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Audit commission receives unmodified opinion for fiscal 2024–25, flags PFAS grant accounting issue
Summary
Davis Farr told the Tustin City Audit Commission it issued an unmodified opinion for the fiscal year ended June 30, 2025, noted a compensated-absences restatement of roughly $300,000, and recorded a single-audit finding tied to a $10 million PFAS grant passed through to Orange County Water District.
Jennifer Farr, lead auditor with the firm Davis Farr, told the Tustin City Audit Commission on Jan. 22 that Davis Farr issued an unmodified opinion on the city’s financial statements for the fiscal year ended June 30, 2025.
Farr said the firm included an "emphasis of matter" to disclose a new accounting standard affecting compensated absences — the accounting for sick and vacation time — which increased the city’s liability by about $300,000. "Note 21 in the financial statements shows more detail about that restatement and the impact of the restatement," she said.
Farr described the audit scope and additional procedures the firm performed. Auditors confirmed roughly 94% of the city’s loans receivable with external parties and recalculated unpaid interest for about 96% of the loans’ balance, steps the firm said provide strong assurance that loan balances are fairly stated.
The auditors also reviewed federal grant compliance. Farr reported the city had nearly $47 million in federal-grant expenditures during the year and identified a material journal entry related to PFAS treatment-facility grant revenue and a subsequent payment to Orange County Water District. "Even though the grant was passed on to Orange County Water District, you would record the $10,000,000 of revenue and the $10,000,000 payment to the water district in a gross manner," Farr said.
Because the grant was a federal award passed to a subrecipient, the auditors determined grant agreements needed explicit subrecipient language assigning federal-responsibility to Orange County Water District. That omission led the auditors to include a single-audit finding tied to the PFAS grant agreement.
Farr told commissioners the finance staff were well prepared and responsive during the audit and that, aside from the PFAS-related material entry and the single-audit finding, auditors identified no other material journal entries or findings.
Chair Lillian Chandler asked how the PFAS entry was identified; Farr said the issue surfaced in part because similar grant arrangements had been encountered with other clients and the city’s finance staff quickly located the transaction for review.
The commission voted to receive and file the audit reports; the motion passed 5-0.
