Is Your City at Risk of a State Audit?

Each year, the California State Auditor collects financial data on California cities. This information is used to develop an interactive dashboard that then provides transparent information and ranks cities for risk to fiscal health and inability to respond to factors as described below:

  1. The City’s financial information submitted to the State Controller’s Office indicates the City’s financial condition that can impair its ability to deliver services efficiently or meet its financial or legal obligations.
  2. Poor credit rating
  3. Reliance on unstable revenue sources
  4. Reported financial information not in line with GAAP. (Untimely or modified opinion)
  5. Ineffective system to monitor and track funding sources
  6. General Fund Reserves
  7. Debt Burden
  8. Illiquidity
  9. Revenue trends
  10. Pensions Obligations, Pension Costs, and Future Pension Costs
  11. OPEB Obligations and OPEB Funding

Why this is important?

Based on the analysis performed, the State Auditor may determine that a local government agency is at potential risk. Upon determining that a local agency is a potentially high risk, the State Auditor “shall notify the audit committee and the affected local government agency of that determination as described under section 61122.”

If your City is selected to be audited, your audit becomes transparent and posted on the California State Auditor website.

This negative information may put the agency at risk for an inability to borrow money, complete its capital plans, or create variety of reactions from unhappy stakeholders.

What is the California State Auditor?

As a resident of California, we are glad the Auditor’s Office exists. The California State Auditor’s Office is a state entity independent of the executive branch and legislative control. The purpose of the California State Auditor is to improve the California government by assuring the performance, accountability, and transparency of local governments through oversight and external audit. If you reference the California State Auditor website, they specifically describe the evaluation of City finances so that Californians can hold their City officials accountable. Established by California government code 8546.10, the State Auditor’s Office is allowed to identify local governments that are at high risk for potential waste, fraud, abuse, or mismanagement, or that have major challenges associated with their economy, efficiency, or effectiveness. How does the California Auditor get its work?

On an ongoing basis, and upon prior written notification to the audit committee, the State Auditor may review available information, request documents, conduct interviews of state agency officials, including officials with the State Controller’s Office and the Department of Finance, conduct interviews of local government agency officials, and analyze information for the purpose of identifying a local government agency that is at high risk for the potential of waste.

What is the answer?

We recommend that you make sure you are doing things correctly and evaluating where your agency stands when considering the risk factors mentioned above, so you don’t end up on the California State Auditor website!! Regular internal audits should ensure you are compliant with state laws. You may want to keep up with employee morale to avoid a whistleblower incident. It might also be a good idea to have an outside consultant do a risk assessment before the State Auditor pays a visit.

Curious to see how your City ranks? Here is a link:

For more information, see the California State Auditor’s website:


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Is Your City at Risk of a State Audit?

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