South Pasadena finance staff report progress on year-end close, but audit readiness and fund balances remain incomplete

City finance staff gave the Finance Commission an update Thursday on the 2023 year-end close, ongoing reconciliations and the timetable for the upcoming audit and midyear budget review.

Kelly (staff member) said the team has “been digging in and working through the 2023 year end close” and emphasized checking opening balances and correcting accounts that previously “looked a little bit wonky.” Noah (staff member) said the office has completed bank reconciliations through May and is working on June and July, leaving only a “small variance.”

The update underscored two categories of remaining work: historical asset and property accounting and several special-fund balances that require research before the audit. Kelly said staff and the auditors will review minutes and contracts for transactions that crossed fiscal years, noting that city council approvals after a fiscal year can create subsequent events the auditors will examine. “One of the last kind of big things we need to do…is making sure that those fund balances are accurate,” Kelly said.

Why it matters: auditors will test activity both during and after the audited fiscal year; unresolved beginning balances or missing asset records can delay the audit and complicate the budget process. Commission members repeatedly pressed staff about timing and about particular categories such as land parcels, loans receivable and FEMA-related costs.

Specific timing and next steps - Noah outlined the immediate plan: finish remaining reconciliations and research high‑complexity items so the trial balance is audit-ready. Staff gave an internal target to have the trial balance ready by February, which would allow auditors their customary lead time. “The lead time for your auditors to start and complete the audit minimum is 90 days,” Kelly said. - Staff advised the commission that a draft of financial statements might be available earlier in some cases, but a full council presentation of audited financials is expected around May. - A midyear review focused on current-year appropriations and expenditures is planned for the commission in February and for the city council in March. Staff stressed that the midyear will report on pacing against the adopted fiscal year budget rather than provide final ending fund balances.

Key substantive issues raised - Asset and parcel accounting: staff reported gaps in the asset register related to land purchases and sales, including parcels recently bought from and still owned by the state. Participants referenced a set of parcels (staff discussed five recently sold parcels, two additional historical parcels and a group of about 13 state-owned parcels that have appeared in council discussions). Staff recommended targeted verification of asset records and, if needed, a limited asset-inventory check tied to property registration data rather than a comprehensive physical inventory. - Loans receivable and other legacy programs: staff said older loan programs and third-party accounting arrangements require time-consuming research to confirm amounts and proper ledger treatment. - FEMA and disaster-related costs: staff explained the practice of running FEMA‑eligible expenses through a separate fund and recording a receivable (negative cash/deficit cash) pending reimbursement. They cautioned that Cal OES reviews often disallow some costs, in which case the general fund would cover those disallowed amounts. - Staffing and recruitment: commissioners discussed vacant and contract roles in finance. Staff reported 18 applicants for an accounting manager role (many from the private sector), an outstanding job offer for a budget analyst, and recruitment underway for an accountant. The commission flagged that a future finance director search will require a competitive salary to attract candidates. - Budget process and software: staff confirmed the budget development calendar aims for council adoption in June. The city will use Questica for budget development; HR data and personnel costing are being loaded and integrity-tested with training for departments tentatively scheduled in February/March. Staff said the city will use a level-based budgeting approach (carry forward ongoing base, remove one-time items) rather than full zero-based budgeting this year.

What the commission directed or requested - Staff to prepare a clearer timetable and recommendations on how to resolve special-fund deficits and beginning balance items; staff expects to present preliminary recommendations in the coming weeks. - Staff to bring a focused midyear presentation (February commission, March council) that emphasizes current-year activity and revenue pacing.

The presentation closed with commissioners and staff agreeing to continued consultant support through year-end close and the budget process. Kelly and Noah said they will remain available to help the city through the audit and budget development.