Finding Text
Reference No.: 2024-001 – Timeliness in Financial Reporting
Evaluation of Finding:
Significant deficiency/material noncompliance.
Criteria:
Financial reports are intended to meet the needs of decision makers, including the governing board, bondholders, Federal and State oversight agencies, and constituents. Accordingly, timeliness was identified as one of the characteristics of information in financial reporting in GASB Concepts Statement No. 1 of the Governmental Accounting Standards Board (GASB), Objectives of Financial Reporting. To accomplish this objective, financial reports must be available in time for informed decision making. Therefore, financial reports should be published as soon as possible after the end of the reporting period.
Assistance Listing Number Program Title Federal Agency Pass-Through Entity COVID-19 Program
14.218 Community Development Block Grants/Entitlement Grants U.S. Department of Housing and Urban Development Los Angeles County Development Authority No
14.871 Section 8 Housing Choice Vouchers U.S. Department of Housing and Urban Development N/A No
20.507 Federal Transit Capital and Operating Assistance Formula Grants U.S. Department of Transportation N/A No
20.600 State and Community Highway Safety U.S. Department of Transportation State of California Office of Traffic Safety No
14.896 Family Self-Sufficiency Program U.S. Department of Housing and Urban Development N/A No
20.205 Highway Planning and Construction U.S. Department of Transportation N/A No
20.608 Minimum Penalties for Repeat Offenders for Driving While Intoxicated U.S. Department of Transportation State of California Office of Traffic Safety No
21.027 Coronavirus State and Local Fiscal Recovery Funds U.S. Department of Treasury California Department of Housing and Community Development Yes
97.044 Assistance to Firefighters Grant U.S. Department of Homeland Security N/A No
97.067 Homeland Security Grant Program U.S. Department of Homeland Security City of Los Angeles No
97.039 Hazard Mitigation Grant Program U.S. Department of Homeland Security California Governor’s Office of Emergency Services No
97.083 Staffing for Adequate Fire and Emergency Response U.S. Department of Homeland Security County of Los Angeles No
16.922 Equitable Sharing Program U.S. Department of Justice N/A No
16.607 Bulletproof Vest Partnership Program U.S. Department of Justice California Bureau of Justice Assistance No
Sometimes the need for timeliness has to be balanced against the need for reliability, which also was identified as one of the characteristics of information in financial reporting identified in GASB Concepts Statement No. 1. While governments certainly should not sacrifice reliability for timeliness, minor gains in precision ought not to be purchased at the price of indefinite delay (e.g., accounting estimates).
Legislative deadlines for submitting financial statements should be viewed as a minimum standard rather than as an ideal objective. The same holds true for the submission deadlines used by various award programs such as the Government Finance Officers Association's (GFOA) Certificate of Achievement for Excellence in Financial Reporting Program. The additional cost of more timely financial reporting (e.g., additional staff and overtime) also needs to be considered.
Condition:
While conducting our audit, we noted that the City experienced difficulties and delays in accurately preparing the City’s financial statements. Additionally, the City’s financial statements were not ready to be issued by the required Single Audit Reporting Package deadline of March 31, 2025. As a result of these conditions, the financial statements were not available to meet the needs of decisions makers, including governing boards, bondholders, Federal and State oversight agencies, and constituents in a timely manner.
Effect or Potential Effect of Condition:
Untimely financial statement reporting can alter the value of those financial statements to the users, as well as jeopardize relationships with bondholders, and granting agencies.
Recommendation:
Management should establish a well-defined process for its annual financial reporting. The process and its key attributes (e.g., overall timing, methodology, communication with component units, segregation of duties, frequency of analyses and review by City management) should be formally documented, approved, and reviewed on a regular basis. In addition, the City should develop more resources capable of assisting in the preparation of its annual financial reporting package.
Management’s Response and Corrective Action:
The City understands the importance of timeliness in financial reporting and strives to not only meet but to exceed minimum standards for reporting. This year the City was challenged by the onboarding a new audit firm, the retirement of the City’s long-time Assistant Chief Financial Officer and personnel shortages. These challenges were exacerbated by the federally declared disaster that occurred in Los Angeles County in January 2025. The City of Culver City is located within Los Angeles County and most City staff live within Los Angeles County. On January 7, 2025, multiple wildfires erupted throughout the County. The Eaton and Palisades Fires ultimately burned for several weeks, displaced hundreds of thousands of Los Angeles County residents and destroyed thousands of homes. Many City staff members were directly impacted by the fires. Many staff members were evacuated from their homes for extended periods of time, including key members of the Finance Team directly involved in the audit process. In addition, several of the City’s management staff members lost their homes, including the City’s Director of Housing and Human Services whose department oversees the City’s Section 8 Voucher Program, the focus of the single audit.
The City could have addressed many of its internal challenges but for the fires. This unprecedented natural disaster significantly impacted the City’s ability to complete its financial reporting in a timely manner. The City is committed to securing additional resources and establishing a more formal process for its annual financial reporting.