Government Performance and Finance Committee - Regular Meeting

Okay. All right. What I call order the Joint Government Performance Finance Committee and Audit Advisory Board meeting June 2nd, 2026. Clerk, would you please call the roll?

Court members all?

We'll jump on it in a second.

Go back to it. Hello, can you guys hear me? Yes. Okay, I think the functionality just got turned back on.

So I'm here. Great. Okay, Vice Chair Bushnell. Present.

Council Member Rumba. Here. Council Member Sedocke.

Here.

And Chair Heinz.

Here. All right. We'll now move on to public comment. 13, please read.

To request to speak during public comment for items on the agenda, please sign up in the front of the room if you have not done so already. If you are speaking virtually, please press the raise hand button near the bottom of your Zoom window or star nine on your phone. Your name or the last four digits of your phone number will be called out when it is your turn to speak.

All right. Clerk, has anyone signed up to speak virtually or in person?

Neither. All right.

With that, we'll close public comment, and we'll move on to our briefing item, which is the State Auditor's Office 2025 Interest Conference Financial and Federal Audit. And I'd like to call on Jason Starr, Judy Lai, and Sandra Groshon from the State Auditor's Office. Who am I kicking it over to?

Okay. Can everyone hear me? Yes. OK, awesome. Well, good morning, everyone. It's great to see everyone again. Thank you for your time. So we can discuss the city's 2025 audits. My name's Judy Lee. I'm assistant audit manager with Team Tacoma with the state auditor's office. And I'm here with Jason Starr, who is the auditor in charge of your audit again this year. Jason's been with our office since 2021, and he has led a variety of financial, federal, and accountability audits. He is one of our office's CPAs and is leading a team of five other auditors working to complete the city's audits this year. Our presentation is a summary of topics we'd like to bring to your attention, and Jason has emailed or provided a packet to you to supplement so you can follow along later. as it has more detail and is meant to be a compliment. We also have a section at the end of the presentation, so you can ask any questions, but we are in limited time, so I'm talking really fast. So let me know if we need to slow down or anything. So if we can go to the next slide. All right. Well, we are responsible for auditing all public funds for state and local governments. And currently there are more than 2,300 spanning over 40 different government types. We have about 500 professionalized who specialize. 500 professionals who specialize in governmental accounting and are located around the state to accomplish this body of work. Above all, we are partnering with government liaisons to promote accountability and transparency in government. And here you can see our leader here, Pat McCarthy, who used to work for the county and now is our state auditor. We'll go to the next slide. So these are some of the audits that we specialize. We have a wide variety for state and local governments. Accountability, financial, and federal audits represent our most common audits, and we're required to do them for all our local governments. Today, we're here to entrance for the financial statement and federal compliance audits, and you'll learn more detail about those audits in the next few slides. So I'm going to actually turn this over to Jason, and he's going to provide you the detail on what we're going to be doing this year. Jason? Yeah. Oh, next slide.

Yeah, thank you. So yeah, first I'll go over the financial statement audit. The scope covers the 2025 fiscal year from January 1st, 2025 through December 31st, 2025. The purpose of the financial statement audit is to issue an opinion on whether the statements are fairly stated and materially correct so that users understand of the financial statements can rely on them. So we conduct the audit in accordance with the government auditing standards. These standards also require us to understand the control processes the city has in creating the financial statements. And if we identify any control issues, we will communicate those with you. And likewise, we also, if we identify any material noncompliance, we are also obligated to communicate those with you. Go to the next slide. Yeah. And then in addition, we'll plan to issue the annual comprehensive financial report letter or ACFER letter to the city. And this is an award program that's offered by the Government Finance Officers Association. There are some additional schedules that the city prepares that we do some additional reviews on. And upon completing our review of this additional information and the financial statement audit as a whole, we plan to provide the city with the ACFER letter for inclusion with your final annual report and award submission. Next slide. Okay, the next go over the federal compliance grant audit, which is also known as a single audit. This has the same scope January 1, 2025 through December 31, 2025. And the purpose of this audit is to ascertain whether the city materially complies with the requirements for receiving federal funding. And this audit will cover the major programs, which I'll describe in the next slide. And is conducted in accordance with the government auditing standards and uniform guidance. Uniform guidance is just the federal compliance requirements over each grant and audit requirements. federal grants and awards. In these audits, we assess both compliance and internal control processes that are in place for preventing noncompliance. And if we identify any instances of noncompliance or significant control deficiencies, we will communicate those to you. You can go to the next slide. Yep. Okay yeah here, you can see the major programs that are selected in the audit and just in select to select those programs we follow the federal requirements for evaluating each of the major programs and this year, it requires that we include the five programs that are on the slide.

Okay, you can go to the next slide.

Okay, and this shows the levels of reporting so as you can see findings are the control difficulties or non compliance issues that are included in audit reports. The management letters are referenced in the audit report but don't rise to the level of findings and then there are also exit items which are just recommendations for smaller items. Okay next slide. Okay, and then we just wanted to know that the audit standards requires to communicate with the governing body if there are any of these issues. So we have significant difficulties or disagreements encountered during the audit, unreasonably brief time to complete the audit, significant delays in getting information, extensive unexpected effort to obtain audit evidence, unavailable, excuse me, availability of expected information, restrictions imposed on auditors by entity management. So far, we're getting into the odd already. We're not finding any of these issues, but we just want to let you know those things will be communicated if we did. Go to the next slide. Okay, and then this slide just has some important information. The first one, confidential information. So our office is committed to protecting confidential and sensitive information. For example, we use the SAO Share, which is a secure site for uploading and sharing documents. And then audit costs, those are provided in the packet for your review. The audit dispute process, if there are ever any disagreements or concerns about our audit, you can feel free to reach out to any of us, including Sondra Groshong, the audit manager, or Wendy Choi, the assistant director of local audit, which their information is also provided in the packet. And then also loss reporting. Just a note that Washington state laws requires that governments notify our office if there are any known or suspected losses. And this can also be done through our website. Yeah. Next.

Next slide. Yeah.

Okay, and on our website, we have the financial intelligence tool, which you can go in and get information on the city of Tacoma or other cities or other governments. And this tool just calculates ratios based on the financial statements. And these can provide alerts to areas where you may have concerning or cautionary information. things going on, such as it will provide ratios like the debt load or fund balance and other financial ratios. And again, you can find this on our website. Go to the next slide. Then one of the questions we often get is who audits the state auditor so we do get audited, this is a peer review through the national state auditors association, the last one was in 2025 and we received a pass, which is the highest level of assurance, we can get. Just good to note that and then on the next few slides we I wanted to share some of the resources our office provides so we just so you're aware of these so yeah I can go on the next slide. So first, we have the local government support services team, which is responsible for updates to the BARS manual, which is the accounting manual that GAP cities use for their financial statements. And they can provide technical services and support. And they also put out guidance and manuals on the website. So next slide. local government support LGS. They also provide training and support, which can also be accessed through the client website. So you can learn more about that. Or you can scan the QR code. And go to the next slide. And then we also have the SAO Center of Government Innovation, which they provide some free services like cyber checkups, lean services, trainings of that kind, team building workshops. And you can find, again, more information about those on our website. Next slide. And last, we recently published a new fraud prevention resource called Follow the Money. And this guidance, it has guidance for reviewing the bank statements and the basics of how to do that. It includes warnings from case studies that our office has investigated. and information of what to do if you've spot a red flag. And it also has some checklists to help you provide, you know, review for the bank statements, which you can provide, you can download each month if you were interested. So those are all resources that we have available on our website that we share with our entities. And so if you're interested, you can check them out. And I think that's the next slide. That's all that we have to present for the entrance. Do you want to open up for any questions?

All right. Thank you very much. So do I have any questions?

I have just a curiosity question. So related to the federal grant compliance, So you audit for that, and I assume that the granting agencies also check. If there's a disagreement because you're a state function and that would be a federal function, what happens?

So, I mean, they provide the compliance, like the requirements that we have to follow. So it's, you know, we're auditing to what they want. They have to identify what's the most important aspects of those grants that we're going to follow their standard or their compliance requirements. So in theory that anything that we are testing and we are, you know, Any issues that may rise, those are in the areas that they've identified as the most important or material compliance areas. If there were some things that were outside of what they required us to audit, I don't think that there would be any grounds for any disagreement. They also often perform their own audits for those programs themselves, depending on what those programs are. Yeah. Does that answer your question?

It does. Have there been changes in the grant requirements? We're hearing a lot about what the administration is doing.

I haven't seen specifically any effect from the federal government and the things that they're doing, but the requirements do change from time to time where they've decided that, for example, The highway construction and planning is the biggest program this year. In prior years, they apparently didn't think that matching was the highest priority there, but in this audit, they've decided that the local match where the requirement is that the federal government will give some of that money, but the city also has to provide some portion of it. They've decided that's an important area, so that's going to be included in the audit. So they do kind of change it up every once in a while, depending on what they feel is important to them.

Thank you. All right. Any other questions?

I had a question. I'm sorry, I don't know why my camera's not working today. I was curious about... you know, the risk assessment process, because I'm used to in these meetings hearing about the significant risks that were identified as part of the risk assessment process. And then also, you know, I know that in 2024, there were some single audit findings that were noted. And I assume that that triggered, you know, something other than a low risk oddity, which is why there's what five programs that are being looked at this year. So I don't know, could you talk a little bit about like the risk assessment process and what the significant risks identified were?

Yeah, so part of this, again, so it's very structured, the way that the uniform guidance has us, you know, look at and do the assessment and based on thresholds and things like that. So like the top programs, the highest, you know, amounts, they'll be placed into what's called an A-type, you know, tier, an E-type program. Those programs. So any of those that we haven't audited within the last three years, those are automatically assumed high risk and we have to audit those. But yeah, you mentioned that there's been findings in the prior years. So if one of those A-type programs had a finding in the prior year, especially if it was a material finding, that's an indicator of high risk. So we'll include that in our And that'll be part of the risk assessment that will be included. So that's how that works. And then there are the other programs that receive less funding. They're in the lower tier. They're the B types. And even those are kind of split up between the higher ones and the lower ones. And then for coverage, we'll have to assess those one by one and just check if there's any other risk indicators with those. Is that right?

Right. Yeah, that helps. And I think that I was just kind of asking the question for the benefit of the other folks on the call. Because when you do have findings in a priori single audit, what it kind of triggers is that the oddity does not meet the threshold for a low-risk oddity anymore. And it triggers an increased coverage requirement. So instead of testing 20% of the expenditures, you're testing maybe 40%. And so that's why there are some additional, or at least I would guess why there are some additional programs this year. But I also wanted to ask, beyond the single audit, the financial statement audit, again, I'm used to communicating or hearing the significant risks that were identified as part of the financial statement audit risk assessment. Has that taken place? Have those been identified? And if so, what are those risks?

Yeah. The only significant risk is sort of the standard one. Uh, we didn't identify any other significant level risks. Um, but the, the standard one is the, the, the risk of management override, you know, just that they're in the positions to make, you know, make those decisions and change things on the financial statements. Um, that's the only one. And that, that's just the standard one that, um, that we always include anyway, but okay. Yeah.

Okay. And there was no, um, No, okay, never mind. Yeah, I think I'm okay. All right, thank you. Thank you for that.

Let me know, like, and again, you can always reach out to us if you have questions.

No, I appreciate that, yeah.

Thank you for the questions, Board Member Ball. If there are any other questions from the committee or the board, I'll ask my question, which is, so how long, did you identify how long we're going to be in this process before we have our exit conference? Did we have an exit conference date identified yet?

Well, so for the exit conference, we usually so because there's this the single audit deadline is at the end of September. So we will likely have the exit conference for the financial single or sometime in September. I would imagine that would be usually where we go for.

Okay. Yeah. Yeah.

Yeah, just a quick question about how does the auditor's office avoid conflict if you've been doing audits for an agency for a long time with staff members and there might appear to be some type of bias?

Yeah, so there is a cooling off period. After five years, I'm assigned to this audit for five years as either a manager or the audit lead will get cycled off. So if that's sort of the question that you're asking. Yeah. Yeah. Yep, we do have a policy where we are not able to stay on an audit for more than five years.

Oh, okay. That's great to know. Thank you.

Yeah.

All right.

Good question. All right. Anything else? Okay. Oh, go for it.

Sorry, I just thought at the very end here of a question. If I, since I'm new or other members of the audience, if they wanted to see results of previous audits, how would they do that?

Well, you can go on our website. You can see all the audit reports, if that's what you're asking. Yeah, the audit reports are all available on the state auditor's website, if you wanted to see that. Yeah. Awesome. That's it. Okay.

Yeah. It's sao.wa.gov. And just a reminder, not only do we have our audit reports on there, there's also other resources that are available to anyone. and highly recommend that you go and research those. We have links to other information like MRSC information. We have trainings that we provide. We have lean tools that we provide. So it's a great resource. If you haven't already, I would go explore our website, sao.wa.gov.

Thank you.

All right. Thank you. Okay. Well, seeing as there are no other questions, I just want to thank our team from the auditor's office for being here with us today.

Yeah, thank you.

Thank you for having us. Thank you. Have a great day.

All right. The next item today was talk show meetings, but I'll save Andy this and say we have not yet termed our agenda. It's from 16 yet, so Andy, I've got a couple ideas for what we can do to best utilize that time, though, if we are able to find something, I'm happy to cancel the meeting. There's no reason to meet just to meet, especially in the months of the summertime in June. So with that, are there any other items of interest? Okay, seeing none, on to the final motion. Move to adjourn.

Second.

All those in favor signify by saying aye.

Aye.

Opposed?