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Novato posts a clean 2024-25 audit; staff and auditors flag reconciliation and control work ahead
Summary
The City of Novato received an unmodified ("clean") audit opinion for fiscal year 2024-25, but auditors and finance staff identified a federal compliance exception, lingering management comments, reconciling fixed-asset records, grant/accounting cleanup and vacancies that the city plans to address.
Novato officials reported an unmodified (commonly called "clean") audit opinion for the fiscal year ended June 30, 2025 at the City Council meeting on Jan. 27.
Carla (finance director) told the council the city has completed the catch-up process that had delayed prior audits and has submitted the Annual Comprehensive Financial Report. "We will have some work to do, but we really see it coming together," she said. Finance staff noted recent hires and several remaining vacancies, including a deputy finance director and other accounting positions.
Polo Lopez Carrasco (accounts payable supervisor, introduced during the presentation) and audit partner Justin Williams of Munn CPAs presented the audit results. Williams said the independent auditors issued an unmodified opinion and reported "one significant efficiency, one compliance issue related to a grant award, and four management comments." He added the federal compliance exception concerned certified payroll documentation for a contractor under a federal program requiring a single-audit procedure.
Staff described operational and accounting challenges the audit surfaced: reconciling longstanding deposit items and restricted revenues, a multi-year fixed-asset cleanup in the city's accounting system, and complexities in accounting for American Rescue Plan (ARPA) funds across multiple funds and projects (presenters cited roughly $2.9 million in non-ARPA grant expenditures in the period). The city also implemented GASB 101 for compensated absences, which added complexity to leave-accounting and required additional adjustments.
Carla summarized financial results: a year-over-year net position increase of about $6.2 million across all funds, Measure M receipts of approximately $2.3 million (one quarter of receipts after Measure M started April 1, 2025), and a total fund balance cited near $107 million. She said the general fund's unassigned balance was shown as negative (about $94,121) in the ACFR and staff proposed backfilling that amount from the emergency reserve per council policy; staff said the emergency reserve is at roughly 32% and meets the council's reserve policy.
Councilmembers asked detailed questions about deposit reconciliation. Carla described three deposit categories (trust deposits for project refunds, restricted revenue deposits, and cost-recovery deposits for planning/engineering) and a process to locate owners, publish unclaimed funds notices, wait the statutory period, then return remaining funds to the city as revenue. Staff said the new permit system (Mainstar) will improve cost-recovery billing and visibility between planning and finance.
After the presentation and questions, a councilmember moved approval and the council voted unanimously (with Mayor Pro Tem Jacobs absent) to accept the item on the record. Staff said they will continue implementing controls and resolving management letter items ahead of next year's audit.
The audit materials will be incorporated into the city's financial records and follow-up items will be tracked through department workplans and future council updates.
