The following is a brief "Frequently Asked Questions" about the City of Santa Fe's annual financial audits. It addresses when and how the City can share information about audits, additional information about the City's financial health, reasons the City's audits are delayed, and steps the City has taken to correct the situation.
Why is the City just now announcing that the FY2023 audit will be delayed?
Audits are a sequential process, and procedural steps must be taken in succession before information can be released to the public. The first step in the process is an entrance conference meeting, which is the official beginning of the audit process and is organized by the City's external auditor. The FY2023 entrance conference meeting was held on November 20, 2023. During this meeting, the City's external auditor formally notified the City of the expected timeline for turning in its FY2023 audit, which is May 15, 2024. The City was then able to inform residents of the new timeline and did so on the same day.
Prior to the entrance conference meeting, the City referenced December 15 as the audit's due date, as this is the State Auditor's Office's deadline, established in the administrative code.
Concurrently with the FY2023 audit, the City is also working on finishing the FY2022 audit. Information from the FY2022 audit is needed for the execution of planning tasks for the FY2023 audit. Audit procedures are performed in a specific order, where each task is completed before moving on to the next. The external auditors needed information from the FY2022 audit process to make determinations regarding the timeline for the City's FY2023 audit. Because the City is still catching up on its audits, the FY2023 entrance conference was held much later than the FY2024 entrance conference will be held next year when the City is current and up-to-date.
The City expects to submit its FY2022 to the State Auditor on December 4, 2023. This timeline was communicated in the City's quarterly status report, which was submitted to the State Auditor on September 15, 2023.
Are audits the primary way to assess the City's financial health?
Timely and accurate financial reporting is an important element of the City's financial well-being, and getting caught up on financial audits is the top priority of the City's Finance Department. Audits are an important control method to review how City funding is spent and ensure the expenditures are tracked accurately. However, there are other pieces to the larger financial picture that help evaluate a city's finances, including bond ratings and revenue collection.
In October 2023, Fitch Ratings, an independent international rating organization, affirmed the City's bond rating. This assessment evidences that the City's fiscal house is in order, and Santa Fe is sound and secure financially.
Revenue collection in relation to revenues budgeted is another important indicator of financial health. The City collected approximately $14,250,000 of unanticipated gross receipts tax revenue during FY2023. This is revenue over and above the amount budgeted. Unanticipated revenue is an indicator that the City has exercised fiscal restraint in the budgeting process and that the local economy is strong.
Another piece of the picture is the opinion the City receives after completing an audit. The City's FY2021 audit was submitted to the State Auditor on June 30, 2023, and released to the public on July 31, 2023. The Independent Auditor's report on the FY2021 financial statements expresses an unmodified or "clean" opinion. This is the best opinion type, and it means that the auditor concluded that the financial statements are presented fairly, in all material respects, in accordance with generally accepted accounting principles. Ten findings from the FY20 audit were resolved in the FY21 audit, demonstrating the progress that the City is making to improve internal controls over financial information and implement improvements to business processes.
Does the City have concerns about the delayed audit impacting legislators' willingness to approve the City's upcoming capital outlay requests?
The City will be compliant and completely caught up on its audits by the end of the current fiscal year. This means the City will be ready to receive any capital appropriations from the coming legislative session as soon as those funds are distributed in the next fiscal year. The City is currently in the process of working with a fiscal agent to expedite accessing its FY2021 capital appropriations to continue improvements to City parks and advance the Midtown Campus project.
City officials will host the annual Legislative Breakfast in December 2023 with the legislative delegation that represents Santa Fe, and the City's capital outlay requests will be on the agenda. This will be an opportunity to help all interested parties deepen their understanding of the City's finances, process improvements, and overall financial health.
How long does it take to complete an annual financial audit?
Under normal circumstances, it takes seven to eight months to complete one audit. Based on the current accelerated timeline, the City is on track to complete three annual financial audits in a span of just 11 months. To help accomplish this achievement, the City has hired a new Finance Director, added additional staff, updated its IT systems, and a number of prudent internal policies and procedures have been adopted across the City.
Who is working on the City's audits?
Completing an audit takes significant time and effort from many staff members throughout city government. The Finance Department is ultimately responsible for the completion of the annual audits, but cooperation from all other City departments is necessary to gather the required information and answer questions from the external auditor.
The City has contracted with Carr, Riggs & Ingram (CRI), a public accounting firm, to perform the FY2022 and FY2023 audits. CRI is the City's external auditor.
The City also has a contract with CliftonLarsonAllen (CLA), a public accounting firm, to provide audit preparation and accounting consulting services. CLA is assisting City staff with preparing documentation that will be audited by the external auditor CRI. This contractor provides added capacity to address staffing challenges and professional expertise in governmental accounting and financial reporting.
Why are there so many late audits?
Several factors have impacted the City's ability to submit annual audit reports by the expected deadline. The City has had a history of submitting late audits going back well over 20 years, which has impacted the submittal of current audits. The implementation of a new IT system, COVID-19's impact on City revenues, and a high vacancy rate in the Finance Department have also contributed to the issue.
- Past Audits: During the immediate 20-year time period from FY2004 through FY2023, the City submitted its annual audit late for 13 out of the 20 years (65% of the time). Since audits are completed sequentially, the previous late audits have impacted current audits. The City expects to be caught up with all audits by May 15, 2024.
- IT and Software: During FY2020, the City underwent an extensive accounting software conversion from the archaic JD Edwards system, which had been utilized by the City since 1999, to the new MUNIS system. The implementation of a new enterprise resource planning system impacted the audit timeline but was a necessary step to modernize the City's financial systems and processes to ensure future audits are submitted in a timely manner. The City completed another major version upgrade of the MUNIS system in FY2023, which is allowing for additional functionality to be implemented, including modules related to the management of federal and state grant funds, procurement, capital asset tracking, and in future treasury and cash management.
- COVID-19: During the pandemic, the City experienced declines in major revenue sources, including Gross Receipts Tax and Lodgers Tax. In response, the City implemented cost-saving measures such as freezing hiring and furloughing staff, including Finance Department personnel. This caused the vacancy rate in the Finance Department to rise as high as 40%. Revenues have recovered, and in FY2023, the City collected over $14.25 million dollars more in Gross Receipts Tax than was budgeted, which will help with staffing and retention needs.
- Staffing: The City has struggled to recruit and retain accounting professionals in key positions in the Finance Department. There is a widely recognized national shortage of employees with these skill sets. Through aggressive recruiting and retention incentives, staffing in the Finance Department has improved, and the vacancy rate is down to 25%. Additional new hires are expected to onboard in the next 60 days.
- Business process: The City did not have formal, documented month-end and year-end close processes in the past. In August 2022, the City's Chief Accounting Officer oversaw the first-ever year-end close process for the City in the MUNIS ERP system. This was the first successful close process in the MUNIS system. Since the beginning of FY2023 on July 1, 2022, the City has successfully closed the MUNIS accounting records monthly and has completed a successful year-end close process for FY2023. These monthly and yearly close processes provide consistency in the City's financial reporting and will greatly reduce the staff time needed to complete future audits.
City residents are invited to sign up for additional information via the latest City news and announcements at santafenm.gov/notifications.