

Auditors also communicated three recurring matters in a letter on internal controls: a material weakness for material journal entries, a significant deficiency in payroll controls and a compliance finding tied to unfavorable budget variances in the general fund and some special revenue funds. Baker said the findings are similar to the prior year but noted wording in the report shows improvement. "As the city continues to implement the new software, I think there's an opportunity that some of these could be addressed," Baker said.

An internal auditor and finance staff told council members the city has corrective-action plans and is implementing a new financial system (BS&A) to improve controls. The internal auditor said the new payroll system should allow review before processing and reduce timing issues for material journal entries. The controller said the finance team is meeting with other departments during the year to reduce last-minute submissions that lead to audit adjustments.

Council members asked several technical questions. Councilmember Jackson asked whether federal pandemic-era funds (ARPA/CARES) were included in the five-year trend; auditors said those restricted federal dollars were largely recognized in the state and federal grants fund and that $23.0 million of unearned revenue shown on the balance sheet included remaining ARPA funds to be recognized in future years.

Councilmember Spadafore asked about interest earnings and potential arbitrage on public safety bond proceeds; auditors said the city currently remains within arbitrage requirements but is monitoring the issue. Councilmember Garza asked whether vacancies mentioned in corrective actions were open for hiring; finance replied that the finance department is fully staffed and said staff would confirm specific vacancy status.

The auditors said the single audit (the federal compliance audit required under Uniform Guidance) was underway and expected to be finalized by the end of February, ahead of its March 31 deadline.

The presentation included the governance letter and disclosures about accounting estimates used in the financial statements (pension and OPEB assumptions). Auditors said they encountered no disagreements with management during the audit.

The report materials, including the bound financial statements and the independent auditor's report, were provided to the council in the meeting packet.