Clayton audit: unmodified opinion, three management recommendations

The Clayton Budget & Audit Committee on April 7 received the City of Clayton——s audited annual comprehensive financial report for the fiscal year ended June 30, 2024. Sheldon Chavon of Chavon and Associates said the auditors issued an unmodified (clean) opinion on the financial statements.

“In our opinion, the financial statements referred to above in all material respects are free and material misstatement,” Chavon said, adding congratulations to city staff for the results. Chavon emphasized the independent auditors——' report as the central element of the ACFR and opened the presentation to committee questions.

Chavon identified three management recommendations that did not affect the audit opinion: perform a capital-asset inventory, fully implement the city——s purchase-order controls, and revisit or reissue the city——s fund-balance (reserve) policy. He said those items will appear in the management letter accompanying the final report.

On the substance of the financials, Chavon said government-wide revenues and expenses moved in opposite directions for FY24. Operating grants and contributions declined (largely ARPA-related draws), while taxes and investment earnings increased. The report shows a government-wide net loss of $1,150,000 in FY24 compared with a net gain of about $800,000 in FY23, a year-over-year swing of roughly $1.94 million. Despite the swing, Chavon said the city——s unrestricted net position remained positive at year end.

Chavon also called out Endeavor Hall, a city facility that ran a deficit in FY24 because of higher expenses; he advised management to evaluate whether the facility can be self-sustaining or requires ongoing support from capital assets.

The presentation included an overview of long-term liabilities. Chavon said the city has a California Energy Commission loan with an authorized total of $1,900,000 and $967,000 drawn as of June 30, 2024; the loan is reimbursement-based and payments are scheduled to begin in fiscal year 2027. The auditors reported net pension liabilities of approximately $6.9 million, which remains the largest long-term liability on the balance sheet.

Chavon addressed OPEB and pension stabilization: the city currently holds an internal stabilization fund for OPEB rather than placing assets in an irrevocable trust; Chavon said that approach is acceptable for the city at current liability levels (the OPEB liability was stated at about $487,000) and that a Section 115 trust is an available option if the council prefers it.

Committee members asked about timing and process. Chavon said auditor and staff turnover contributed to the later issuance of the FY24 audit; going forward the firm will target earlier completion and submission deadlines (noting state filing timing and GFOA submission targets). Mayor Tropeano requested a number of editorial corrections to the draft (FTE counts, reserve percent, CIP horizon) and asked staff to make those edits in the final version. Regina (city staff) said the statistical section will be completed and will include updated demographic measures; she noted a modest decrease in median home price and a small decrease in average age from FY23 to FY24.

Public comment during the meeting reinforced a theme of improvement: Mr. Gavidia praised the current staff and said, “We———e finally got good staff,” urging that the city communicate progress to the public.

Next steps: the committee received the report and will forward the final ACFR to the full Clayton City Council; Chavon said he will attend in person when the final report is presented to council next Tuesday evening. The management letter with the three recommendations will be issued with the final audit package.