Naabik’íyáti accepts fiscal 2024 audit, record alongside control gaps

WINDOW ROCK

The Naabik’íyáti Committee has accepted the annual audit of the tribe’s finances for fiscal 2024. The report shows record investment gains and rising federal funding but also points to major financial reporting and internal control gaps.

The committee met Tuesday, Sept. 2, to review the audit, presented by KPMG auditor John Bunnell and sponsored by Delegate Shaandiin Parrish, the chair of the Budget and Finance Committee, under Legislation 0203-25.

KPMG LLP, based in Albuquerque, issued a mixed assessment: three unmodified (clean), three qualified and one adverse opinion across different sections of the financial statements. The Nation’s General Fund, Grant Fund and Permanent Fund were found to be fairly reported. An adverse opinion stemmed from the exclusion of economic data for legally separate enterprises and entities – a long-standing issue.

Balances, revenue

By year’s end, the Nation reported a net position of $8.2 billion, up from $6.6 billion in 2023. Governmental funds ended with a combined balance of $6.9 billion, including $487 million in unassigned General Fund reserves.

The General Fund posted $504 million in excess revenues, fueled by $243 million in federal recovery grants and strong investment earnings. Investment values increased by $770 million in 2024, following a $342 million gain in 2023.

Federal grants and contracts generated $561 million, up from $396 million. Oil, gas and coal royalties contributed $76 million, nearly unchanged from the prior year. Governmental activities expenses totaled $809 million, with the largest portions for general government ($256 million), health and welfare ($156 million), public safety ($89 million), education ($95 million), community development ($94 million) and natural resources ($76 million).

The Nation also carried $2 billion in unspent federal grant advances at year’s end, primarily in the Grant Fund. Those dollars are restricted and must be used according to grant terms.

Standards, oversight questions

Bunnell said revenues rose sharply for three reasons: a 34% rise in the S&P 500 boosting investment gains, $197 million in American Rescue Plan Act revenue-loss recovery and fluctuations in settlement income.

He noted that the exclusion of Navajo-owned enterprises mirrors practices at other tribal governments over the past two decades. Qualified opinions, he said, arose from the Nation’s non-adoption of Governmental Accounting Standards Board rules, including GASB 87 on leases, GASB 96 on subscription-based IT arrangements and GASB 90 on component unit investments.

According to gasb.org, GASB standards are the accounting and reporting principles for U.S. state and local governments, established to ensure transparency, comparability and accountability in public financial reporting. The standards cover budgeting, financial statement presentation and recognition of assets and liabilities.

“These issues are unchanged from prior years but could affect comparability with other entities if not addressed,” Bunnell said.

Delegate Amber Kanazbah Crotty pressed for clarity on the impact of not adopting GASB standards.

“Could you help me understand what, since Navajo Nation hasn’t incorporated those policies and procedures, if you have any recommendations on how this impacts our audit findings or ways in the future that we can be accountable?” Crotty asked.

Bunnell replied that adoption would improve comparability and likely resolve the qualified opinions. Assistant Controller Robert Willie added that the controller’s office has requested proposals to hire outside help to implement the standards, which could require budget amendments for fiscal 2026.

Crotty also asked how $57.6 million in tribal assistance expenditures – about 21% of General Fund spending – were divided between chapters and other programs. Willie said the category includes general assistance, school clothing, burial aid and chapter disbursements, and he agreed to provide a breakdown.

Delegate Cherilyn Yazzie raised concerns about oversight of ARPA funds, including prepayments to chapters.

“Do you know, are the Nation’s internal controls strong enough today to prevent any of the findings from one to six?” Yazzie asked as she requested access to work papers and schedules for the $521 million in revenue recovery, of which $175 million remains unrecognized.

Bunnell said KPMG reviewed the ARPA calculations and is confident in compliance, though corrective actions would depend on the controller’s office. “If we’re able to hold our chapters accountable, we need to ensure we take KPMG recommendations for those corrective action plans seriously,” Bunnell said.

Delegate Arbin Mitchell asked about resolving the adverse opinion. Bunnell said including enterprise financials would address it, while noting exclusion is common among tribes.

Yazzie later proposed amending the legislation to require separate hearings on single-audit findings. “I do support this audit, but I do still feel like there’s a lot of deeper audit, serious audit findings that relate to our ARPA, and I want to make sure we’re doing the best we can to do our job as oversight,” she said.

Findings, fixes and next steps

The audit praised the Nation’s pension plan, funded at 102%, compared with the 75th percentile of state pensions at 89%. Bunnell called it “an excellent spot to be in,” noting the General Fund has reported no deficits since 2018.

Still, the report identified four material weaknesses and two significant deficiencies. Among them: corrections of $43 million in ARPA investment income from prior years, unrecorded revenues, improper recording of advance payments, a $55 million cash-reconciliation issue, $22 million in capital-expenditure misclassifications and reliance on cash-basis accounting.

Bunnell said Controller Sean McCabe’s rollout of a new enterprise resource planning system should address many of the issues.

With the audit now accepted, budget discussions for fiscal 2026 will follow, shaped by the findings and continuing concerns about transparency. Parrish thanked colleagues for their cooperation.

“I want to extend my appreciation to the members of the Council for working together on being here for the audit, also for the budget and working together to improve our financial status and statements and our policies across the Nation,” she said.

Auditors cautioned that energy-market volatility and federal interest-rate policy will continue to influence revenues. Even so, they described the Nation’s investment portfolio and Permanent Fund as stabilizing assets, key to protecting Navajo resources amid shifting economic conditions.

Council members will take up the audit in a special session at 9 a.m. Wednesday, Sept. 3. The comprehensive budget is also on the agenda, and deliberations could run through Friday.

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