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Independent audit finds major accounting errors, material weaknesses in Nogales finances
Summary
The city's fiscal year 2025 audit reported multiple material audit adjustments, utility-billing anomalies that led to qualified opinions for water and sewer funds, and 12 material weaknesses plus two significant deficiencies, prompting the mayor to propose strengthening finance staffing and contracting consulting support.
CliftonLarsonAllen (CLA) presented the results of the City of Nogales' fiscal year 2025 audit on Aug. 5, identifying a series of material audit adjustments, restatements and internal-control weaknesses.
"We had an adjustment proposed and recorded to correct errors regarding the recording of your sales tax revenue and receivables of $825,000," auditor Jean Marie Dietrich told the council, and she listed multiple other adjustments including ambulatory services ($155,000), grant-related revenue timing ($1,900,000), investment allocation corrections ($523,000) and lease receivable entries ($309,000). She also described a prior-period restatement tied to an IBWC settlement of about $5.6 million.
Dietrich said the audit found utility-billing anomalies that prevented CLA from relying on sewer and water fund revenue receivables, leading to qualified opinions on those business-type activities. CLA will issue clean, unmodified opinions on most governmental funds but flagged extensive problems in enterprise funds and grant reporting.
The audit will report "12 instances of material weaknesses and 2 instances of significant deficiencies" tied to timeliness of financial reporting, improper allocation of investment income, unsupported utility-billing amounts and procurement and grant-management weaknesses. Dietrich recommended retention of key staff, hiring consultants to assist in correcting financial close processes, and strengthening segregation of duties and documentation controls.
Mayor and staff said they are prioritizing a hire for a finance director and additional senior accounting staff, and that management will work with CLA on corrective action plans. Council members raised questions about historical delays and the fiscal consequences of recurring findings.
Next steps: management will draft corrective action plans, pursue contracted financial expertise, and work through the remaining steps necessary for audit submission and compliance with state filing requirements.
