RKO audit: Auburn gets clean opinion but auditors flag grant, asset and reporting weaknesses

Auburn received a clean (unmodified) opinion on its FY2024 financial statements, RKO auditor Casey Leonard told the City Council on Oct. 6, but the audit uncovered several important internal-control and compliance problems that city staff must fix.

"The city, which includes the school department, received an unmodified opinion," Casey Leonard said, calling that result "exactly what you want to see." RKO also performed a government‑auditing ("yellow book") review and a federal single-audit for programs that together found two material weaknesses, two significant deficiencies, one instance of noncompliance with state law, and multiple recommendations.

Auditor Sarah Dodge detailed the most serious items. The first material weakness related to grant-account reconciliations: several grant revenues (including a Maine DOT grant, ARPA and HUD revenues and some school grants) were not reconciled regularly and, in some cases, grant revenues were not recognized to match expenditures under GAAP, leading to material audit adjustments. The second material weakness involved capital-asset records: RKO found material errors and unrecorded retainage in the capital-asset schedules that required audit adjustments totaling "several million dollars," the auditor said.

Dodge also described two significant deficiencies: the reconciliation process between separate city and school accounting systems (the school is scheduled to migrate to the city's system in a future year) and the preparation of the financial statements themselves. "We proposed a total of 66 audit entries in fiscal year 24, up from 44 in fiscal year 23," she said, far exceeding the dozen entries RKO would expect for an entity of Auburn's size.

On statutory compliance, the auditors reported one instance related to Maine LD 1198: the school department's unassigned general fund balance exceeded the statutory 9% limit for the past three years. Dodge said the school committee intends to assign excess amounts to capital reserves to avoid continued noncompliance.

At the federal-program level RKO qualified two programs in its testing: ARPA and the CDBG cluster. For ARPA, auditors found errors in quarterly reports submitted to the U.S. Treasury and weaknesses in procurement documentation for ARPA-funded contracts; for CDBG, the city filed required PR-29 (cash-on-hand) reports late and reported program-income balances incorrectly, and there was no documented secondary review for required HUD reports.

Council members asked which items remain outstanding and what additional support is needed. Kelsey Earl, the city staff lead for finance matters, and City Manager Phil Kroll said several corrective actions are already underway: agreements with vendors have been formalized, some reconciliations and secondary reviews have been implemented, and staff training and outside pre-audit assistance are being pursued to build in-house capacity for future financial‑statement preparation.

"No one can do a journal entry without another person reviewing and approving it," Earl said, describing system changes to require secondary sign-offs and supporting documentation for entries and purchasing.

Kroll said the city will continue to prioritize staffing and training and may budget for outside assistance to support year-end preparation and strengthen controls. He and auditors said the full audit report, the PowerPoint and the city's corrective-action responses are available on the city website.

Next steps: RKO recommended that the council and school committee review the audit and the management responses; staff said they will continue quarterly updates when material progress is made.

Ending: Councilors praised staff for work on the audit and urged continued attention to the corrective-action timeline and documentation to close the remaining findings.