Audit committee reviews Fort Smith 2024 ACFR, auditors issue clean opinions

The Fort Smith Audit Committee met to review the City of Fort Smith’s 2024 Annual Comprehensive Financial Report (ACFR) and hear the external auditors’ required communications. Committee Chair Dina Enfield opened the meeting and turned the presentation over to Andy, who summarized the citywide financial results, and to auditors David Coleman and Katie Flores, who described the audit opinion and major federal grant work.

The ACFR shows an increase in government-wide net position from about $521 million at the end of 2023 to about $564 million at the end of 2024, driven largely by capital investments and growing restricted balances tied to sales-tax receipts collected under a consent decree. Andy told the committee the “increase in net investment in the governmental side represents continued infrastructure improvements,” citing completed street construction and several land purchases during 2024.

Auditors said they will issue unmodified (clean) opinions. Audit partner David Coleman told the committee the audit team identified “no material weaknesses or significant deficiencies” in internal control over financial reporting and will issue an unmodified opinion on compliance for major federal programs. Audit manager Katie Flores summarized auditor responsibilities, saying auditors “provide an opinion on whether your financial statements are fairly stated in all material respects.”

Why it matters: the city’s financial position showed improvement on several consolidated measures even as some operating deficits narrowed and long-term pension obligations remained material. The committee discussed implications for budgeting, debt, and grant oversight.

Key financial details discussed - Governmental activities: net investment in capital assets rose (from about $449 million to about $472 million). Restricted net position increased from about $82 million to about $97.6 million, which Andy attributed primarily to accumulated sales-tax receipts from the consent decree now being spent as projects begin. - Unrestricted governmental deficit improved (from roughly negative $10.8 million to about negative $5.6 million), with part of the improvement tied to a decline in net pension obligations (from about $82 million to about $76 million). - Pension plans: the audit materials show the remaining closed-plan retirees (old plans) and funded ratios; the old plan’s funded percentage was presented as about 41% (i.e., liabilities exceed assets). The “new plans” were reported at a higher funded percentage (the auditors reported the newer plans at roughly 73.5% funding in 2024). - Business-type activities: capital assets and projects increased while cash and receivables declined (cash down about $11 million). Long-term liabilities on the business side declined roughly $11 million year over year as normal revenue-bond principal payments were made. - Revenues and expenses: total city revenues reported were about $90 million in 2024 versus $103 million in 2023 (2023 included a large FEMA capital grant). Expenditures increased from about $83.4 million to about $86.8 million; the net increase in net position for business-type activities was smaller than the prior year. - Debt service coverage (water and sewer): auditors reported net revenues available for debt service of about $22.3 million and said the coverage was about 114%. - General fund: total fund balance was presented at roughly $35.4 million (about 43% as presented). The finance presentation included an assigned amount to cover a subsequent-year budget shortfall of about $22.6 million; the presenter described that number as the net amount appropriated to cover projected shortfalls after budget cuts and carryovers.

Federal grants and single-audit work Auditors described the single-audit work on major federal programs. Coleman and Flores said four major programs were audited in 2024: ARPA (American Rescue Plan Act) expenditures (the city reported the last draws in 2024), the FEMA Hazard Mitigation Grant Program, Community Development Block Grant (CDBG) activity, and the HOME Investment Partnerships Program. The auditors reported no findings, no material weaknesses, and unmodified opinions on compliance for each major program they tested.

The auditors highlighted common risks tied to pass-through funding: when state agencies pass federal funds to local recipients, the pass-through entity must notify recipients that the funding is federal. The auditors cautioned that failure to identify federal passthrough dollars can create restatements and findings later because a program not treated as federal at the time of spending could later be required to be reported on the SEFA (federal schedule of expenditures). The audit team recommended continued vigilance and training for departmental staff who administer grants.

Committee discussion and next steps Committee members and staff discussed bond planning and timing. Staff said the city had issued a request for proposals for bond underwriters and that a bond issuance was being planned for the fall, subject to market conditions and final board approvals. The audit team also pointed to forthcoming GASB pronouncements: GASB Statement No. 101 (compensated absences) was adopted with no material change to prior reporting; other GASB changes affecting presentation were noted for future years.

Approval items and procedural notes At the start of the meeting the committee approved the prior meeting’s minutes by voice vote (motion and second; result: approved). The committee discussed the need for board action to formally release the ACFR; staff proposed circulating a final draft to the audit committee and scheduling a special meeting or placing a release resolution on the next regular board agenda so the audit could be filed by the end-of-June deadline the presenters cited.

Quotes (attributed to speakers present) - David Coleman, audit partner: “We will be issuing an unmodified opinion on whether [the] financial statements were prepared in accordance with GAAP.” - Katie Flores, audit manager: “We provide an opinion on whether your financial statements are fairly stated in all material respects.” - Andy (city finance staff, presenter): “The increase in net investment in the governmental side represents continued infrastructure improvements.”

Ending Auditors told the committee they expect to finalize the reports after a final internal review and asked that staff circulate any outstanding audit documentation. Committee chair Dina Enfield and staff discussed scheduling a board action to release the ACFR so the city can meet filing deadlines and to use the audit results as part of public communications about the city’s financial progress.