Woonsocket receives draft FY2023 audit; auditors identify four material weaknesses and low undesignated fund balance

The Woonsocket City Council on Monday, Aug. 25, voted unanimously to receive the draft fiscal year 2023 audit and authorized management to sign the representation letter so auditors can finalize the report.

Jim Wilkinson, managing director with CBIZ, presented the audit highlights and told the council the audit is in its final stages pending a few open items. "We are in the final final stages," Wilkinson said, and indicated the firm planned to issue the audit once the council accepted the draft and management provided the representation letter.

CBIZ reported the city's total general fund balance increased by about $275,000 for the year ended June 30, 2023. The audit shows an undesignated general fund balance just under $1,900,000, which Wilkinson said represented about 2.3% of general fund expenditures for the year — below the benchmarks rating agencies and the Government Finance Officers Association (GFOA) typically recommend (Wilkinson referenced recommended ranges in the meeting).

Other financial details presented by CBIZ included: total city revenues of roughly $81.4 million for fiscal 2023; property tax revenue of about $53.2 million; investment income of roughly $158,000 (up from about $13,000 the prior year); and proceeds of about $947,000 from the sale of a school building shown in restricted fund balance. Total expenditures and transfers out were presented as approximately $82.2 million. The general fund made a transfer of $16.5 million to the Woonsocket Education Department to support operations.

The city's ARPA fund carried about $30 million of unspent federal assistance at year end; approximately $5.4 million of ARPA funds were spent in fiscal 2023, primarily on infrastructure and allowable COVID-related purposes. Wilkinson said the ARPA program is a major program in the firm's single-audit selection and that the single-audit compliance report was still in process, with the firm targeting issuance by September.

CBIZ reported four material weaknesses to be disclosed in the audit package. Wilkinson described them as: deficiencies in internal controls over financial reporting (timing and completeness of closing processes); issues with fixed asset records and an audit adjustment related to the sale of a school building; and two IT-related material weaknesses (insufficient maintenance of complementary user controls for cloud-based ERP systems and instances where inappropriate users had been given administrative rights). He said those IT issues create segregation-of-duties risks and recommended steps including strengthened user access controls and clearer documentation of procedures.

Wilkinson also recommended an improved, robust monthly closing calendar, clearer documentation of policies and procedures, annual conflict-of-interest statements for staff involved in internal control functions, and a whistleblower hotline to support activity-level controls.

Council members asked several substantive follow-ups. Councilman Kenoyer asked whether the audit should have noted the Mendon Road land sale (a contract was signed in April 2023 and the closing occurred in October 2023); Wilkinson and the city's finance leadership described the closing as a subsequent event that will be audited fully in the FY2024 audit with look-back procedures. The city solicitor said the contract signing in fiscal 2023 could merit a reference, and the auditors said they would discuss the matter with the solicitor and management.

Councilman DuBois pressed for specifics on the IT administrative-privilege findings and whether inappropriate access had been used; finance staff said the city is addressing user privileges with its ERP vendor and that the finding reflected the opportunity for control weaknesses rather than a documented misuse in the audit record.

Several council members and the mayor praised Wilkinson and the finance team for progress in moving audits forward and building stronger monthly reconciliations and documented procedures. The council voted 6-0 to receive the draft audit and give management permission to sign the representation letter, a step Wilkinson said would allow CBIZ to finalize and issue the audit report.

No final single-audit report or management letter was issued at the meeting; Wilkinson said the single-audit compliance report and the management letter would be issued together once outstanding items were resolved.