Palaca audit returns clean opinion but flags six control weaknesses; commission approves report

Roderick Harvey, partner at HCT, told the City of Palaca Commission on June 29, 2026, that HCT had issued an unmodified (clean) opinion on the city’s financial statements for the year ended Sept. 30, 2025, and that the formal audit report date will be June 29, 2026. "We have reached a clean audit opinion again for the year ended September 30, 2025," Harvey said.

The auditors presented two-year financial comparisons: total revenues of $35.6 million in FY2025 versus $37.4 million in FY2024, expenses of $34.3 million versus $28.3 million, capital assets of $105.1 million versus $96 million and long-term debt near $22.6 million in FY2025. Harvey said HCT performed its work under AICPA and generally accepted auditing standards and confirmed the firm’s independence from the city.

Despite the clean opinion, HCT reported six findings the auditors said merit management attention. The firm described the matters and management responses as follows:

- Cash-disbursement controls: Exceptions were found in requisition and approval processes; HCT recommended stronger procurement and contract approval procedures. Management concurred.

- Land-swap accounting: Auditors raised concerns about whether gains on certain land-sale or land-swap transactions were appropriately calculated and documented and recommended independent review of assumptions and calculations. Harvey noted that, at a May 28, 2026, commission meeting, commissioners had discussed and moved to ratify a ban on future land-swap transactions (as referenced in the audit narrative).

- Grant revenue recognition: The audit identified deferred-revenue balances related to grant revenue where cash had not been received in advance and recommended refining the grant-revenue recognition process; management agreed and committed to staff training on applicable standards.

- Interfund transfers (CRA fund): HCT found transfers recorded between the CRA fund and other project funds that were later reversed with descriptions such as "transfer not justified," and recommended stronger documentation, justification and supervisory approval for interfund transfers.

- Contract change orders: Review of grant-funded projects showed change orders that increased original contract amounts by roughly $120,000; auditors recommended tightening controls over grant projects.

- Unsupported journal entries: Multiple journal entries for the city and CRA lacked adequate supporting documentation; auditors recommended enhanced controls and documentation standards. The finance director reportedly met with key staff after the audit notification.

Commissioners asked about scope and whether findings reflected problems present in prior years. Commissioner Borum asked whether the matters were newly identified; Harvey said HCT had performed additional audit effort this year after requests from the commission and management, and that some issues could have arisen in earlier years but were elevated to written findings in this audit because of deeper testing. Commissioner Davis pressed whether related-party or conflict-of-interest matters would be captured; Harvey said such matters may not have a direct financial-statement impact and would come to auditors’ attention only if they were documented and reported by management, counsel or others.

After the presentation and questions, a motion to approve the financial audit for submission was made and seconded; commissioners expressed support and the chair confirmed the item passed. The motion and roll-call were recorded in the meeting minutes.

Commissioners also discussed restoring a more detailed Annual Comprehensive Financial Report (ACFR) and re‑seeking Government Finance Officers Association (GFOA) recognition; the commission noted the city last produced an ACFR in 2021 and held a GFOA certificate in 2019. Several commissioners urged staff to explore reinstating the ACFR and to budget for the higher level of reporting.

Commissioners acknowledged a prior vacancy in the finance-director role (noted as the period after Lauren Shank left in late 2022 until a successor assumed duties in mid‑May 2023) and tied staffing continuity to reporting challenges. The commission also directed auditors contracted to perform an operational audit to take HCT’s six findings and perform deeper operational reviews and recommendations.

The meeting concluded with commissioners thanking interim staff and finance‑department personnel for completing the audit during a period of transition.