City auditors give San Francisco a clean opinion but flag federal reporting and IT control issues

An independent audit presented to the Government Audit and Oversight Committee on Aug. 18, 2008, concluded that San Francisco’s 2008 financial statements earned an unqualified (clean) opinion, while auditors also identified several management-letter comments and one significant deficiency in federal-program compliance.

Linda Hurley, audit director at Macias, Jeanie & O'Connell, told the committee the auditors issued an unqualified opinion on the city’s financial statements and on compliance with federal requirements for fiscal year 2008. "We issued an unqualified opinion or a clean opinion on the financial statements," Hurley said, describing the result as the highest level of assurance auditors can give.

Why it matters: an unqualified opinion means the auditors found the city's financial statements to be presented fairly in all material respects. But Hurley and other auditors noted areas that need improvement and that will be tracked by auditors and management going forward.

Key findings and follow-up

- Food‑stamp reporting: Auditors reported one significant deficiency in the single-audit of federal awards related to the food‑stamp program, citing late submission of required reports to the federal oversight agency. Hurley said there was "no fiscal impact" tied to the late reports but emphasized the requirement’s importance and said auditors will likely test that program again in the following audit cycle to verify corrective action.

- Summer-foods contract classification: Auditors found one contract in the summer-foods program that had been misclassified (treated as a vendor rather than a subrecipient/subgrantee), and procurement channels were not followed exactly. Management performed due diligence, and auditors categorized the matter as a lower-level finding.

- IT governance and network incident: Auditors recommended stronger, department-guiding IT policies because governance was decentralized and departmental policies varied. They also reported a network "lockout" in the Department of Technology during 2008; auditors said it did not affect the financial statements but recommended that the department evaluate circumstances and implement mitigation procedures.

- Enterprise-department observations: KPMG reported nonmaterial observations across enterprise departments, including Muni (inventory-count procedures, capitalization timing for a complex project and statement-of-cash-flows review), the water system (a recording error corrected in audit work and an error in suburban-weight rate calculations) and the airport (review timing on year-end cash-flow statements). KPMG partner Steve De Vetter said the firm "issued our standard unqualified opinions, and we found no material weaknesses in internal controls."

- Port of San Francisco inventory: Auditors found discrepancies between physical counts and the port's inventory system for treated-wood piles stored at Pier 90 and other locations and noted the absence of a formal inventory list for piles assigned to capital projects. Management concurred and has requested further review by the Controller's Office audit group; auditors said they will follow up when they return.

- Redevelopment Agency reconciliations and planning: Williams Adley noted untimely reconciliations at the Redevelopment Agency, attributed in the report to staff transitions that have since been addressed. The agency was also late in adopting a five‑year implementation plan for one area; management expects completion by December 2008.

Process and rotation questions

Supervisors asked auditors about trends and auditor rotation. Hurley and KPMG said federal‑award findings have generally decreased over multiple years and that the current items are not material weaknesses. On rotation, Controller Ben Rosenfield told the committee the Board may direct additional rotation of personnel; he said the contract awarded to Macias continues for the coming cycle but that the partner who reviews and signs the work is rotating this year. "We will have a different partner reviewing and ultimately signing off on that work this year," Rosenfield said.

Next steps

No formal votes were taken at the special hearing; the committee filed the information and items acted on at the meeting will appear on the Aug. 18 Board of Supervisors agenda unless otherwise stated. Auditors and the Controller's Office said they will follow up on corrective actions for the food‑stamp finding, the Port inventory discrepancies and other management-letter comments in subsequent audits or status reports.

The Government Audit and Oversight Committee adjourned after receiving presentations from auditors at Macias, Jeanie & O'Connell and KPMG and taking no public comment.