Audit Finds No Problems

Slide presented by Auditor Sheldon Chavan

An independent audit for the fiscal year that ended June 30, 2024, found no significant problems with El Cerrito’s annual financial reporting.

Sheldon Chavan, whose firm Chavan and Associates started auditing the city’s financial report three years ago, said, “This is the first time in a few years we’ve found no significant deficiencies. It’s been night and day since our first year. This is our third year auditing the city.”

The audited Annual Comprehensive Financial Report (ACFR) was presented to the city’s Financial Advisory Board (FAB) on Jan. 28, 2025, and to the City Council on Feb. 4.

The purpose is to give an independent opinion on whether financial statements are fairly presented and conform to accounting standards. Stating that there were no material weaknesses, significant deficiencies, or disagreements with management is as positive as it gets, Chavan said.

“This was a pleasant surprise,” said FAB Chair Kimberly White.

Changes in Finance Staff and Operations

Crystal Reams, the city’s finance director and treasurer, said she has made changes since joining El Cerrito in July 2024. Claire Coleman was hired as budget director in September 2024. The finance team is new except for one person.

Last year, Ms. Reams jumped in and completed the 2022-23 ACFR very shortly after she arrived. The city won a Certificate of Achievement for Excellence in Financial Reporting for the fiscal year ending June 30, 2023. Reams said the latest report will also be submitted for that recognition from the Government Finance Officers’ Association.

Asked in an interview why the audit went more smoothly this year, Reams said the financial team has set up a monthly checklist and monthly close timeline so that departments can know where they stand on spending throughout the year.

“This sets them up to have monthly budget meetings with Claire,” she said.

Reams said she has also been working to update financial policies and procedures. For example, she’s been working to digitize all documents instead of using paper. “It streamlines things for auditors and for staff,” she said.

While Auditor Chavan noted that his firm did not give an opinion on internal controls, Reams said, “They do look at our internal controls. They just didn’t provide an opinion on it.”

Chavan said the audit, which cost $62,500, would probably cost 30% to 40% more if an opinion on internal controls was requested in a future year.

General Fund Overview

General fund spending totaled $48.6 million in fiscal year 2023-24, an increase of approximately $5.1 million over the previous fiscal year.

The city started the fiscal year with a surplus of about $6.5 million left over from fiscal 2022-23. During fiscal 2023-24, the City Council approved the use of $6.5 million for various one-time expenditures. The spending included about $1.6 million to buy a former church at 10936 San Pablo Avenue on land adjacent to the police and fire department buildings, along with $1.4 million in deferred maintenance.

This former church at 10936 San Pablo Avenue was purchased by the city in January 2024.

The added $6.5 million in budget amendments approved by the council could have resulted in a general fund deficit of $6.3 million.

However, due to higher-than-budgeted revenues and lower-than-budgeted spending, the projected deficit was reduced to $250,147 as of June 30, 2024. The total general fund balance was $22.9 million.

Auditor Chavan said one reason for lower expenses in 2022-23 (which the city ended with a surplus) was that the city received a pension credit of $15.45 million, based on actuarial adjustments made by CalPERS, the state retirement program for public employees. That amount was spread across expenses of all departments and programs, making 2022-23 “an outlier,” according to Chavane.

In fiscal 2023-24, the city didn’t receive a CalPERS credit. Its total unfunded pension liability increased from about $79 million to about $84 million.

Financial Advisory Board member David Carvel asked what the Chavan audit says about the general financial health of the city. Chavan said, “There is an expectation that, from the date the audit is issued, the city will not close its doors within 12 months.” That is the standard expectation of this type of audit, he said.

City Council member and FAB liaison Lisa Motoyama said the city manager, staff and council worked extremely hard to improve the city’s financial position since she was first elected in 2020.

“Sheldon said it,” Motoyama said. “It’s like night and day from 2020.”

Separate Report from State Auditor

Release of the audited Annual Comprehensive Financial Report followed a completely separate decision by the California State Auditor to remove El Cerrito from a list of cities at high risk of being unable to meet their financial obligations. In a report dated December 2024, the State Auditor said, “El Cerrito has taken corrective action to address its risk areas, and the state is removing its high-risk designation.”

The city had been under scrutiny by the State Auditor since an initial audit began in October 2020. A report issued in March 2021 identified several risk areas, including ineffective budget development and monitoring practices and continual diminishing of financial reserves through overspending.

The December 2024 State Auditor’s Report specified that four out of five risk areas reported in March 2021 had been fully addressed. The issue of insufficient reductions in ongoing costs was partially addressed, according to the report.

This post was updated on Feb. 9, 2025.