CITY OF PALO ALTO
Single Audit Reports
For the Year Ended June 30, 2025
CITY OF PALO ALTO
Single Audit Reports
For the Year Ended June 30, 2025
Table of Contents
Page
Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards ............................................................. 1
Independent Auditor’s Report on Compliance For Each Major Federal Program; Report on Internal Control Over Compliance; and Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance .................................. 3
Schedule of Expenditures of Federal Awards ............................................................................................... 7
Notes to the Schedule of Expenditures of Federal Awards ........................................................................... 8
Schedule of Findings and Questioned Costs ................................................................................................. 9
Summary Schedule of Prior Audit Findings ............................................................................................... 10
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ww.mgocpa.com Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596
1 Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards Honorable Mayor and Members
of the City Council
City of Palo Alto, California
We have audited, in accordance with the auditing st andards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards , issued by the Comptroller General of the United States ( Government Auditing Standards ), the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Palo Al to, California (City), as of and for the year ended June 30, 2025, and the related notes to the financial statem ents, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated October 31, 2025.
Report on Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting (internal control) as a basis fo r designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opini ons on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s intern al control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control.
A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned func tions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of defici encies, in internal control that is less severe than a material weakness, yet important e nough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficienci es in internal control that might be material weaknesses or significant deficiencies. Given these lim itations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses or significant deficiencies may exist that were not identified.
Report on Compliance and Other Matters
As part of obtaining reasonable assurance about whet her the City’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with wh ich could have a direct and material effect on the financial statements. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordi ngly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
2 Purpose of this Report
The purpose of this report is solely to describe the sc ope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectivene ss of the entity’s internal control or on compliance. This report is an integr al part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
Walnut Creek, California
October 31, 2025
w
ww.mgocpa.com Macias Gini & O’Connell LLP
2121 N. California Boulevard, Suite 750
Walnut Creek, CA 94596
3 Independent Auditor’s Report on Compliance for Each Major Federal Program; Report on Internal Control Over Compliance; and Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance Honorable Mayor and Members
of the City Council
City of Palo Alto, California
Report on Compliance for Each Major Federal Program
Opinion on Each Major Federal Program
We have audited the City of Palo Alto, Californi a’s (City) compliance with the types of compliance requirements identified as subject to audit in the OMB Compliance Supplement that could have a direct and material effect on each of the City’s major fede ral programs for the year ended June 30, 2025. The City’s major federal programs are identified in th e summary of auditor’s results section of the accompanying schedule of findings and questioned costs.
In our opinion, the City complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2025.
Basis for Opinion on Each Major Federal Program
We conducted our audit of compliance in accordance w ith auditing standards generally accepted in the United States of America (GAAS); the standards applicable to financial audits contained in Government Audit Standards issued by the Comptroller General of the United States ( Government Audit Standards ); and the audit requirements of Title 2 U.S. Code of Federal Regulation Part 200, Uniform Administrative Requirements, Costs Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Our responsibilities under those standards and the Uniform Gu idance are further described in the Auditor’s Responsibilities for the Audit of Compliance section of our report.
We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with relevant ethical requirements relating to our a udit. We believe that the audit evidence we have obtained is sufficient and appropria te to provide a basis for our opi nion on compliance for each major federal program. Our audit does not provide a legal determination of the City’s compliance with the compliance requirements referred to above.
Responsibilities of Management for Compliance
Management is responsibl
e for co mpliance with the requirements referred to above and for the design, implementation, and maintenance of effective internal control over compliance with the requirements of laws, statutes, regulations, rules and provisions of contracts or grant agreements applicable to the City’s federal programs.
4 Auditor’s Responsibilities for the Audit of Compliance
Our objectives are to obtain reasonable assurance a bout whether material noncompliance with the compliance requirements referred to above occurred, whether due to fraud or error, and express an opinion on the City’s compliance based on our audi t. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit c onducted in accordance with GAAS, Government Auditing Standards , and the Uniform Guidance will always detect material noncompliance when it exists. The risk of not det ecting material noncompliance resulting from fraud is higher than for one resulting from error, as fraud may in volve collusion, forgery, intentional omissions, misrepresentations, or the override of internal cont rol. Noncompliance with the compliance requirements referred to above is considered material if there is a substantial likelihood that, individually or in the aggregate, it would influence the judgment made by a reasonable user of the report on compliance about the City’s compliance with requirements of each major federal program as a whole.
In performing an audit in accordance with GAAS, Government Auditing Standards , and the Uniform Guidance, we:
Exercise professional judgment and maintain professional skepticism throughout the audit.
Identify and assess the risks of material noncomplia nce, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the City’s compliance with the compliance requirements referred to above and performing such other procedures as we considered necessary in the circumstances.
Obtain an understanding of the City’s internal control over compliance relevant to the audit in order to design audit procedures that are appropriate in the circumstances and to test and report on internal control over complian ce in accordance with the Unif orm Guidance, but not for the purpose of expressing an opinion of the effec tiveness of the City’s internal control over compliance. Accordingly, no such opinion is expressed.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and any significant deficiencies and material weaknesses in internal control over compliance that we identified during the audit.
Report on Internal Control Over Compliance
A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncomp liance with a type of compliance requirement of a federal program on a timely basis. A material weakness in inter nal control over compliance is a deficiency, or a combination of defi ciencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.
Our consideration of internal control over complia nce was for the limited purpose described in Auditor’s Responsibilities for the Audit of Compliance secti on above and was not designed to identify all deficiencies in internal contro l over compliance that might be material weaknesses or significant deficiencies in internal control over compliance. Given these limitations, during our audit we did not
5 identify any deficiencies in internal control over comp liance that we consider to be material weaknesses as defined above. However, material weaknesses or significant deficiencies in internal control over compliance may exist that were not identified.
Our audit was not designed for the purpose of expr essing an opinion on the effectiveness of internal control over compliance. Accordingly, no such opinion is expressed.
The purpose of this report on internal control over co mpliance is solely to d escribe the scope of our testing of internal control over compliance and the re sults of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose.
Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund inform ation of the City, as of and for the year ended June 30, 2025, and the related notes to the financia l statements, which collec tively comprise the City’s basic financial statements. We issued our report thereon dated October 31, 2025, which contained unmodified opinions on those financial statements. Our audit was performed for the purpose of forming opinions on the financial statements that collectively comprise the City ’s basic financial statements. The accompanying schedule of expenditures of federal awar ds is presented for purposes of additional analysis as required by the Uniform Guidance and is not a requi red part of the basic financial statements. Such information is the responsibility of management and was derived fro m and relates directly to the underlying accounting and other records used to prepar e the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconc iling such information directly to the underlying accounting and other records used to prepare the basi c financial statements or to the basic financial statements themselves, and other additional procedur es in accordance with auditing standards generally accepted in the United States of America. In our opini on, the schedule of expenditures of federal awards is fairly stated, in all material respects, in relation to the basic financial statements as a whole.
Walnut Creek, California
February 12, 2026
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CITY OF PALO ALTO
Schedule of Expenditures of Federal Awards
For the Year Ended June 30, 2025
Grantor Assistance
Identifying Listing Federal Subrecipients
Grantor/Pass-Through Grantor/Federal Program Title Number Number Expenditures Expenditures U.S. Department of Housing and Urban Development
Direct:
CDBG - Entitlement Grants Cluster:
Community Development Block Grants/Entitlement Grants Not Available 14.218 1,118,020$ 504,669 $ COVID-19 - Community Development Block Grants/Entitlement Grants B-20-MW-06-0020 14.218 2,265 2,265 Subtotal - CDBG - Entitlement Grants Cluster 1,120,285 506,934 Total U.S. Department of Housing and Urban Development 1,120,285 506,934 U.S. Department of the Interior
Direct:
Water Recycling and Desalination Construction Programs R24AC00299-00 15.504 19,466 - Total U.S. Department of the Interior 19,466 - U.S. Department of Justice
Direct:
Bulletproof Vest Partnership Program Not Available 16.607 16,644 - Total U.S. Department of Justice 16,644 - U.S. Department of Transportation
Direct:
Airport Improvement Program, Infrastructure Investment and Jobs Act Programs, and COVID-19 Airports Programs 3-06-0182-022-2023 20.106 87,310 - Railroad Crossing Elimination 69A36524420450RCECA 20.327 255,747 - Natural Gas Distribution Infrastructure Safety and Modernization Grant Program 693JK3254000NGDI 20.708 179,472 - Safe Streets and Roads for All 693JJ3240117 20.939 49,474 - Pass-through from State of California Department of Transportation:
Highway Planning and Construction 75LX335-00180000017 20.205 818,203 - Highway Planning and Construction BRLS-5100(017) 20.205 96,125 - Highway Planning and Construction 423000278 20.205 133,341 - Pass-through from Metropolitan Transportation Commission:
Highway Planning and Construction Not Available 20.205 436,735 - Subtotal - Highway Planning and Construction 1,484,404 - Total U.S. Department of Transportation 2,056,407 - U.S. Environmental Protection Agency
Pass-through from San Francisco Bay Water Quality Improvement Fund:
Geographic Programs - San Francisco Bay Water Quality Improvement Fund 98T20101 66.126 166,429 - Total U.S. Environmental Protection Agency 166,429 - U.S. Department of Energy
Direct:
Energy Efficiency and Conservation Block Grant Program (EECBG) Not Available 81.128 75,539 - Total U.S. Department of Energy 75,539 - U.S. Department of Health and Human Services
Direct:
Congressional Directives H79FG000738 93.493 417,265 - Total U.S. Department of Health and Human Services 417,265 - U.S. Department of Homeland Security
Direct:
Staffing for Adequate Fire and Emergency Response (SAFER) EMW-2020-FF-01734 97.083 687,808 - Pass-through from California Governor's Office of Emergency Services CalOES:
Disaster Grants - Public Assistance (Presidentially Declared Disasters) FEMA-4683-DR-CA 97.036 727,497 - Disaster Grants - Public Assistance (Presidentially Declared Disasters) FEMA-4699-DR-CA 97.036 280,683 - Subtotal - Disaster Grants - Public Assistance (Presidentially Declared Disasters) 1,008,180 - Pass-through from the County of Santa Clara:
Emergency Management Performance Grants EMF-2023-EP000006 97.042 19,411 - Total U.S. Department of Homeland Security 1,715,399 - TOTAL EXPENDITURES OF FEDERAL AWARDS 5,587,434$ 506,934 $ See accompanying notes to the Schedule of Expenditures of Federal Awards. 7 CITY OF PALO ALTO
Notes to the Schedule of Expenditures of Federal Awards For the Year Ended June 30, 2025
8 NOTE 1 – REPORTING ENTITY
The Schedule of Expenditures of Federal Awards (the Schedule) includes expenditures of federal awards for the City of Palo Alto, California (City), and its component unit as disclosed in the notes to the basic financial statements. The information in the Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance).
NOTE 2 – BASIS OF ACCOUNTING
Basis of accounting refers to when revenues and ex penditures or expenses are recognized in the accounts and reported in the financial statements, regardless of measurement focus applied. The Schedule is presented using the modified accrual basis of acc ounting for program expenditures accounted for in governmental funds and the accrual basis of acco unting for program expenditures accounted for in proprietary funds Expenditures of federal awards reported in the Sc hedule are recognized when incurred and all eligibility requirements have been met. Su ch expenditures are recognized following the cost principles contained in 2 CFR 200, Subpart E (Cost Pr inciples), wherein certain types of expenditures are not allowable or are limited as to reimbursement. The City did not elect to use the 10% de minimis cost rate allowed under the Uniform Guidance.
As a result of the COVID-19 pandemic, many new fe deral programs have been established and funding has been added to existing federal programs. Expenditures funded from the following acts are denoted by the prefix COVID-19 in the federal program title in the Schedule (as applicable):
• Coronavirus Preparedness and Response Supplemental Appropriations Act • Families First Coronavirus Response Act
• Coronavirus Aid, Relief, and Economic Security Act (CARES Act) • Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA) • American Rescue Plan Act (ARP)
NOTE 3 – DIRECT AND INDIRECT (PASS-THROUGH) FEDERAL AWARDS
Federal awards may be granted directly to the City by a federal granting agency or may be granted to other government agencies which pa ss-through federal awards to the City. The Schedule includes both of these types of federal award programs when related expenditures are incurred.
NOTE 4 – RELATIONSHIP TO BASIC FINANCIAL STATEMENTS
Expenditures of federal awards are reported in the City ’s basic financial statements as expenditures in the governmental funds or as expenses/capital assets in th e proprietary funds. Federal award expenditures agree or can be reconciled with the amounts reported in the City’s basic financial statements.
CITY OF PALO ALTO
Schedule of Findings and Questioned Costs
For the Year Ended June 30, 2025
9 Section I Summary of Auditor’s Results
Financial Statements
Type of auditor’s report issued on whether the financial statements audited were prepared in accordance with U.S.
GAAP:
Unmodified
Internal control over financial reporting:
Material weakness(es) identified? No
Significant deficiency(ies) identified? None reported Noncompliance material to the financial statements noted? No
Federal Awards
Internal control over major programs:
Material weakness(es) identified? No
Significant deficiency(ies) identified? None reported Type of auditor’s report issued on compliance for the major federal programs:
Unmodified
Any audit findings disclosed that are required to be reported in accordance with Uniform Guidance?
No
Identification of major federal programs:
Assistance
Listing Numbe
rs
Name of Federal Program or Cluster
14.218
97.036
Community Development Block Grants / Entitlement Grants Disaster Grants – Public Assistance (Presidentially Declared Disasters)
Dollar threshold used to distinguish between type A
and type B programs:
$750,000
Auditee qualified as a low-risk auditee? Yes
Section II Financial Statements Findings
None reported.
Section III Federal Awards Findings and Questioned Costs
None reported.
CITY OF PALO ALTO
Summary Schedule of Prior Audit Findings
For the Year Ended June 30, 2025
10 No prior audit findings were reported.