Barnes Dennig, an accounting firm contracted with the city of Covington, has issued an unmodified or clean opinion on the city’s financials.
This will be the second consecutive year since 1995 that the city has received a clean audit from an independent financial firm. Additionally, the audit suggests that the deficit that has plagued the city’s general fund for the past two fiscal years is closing.
“The year to date trends have been positive,” said Covington’s Director of Finance, Steve Webb. “We continue to kind of tick up in the right direction, I think, both in terms of position and the [city’s] operations. So, I think all things just continue to move in the right direction.”
Barnes Dennig presented their findings to the Covington City Commission on Tuesday night. Cities are required to undergo audits from independent professionals every year.
Although they’re not exhaustive, audits provide fresh eyes on how well a city is managing its money and offer recommendations on effective bookkeeping and compliance with professional standards. Audits can also be useful in uncovering fraud or the misuse of public funds. Barnes Dennig’s audit found no indications of fraud or other illegal activity.
“We do get reasonable assurance, not absolute assurance,” explained Barnes Dennig Assurance Manager Daniel Demonte. “Basically, what that means is we look at certain transactions that are riskier versus others. We can’t look at every payroll, every invoice; that would not be efficient of our time or the city’s time. So, we determine what barriers are riskier and look more heavily in those areas.”
Although most of the city’s financial operations were clean and in compliance, there were two items Barnes Dennig flagged as deficiencies, albeit minor ones that could be easily rectified. The first was the improper disposal of a capital asset, namely the disposal of an old building that should have been recorded in fiscal year 2020 but was instead recorded this year. This error had the effect of offsetting the city’s overall net position. Audit documents indicate the city agreed to Barnes Dennig’s recommendation of regularly reviewing its property records to avoid this in the future.
The other was related to record keeping for Covington’s Section 8 program. City staff informed LINK nky that this arose from an error during the change over of the Section 8 program from the administration of the city to the Housing Authority of Covington, in which a file was improperly converted from its original paper form to electronic form. LINK nky has reached out to the Housing Authority of Covington to confirm this.
Following the institution of work-from-home labor arrangements from the city’s larger employers, such as Fidelity, during the pandemic, the city saw a decline in payroll tax revenue, which in time lead to a deficit in the city’s general fund, which is responsible for much of the city’s operating budget. Other city funds that don’t rely on tax revenue were not affected. Since then, the city commission has re-appropriated emergency COVID dollars to meet the shortfall and has introduced other cost-cutting measures to close the gap.
Audit documents and city financial reports indicate that the general fund deficit is still at play, but the gap is closing. Expenditures exceeded revenues by about $2.4 million in fiscal year 2022. In fiscal year 2023, expenditures exceeded revenues by about $2.6 million. Finally, in fiscal year 2024, which ended June 30, expenditures exceeded revenues by only $784,460.
Audit documents also indicate that payroll tax revenues and property tax revenues have increased since last year. Government expenditures, on the other hand, have increased by about $10.5 million with most expenditures incurred by police and fire.
You can read and download the city’s most recent comprehensive financial report, including analysis from Barnes Dennig’s audit, below.