2025-602 State High Risk: State of California’s Late Financial Reporting

July 31, 2026
2025‑602

The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814

Dear Governor and Legislative Leaders:

State law authorizes my office to establish a high-risk government agency audit program for the purpose of identifying, auditing, and issuing reports on state issues that have major challenges associated with their economy, efficiency, or effectiveness. Since 2020, the State’s late financial reporting through its Annual Comprehensive Financial Report (ACFR) has been a recurring item on our state high risk list.

In order to ensure that my office’s role in this process was also reviewed, I engaged KPMG to conduct a performance audit examining the barriers and root causes contributing to California’s chronically late financial statements. KPMG’s audit included a review of not only my office but also the State Controller’s Office (SCO), the Department of Finance (Finance), and five other large departments that each play a significant role in the production of a timely and accurate ACFR. Although the SCO, Finance, and others deserve significant credit for recent progress towards improving both timeliness and quality, more work remains, and KPMG’s report offers helpful insights and recommendations for additional reforms.

KPMG identified several findings and performance improvement opportunities for the agencies it reviewed and made various recommendations to address these. For example, among the root causes for the State’s late financial reporting in fiscal year 2022–23, KPMG noted communication challenges and the lack of clear roles and responsibilities between the SCO and Finance; the lack of a single, definitive authority to provide technical guidance to departments on generally accepted accounting principles (GAAP); the need for centralized GAAP training for state accounting personnel; and state entities not submitting their GAAP information on time. KPMG also recommended that my office reconsider its approach to determining materiality levels and sample sizes to achieve a more efficient audit.

Collectively, KPMG’s recommendations provide the State’s various agencies and departments with insights on how to improve their contributions to the State’s ACFR process, potentially leading to the removal of this issue from our state high-risk list.

Respectfully submitted,

GRANT PARKS
California State Auditor