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Palo Alto auditors issue clean opinion; GASB change adds $9.5M liability
Summary
City auditors gave the City of Palo Alto an unmodified (clean) opinion on its FY2025 financial statements but noted a retroactive restatement from implementing GASB Statement No. 101 that increased the compensated‑absence liability by $9.5 million; the Finance Committee voted unanimously to forward acceptance of the audit to Council.
The City of Palo Alto’s external auditors issued an unmodified opinion on the city’s fiscal year 2025 financial statements, and the Finance Committee voted unanimously Dec. 2 to forward acceptance of the audit to the City Council.
City Auditor Kate Murdoch told the committee the Office of the City Auditor oversees the annual external audit and that, “This year’s annual audit results are positive and the City received an unmodified opinion across all of the reports that will be presented tonight,” indicating the financial statements comply with applicable accounting standards.
Benjamin Lau, engagement partner for the audit firm MGO, gave the technical results and emphasized that auditors found no reportable internal‑control weaknesses. He also described a required accounting change: “During this year, the city has implemented GASB statement number 101 … and the implementation leads to a restatement of the beginning balance of the city governmental activities for $9,500,000,” referring to the accounting for compensated absences (paid time off and similar liabilities).
City staff and committee members asked whether the GASB‑driven restatement requires a cash reserve to pay PTO obligations. Lau and staff explained the change affects how the liability is presented on the balance sheet, while the legal terms for payouts remain set by labor contracts. Staff said the city maintains a citywide liability in its benefits fund that is adjusted annually to reflect payouts.
Murdoch noted that the single audit — the federal compliance review tied to federal awards — remains outstanding because the Office of Management and Budget had not issued the required compliance supplement in time; MGO expects to issue the single audit reports in early 2026.
The committee voted unanimously to forward a recommendation that the City Council accept the FY2025 audited financial statements.
The audit acceptance advances to the full council for formal acceptance and placement in the city’s public financial records.
