Auditors give Anchorage MunicipalityFY2023 an unmodified opinion, flag control weaknesses

BDO presented its FY2023 audit wrap-up to the Anchorage MunicipalityMunicipal Audit Committee on Sept. 4, telling the committee the municipalityreceived an unmodified opinion on its financial statements but that auditors found material weaknesses and other control inefficiencies that require attention.

The auditor said the financial-statement audit was complete and that a separate government-auditing-standards report (GAS) discloses internal-control findings. "Your team never once tried to hide information from us. They were very transparent with the information that we got," the BDO presenter said, noting the firm released its opinion on Aug. 15 and had focused additional effort on high-risk areas.

BDO told the committee it treated management override, grant revenue recognition (including large FEMA and COVID-related inflows in 2023), SAP and outside accounting entries, and utility-billing and service charges as higher-risk areas that received extra audit procedures. Auditors described a number of corrected misstatements affecting restricted cash, HUD loans, grant revenues, intergovernmental charges, contingent liabilities and capital-construction accounting. BDO also identified uncorrected items that originated in 2022 but said those should not carry forward into 2024.

The auditors disclosed five material weaknesses and several significant control-efficiency items. Key material weaknesses included delayed close and reconciliation processes, inadequate precision review procedures that failed to catch errors in trial balances and disclosures, and a newly noted deficiency in journal-entry controls. On the latter, BDO said controls in the municipalitys SAP system had been disabled in some cases, allowing journal entries to post without the systems required review and with insufficient supporting documentation.

BDO highlighted grant-reconciliation problems and said the firm identified material adjustments in grant accounting that were recording issues rather than losses. "We had some material adjustments: $50 million for [court-related entries], $2 million for disposal, and $5 million for other funds," the auditor said, emphasizing that those amounts were misrecorded or placed in the wrong accounts rather than missing funds.

On procurement and fund classification, auditors said some purchasing processes lack consistent design and coding, creating risks for correct expense and revenue classification; monitoring of restricted cash improved from the prior year but still warranted attention. Auditors also reviewed lease accounting and pension/OPEB estimates, noting that recent changes in discount rates and the municipalitys adoption of a subscription-based IT accounting standard resulted in no audit adjustments related to that adoption.

An administration representative said the finance department has substantially rebuilt staffing after vacancies and was implementing process and automation changes with IT to reduce manual errors. The administration noted a statutory extension protects the municipalitys self-insurance certificate and said it is working toward completing the FY2024 audit "in early 2026," calling the timeline ambitious but a stated goal.

The committee did not record a formal vote on any motion in the transcript. Auditors said they will present a preliminary audit plan and the FY2024 assessment to the committee in the coming weeks and recommended that the assembly and management follow up on the material weaknesses, including restoring and enforcing SAP journal-entry review controls and formalizing grant-reconciliation procedures.