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Atwater audit returns clean opinion but flags audit preparedness and federal compliance gap
Summary
Auditors issued an unmodified opinion on Atwater City's FY2024 financial statements but identified significant deficiencies including late audit timing, closing/schedules weaknesses and a single-audit finding that the city did not verify whether federally funded contractors were suspended or debarred.
Atwater City's independent auditors told the Audit and Finance Committee on Oct. 13 that they issued an unmodified (clean) opinion on the city's financial statements for the fiscal year ended June 30, 2024, while identifying several significant deficiencies that the city needs to address.
"We have issued an unmodified opinion," Ahmed Badawi, the audit partner from Badawi and Associates, told the committee, adding that the firm's review followed generally accepted auditing and government auditing standards. Badawi said the firm found no material weaknesses but did report significant deficiencies including the city's financial-closing and audit preparedness and a compliance finding under the single audit of federal grant expenditures.
Badawi said the city's unrestricted general-fund balance is strong, noting roughly one year of annual expenditures is held in the fund balance. He also summarized key fiscal figures: a net cost of services of about $14 million in 2024 against roughly $21 million in tax revenue, and unrestricted general-fund balances of about $30,000,000 (as presented to the committee). He cautioned these figures represent a point-in-time view and that long-range liabilities such as pension and OPEB are sensitive to actuarial assumptions.
The auditor highlighted pension liability sensitivity as an area of note: the liability was reported at about $29,000,000 and could increase to roughly $42,000,000 if the discount rate fell by 1 percentage point or decrease to below $20,000,000 if the rate rose by 1 percentage point.
On compliance, Badawi reported a single-audit finding: when the city used federal funds to hire contractors, procedures to verify that vendors were not suspended or debarred were not consistently performed. "There are multiple ways of doing that," Badawi said, including consulting federal listings or adding self-certification/debarment clauses to contracts. He recommended the city formalize vendor checks and contract language where federal funds are used.
Badawi also told the committee the audit itself was behind schedule: presenting the FY2024 audit on Oct. 13, 2025. He urged the city to implement scheduling and documentation improvements so audits and the related single audit can be completed more promptly in future years.
Committee members pressed the auditor on context. A committee member asked what the typical months of fund balance are for peers; Badawi said many of his clients carry six to eight months of fund balance, though the firm's clients vary.
The city's finance director, Anna Nicholas, acknowledged ongoing staffing challenges and said the finance department and the auditor will pursue scheduling and process changes with the goal of completing the 2025 audit and single audit by March 31, 2026.
Votes at a glance: During the meeting the committee unanimously approved the Sept. 22, 2025 minutes (motion recorded as "Motion by Borba, second by Rochester," recorded votes: Borba: yes; Rochester: yes; Ambreese: yes) and unanimously approved the treasurer's unaudited report for the month ending Aug. 31, 2025 (motion recorded as "Motion by Ambreese, second by Rochester," recorded votes: Rochester: yes; Ambreese: yes).
The auditor closed by outlining forthcoming accounting standard changes (including CASB Statement 100 implemented in FY24 and additional standards affecting leave accounting in 2025-26) and offered to assist with training and implementation planning.
The committee adjourned at 5:40 p.m.
