Late again: California releases tardy audited financials for fifth year running

The state of California has published its fiscal year 2022 annual comprehensive financial report, marking the fifth year in a row the state’s ACFR has been significantly delayed.

The audited financial statements were dated Friday and announced Monday by State Controller Malia Cohen, almost a full year later than the state’s internal goal of releasing them on March 31, 2023, and more than 20 months after the close of fiscal 2022.

The Government Finance Officers Association, in its criteria for its Certificate of Achievement for Excellence in financial reporting, sets the bar for timeliness at six months after the end of the fiscal year covered by an ACFR.

“This is the fifth consecutive ACFR that has been published late due to ongoing challenges in receiving financial statements from state departments and audited opinions from the California State Auditor,” according to Cohen’s statement. “The California State Auditor issued modified opinions on several components of the state’s basic financial statements because of these ongoing challenges.”

In an August ratings report , Fitch Ratings analysts said: “Habitually delayed publication of audited financial results, beyond 270 days of the end of the fiscal year, can be an indication of management weakness.”

State officials continue to cite difficulties implementing a new state government-wide financial management system called FI$CAL for years of delayed ACFRs.

The Financial Information System for California was launched in 2019. FI$CAL is supposed to combine the state’s accounting, budgeting, cash management, procurement, and other operations into a single, modernized system.

One of the shortcomings noted by the state auditor was the Employment Development Department had inadequate internal controls over its financial reporting for federally funded unemployment insurance benefits, including not properly estimating the total population of ineligible payments. The state added $29 billion of net liabilities to its balance sheet to recognize the amount of improper UI payments it may have to pay the federal government, if the federal government doesn’t let it write them off.

The controller estimated it will take two more years to be able to issue the ACFR on time.

She said in her statement her office is “aggressively working toward its goal of publishing an on-time fiscal 2024-25 ACFR by March 2026.”

The Legislature and the governor have provided her office with the resources to hire 13 new staff members, bring in consultants, address technology needs, improve business processes, and compile resources that will assist departments with quickly responding to and resolving accounting issues, she said.

“As my office continues to make meaningful progress toward restoring the timely issuance of this critical report, I remain grateful for the collaboration and support of the Legislature, the Governor’s administration and state department leaders, and control agencies in this effort,” Cohen said.

Her efforts include establishing an ACFR compilation governance structure, streamlining manual processes, and optimizing technology, according to the statement attached to the financial report. She added she will continue to work with partner agencies to provide departments the technical assistance and resources needed to accurately and timely submit financial reports.