Wauwatosa Committee hears clean audit, updates on ARPA spending and retiree liabilities

The Wauwatosa City Financial Affairs Committee on Sept. 9 received a presentation of the city's audited 2024 annual comprehensive financial report and related audit communications, including an unmodified audit opinion and no audit adjustments or compliance findings.

Committee members heard that the audit yielded an "unmodified opinion, commonly referred to as a clean opinion," and that auditors did not require any post-audit adjustments to the city's financial statements, a sign the audit found no material misstatements. "We didn't have any audit adjustments," said Jake Linnell, principal on the engagement with CliftonLarsonAllen, the audit firm for the city.

The presentation summarized fund balances and key accounting changes. Auditors and staff said the general fund increased during 2024, roughly driven by payroll savings from vacancies and delayed project spending; the memo in the audit packet notes an increase of about $33,200,000 in the general fund for the year. Staff emphasized that most other city funds are restricted or committed to specific purposes (TID, ARPA, debt service, capital projects), while the unassigned portion of the general fund is the primary source for working capital.

The audit team described newly applicable accounting guidance and estimates. Auditors noted a new reporting standard expanded reporting to include an estimated liability for accumulated sick leave in 2024 (previously only unused vacation was required). Committee members discussed the reported $8.3 million related to accumulated sick leave and an approximately $40 million present-value estimate for retiree health-care obligations for current employees. "This includes both the value of the likely sick time payout as well as the value of the likely sick time utilization as off time," said Mr. Eugene, a city staff member who led the presentation.

Staff told the committee they will bring a recommendation to adjust the Health Life fund balance policy to ensure sufficient funds exist to cover sick-time cash payouts as they occur on a cash basis. On retiree health-care, staff said the city performs an actuarial study every two years and that current 10-year projections show stable cash outlays; staff are not recommending immediate additional funding actions because projections indicate sufficient cash for at least the next 10 years and prior plan-design changes have capped future growth in that liability.

Committee members asked about ARPA (American Rescue Plan Act) funds. Staff reported ARPA allocations are on track for required federal timelines, that as of the end of the first quarter about 75% of ARPA funds were spent, and that the ARPA spending deadline the committee cited is 2026. Staff also confirmed the 2025 budget used about $260,000 of ARPA funds for budget stabilization as a one-time revenue source and said the 2026 budget will not rely on fund-balance uses to balance.

Auditors and staff described two technical items that prompted discussion. First, a new accounting interpretation could require the city to treat a hosted software contract for Axon body-camera software as a financing obligation because of its long-term nature; staff chose not to adopt that GASB treatment for presentation because of materiality and potential internal budgetary confusion. As Mr. Eugene put it, "it was a conscious decision on our part not to follow the Governmental Accounting Standard Board's treatment of these 2 items because ... it would have made it, in my opinion, more confusing for users of the financial statement." Second, the city missed the Government Finance Officers Association's six-month deadline for submission for the GFOA certificate of achievement and therefore will not receive that award for the 2024 report; staff said they will pursue timelier closing for the 2025 audit.

Auditors also provided a status update on required federal and state audit procedures (single-audit work tied to ARPA/COVID funds and state program activity); they said final single-audit opinions were in draft and not expected to contain findings and are due by Sept. 30. Jake Linnell said auditors and staff aim to continue accelerating the financial close: "we're all kind of moving towards that timetable of continuing to to bring it to close sooner."

The committee did not take any formal action at the meeting; the session was a presentation and Q&A. Staff and auditors answered questions from alderpersons about credit ratings (the city's AAA rating), utility rate impacts, and internal process improvements to speed future audits. The meeting adjourned after committee questions and a brief public comment period.

The city provided the audit packet and management's discussion and analysis to committee members; staff invited alderpersons to review the MD&A for comparative context and budget details included in the full audit document.