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External auditors give city unmodified opinions but flag PUC material weakness and SFMTA federal-draw errors
Summary
MGO and KPMG reported clean (unmodified) opinions on FY2018–19 financial statements but noted a material weakness tied to a $35 million PUC double-booking and about $1.5 million in unallowable federal draws at SFMTA that were corrected. The committee filed the hearing.
The Government Audit and Oversight Committee heard external auditors from MGO and KPMG on Nov. 5, 2020, on the City’s FY2018–19 audits and the FY2019–20 audit plan. Auditors reported unmodified (clean) opinions on the consolidated financial statements but identified control deficiencies and required follow-up steps.
Annie Louie of MGO and KPMG’s team said that for the audited entities the auditors issued unmodified opinions, but they reported corrective actions and certain deficiencies. On the Public Utilities Commission (PUC) audits, auditors found a one-off transaction that resulted in approximately $35,000,000 of assets being double-booked on the wastewater enterprise financial statements; management corrected prior-period balances and the auditors classified the matter as a material weakness.
KPMG also reported issues in the single-audit (federal compliance) over an SFMTA program. The auditors identified unallowable federal costs in sample testing and expanded their review: they found about $750,000 in unallowable draws and the agency subsequently identified an additional $750,000, yielding approximately $1,500,000 that was marked as questioned/unallowable; MTA has offset those amounts in later drawdowns and said it has implemented a corrective action plan including stronger managerial review before federal draw submissions.
SFMTA CFO Leo Levinson told the committee the agency implemented new checklists and manager-authorization steps and characterized the issue as an error in what was claimed in a particular quarter rather than improper spending. Controller Matthew McDonald described technical problems with extracting numbers from a new financial system and said additional review steps and training are now in place.
Comptroller Ben Rosenfield said the external audit work will produce additional reports and deliverables in the weeks ahead. After questioning, the committee voted to file the hearing and the auditors’ reports.
Next steps: departments will continue corrective actions and the Controller’s office will post finalized audit reports as they are released.
