City Council - Regular Meeting

September 15th, 2026, commencing at 6.30 p.m. Council members in attendance are Council President, oh, these are wrong, Council President Stewart, Council Vice President Nueva Camino, Council Members Parsi, Sonny, and Kritzer, and online we have Council Member Prakria. This meeting is being... held for the 2024 Financial Audit Exit Conference and the Entrance Conference for 2025 Financial Audit, CFD 2024-01, Accountability Audit, and CFD 2016-01, Accountability Audit. We are joined by representatives from the State Auditor's Office, and Kelly Cochran, Financial Director, will introduce these items.

Thank you, counsel. And we have our audit team available this afternoon, led by Haji Adams. And we're going to go ahead and just get it turned over to Haji right away. We only have a half hour to cover both items, but I am available to answer any of your questions, as well as our accounting manager, Nita Hermoso, if you have any, once they're wrapped up. I'll hand it over to you, Haji.

All right. Thank you.

We'll go ahead and have Angela start off.

Thank you.

And the results are made available to the public and then published on our website. And then last but not least, auditors are designed to help you improve operations. So if there are any auto recommendations, they are made to assist the city in continuing to improve its efficiency and also effectiveness as well of its operations. So with that, I'll hand it over to Angela to go over the results.

Thank you, Hachi. So as Hachi mentioned, we conducted a financial statement audit for fiscal year 2024. And the objective of a financial statement audit is to issue an opinion as to whether the information included in the financial statements can be relied upon to make decisions. So we are pleased to report that we are issuing an unmodified clean audit opinion on the city's financial statements. This is the opinion you want to receive and it provides the city assurance that the financial statements are stated fairly and are materially correct. Our audits are conducted in accordance with government auditing standards, and those standards require that we review the city's internal controls and compliance over financial reporting. So here we reported no significant deficiencies in internal controls, no deficiencies that we consider to be material weaknesses, and no instances of noncompliance that were material to the financial statements. However, we do have one management letter recommendation that we will be discussing in an upcoming slide. So in relation to the financial audit, professional audit standards require that we share with you whether there were material or non-misstatements that were identified and subsequently corrected by management. So we are pleased to report there were no material misstatements identified during the course of the audit. And we're also required to communicate any uncorrected misstatements. So, here we have included in your packet a copy of the uncorrected items and has been shared with management. So please know we have concluded these items as immaterial and does not affect the overall opinion being issued on the city's financial statements. And last part is the audit standards require auditors to evaluate the possibility that management may be able to circumvent certain controls. And so we are pleased to share with you that our evaluation showed no instances or possibilities where controls were circumvented. So here in this next slide, we'll walk you through our management letter over capital assets. And before we begin, please note that management letters are not included in our audit reports, but they are referenced. And so while this is a public document, this item will not be published on our website. And so you'll also find that we've included a copy of the cover page followed by the first page of management letter on the slide. But for your reference, you'll find the full version of this letter included in your exit packet. on page 33. And so, although the city had procedures for reporting capital assets and calculating related accumulated depreciation, its internal controls were not adequate to ensure it accurately reported capital assets on its financial statements. So, our audit found the city did not have a process to monitor and periodically reassess the useful life of its assets Specifically, we found the city reported 717 capital assets that were fully depreciated but were still in use, with an original total cost of about $50 million. So while we do not believe this entire amount to be an error on the financial statements, reporting a significant amount of fully depreciated assets indicates that estimates were not accurate or adjusted timely. And so we recommend the city improve internal controls over its financial statement preparation process, specifically to capital assets to ensure the reported amounts are accurate. And further, we recommend the city dedicate adequate resources to review capital assets, useful lives to ensure that they are reasonable and periodically reassessed. So this includes the financial statement portion of the audit. So, next, we also conducted a federal grant compliance or a single audit for the fiscal year of 2024. And the objective of this audit is to ascertain whether the city materially complied with the requirements of receiving federal funding. We are pleased to report that we are issuing an unmodified clean audit opinion on the city's compliance with federal grant requirements. This is also the opinion you want to receive and it provides assurance that the funds were expended in accordance with their intended purpose. And all requirements have been largely followed. So, our audits are conducted in accordance with government auditing standards and uniform guidance. And those standards require that we review the city's internal controls and compliance over the major programs. In our audit, we did identify significant deficiencies in internal controls, deficiencies that we consider to be material weaknesses, and instances of noncompliance that were required to be reported, of which we will present in an upcoming slide. And then included in the slide are the programs that were selected for audit. So here we've included a copy of the finding on the slide today. And for your reference, you'll find the full version of the finding included in your exit packet starting on page nine. So with the finding, there are three parts to the report that we encompassed as one report under the Coronavirus State and Local Fiscal Recovery Fund program. So for the first portion of Of the finding is related to suspension and department. So, whenever the city enters into contracts or purchases goods or services that expects to equal or exceed 25,000, whether it's paid in all or part of federal funds, it must verify the contractors are not suspended debarred or otherwise excluded from participating in federal programs. And so, although the city has process to verify the suspension environment status for contractors that pays over 25,000 using the federal funds, our audit found the city did not perform the verification for 1 of the 5 contractors. We tested before entering into into the contract. So, here we recommend the city strengthen its internal controls to ensure contractors that pays at 25,000 or more all are in part with federal funds. Um. are not suspended or debarred from participating in federal programs and maintain that documentation to show compliance with the requirement. The second part of the finding is related to reporting. So for reporting, recipients with a population less than 250,000 residents that are also allocated less than 10 million in the program funding must submit annual project and expenditure reports to the U.S. Department of the Treasury. So Treasury identifies key line items in the report that contain critical information and must be accurate and complete. In our audit, we found the city did not have an effective process for ensuring it prepared an accurate and complete report based on supporting documentation and Treasury's guidance for the program. Specifically, the city's reported current and cumulative expenditures and obligations for several programs were incomplete and not supported by its general ledger or other supporting documentation. So, here we recommend the city establish internal controls to prepare accurate and complete reports. Provide resources and training necessary for staff to improve report preparation so that it complies with federal reporting guidance. and system requirements and review the Treasury's compliance and reporting guidance related to this report for reporting requirements and instructions on correcting the data. And lastly, we have the subrecipient monitoring. In this portion, the City passed through $732,000 in program funds to seven subrecipients via subrecipient agreements. So when the city passes on federal funds to subrecipients, federal regulations require it to monitor its subrecipients activity. This includes verifying subrecipients receive federal single audit when required, following up and ensuring subrecipients take timely and appropriate corrective action on all audit findings, and issuing a management decision as required. So we tested six subrecipients and found the city did not monitor and obtain subrecipient audits and was not aware of the audit results. Without this verification, the city cannot ensure it is properly monitoring its subrecipients and that the subrecipients complied with federal program requirements. we recommend the city strengthen internal controls over subrecipient monitoring to ensure it verifies subrecipients receive federal single audit when required and follow up on single audits as applicable. Then on this next slide, we do also have another recommendation. It was a management letter related to the federal procurement policy. So here we'll walk you through The management letter as well, as mentioned, these are not included in the audit reports, but they are referenced. The management letter is related to the 2 programs to the highway planning construction program, and to the Corona virus state and local fiscal recovery program. So, uniform guidance requires federal work recipients to establish document and maintain effective internal controls that ensure compliance with all program requirements. When using federal funds to procure goods and services, uniform guidance requires recipients to follow their own documented procurement procedures, which must reflect the most restrictive of applicable federal, state, or local laws. And so for the Highway Planning and Construction Program, the City followed uniform guidance and the Washington State Department of Transportation's a local agency guidelines manual to ensure the compliance with federal procurement requirements. Along with the coronavirus program, the City followed uniform guidance to ensure compliance with these requirements. However, our audit found that the City's documented procurement policy procedures did not conform to the procurement standards that are identified in the Code of Federal Regulations. And so, although the city's policy refers employees to applicable state laws and their threshold for procuring goods and services. That are more restrictive, it did not include all of the required procedures. And so we recommend the city update it's written policies and procedures to include the federal procurement requirements. And so next, I will pass this on to Priscilla to help wrap up the exit portion of the audit of the presentation.

Thanks, Angela. So the cost of this audit was higher than our original estimate, primarily due to the additional time needed to follow up on the recommendations identified during the audit. Your next audit is planned for fall 2026 and will cover both the financial statements and federal programs. We'll provide an estimated cost for the next audit in the fiscal year 25 engagement letter. The city's audit reports will be published on our website tomorrow, September 16th. You can also sign up to receive email notifications when audit reports are released, as well as other news alerts and resources published by our office. The sign up link is included in your exit packet. In addition, we'll send out a customer service survey after the audit. We encourage everyone who participated in the audit to complete the survey and share the feedback to help us improve our services. And with that, I'll turn it back over to Angela to close this out with some final comments.

Thanks, Priscilla. Okay, so before we wrap up our presentation today, we'd like to think to city, uh, specifically Nita or also, uh, finance manager, Stephanie booth, finance, supervisor, and, uh, deputy finance. Director and city staff for their cooperation and their assistance throughout the audit. Here, this concludes our presentation to the city on our fiscal year 2024 audit results. We thank everyone for your time today and for your participation in this meeting. And at this point, we would like to open it up for any last comments or questions.

Thank you so much. Council members, do you have question either for the auditors or for our finance staff that's sitting at the table? Council member Kritzer.

Thank you so much for doing the work on this audit and for presenting the findings and outcomes. I would love to hear from our finance director. We have included in our packet some of the city's response of some of the ways that we are responding to the findings in here. I think it is something that we have to take very seriously if we do end up with any findings. And so it would be great if we could just hear briefly from our finance director about the actions that we'll take so that our next audit hopefully will be completely clean.

I will, and I'll respond quickly, and then I can answer questions at a later time and follow up. But corrective action for these internal controls was actually taken by the city in 2025. So prior to our statements even being submitted or developed, corrective action was already being taken. We have expanded our policies, procedures around suspension and debarment, taking care of that gap within our contracting for public works. There's been a checklist created for our human services group when working with folks that receive federal funds to make sure that we're documenting those audit conversations. So we have taken corrective action not anticipating any further problems. These gaps have been addressed for quite a bit, and I've provided details in an email to you this afternoon, but happy to discuss at any time. Thank you. Council President?

Thank you. As my colleague said, I do think this is quite serious and I particularly want to acknowledge that with the recovery dollars, the cities experience, cities across the United States experience something unique and was a bit of an experiment in that we were trusted with the dollars first, that those dollars didn't have to come through the state. They came to us first and it is important that we're able to demonstrate that we know where those dollars went and they went to good work in our community. So I appreciate your response Director Cochrane. We also have hired federal lobbyists in our city in the last couple of years and we expect to be we've also increased our grant staff and expect to be competing for more federal dollars. in our city. So I wonder, Director Cochrane, if you could share a little bit about how we are proactively engaging as a city team and across those many departments when new federal dollars are applied for, how we're coming to understand what controls might be needed in order to comply with those federal dollars.

Absolutely. One of the primary needs that we were working to fill when the city invested in the hiring of additional grant staff was really around this whole line of business. Not only ensuring that we had the resources dedicated to this business area to manage it, but also that we had dedicated resources available to grow it. And so that is the foundational work that they did in 2025, putting all of their policies procedures, documentation, training, updates to council in place, and now they are focused on the next steps on generating additional revenues, working very hand-in-hand on a consistent basis with finance, and they've been pulled into our capital kind of decision-making process to ensure that there is alignment and decision-making there as well.

Thank you. Any more questions? I want to thank the auditor staff for being here tonight. Is there another, is this, there's more.

Yes, we did have the entrance conference for the next schedule audit. About five minutes or so. So yeah, we'll get the slides up and running here.

Thank you.

All right. All right. All right. Yes. So yes. So we'll just transition to the entrance conference. So this is where we'll share the scope of the next audit that we plan to conduct of the city and then the community of facility districts as well. Then also to supplement the presentation, we have provided some documentation that includes the entrance conference agenda for today. All right, so yeah, so Washington State Auditor's Office, we're tasked with being the auditor of all public funds. It's an independently elected office, and we're responsible for auditing all state and local governments. We conduct over 2,200 audits each year. That spans over 40 different government types as well. And our office has about 500 employees in total who specialize in governmental auditing around the state as well. And then you'll see on this slide, uh the different types of audits that we conduct with accountability financial and federal those ones in blue and those are the ones that we conduct the most of and then like i mentioned earlier we plan to conduct an accountability audit a financial federal audit as well for the city and the accountability audit would be for the community the study districts so the purpose of the accountability audit determine whether districts comply to state laws contracts rules regulations and its own policies and procedures and also look at whether districts has adequate procedures in place as well to ensure that public funds are properly safeguarded. Then, of course, financial statement audits issue an opinion on whether the financial statements are free from material error and are fairly presented as well. And, of course, that's really important to users that review your financial statements and also lets them know whether they can place reliance on them as well. Then we'll also perform a federal grant compliance audit again as well, also known as a single audit. That's required anytime the city expends $1 million or more in federal funds. So we'll review the funding that the city received, select individual grants for audit, and then determine whether the city complied with those requirements for what was received in federal funding. And at the conclusion of that audit as well, we'll issue an opinion on that and then the city's compliance as well, and then share the results with the federal government as well. So with that, I'll hand it over to Angela to go over the audit scopes.

Thanks, Haji. Okay, so for the accountability audit, so we'll be conducting accountability audit starting January 1st, 2020 through December 31st of 2025, or this is all date for the Redmond Community Facilities District 2014-1. So here we'll be using a risk-based audit approach for the district. And once we have completed our planning procedures, then we will select accountability areas and notify the district about our selection. I apologize. Okay. The second area is also accountability audit for the Redmond Community Facilities District 2016-1. This year we'll also be utilizing a risk-based audit approach and we'll also inform the district of when we have the selected areas to test. So, financial statement audit has, as you mentioned that will be reviewing the audit statement, covering the period of the January 1st, 2025 through December 31st of 25. the, the objective of the financial statement audit is to issue an opinion as to whether the financial statements presented are fairly stated and materially correct. So our audits are conducted in accordance with government auditing standards, and those standards require that we review the city's internal controls processes that it goes through to prepare the financial statements. So should we be aware of any issues that arise that we are required to report to the city? Okay. And then the next audit that we will also be conducting is the federal grant compliance or the single audit, and that is for the fiscal year of 2025. So this audit is required by federal law when a local government spends $1 million or more annually in federal financial assistance. And our opinion will be issued in accordance with government auditing standards and the uniform guidance. And here we'll provide an opinion on the internal controls and over the major federal programs. So an important part of the office is the continuous communication between our audit staff and yours. So there are a number of ways that we strive to stay connected throughout the audit process, of which you'll see here on the slide today. The two areas I wanted to point out are the weekly status meetings that we will run regularly with the audit liaison, where we go over the progress of the audit, if there are any items that arise, and any other questions or concerns throughout the process. And then the second portion is the exit conference, where we are committed to ensuring that you have the opportunity to hear directly from us of the results of the audit. And so we will work with management to schedule an exit conference meeting and invite all governing body members to attend. So here there are three levels of reporting throughout the course of the audit. You may find that recommendations are necessary to bring your attention. So our office has three primary levels of audit recommendations that are issued to convey the significance of the audit issues identified. There's findings, which are formally addressed issues that report significant results of the audit. This item here would be given an opportunity The city will be given an opportunity to respond to the finding, and this response will be published in the audit report. Second portion is management letters where they communicate control deficiencies, however, that are less significant than a finding. They are still important to be formally communicated to the governing body, but they will not be included in the audit report. And lastly, exit items, which constitute our lowest level of written recommendations, They are very normal in the audit process and are considered as housekeeping items while they often address best practices. And next, I'm going to pass it on to Priscilla.

Thank you. We have a few important reminders about the audit that we want to share with you. First, confidential information. If you provide us with sensitive or confidential information during the audit, such as employee payroll records, please let us know so we can make sure it is handled and safeguarded appropriately. Second, audit cost. For the Redmond CFDs, we've included an estimate of the audit cost in the entrance handouts. For the City of Redmond's fiscal year 25 audit, we'll provide the estimated cost later in the engagement letter once audit planning is completed. Third, the audit dispute process. If you have any concerns during the audit, we encourage you to first reach out to our audit manager, Haji Adams. The entrance handout also includes additional contacts if further assistance is needed. And lastly, loss reporting. If you become aware of any known or suspected loss of public funds, state law requires that it be reported immediately to our office. Reports can be submitted through our website and our specialists will review them and determine whether any follow-up is needed. Our office receives an external peer review once every three years by the National State Auditors Association to satisfy government auditing standards. We're pleased to share our most recent rating we received in 2025 was a pass, which is the highest level of assurance that the review can provide. Beyond our regularly scheduled audits, our local government support team also provides assistance at no additional cost throughout the year. The team provides resources and assistance with BARS requirements and the annual filing process. Our local government support team also provides trainings and other client support throughout the year, including accounting and reporting training. And you can find the available trainings and e-learnings on our website, or you can scan the QR code in this slide to access them. They also have a help desk for accounting and reporting questions. Another resource available throughout office is the Center for Government Innovation. They offer a variety of free services to local government, including cyber checkups, a resource library, lean services, and team building workshops. These services are designed to help improve internal controls, processes, and overall operations. Their contact information is at the bottom of the slide if you are interested in learning more about any of these services. In addition to those resources, our office also provides tools to help local governments strengthen cybersecurity. Our cyber checkups are designed to assess a government's vulnerability to common threats and provide recommendations for improvements. During a checkup, one of our cybersecurity specialists is assigned to remotely evaluate your IT system. At the end of the checkup, you will receive a confidential report outlining the results and any recommendations for improvements. And this concludes our presentation on our fiscal year 25 audit scope. And thank you again for your time and participation. At this point, we would like to open it up for any last comments or questions you might have.

Thank you so much. Are there any questions from the council members at this time? No? Well, thank you so very much. I look forward to seeing the audit results. Thank you.