Dinuba yields clean audit report for FY 2023

(Kenny Goodman)

Recent financial audit report shows improvement in Dinuba’s accounting practices, still has room to grow

DINUBA – The city of Dinuba received a clean audit report on its finances for the most recent fiscal year and collected feedback on ways it can continue to improve upon its accounting practices.

The Dinuba City Council unanimously voted to accept the Annual Comprehensive Financial Report (ACFR) for the fiscal year ending on June 30, 2023, at its meeting on Feb. 13. Ahmed Badawi, president of Berkeley-based accounting firm Badawi and Associates, presented a summary of the audit findings and an overview of the auditing process during the council meeting.

“We have issued an unmodified opinion … (which) means that we believe that the financial statements are fairly stated, that all estimates are reasonable, all disclosures are properly reflected in the financial statements and that all accounting policies have been consistently adopted,” Badawi said.

Cities are required by state law to prepare audited financial statements every year to ensure that the city is properly managing and accounting for its finances, including all tax revenue and grant funding it receives.

This is the first year that Dinuba has used Badawi and Associates as their auditing firm, as the city changes firms every five years to maintain the integrity of the audit, Dinuba Administrative Services Director Karina Solis said.

Notable numbers

Badawi provided a summary of the audit findings, and pointed out a few significant changes in numbers that the city financial statements show.

According to financial highlights outlined in the ACFR, the city’s total liabilities increased by $16.6 million between fiscal year 2021-22 to fiscal year 2022-23.

The net pension liability saw the most significant change between fiscal year 2022 and fiscal year 2023 because of the California Public Employees’ Retirement Systems (CalPERS) reduction in its discount rate, Badawi said. This is something that is impacting cities across the state.

Badawi said the investment performance for fiscal year 2023 also impacted Dinuba’s pension liability, because CalPERS had losses of approximately 7% compared to gains of approximately 20% the year prior.

Governmental fund balances decreased by $8.9 million, governmental fund revenues decreased by $8.7 million and governmental fund expenditures increased by $10 million.

The changes in the governmental fund revenues and expenditures are primarily attributed to a high accrued liability for internet sales tax revenue that the city may have to pay back to the California Department of Tax and Fee Administration (CDTFA).

According to the ACFR, the CDTFA told the city of Dinuba in September 2023 that it plans to change the allocation of the online sales tax that Dinuba receives from fulfillment centers in its city limits, which has historically been the largest source of revenue for the city.

Further, the CDTFA said it intends to backdate the change in online sales tax allocation to January 2021, meaning any tax revenue collected above what the city’s determined allocation since that time would have to be given to the CDTFA.

“The city disagrees with the CDTFA’s determination and is appealing the decision,” the ACFR said. “In the meantime, city staff has set the money in question into a liability account, pending the final determination of the CDTFA.”

Findings for improvement

In addition to checking for any mistakes or fraudulent actions, the audit can also help the city see what it needs to do better at to comply with generally accepted accounting practices and maintain transparency.

Badawi told the council that while the city had a clean audit, there is room for improvement with some of the city’s accounting practices.

For example, Badawi said they had some trouble when working with the city to determine its capital assets, and the city needs to be more thorough when accounting for those assets.

Badawi said the city had not reported construction-in-progress costs — which represent capital assets that are still being built — in its enterprise activities initially, so the auditors had to record those figures and “trust the mechanics of how the city is reporting those assets.”

“There is definitely some cleanup work that needs to be done still, but we did get to a place where we felt comfortable with the numbers that we still provided an opinion on them,” Badawi said.

Badawi also said the city had to restate some of its financial statements to correct financial statements that were issued last year, to correct figures related to city pensions, capital assets and Other Post-Employment Benefits (OPEB).

“That is usually an indication that the controls did not work timely to detect those errors before the financial statements were issued,” Badawi said.

However, Solis pointed out that the city has come a long way with its accounting practices, as previous audits have had numerous findings for improvements that the city has since corrected. Solis said that in fiscal year 2017-2018, there were 14 findings, and that’s been brought down significantly in recent years.

Assistant City Manager Daniel James commented that this is one of the cleanest ACFRs the city has had in a long time.

“It has still been a challenge; we’ve had some changes in personnel … that did put some strain on us to be able to absolve all these issues that we had in prior years, so we are working on that,” Solis said. “Our new staff that’s working with us is aware of these items … and we are already trying to figure out what we’re gonna do to make sure these are addressed next year.”

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