2026-10-27 - Audit Committee

00:00pushed out, but you're okay. All right,

00:02have at it.

00:04>> Thank you, Mr. Chairman, members of the

00:05committee.

00:07Uh happy to go through the results of

00:09the 2025 audit. Uh bear with you. I've

00:12obviously got some slides. Again, my

00:14name is Grant Davis. I'm a partner with

00:15the firm Mauldin & Jenkins.

00:17And um

00:18let's see if I can get this. This I was

00:20telling uh somebody this looks like it

00:21came out of a couch couch cushion. Uh

00:25maybe we can get this together. Here we

00:26go.

00:27Not to insult your technology or

00:29anything, but in any event, uh just to

00:32go through again the results of the

00:33audit, uh are some things

00:35required to communicate. Let me make

00:37sure I stand here. We're required to

00:38communicate at conclusion of the audit.

00:40Uh we ultimately have issued three

00:42documents uh in conjunction with our

00:44audit. One is the annual comprehensive

00:46financial report. It's the financial

00:48statements of the city itself. Uh the

00:50second is a what we call a single audit

00:52report. So,

00:54um

00:55in a given year, if an entity, a

00:56non-federal entity such as the city,

00:59spends more than a million dollars in

01:00federal money. Now, that could be

01:02federal money that's come directly from

01:04a federal agency or federal money that's

01:06come through, say, state agency, some

01:08state agency, and ultimately to the

01:09city. It triggers a compliance audit,

01:11which we call a single audit.

01:13Uh we've also issued a a separate report

01:15from the annual comprehensive financial

01:17report. Again, that we refer to as a

01:19single audit report. And then the third

01:21document we've issued is a document we

01:23call our auditor's discussion and

01:25analysis. And the purpose of that

01:26document is to memorialize these

01:29required communications to you all. And

01:31And we expand on that a little bit. We

01:33provide some kind of high-level

01:34financial analysis, which I'll go

01:36through. Uh or I should say highlights,

01:38maybe not analysis. Um

01:41uh

01:41from the the the year that we have

01:43audited, there's some information about

01:45new accounting standards and their

01:47impact, things of that nature are

01:49included in that auditor's discussion

01:51and analysis document. But again, I'll

01:52go through the highlights here. I won't

01:54spend any time here. This is just a

01:55little bit about our firm, just to say

01:57that it's a significant portion of

01:58governmental auditing, uh auditing state

02:00and local governments across the the the

02:02country as a significant part of what we

02:04do. It's all I do for better or for

02:06worse.

02:07Um, so to the audited financial

02:09statements themselves, again, we call it

02:11the annual comprehensive financial

02:13report. You'll notice if you look at

02:14that report, there's an introductory

02:16section. Within that introductory

02:18section, you'll see a certificate of

02:19achievement for financial reporting. So,

02:21the annual comprehensive financial

02:22reporting financial report is above and

02:25beyond financial reporting. So, you're

02:27you're providing information to users of

02:29financial statements that's not required

02:31by state law and the two sections

02:33basically that compromise or that

02:36comprise this additional information is

02:38the introductory section in the

02:39statistical section. But, within the

02:41introductory section, you'll see a

02:43certificate of achievement in financial

02:44reporting. The annual comprehensive

02:46financial report is submitted to an

02:49international body called the government

02:51government finance officers association

02:52to be

02:54specifically and individually reviewed

02:56for compliance with their certificate

02:58program. And I am happy to say, I don't

03:00know how many years in a row Amy may

03:02know

03:03you all have received this certificate,

03:05but you received it again in 2024.

03:06There's no reason to think that you

03:08won't get it again for 2025 and and

03:10beyond, but I always like to highlight

03:11that. Right after that introductory

03:13section is our opinion our report on the

03:16financial statements themselves. We've

03:18ultimately issued an unmodified report

03:20on the city's financial statements.

03:22That's the terminology we use. It's a

03:23clean opinion. It's the easy way to

03:24think about that. Um, on the financial

03:27statements in addition to our report on

03:30the financials, we've issued two other

03:33reports and they're they are in that

03:35single audit report separate document.

03:38Um, the second of three is what we call

03:41just internally a yellow book report.

03:43It's a report on internal controls over

03:45financial reporting and on compliance.

03:48And the purpose of that report is not to

03:50provide you all with an opinion, but

03:52just to say as a part of ultimately

03:54planning and conducting our audit in

03:56accordance with government auditing

03:57standards. That's the acronym the

04:00pointer didn't work.

04:01Um, GAS down at the bottom, that's

04:03government auditing standards.

04:05Um, if we identify any instances of

04:07noncompliance that are material to the

04:09financial statements or if we identify

04:11any internal control deficiencies that

04:13are material to the financial

04:14statements, we're required to report

04:16those to you all. As you can see at the

04:17very bottom of the slide, I'm happy to

04:18say we did not identify any uh internal

04:21control deficiencies or instances of

04:23noncompliance that were material to the

04:25financial statements to report. Now, the

04:28third and final report is the single

04:31audit report I've referred to. Again,

04:33this is a federal compliance

04:35uh audit that we conducted. We

04:37ultimately audited three what are called

04:39major programs. This is not the

04:41composition of all the federal activity,

04:44but we audited three major programs for

04:46this year.

04:47Uh CDBG, HOPWA, and the Coronavirus

04:50State and Local Fiscal Recovery Funds,

04:51which you probably refer to as or have

04:53referred to as ARPA. Um, we identified

04:56one significant deficiency in internal

04:59control over compliance. And again,

05:01that's federal compliance related to the

05:03CDBG and HOPWA uh major programs. And

05:06the there are a number of compliance

05:08requirements the federal government

05:10requires

05:11uh us to audit for and certainly

05:12auditees to uh comply with. There was

05:15one specific to reporting subawards,

05:18uh and that's the deficiency that we

05:20noted uh for this year. It didn't affect

05:22the amount of money spent on the

05:23programs, didn't have

05:25really simply I think it was just uh

05:27timing of reporting. I'd have to go back

05:29and read the exact verbage, but um

05:32ultimately we have issued a even in

05:34spite of this internal control

05:36deficiency, it's still an unmodified

05:38opinion on compliance or a clean opinion

05:40on compliance

05:42uh in the federal single audit. So, I

05:44mentioned these required communications.

05:46I'm certainly not intending to read all

05:48this to you, but I'll hit some of the

05:50highlights. Ultimately, the city was

05:52required to adopt and implement a new

05:54accounting standard, which was called

05:56GASB Statement 102.

05:58Uh really had no significant impact on

06:00the city's financial statements, but we

06:01have implemented it nonetheless.

06:03Um,

06:05the financial statements themselves

06:06include a variety of management's

06:08estimates and judgments and our job is

06:10to evaluate uh

06:12both the qualitative and quantitative

06:14aspects of those estimates, what we call

06:15the inputs and the outputs, and

06:17ultimately we did not disagree uh with

06:19with management's assumptions or their

06:21ultimate conclusions about those

06:23estimates. Some of the maybe an example

06:24or two of of such estimates would be the

06:27useful life of capital assets and

06:29infrastructure, uh the collectibility of

06:31accounts receivable, things of that

06:33nature. Those are all estimates um that

06:36we evaluate.

06:38Uh the footnote disclosures in the act

06:40in the annual comprehensive financial

06:41report go on forever, it feels like, but

06:44uh ultimately been very little change in

06:46the form and content of those

06:47disclosures from prior years. If you

06:49were to compare 1 year to another,

06:51certainly dates have changed, numbers

06:52have changed, but the again the form and

06:54contact content is uh relatively

06:57unchanged. We received full cooperation

07:00from management throughout the conduct

07:01of the audit. We had no disagreements,

07:03no significant issues. Uh needless to

07:05say, if we had, I think you all would

07:07have heard about it before now. Uh but

07:09again, that's a very positive

07:12Um we had no past audit adjustments, and

07:14I'll explain that just briefly. We use a

07:17concept of materiality in our audit uh

07:20for all what are called opinion units,

07:22and there are instances in some cases

07:24where we identify something as maybe

07:26being incorrect or needing adjustment,

07:28but decide not to adjust it from a

07:30materiality perspective. If we ever do

07:32identify things like that, we have to

07:33communicate that with you all. We did

07:35not identify any items that were

07:37incorrect that needed adjustment and

07:39then pass on doing so from a materiality

07:42perspective. So, you see no past

07:43adjustments there. And then ultimately

07:45we received representations

07:47representations from management relative

07:49to the accuracy and the completeness of

07:51the information that they provided to us

07:53um that we requested in order to form

07:55our opinions.

07:58Um

07:59last thing I I again, I just mentioned

08:01here, we're independent with respect to

08:03the city as is required by our

08:04professional standards. Uh this is just

08:07big-time highlights, you You I was

08:08sitting in your chair, what would I be

08:10interested? This government wide this is

08:11basically your statement of positions of

08:13balance sheet all funds all activities

08:15of the city rolling into one statement.

08:18Again, this is just really big

08:19highlights here that you can see broken

08:22out there.

08:24This is same concept statement of

08:26activities is an income statement for

08:28governments. It's a little bizarre to

08:29look at if you're ever looking at it you

08:31have to read it left to right and then

08:32top to bottom but in any event I've

08:34tried to summarize it here and you can

08:35see results of that ultimately a

08:38significant increase in your net

08:39position which is equity. You can think

08:40about change in that position sort of

08:42like a net income figure

08:44and the and the private sector

08:46but a pretty big increase in in the

08:48city's net position from um

08:5024 to 25.

08:53I'm a chart guy so I just threw some of

08:55these in here. This is just the

08:56composition of your revenues by type.

08:59Big blue lines taxes orange is charges

09:01for services. You can kind of read the

09:02rest here but just that compared to what

09:0420 excuse me 25 was compared to 24 is

09:07what that should say that was a typo on

09:09my part. So 25's top line 24's bottom

09:12line. Not much change ultimately in in

09:15the composition of your of your revenues

09:18there. And this is again all funds all

09:20activities but expenses by type and the

09:22big orange slice is public safety kind

09:25of big blue slice on the top right is

09:28general government activity such as the

09:30finance department budget procurement

09:31all those types of things included

09:33there.

09:34Um

09:36Now this is just a look at your general

09:37fund and I promise I'm getting close to

09:38being done in case anybody's beginning

09:40to glaze over but

09:42just a you know general funds typically

09:44the the fund that has the the the most

09:47interest in any city financial

09:49statements and so I've just tried to

09:50summarize a few things. You can see cash

09:53makes up about 46% of the assets of the

09:56general fund

09:57which is pretty significant. The general

09:59fund

10:00reports on what's called a modified

10:01accrual basis of accounting and I won't

10:03try to go into what that means unless

10:05you want me to but um

10:08again significant portion of your assets

10:09in the general fund are cash.

10:11Fund balance 205 million and then I've

10:14broken out a few components of that.

10:15Assigned fund balance is basically fund

10:17balance that's been designated for a

10:19specific use.

10:21So close to half of of your fund

10:23balance, a little bit more, is assigned

10:25and then unassigned fund balance, which

10:26is basically fund balance that's

10:28available for appropriation at 93

10:30million dollars. Now, what I've tried to

10:32do at the bottom three bullet points is

10:33just try to add some flavor to that fund

10:36balance figure. And so if we take your

10:38expenditures in the general fund and

10:40I'll just go here and I'll come back.

10:42You could see the second kind of large

10:44bullet there, total expenditures of the

10:46general fund nearly 300 million. If you

10:48just divide that by 12, it basically

10:50gives you 25 million dollars a month is

10:52what the general fund spends and if you

10:54apply that to your total fund balance of

10:57205 million dollars, it gives you about

10:59eight months of fund balance at the end

11:02of 2025. And if you further break that

11:05down to only unassigned fund balance, so

11:07again 25, basically 25 million dollars a

11:10month, 93 million dollars in in

11:12unassigned fund balance at the level of

11:14spending that you all had in 25, you

11:17would be able to operate for nearly four

11:19months basically without taking in

11:21another dollar. That's what that's

11:22that's kind of the flavor that I'm

11:24trying to add to that to that figure.

11:26But again, just the income statement for

11:28the general fund, general fund had an

11:30increase in its fund balance of about 17

11:31million dollars

11:33um from 24 to 25.

11:36And again, this chart didn't look great

11:39blown up but red line's expenditures,

11:42blue line's fund balance. You can just

11:43see how that's changed since 2020,

11:45pretty remarkable.

11:47um

11:49Few other things, we did have a

11:51recommendation, so not something that's

11:53a finding, uh

11:55an internal control deficiency or an

11:57instance of non-compliance, but we did

11:58have a management recommendation

12:00regarding the audit timing. I mean, I'm

12:02sure it's not lost on you all that I'm

12:03here in October of 2026 giving you

12:06December 31, 2025 audit results.

12:09Um

12:10we did finish the audit several months

12:11ago, but we do have a recommendation for

12:13improvement relative to audit timing

12:16that we've included in a management

12:17letter. It's also in the auditor's

12:19discussion and analysis document. Happy

12:21to talk about that to the extent anybody

12:23wants me to.

12:24Um

12:25but otherwise, there are certainly new

12:26accounting standards that are on the

12:28horizon.

12:29Uh I've sort of summarized these here

12:31and a few other things. The GASB is the

12:33standard-setting body for all

12:34governments and they've been extremely

12:36active for about the last few 15 years

12:38and they are continuing to be

12:40um active though maybe to a lesser

12:42extent. Um just in light of the

12:45management recommendation about audit

12:46timing, I don't know if you've read it

12:48or not. I've just included a couple

12:49slides about some of the advisory work

12:51that we do in addition to audits to

12:53assist to the extent that you feel like

12:55that's necessary

12:57uh and looking at operating efficiency

12:58and things like that. So again, these

13:00slides are with you all and to the

13:02extent you'd like to read any of all

13:03this, I won't spend any time trying to

13:05give you a commercial.

13:07>> Um we're now into the marketing section

13:09of the audit report.

13:10>> Hey, we're done. We're done. I moved

13:11through it quick.

13:13Uh no, happy to answer any questions or

13:15uh address any comments that you may

13:17have and again, would would like to

13:19thank Amy and Sarah and all those who

13:21are involved in accounting and financial

13:22reporting

13:23um with the change in the ERP system

13:25that you all uh had and certainly some

13:28staffing uh changes over the years and

13:31and and again, the continuing cost of

13:33compliance with the new accounting

13:35standards. It's uh significant effort uh

13:38with a city this size to have us in and

13:40out and and just really appreciate all

13:41the work that they did um throughout a

13:44long process.

13:45>> Great. Well, thank you very much. Any

13:46questions for Mr. Davis on the external

13:49auditor's report that he's just

13:51completed?

13:53Questions? Comments? This is not

13:55something we need to take action on. So

13:58um I think like all of us here, thank

13:59you for your hard work. Appreciate it um

14:01and to our team back there, thank you

14:04all and over here for all your hard

14:05work. I was I'm reminded standing up

14:07here that the first job I was handed out

14:09when I got elected was to be chairman of

14:11this committee and Ms. Wharton back then

14:14was our internal auditor and so I think

14:16you were the first person in the city of

14:17Charleston that I met and she's still

14:19here going strong. So

14:21thank you for your hard work and for

14:23everything you do.

14:24You may note that if you've been around

14:26for a little minute we usually do both

14:27the external and internal auditors

14:29report at the audit committee but you

14:31can see from your minutes from last year

14:33we bifurcated that. Our internal auditor

14:35is here today. Ms. Carter's here. We'll

14:37hear from her I think in January again.

14:39Is that what we're going to do? So we

14:40will now have a second meeting of the

14:42audit committee in this cycle in

14:44January.

14:46Unless there's any other questions,

14:47comments, concerns to be expressed by

14:50anybody on this committee, I will by

14:52acclamation declare us

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