City audit returns a clean opinion but flags housing commission omission and control gaps

Auditors told the Benton Harbor City Commission on March 16 that the city’s financial statements for fiscal year 2025 received an unmodified, or “clean,” opinion but noted an adverse opinion for a component unit — the housing commission — because its audit lacked the required peer review.

“Your city received an unmodified opinion on its governmental and business-type activities,” auditor Peter Alman said, adding that the adverse component-unit opinion “is not because the city did anything wrong; it’s because the housing commission’s audit was excluded for lack of a peer review.”

The report included several financial highlights: total net position of $103.8 million and a year-over-year positive change in net position of $11.6 million; an unassigned general-fund balance of roughly $3,468,000 (about 32.8% of annual general-fund expenditures); and a positive net change in governmental funds of $383,000. For the utility (water and sewer) fund, auditors showed an operating loss before capital contributions but noted large capital contributions that produced a positive change in net position for the business-type activities.

Alman described single-audit testing for federal awards and said the city spent about $13.1 million in federal funds during the year. He told commissioners the threshold for single-audit testing is $750,000 in federal expenditures this year (rising to $1 million next year) and flagged two significant deficiencies related to federal-award compliance.

The auditors’ recommendations emphasized basic but recurring internal-control improvements: conduct a physical inventory at least every two years for federally funded capital assets, file required federal reports within the 30‑day window, and tighten credit-card controls. On credit cards, the report documents several deviations from policy: cards issued in city names not tied to positions listed in policy, missing receipts or evidence of preauthorization, and lack of dual review/approval of transactions.

Commissioners pressed for specifics. Commissioner Clark Griffin asked whether missing receipts meant expenditures were improper; the auditors and staff said the finding was a documentation and control deficiency rather than evidence of illicit charges. “There’s no illicit charges,” Commissioner Fields said, while urging updates to the policy to reflect modern booking and reimbursement practices.

Auditors also repeated a long-standing recommendation around the cemetery perpetual-care fund: the report notes a roughly $100,000 advance from the perpetual-care fund to the cemetery component unit without a written agreement and urges the city to either document the advance with a formal agreement or return the funds to the perpetual-care fund for its intended purpose. Commissioners and management acknowledged the issue dates back to periods of emergency management and turnover and said capacity constraints have delayed remediation.

Management and commissioners framed the audit as overall positive but a call to action. City Manager Alex Little noted a small administrative staff (roughly 12 people in city hall and about 59 employees citywide) and said the city will work to implement the auditors’ recommendations. “We have a clean and unmodified audit,” Mayor Muhammad said in closing, while several commissioners urged tightening internal controls and updating policies.

The commission did not take a separate formal vote on audit recommendations; auditors said they will provide the report and management is responsible for addressing the recommendations and follow-up.