Audit committee recommends council accept Redondo Beach FY2024 financial report after auditors identify accounting weaknesses

The Redondo Beach Audit Committee voted unanimously to recommend that the City Council accept the city's Annual Comprehensive Financial Report (ACFR) for the fiscal year ended June 30, 2024, after independent auditors issued an unmodified audit opinion while flagging several material weaknesses and significant deficiencies.

The recommendation followed a presentation by Robert "Bob" Callanan, audit partner at CliftonLarsonAllen LLP (CLA), and remarks from Stephanie (staff member, finance department), who said the finance team and auditors had worked to clean up long-standing accounting issues. "This was our first year working with the city," Callanan said, adding that first-year audits typically uncover legacy issues and a learning curve for both auditors and staff.

The finding summary: CLA issued an unmodified (clean) opinion on the financial statements but identified three material weaknesses and two significant deficiencies. The largest adjustments reported included about $3.4 million in grant receivables and related unavailable/unearned revenue that were written off or adjusted, a large reclassification of construction-in-progress (CIP) projects (including roughly $18 million of completed projects moved out of CIP for capitalization and depreciation), and adjustments tied to third-party activity involving Marine Avenue hotel agreements and a third‑party property manager. Callanan said those corrected misstatements were reflected in the ACFR presented to the committee.

Committee members pressed staff on causes and remedies. Stephanie said staff turnover and prior practice lapses contributed to the aged grant receivables and other reconciling items. She said the city is documenting new processes for grants reconciliation and will share them with the committee as they are finalized. "We've cleaned up our grants," she said, and staff will continue to develop and document procedures to avoid repeat findings.

Callanan summarized the material corrections in more detail: about $3,400,000 in grant receivables and related unavailable revenue were removed or adjusted, producing a roughly $56,000 effect on beginning fund balance after offsets; large CIP adjustments (including street projects treated under the modified approach and harbor dredging costs that should have been expensed) totaling tens of millions of dollars in reclassifications; about $1.5 million in assets related to Marine Avenue hotel agreements were written down and the related trust account balances were adjusted to approximately $1.2 million from a $3.0 million contractual cap; and rental-management activity that had been recorded net was grossed up to show roughly $4.0 million in rental income and $3.0 million in related expenses for the year in question.

Committee members asked operational questions about future audits and timing. Stephanie said the FY2025 audit will likely not be ready by December but is expected earlier than the current delay, helped by a newly hired assistant finance director starting the week after the meeting. Callanan said the single audit of federal grant programs remained in process and was expected to be finished within about three weeks from the presentation.

Moody's credit analyst reviewed the draft and reaffirmed the city's Aa1 rating, Callanan reported. "Despite the delay, it has not appeared to affect our credit rating," he said.

The committee voted unanimously to recommend the council approve the ACFR and directed staff to return with documentation of process fixes for the material weaknesses and significant deficiencies at a follow-up meeting (the committee indicated intent to reconvene within months to review progress). The committee chair said the ACFR would be on the council consent calendar for final approval.

Public comment: Wayne Craig, a Redondo Beach resident, told the committee he was concerned about grant accounting and cited a separate analysis about homeless program spending he said showed significant general-fund support; he asked the council and staff to audit those expenditures and consider structural options for program oversight.

What happens next: the committee's recommendation will be transmitted to the City Council for approval of the ACFR and governance letter. Staff and the auditor said they will continue work on the FY2025 close and the single-audit completion and will present written process documentation addressing grants reconciliation, CIP accounting, and third-party accounting to the committee in a follow-up meeting.

Ending: Committee members emphasized they want to see the documented policy and procedure fixes before the next audit is finalized. Callanan and city staff said they are committed to completing the single-audit and to improving year-end closing procedures to avoid repeated findings.