Kenai receives clean FY2024 audit; auditor flags lease accounting and IT access controls

Kenai City Council received the results of the city's fiscal year 2024 audit on April 16, when Joy Mariner, the lead partner from BDO USA, presented a clean opinion on both the financial statements and federal award compliance.

Mariner told council the auditors issued an unmodified (clean) opinion on the city's financial statements and on compliance with its federal awards, noting the city reported about $1,660,000 in federal expenditures this year, much of it through the Airport Improvement Program (AIP). "We issued an unmodified opinion on the financial statements. That's a clean opinion. It's what you, as the council, would want to see," Mariner said.

The audit found no misstatements requiring modification of the financial statements, but the auditors identified two areas for management attention. First, lease accounting required additional review: some airport lease entries led to audit adjustments in the airport special revenue fund. "Our recommendation there is that there's multiple people here at the city who are trained in the accounting for leases, and there's another level of review before it gets to the auditors," Mariner said.

Second, auditors noted segregation-of-duties and IT-access issues after turnover in the finance department left too many users with elevated permissions in the city's IT and banking systems. Mariner recommended more frequent monitoring of user permissions and quicker removal of access when employees leave. "We're looking specifically for those things and didn't find anything that was a concern," she said, adding the findings reflect system design and process controls rather than detected misuse.

Mariner also described management-letter items the auditors discussed with staff related to capital asset disposals and the financial close process and said the city adopted GASB Statement 100 in the year with minimal effect on the financials.

On the financial statements, Mariner highlighted key balances: total assets of about $246.5 million, total liabilities near $19.9 million (including a $13.9 million net pension liability established by the state), and total net position of about $222.2 million. The city's general fund ended the year with an approximate $990,000 increase in fund balance. Investment income was $923,000. Mariner noted the congregate housing fund reported a small positive change in net position for the year and was cash-flow positive by about $100,000 but recognized depreciation expense of roughly $140,000 that impacts long-term replacement funding.

Council members asked clarifying questions about whether the control issues represented changes from prior years and whether the city planned to replace functioning pumps versus replacing on failure. Mariner and city staff said some permission changes were new because of turnover and that the city planned to address them going forward.

The auditors also performed the single-audit compliance procedures required for federal awards and found no findings for the audited federal programs.

The council received the report and had no formal vote tied to the presentation; Mariner thanked city staff for their cooperation during the multi-month audit process.

Ending: Council members and staff said they would follow up on the two control recommendations; Mariner said BDO would make the detailed management-letter recommendations available in the single-audit report for staff action.