- Covington’s financial audit has come back clean and shows no deficit in the city’s general fund, although with the end of COVID funding looming, the future is unclear.
- The general fund saw an increase in payroll tax revenue and a decrease in expenditures.
- They will need to find some way to make up the gap long-term, likely through generating more occupational tax revenue.
Covington’s annual financial audit has come back clean for the third year in a row.
Additionally, fiscal year 2025, which concluded June 31, was the first time since fiscal year 2021 that the city’s general fund closed the fiscal year with revenues exceeding expenditures, i.e., without a deficit. The general fund is the city’s primary fund, from which it pulls much of its operating budget.
“In the words of the former mayor (Joe Meyer), make sure you get a clean audit,” said Mayor Ron Washington at the Board of Commissioners meeting on Jan. 27, where auditing firm Barnes Dennig first publicly presented its findings to the city government.
Still, it remains to be seen if that will last, as much of the revenue replacement in the general fund’s finances came from the final remainders of COVID emergency funding, which has to be spent by the end of calendar year 2026. Financial records from the city indicate that just over $6 million in revenue came from the COVID funding in fiscal year 2025, and that money won’t be replenished once it’s spent.
The complete audit documents were not yet available at the January meeting, but Barnes Dennig CPA Daniel Damonte was far enough in the process at that point to inform the board of the firm’s “plan to issue an unmodified, clean opinion on both the financial statements and the major federal programs,” he said.
Cities are required to undergo audits from independent professionals every year. Although they’re not exhaustive, audits provide fresh eyes on how a city is managing its money and offer recommendations on effective bookkeeping and compliance with professional standards. Audits can also be useful in spotting the signs of missing money and fraud, although teasing out the exact nature of fraud and crime requires a more intensive audit called a forensic audit, which is only done under special circumstances.
Damonte explained what auditors look for during his presentation in January.
“We determine where the risk areas are in the city’s financials and perform more detailed procedures in those areas,” Damonte said. “We do get an understanding of internal controls … However, this was not an internal control audit.”
Barnes Dennig furnished its final audit report in late February, and the city’s finance department later released a full financial report for fiscal year 2025, which includes audit documents as well as internal analyses from the city, this month.
Besides the COVID revenue replacement, another reason for the increase in general fund revenue was a total increase in occupational license fees, which is the technical term for taxes on payroll and net profits, of $4,094,340, most of which came from payroll taxes. Payroll tax revenue increased by about 15% from fiscal year 2024. Net profits taxes, on the other hand, actually decreased by about 2.3%.
The previous years’ shortfalls were largely due to declines in payroll tax collections, following the institution of work-from-home policies during the pandemic, especially at the city’s larger employers, such as Fidelity. Payroll taxes are collected based on the location where work is completed, so if the employees worked for a Covington company but lived elsewhere, work-from-home polices ensured tax revenue was collected outside of Covington.
In time, this led to a deficit in the city’s general fund, although other city funds that don’t rely on tax revenue were not affected. Since then, the city commission has re-apportioned emergency COVID dollars and has introduced other cost-cutting measures to close the gap.
These days, work-from-homes are less common than they used to be, plus the city’s larger employers, including Fidelity, actually saw an increase in employees in fiscal year 2025, according to city financial records, which means more payroll tax revenue.
The general fund also saw a decline in expenditures by $1,152,904, which the city attributes to the cost-cutting measures it put in place. Yet, with the sun-setting of COVID emergency funds, increasing tax revenue through the economic development, such as the Central Riverfront site, will likely continue to be the city’s primary strategy in keeping the gap closed long term.
“We are working to make sure it will,” said Covington Finance Director Bre Gaffney.
The CCR site still ranks among the city’s top priorities, and the Board of Commissioners has come out in favor of a bill at the state level that would mandate payroll tax collection based on a corporate office’s location, rather than worker location. That bill is currently awaiting a Kentucky Senate committee assignment.