State auditors give Redmond a clean 2022 opinion but flag $4.4 million revenue accrual error

The Washington State Auditor's Office told the Redmond City Council on Oct. 15, 2024, that it will issue an unmodified (clean) opinion on the city's 2022 financial statements while also reporting significant internal-control deficiencies tied to revenue recognition.

Audit lead Angela Fundamori said auditors concluded the financial statements are “stated fairly and materially correct” and that they are issuing a clean opinion on the city's financial statements and on federal grant compliance for 2022. She told council members the audit identified control deficiencies in how the city records revenue, which resulted in intergovernmental revenues being overstated by $4,400,000 and a corresponding understatement of unavailable revenue (deferred inflows) in the Capital Improvements Fund.

The finding does not amount to a material weakness, Fundamori said, and auditors found no instances of material noncompliance affecting the opinion. The auditors included recommended steps to strengthen the city's year-end review processes and said uncorrected items in the packet were considered immaterial to the overall opinion.

City finance director Kelly Cochran told the council the city has been dealing with staffing vacancies, manual processes, and the implementation of D365, and that improvements are already in progress. Cochran said the city is moving fixed-asset schedules out of Excel and preparing grant-management processes tied to the new system; the city has issued a request for proposals for software to automate parts of financial reporting and is reviewing responses.

Cochran also said two additional finance staff positions were added to ease capacity constraints created in part by the transportation benefit district work and the D365 implementation.

Audit manager Haji Adams said the audit required more hours than originally estimated because auditors spent extra time reviewing lease implementation, revenue recognition, and federal-award expenditures, and that audit reports are expected to be published on the Auditor's Office website about a week after the meeting. He outlined upcoming work the office will do for Redmond, including an accountability audit covering fiscal years 2022 and 2023, a 2023 financial statement audit, and another federal grant compliance audit.

During a brief question-and-answer period, Council Member Fields asked how an accountability audit differs from the financial and single-audit work; Adams said the accountability review focuses on compliance with state laws, rules, the city's policies and procedures, and safeguarding public resources, using a risk-based selection of areas where noncompliance risk is higher.

Council President Kritzer thanked the audit team and city finance staff for addressing the issues and for the improvements underway. The meeting concluded without formal votes or other council action.

The auditors provided draft reports and an exit packet to the council; the packet references the detailed finding (see packet page 9) and a summary schedule of prior findings and corrective action (packet page 13).