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HomeMy WebLinkAboutAgenda 01-20-2026; 4-b - Presentation of Annual Comprehensive Financial Report for FYE 6-30-2025 and Approval of Audit Services Contract Amendment 1 ORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: January 20, 2026 Action Agenda Item No. 4-b SUBJECT: Presentation of Annual Comprehensive Financial Report for FYE 6/30/2025 and Approval of Audit Services Contract Amendment DEPARTMENT: Finance and Administrative Services ATTACHMENT(S): INFORMATION CONTACT: 1. PowerPoint Presentation — Mauldin & Gary Donaldson, (919) 245-2453 Jenkins 2. Audit Services Contract Amendment UNDER SEPARATE COVER 3. Annual Comprehensive Financial Report, June 30, 2025 ONLY AVAILABLE ELECTRONICALLY A T.- hUps://www.orangecountync.gov/732/Fin ancial-Statements PURPOSE: To: 1) Receive a presentation on the Annual Comprehensive Financial Report (ACFR) for the fiscal year ended June 30, 2025; and 2) Approve an Audit Services Contract Amendment for Fiscal Year 2025. BACKGROUND: The ACFR reports on all financial activity of the County for the fiscal year July 1, 2024, through June 30, 2025. Mauldin and Jenkins, LLC, a firm of Certified Public Accountants, audited the County's financial statements. The financial statements and audit are required by Chapter 159-34 of the North Carolina General Statutes. The financial report for the Orange County Sportsplex, as required under the management contract, is included in the County's ACFR. The County received an unmodified (clean) audit opinion on the financial statements received from the audit. The financial audit results indicate compliance with County financial policies. The Chief Financial Officer and representatives of Mauldin and Jenkins, LLC, will cover highlights of the report and answer any questions. The County's Unassigned fund balance remained in compliance with the 16% County policy at 16.9% of General Fund expenditures. Under North Carolina General Statute 143-129(e)(2), certain professional services including audit, legal and consulting are not subject to the same competitive bidding requirements as goods and construction contracts. Mauldin and Jenkins incurred $15,000 in additional expenses due to the requirements of the Uniform Guidance and State Single Audit Implementation Act and major program selection for FY 2025. Below are the programs required for the Single Audit: 1. Medicaid 2 2. Child Support Enforcement 3. Housing Section 8 4. Opioid Settlement 5. Temporary Assistance for Needy Families (TANF) 6. Public School Capital Outlay 7. Juvenile Crime Prevention Council The number of major programs subject to audit varies each year based primarily on (1) the composition of the County's federal awards and (2) the composition of the County's state awards. Staff will review further with the auditors the estimated programs to be audited to meet audit thresholds and standards. For the current audit year, these requirements resulted in a higher number of major programs than anticipated when the original $135,000 contract amount was established, leading to the additional cost. This increase was not the result of missed requirements or a change in audit standards adopted after contract approval. The auditors expect the number of required major programs — and associated costs — to decline in future years due to the expiration of COVID- related funding and the planned increase in federal and state threshold levels to $1,000,000. The attached Audit Services Contract Amendment increases the FY 2025 cost from $135,000 to $150,000. The FY 2026 and 2027 audit budgets are expected to be $140,000 and $145,000 respectively. Staff will present the required annual Local Government Commission audit contracts for those years at a future Board Business meeting. FINANCIAL IMPACT: The financial report indicates a strong financial position for Orange County. The Audit Services Contract Amendment increases the FY 2025 expense from $135,000 to $150,000. Approval of the appropriation for this additional funding is included in Budget Amendment #6 as part of this January 20, 2026 meeting agenda. ALIGNMENT WITH STRATEGIC PLAN: This item supports: • GOAL 6: DIVERSE AND VIBRANT ECONOMY RECOMMENDATION(S): The Manager recommends that the Board: 1) Receive the presentation on the Annual Comprehensive Financial Report (ACFR) for the fiscal year ended June 30, 2025 as information; and 2) Approve and authorize the Chair to sign the Audit Services Contract Amendment for the Fiscal Year 2025 audit services. Agglop-,mrp-- ORANGE COUNTY NORTH CAROLINA T & T Presentation of Audit Results 14 kTT I June 30, 2025 4 Orange County, North Carolina Agenda Engagement Team Overview of: Audit Opinion Financial Trends Compliance Report Required Communications Accounting Recommendations and Related Matters Answer Questions Auditor's Discussion &Analysis (AD&A) Going Further. June 30, 2025 /'f T 5 Orange County, North Carolina INSIDE, ' .. ` III, III f f 00+ SINGLE AUDITS PERFORMED LAST FIRMS *I �)�I+ �I+ I•I�I I•I 1�1 � � YEAR COVERING OVER$5.3 �na�. II II II II II II N N CONSISTENTLY RANKED AS A TOP BILLION OF FEDERAL GRANTS ACCOUNTING FIRM IN THE U.S. TEAM MEMBERS DEDICATED 4 0+ TO SERVING THE � � ��� 1 100+ yea r GOVERNMENTAL INDUSTRY ` � HOURS ANNUALLY HISTORY PROVIDED TO OF QUALITY SERVICE '` ,`5 y.."" "r ,r r"� GOVERNMENTAL CLIENTS f # >4f e CURRENT CLIENTS AWARDED Se r Y e 700+ MAULDIN&JENKINS 175� TSE raFI43l+Ik CERTI F I CATE of GOVERNMENT CLIENTS EXCELLENCE raw4u 6 GOVERNMENTAL 18 14 PARTNERS STATES OFFICES T4 iMf.a iYhain�.wAY4M;.iWeN_f1Y Mule,rul$Ytilr M!(Yti3 IV+hMe�4.+nf au.rr+x rvxwwuu''r N+ww..O.Wwthlr rrr+eAG.er.«' 7re;trsrlup..rwYVW.•A.?i Engagement Team Leaders • Tim Lyons, Engagement Partner Brian Nicholson, Quality Review Partner I Chad Jackson, Manager Auditor's Discussion &Analysis (AD&A) Going Further. June 30, 2025 AAT 6 Orange County, North Carolina Audit Opinion • Our Responsibility Under Auditing Standards Generally Accepted in the United States of America (GAAS) We considered the internal control structure for the purpose of expressing our opinion on Orange County, North Carolina's (the"County") basic financial statements, not for the purpose of providing an opinion on the effectiveness of internal controls. Our audit was performed in accordance with GAAS and Government Auditing Standards. Our objective is to provide reasonable—not absolute—assurance that the basic financial statements are free of material misstatement. The basic financial statements are the responsibility of the County's management. We did not audit the financial statements of the Orange County ABC Board. The financial statements of the ABC Board were audited by other auditors whose report was furnished to us, along with certain other required communications. Our opinion on the County's financial statements is based solely on the report of the other auditors who performed the audit of the ABC Board. The financial statements of the ABC Board were not audited in accordance with Government Auditing Standards. • Report on Basic Financial Statements Unmodified ("clean") opinion on basic financial statements. Presented fairly in accordance with accounting principles generally accepted in the United States of America. Our responsibility does not extend beyond financial information contained in our report. Auditor's Discussion &Analysis (AD&A) Going Further. June 30, 2025 AAT 7 Orange County, North Carolina Compliance Reports • Government Auditing Standards ("Yellow Book") Report The financial report package contains a report on our tests of the County's internal controls and compliance with laws, regulations, etc. The report is not intended to provide an opinion on internal controls nor is it intended to provide a legal determination on the County's compliance with applicable laws and regulations. This report and the procedures performed are required by Government Auditing Standards. • Compliance Reports We were required to perform Single Audit procedures on seven (7) major programs (4 Federal and 3 State of North Carolina programs). We issued a report on the County's federal programs in accordance with the Uniform Guidance. That report contained an unmodified opinion on compliance. We issued a report on the County's state programs in accordance with the State of North Carolina Single Audit Implementation Act. That report contained an unmodified opinion on compliance. Auditor's Discussion &Analysis (AD&A) Going Further. June 30, 2025 AAT s Orange County, North Carolina Financial Trends - Composition of Fund Balance Fund Balance Categories - General Fund Trends from 2024 to 2025 50,000,000 2024 Fund Balance: $77.72M 45,000,000 40,000,000 2025 Fund Balance: $78.36M 35,000,000 � Changes in unassigned fund 30,000,000 balance 25,000,000 2024: $39.78M 20,000,000 2025: $42.85M 15,000,000 Unassigned fund balance as 10,000,000 of June 30, 2025, is 16.9% of 5,000,000 General Fund expenditures which is compliant with 16% 2023 2024 2025 County policy disclosed in ■Nonspendable ■Restricted ■Committed ■Assigned ■Unassigned Note 1 to the F/S. Auditor's Discussion &Analysis (AD&A) Going Further. June 30, 2025 A T 9 Orange County, North Carolina Financial Trends - General Fund Revenue Charges for services,4.9% Other, 1.9% Intergovernmental,6.9% Sales Taxes, 15.1% Property Taxes, 71.2% 2025 -Actual 2025-Budget Diff Property Taxes 206,488,649 203,205,934 3,282,715 Sales Taxes 43,717,384 44,139,012 (421,628) Intergovernmental 20,140,939 21,892,072 (1,751,133) Charges for services 14,173,742 13,816,624 357,118 Other 5,455,049 13,306,457 (7,851,408) 289,975,763 296,360,099 (6,384,336) Auditor's Discussion &Analysis (AD&A) Going Further. June 30, 2025 AAT 10 'a Orange County, North Carolina Financial Trends - General Fund Expenditures 2025 - Actual 2025 - Budget Diff % age Community services $ 15,845,035 $ 16,822,295 $ 977,260 6% General government 13,152,231 13,923,838 771 ,607 5% Public safety 40,129,493 41 ,217,286 1 ,087,793 14% Human Services 47,987,431 52,835,889 4,848,458 17% Education 113,122,510 113,159,588 37,078 39% Support services 20,031,716 29,136,667 9,104,951 7% Debt service (*) 36,868,612 35,6361656 (1 ,231,956) 13% $ 287,137,028 $ 302,732,219 $ 15,595,191 100% Debt service expenditures includes approximately $19.1 million of principal and interest payments on school-related debt for the fiscal year ended June 30, 2025. When the balance of those payments is added to non-debt service, total expenditures for education total approximately $132.2 million or 46% of total General Fund + Debt Service Fund expenditures. Auditor's Discussion &Analysis (AD&A) Going Further. June 30, 2025 AAT 'a 11 Orange County, North Carolina Financial Trends - Proprietary Funds Solid Waste Enterprise Fund 2025 2024 Change Operating revenues $ 10,847,396 $ 11 ,093,956 $ (246,560) Operating expenses 13,754,493 11 ,903,792 1 ,850,701 Operating income (2,907,097) (809,836) (2,097,261) Unrestricted net position 6,128,359 8,857,525 (2,729,166) Operating cash flow 392,924 1 ,264,554 (871 ,630) Overall cash flow (3,017,611) 467,457 (3,485,068) SportsPlex Enterprise Fund 2025 2024 Change Operating revenues $ 5,956,282 $ 5,497,730 $ 458,552 Operating expenses 5,534,000 5,889,969 (355,969) Operating income 422,282 (392,239) 814,521 Unrestricted net position 1 ,251 ,011 318,997 932,014 Operating cash flow 1 ,174,813 257,861 916,952 Interfund transfers 799,669 746,694 52,975 Overall cash flow 2,842,604 (381 ,919) 3,224,523 Auditor's Discussion &Analysis (AD&A) Going Further. June 30, 2025 AAT 12 Orange County, North Carolina Required Communications • Significant Accounting Policies Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the County are described in Note 1 to the basic financial statements. During the current year, the County was required to implement the provisions of GASB Statement No. 101, Compensated Absences and GASB Statement No. 102, Certain Risk Disclosures. The policies used by the County are in accordance with generally accepted accounting principles. In considering the qualitative aspects of its policies, the County is not involved in any controversial or emerging issues for which guidance is not available. • ManagementJudgment/Accounting Estimates Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. The County uses various estimates as part of its financial reporting process - including actuarial assumptions. Auditor's Discussion &Analysis (AD&A) Going Further. June 30, 2025 TN AT 13 -40w� Orange County, North Carolina Required Communications (Continued) • Relationship with Management • We received full cooperation from the County's management and staff. • There were no disagreements with management on accounting issues or financial reporting matters. • Management Representation We requested, and received, written representations from management relating to the accuracy of information included in the financial statements and the completeness and accuracy of various information requested by us. • Consultation with Other Accountants To the best of our knowledge, management has not consulted with, or obtained opinions from, other independent accountants during the year, nor did we face any issues requiring outside consultation. • Significant Issues Discussed with Management • There were no significant issues discussed with management related to business conditions, plans, or strategies that may have affected the risk of material misstatement of the financial statements. Auditor's Discussion &Analysis (AD&A) Going Further. June 30, 2025 AAT 14 Orange County, North Carolina Required Communications (Continued) • Audit Adjustments Several adjustments were required during the conduct of the audit; these adjustments have been provided to management and they have provided us with representations that the adjustments have been posted to the County's general ledger. We did not have any passed audit adjustments. • Financial Statement Disclosures The footnote disclosures to the financial statements are also an integral part of the financial statements and the process used by management to accumulate the information included in the disclosures was the same process used in accumulating the statements. The overall neutrality, consistency, and clarity of the disclosures was considered as part of our audit. • Information in Documents Containing Audited Financial Statements Our responsibility for other information in documents containing the County's basic financial statements and our report thereon does not extend beyond the information identified in our report. If you intend to publish or otherwise reproduce the financial statements and make reference to our firm, we must be provided with printers' proof for our review and approval before printing. You must also provide us with a copy of the final reproduced material for our approval before it is distributed. • Auditor Independence In accordance with AICPA professional standards, M&J is independent with regard to the County, its component unit, and its respective financial reporting processes. Auditor's Discussion &Analysis (AD&A) Going Further. June 30, 2025 AAT 15 Orange County, North Carolina Audit Findings • 2025-001 Accounting for Lease Activity Issue: We noted that the County did not record the current year lease activity required under GASB 87. A new material lessor lease executed during the fiscal year was not recorded in the County's financial statements, as well as the current year additions for lessee leases were not recorded. As a result, both lessee and lessor lease activity for the fiscal year was incomplete in the accounting records and thus audit adjustments of approximately $7.3 million were required to properly report the County's leasing activity in accordance with GAAP. • 2025-002 Reporting of Accounts Payable and Related Balances Issue: During our search for unrecorded liabilities, we identified multiple vendor invoices relating to goods and services received prior to year-end that were not accrued to the appropriate fiscal year. These invoices were instead recognized in the subsequent fiscal year when processed, resulting in a misstatement of accounts payable and expenditures. As a result, audit adjustments totaling approximately $700,000 were required to properly report the County's liability for accounts payable and the related expenditures/ expenses for fiscal year 2025. • 2025-003 Prior Period Adjustment Issue: We noted that the County recorded sales and use tax refund receipts after year-end as revenue, despite the related receivable and revenue having already been recognized in prior fiscal years. This resulted in duplicate recognition of revenue and thus audit adjustments were required to properly reduce outstanding receivable balances and to restate beginning fund balance of the County's General Fund to address the errors in revenue recognition that occurred in previous years. Auditor's Discussion &Analysis (AD&A) Going Further. June 30, 2025 AAT 16 Orange County, North Carolina Management Letter Comments (Recommendations) • Accounting for Special Revenue Funds During our review of the County's financial statements, we noted the DSS Payee Fund did not have any revenue or expenditure activity (outside of a journal entry writing off liabilities) for the fiscal year under audit. Based on our review of the general ledger activity, it appears the County is still accounting for this fund as if it was still a custodial fund of the County where all amounts are received as cash and offset with a corresponding liability. With the change in accounting standard that was brought about by GASB Statement No. 84, Fiduciary Activities, this fund was reclassified to a special revenue fund in previous years and should be reflecting the inflows it receives during the fiscal year as revenues and conversely, the outflows as expenditures. Due to the fact that the activity for the fiscal year ended June 30, 2025, was not material, an audit adjustment to reclassify the activity was not required. However, we recommend County staff implement additional internal controls or additional annual closeout procedures to the ensure the amounts are properly recorded in accordance with generally accepted accounting principles(GAAP). • Lack of Annual Budget Adoption - Special Revenue Fund During our audit, we noted that the County did not adopt an annual budget for one of its Special Revenue Funds for the fiscal year ended June 30, 2025. North Carolina General Statutes and the County's budgetary policies require that all funds subject to budgetary control have a formally adopted annual budget. Without an adopted budget, expenditures and revenues in the Special Revenue Fund were not subject to formal budgetary control, increasing the risk of unauthorized spending and noncompliance with state law and County policies. We recommend that management ensure all Special Revenue Funds are reviewed annually during the budget process and that an adopted budget ordinance is approved for each fund, regardless of the activity level. Auditor's Discussion &Analysis (AD&A) Going Further. June 30, 2025 AAT 17 Orange County, North Carolina New Accounting Pronouncements • New GASB Pronouncements for Future Years Statement No. 103, Financial Reporting Model Improvements was issued in 2024 and is effective for fiscal years beginning after June 15, 2025, which means the County's fiscal year ended June 30, 2026. This new standard will change a few things in the County's ACFR (Management's Discussion and Analysis; presentation of budgetary comparison schedules; and the statement of revenues, expenses and changes in net position for the County's enterprise funds). Statement No. 104, Disclosure of Certain Capital Assets, clarifies information that is required to be disclosed in the capital asset footnote and roll-forward. With the introduction of a new class of assets in recent years (right-to-use assets), the GASB has clarified how those items need to be presented in the County's footnotes. In addition, this new Standard will require the County to separately disclose the historical cost and accumulated depreciation (as of the financial statement date) for any capital assets that are held for sale. The requirements of this Standard are effective for fiscal years beginning after June 15, 2025, which means the County's fiscal year ending June 30, 2026. Auditor's Discussion &Analysis (AD&A) Going Further. June 30, 2025 AAT 18 Orange County, North Carolina Govt. Clients - Free Quarterly Continuing Education • Since March of 2009 - For Over 12 Years !! Mauldin &Jenkins provides free quarterly continuing education for all of our governmental clients. Topics are tailored to be of interest to governmental entities. In an effort to accommodate our entire governmental client base, we offer the sessions several times per quarter at a variety of client provided locations resulting in greater networking and knowledge sharing among our governmental clients. We normally see approximately 180 people per quarter. Examples of subjects addressed in the past few quarters include: • Accounting for Debt Issuances ! GASB Projects & Updates (ongoing & several sessions ■ Achieving Excellence in Financial Reporting ■ Human Capital Management • Best Budgeting Practices, Policies and Processes ■ Grant Accounting Processes and Controls ■ Budget Preparation ■ Internal Controls Over Accounts Payable, Payroll and ■ ACFR Preparation (two (2) day hands-on course) Cash Disbursements • Capital Asset Accounting Processes and Controls ■ Internal Controls Over Receivables &the Revenue Cycle ■ Collateralization of Deposits and Investments ■ IRS Issues, Primarily Payroll Matters • Component Units ■ Legal Considerations for Debt Issuances & Disclosures • Cybersecurity Risk Management ■ Policies and Procedures Manuals • Evaluating Financial and Non-Financial Health of a Govt. ■ Segregation of Duties ■ Financial Report Card -Where Does Your Govt. Stand? ■ Single Audits for Auditees • Financial Reporting Model Improvements ■ Special Purpose Local Option Sales Tax(SPLOST) ■ GASB Nos. 74&75, OPEB Standards ■ Accounting, Reporting & Compliance ■ GASB No. 77, Tax Abatement Disclosures ■ Uniform Grant Reporting Requirements and the New ■ GASB No. 84, Fiduciary Activities Single Audit Auditor's Discussion &Analysis (AD&A) Going Further. June 30, 2025 Questions & Comments 19 ORANGE COUNTY NORTH CAROLINA AlTX Thank You for the Opportunity to Serve 20 LGC-205 Amendment AMENDMENT TO CONTRACT TO AUDIT ACCOUNTS Rev.08/2025 Whereas Primary Government Unit Orange County and Discretely Presented Component Unit(DPCU) (if applicable) and Auditor Mauldin&Jenkins, PLLC entered into a contract in which the Auditor agreed to audit the accounts of the Primary Government Unit and DPCU (if applicable) Fiscal Year Ending Date for and originally to be 06/30/25 submitted to the LGC on 12/31/25 hereby agree that it is now necessary that the contract be modified as follows. Original date Modified date ❑✓ Modification to date submitted to LGC 12/31/25 02/12/26 Original fee Modified fee ❑✓ Modification to fee $ 135,000.00 $ 150,000.00 Primary Other Reason(s)for Contract Amendment (choose 1)(choose 0-2) 0 ❑✓ Change in scope 0 ❑ Issue with unit staff/turnover/workload 0 ❑ Issue with auditor staff/turnover/workload 0 ❑ Third-party financial statements not prepared by agreed-upon date 0 ❑ Unit did not have bank reconciliations complete for the audit period 0 ❑ Unit did not have reconciliations between subsidiary ledgers and general ledger complete 0 ❑ Unit did not post previous years adjusting journal entries resulting in incorrect beginning balances in the general ledger 0 ❑ Unit did not have information required for audit complete by the agreed-upon time 0 ❑ Delay in component unit reports 0 ❑ Software - implementation issue 0 ❑ Software -system failure 0 ❑ Software - ransomware/cyberattack 0 ❑ Natural or other disaster G) ❑ Other (please explain) Plan to Prevent Future Late Submissions If the amendment is submitted to modify the date the audit will be submitted to the LGC, please indicate the steps the unit and auditor will take to prevent late filing of audits in subsequent years.Audits are due six months after fiscal year end (ten months after fiscal year end for housing authorities). Indicate NA if this is an amendment due to a change in cost only. Late Release of 2025 Compliance Supplement. Additional Information Please provide any additional explanation or details regarding the contract modification. Fee adjustment due to additional programs required to be audited as major for the County's Single Audit. The original engagement letter fee included five (5)major programs whereas the composition of the County's federal and state expenditures required seven(7)programs to be audited. By their signatures on the following pages, the Auditor, the Primary Government Unit, and the DPCU (if applicable), agree to these modified terms. Page 1 of 3 21 LGC-205 Amended AMENDMENT TO CONTRACT TO AUDIT ACCOUNTS Rev.08/2025 SIGNATURE PAGE AUDIT FIRM Audit Firm* Mauldin&Jenkins,PLLC Authorized Firm Representative* (typed or printed) Signature* Timothy M. Lyons '@ Date* Email Address 12/15/25 tlyons@mjcpa.com GOVERNMENTAL UNIT Governmental Unit* Orange County Date Primary Government Unit Governing Board Approved Amended Audit Contract* (If required by governing board policy) Mayor/Chairperson* (typed or printed) Signature* Date Email Address Chair of Audit Committee (typed or printed,or"NA") Signature Date Email Address GOVERNMENTAL UNIT— PRE-AUDIT CERTIFICATE *ONLY REQUIRED IF FEES ARE MODIFIED IN THE AMENDED CONTRACT* (Pre-audit certificate not required for hospitals) Required by G.S. 159-28(al) or G.S. 115C-441(al) This instrument has been pre-audited in the manner required by The Local Government Budget and Fiscal Control Act or by the School Budget and Fiscal Control Act. Primary Governmental Unit Finance Officer* Signature* Date of Pre-Audit Certificate* Email Address* Page 2 of 3 22 LGC-205 Amended AMENDMENT TO CONTRACT TO AUDIT ACCOUNTS Rev.08/2025 SIGNATURE PAGE — DPCU (complete only if applicable) DISCRETELY PRESENTED COMPONENT UNIT DPCU Date DPCU Governing Board Approved Amended Audit Contract (If required by governing board policy) DPCU Chairperson (typed or printed) Signature Date Email Address Chair of Audit Committee (typed or panted,or"NA") Signature Date Email Address DPCU — PRE-AUDIT CERTIFICATE *ONLY REQUIRED IF FEES ARE MODIFIED IN THE AMENDED CONTRACT* (Pre-audit certificate not required for hospitals) Required by G.S. 159-28(al) or G.S. 115C-441(al) This instrument has been pre-audited in the manner required by The Local Government Budget and Fiscal Control Act or by the School Budget and Fiscal Control Act. DPCU Finance Officer (typed or printed) Signature Date of Pre-Audit Certificate Email Address Page 3 of 3