Written by THE DEVIL IN THE DETAILS
Most people see an audit release and assume it is routine paperwork. Numbers, charts, and legal language blur together, and life moves on. But in Galion’s 2024 Single Audit, a single sentence quietly changes the city’s risk profile in a way most residents will never notice.
“Low Risk Auditee under 2 CFR 200.520? No.”
That one word, “No,” does more than answer a technical question.
It formally places Galion in the high risk category under federal law. It is not just a line in a report.
It is a decision point that affects how closely Galion will be watched, how much testing it will face, and how much it may pay in future audit costs.
High risk status is not symbolic.
It is a legal designation that triggers expanded federal testing, heightened scrutiny, increased audit cost, and mandatory corrective action. It also signals that Galion’s internal controls failed at a level serious enough to require federal intervention.
Marion Watch investigators are seasoned and proficient with audits.
Marion Watch investigators are seasoned and proficient with audits, and we know from experience that the devil is often in the overlooked details.
This report looks closer at what that single word means for Galion’s future and begins to teach the general public how to translate financial jargon and the consequences therein.
It also draws on context from the most recent July 28, 2026 Galion City Council meeting.
WHAT HIGH RISK STATUS MEANS
Low risk entities receive reduced testing at 20 percent of federal dollars.
High risk entities must be tested at 40 percent.
Doubling the required coverage forces auditors to perform more sampling, more documentation review, more procurement testing, more internal control walkthroughs, and more verification procedures.
These steps increase audit cost and extend the audit timeline.
High risk status also affects future grants. Granting agencies may impose special conditions, require pre approval reviews, or delay reimbursements. Galion must complete two consecutive clean audits before it can regain low risk status.
WHY GALION LOST LOW RISK STATUS
Galion’s high risk designation was triggered by a material weakness in internal controls over a $779,165 American Rescue Plan Act construction contract. Federal law requires municipalities to perform specific procurement checks before awarding large federally funded contracts.
Galion failed to perform or document suspension and debarment verification, Build America Buy America compliance, required procurement documentation, and mandatory federal eligibility checks.
KEY TERMS: TECHNICAL DEFINITIONS WITH EVIDENCE VALIDATION
The following brief definitions are provided for reader clarity. More detailed context appears later in the article when these issues are discussed in full. The validation lines indicate whether each term is present in the 2024 audit or observed in 2026 operations. “Valid in 2024 Audit: Yes” means the term appears directly in the official audit documents. “Valid in 2026 Operations: Yes” means the issue is currently occurring or documented in council meetings, administrative activity, or operational behavior during 2026.
MATERIAL WEAKNESS
A material weakness is the most severe category of internal control failure under federal auditing standards. It means a financial reporting or compliance error could occur and not be prevented or detected.
Valid in 2024 Audit: Yes
Valid in 2026 Operations: Yes
SIGNIFICANT DEFICIENCY
A significant deficiency is an internal control failure important enough to merit attention but not severe enough to be classified as a material weakness.
Valid in 2024 Audit: No
Valid in 2026 Operations: Yes
HIGH RISK AUDITEE
A high risk auditee is an entity that does not meet federal criteria for low risk status under 2 CFR 200.520. High risk status requires expanded federal testing at 40 percent of federal dollars.
Valid in 2024 Audit: Yes
Valid in 2026 Operations: Yes
LOW RISK AUDITEE
A low risk auditee is an entity that meets all federal criteria for two consecutive years, including unmodified opinions, no material weaknesses, and no major questioned costs.
Valid in 2024 Audit: No
Valid in 2026 Operations: No
QUALIFIED OPINION
A qualified opinion is issued when the auditor concludes that financial statements or federal program compliance are fairly stated except for one specific area where requirements were not met.
Valid in 2024 Audit: Yes
Valid in 2026 Operations: Yes
UNMODIFIED OPINION
An unmodified opinion means the financial statements are presented fairly in all material respects according to generally accepted accounting principles.
Valid in 2024 Audit: Yes
Valid in 2026 Operations: Yes
QUESTIONED COSTS
Questioned costs are federal expenditures that may violate grant requirements or lack required documentation.
Valid in 2024 Audit: Yes
Valid in 2026 Operations: Yes
SUSPENSION AND DEBARMENT CHECK
A suspension and debarment check is a required federal verification to ensure a contractor is not prohibited from receiving federal funds.
Valid in 2024 Audit: Yes
Valid in 2026 Operations: Yes
BUILD AMERICA BUY AMERICA REQUIREMENT
Build America Buy America requires federally funded infrastructure projects to use American made materials unless a federal waiver is granted.
Valid in 2024 Audit: Yes
Valid in 2026 Operations: Yes
“THEN AND NOW” CERTIFICATE
A “Then and Now” certificate is a retroactive authorization used when a purchase order was not created before a financial obligation occurred.
Valid in 2024 Audit: Yes
Valid in 2026 Operations: Yes
INTERFUND RECEIVABLE
An interfund receivable is money owed to one city fund by another.
Valid in 2024 Audit: Yes
Valid in 2026 Operations: Yes
INTERFUND PAYABLE
An interfund payable is the corresponding liability showing that a fund owes money to another fund.
Valid in 2024 Audit: Yes
Valid in 2026 Operations: Yes
DEFICIT FUND BALANCE
A deficit fund balance occurs when a fund’s liabilities exceed its assets.
Valid in 2024 Audit: Yes
Valid in 2026 Operations: Yes
APPROPRIATIONS IN EXCESS OF ESTIMATED RESOURCES
This occurs when a city authorizes spending beyond the money it actually has available. Ohio Revised Code 5705.39 prohibits this practice.
Valid in 2024 Audit: Yes
Valid in 2026 Operations: Yes
DEFERRED INFLOWS AND DEFERRED OUTFLOWS
Deferred inflows and outflows are accounting adjustments related to pension and OPEB obligations.
Valid in 2024 Audit: Yes
Valid in 2026 Operations: Yes
OPEB LIABILITY
An OPEB liability is the long term obligation for other post employment benefits, such as retiree health care.
Valid in 2024 Audit: Yes
Valid in 2026 Operations: Yes
CAPITAL ASSET DEPRECIATION
Capital asset depreciation is the annual reduction in value of infrastructure, equipment, and buildings due to wear and aging.
Valid in 2024 Audit: Yes
Valid in 2026 Operations: Yes
RETAINAGE PAYABLE
Retainage payable is money withheld from contractors until project completion.
Valid in 2024 Audit: Yes
Valid in 2026 Operations: Yes
NOTES PAYABLE
Notes payable are short term debt instruments used to finance projects or operations.
Valid in 2024 Audit: Yes
Valid in 2026 Operations: Yes
OWDA LOAN
An OWDA loan is a loan issued by the Ohio Water Development Authority for water and sewer infrastructure projects.
Valid in 2024 Audit: Yes
Valid in 2026 Operations: Yes
OPWC LOAN
An OPWC loan is a loan issued by the Ohio Public Works Commission for infrastructure improvements.
Valid in 2024 Audit: Yes
Valid in 2026 Operations: Yes
GALION AUDIT HISTORY
YEARS WITH FINDINGS FROM 2000 TO PRESENT
Galion’s high risk status did not appear suddenly. The city has a documented history of internal control weaknesses, procurement lapses, and financial reporting failures. Many of these past failures show direct similarities to current documented trends appearing in the 2024 audit and recent administrative activity.
YEAR 2004 — FISCAL EMERGENCY AND THEFT BY FINANCE DIRECTOR
In 2004, Galion’s long time Finance Director William Bauer confessed to stealing $87,000 in taxpayer funds. The Ohio Auditor of State’s investigation also uncovered severe mismanagement and hidden accounting failures that left Galion with $11,000,000 in total debt, including an $8,000,000 fund deficit and empty city accounts.
The city was placed into a State of Fiscal Emergency on August 9, 2004. Galion remained under state control for more than 14 years.
Similarity to current documented trends:
The 2004 crisis was caused by missing documentation, lack of oversight, and internal control failures. Current audit findings and administrative activity show the same patterns reappearing, including missing purchase orders, incomplete compliance documentation, and weak oversight controls.
YEAR 2004 — SIGNIFICANT DEFICIENCIES
Budgetary noncompliance and delays in financial reporting.
Similarity to current documented trends:
Recent administrative activity shows continued documentation delays and incomplete compliance submissions.
YEAR 2008 — MATERIAL WEAKNESS
Errors in year end financial statements requiring adjustments.
Similarity to current documented trends:
The 2024 audit again required adjustments and corrections tied to federal program documentation.
YEAR 2012 — SIGNIFICANT DEFICIENCIES AND NONCOMPLIANCE
Improper fund transfers, budgetary violations, and weak monitoring of federal programs.
Similarity to current documented trends:
Weak monitoring of federal programs reappeared in the ARPA procurement failure.
YEAR 2015 — MATERIAL WEAKNESS
Inadequate segregation of duties, documentation gaps, and weak oversight of federal grant activity.
Similarity to current documented trends:
Documentation gaps and oversight failures remain central issues in current federal program administration.
YEAR 2017 — SIGNIFICANT DEFICIENCIES
Improper purchase order sequencing, budgetary noncompliance, and weak monitoring of enterprise funds.
Similarity to current documented trends:
Recent administrative activity shows continued purchase order sequencing failures and documentation gaps.
YEAR 2019 — MATERIAL WEAKNESS
Errors requiring restatement, reconciliation failures, and documentation gaps.
Similarity to current documented trends:
Documentation gaps continue to appear in procurement files and compliance submissions.
YEAR 2021 — SIGNIFICANT DEFICIENCIES
Budgetary violations, documentation gaps, and weak monitoring of federal programs.
Similarity to current documented trends:
The ARPA procurement failure in 2023 again involved missing federal compliance documentation.
YEAR 2023 — MATERIAL WEAKNESS
Missing suspension and debarment checks, missing Build America Buy America documentation, missing procurement records, and a qualified opinion on federal programs.
Similarity to current documented trends:
Current administrative activity shows that procurement documentation failures are still occurring.
COUNCIL MEETING CONFIRMATION
ONGOING INTERNAL CONTROL FAILURES
The July 28, 2026 Galion City Council meeting provided new insight that the internal control failures identified in the ARPA audit are still occurring.
MISSING PURCHASE ORDERS
City Auditor Roberta Wade informed council that an $11,500 legal bill tied to the city’s $3,700,000 note issue had to be approved through a “Then and Now” certificate because a purchase order was never created.
MISSING FRAUD QUESTIONNAIRES
Only two council members completed their annual fraud questionnaires. The Ohio Auditor of State warned the city that a “management letter comment” would be issued if the remaining forms were not submitted.
ADMINISTRATIVE MINIMIZATION
Director of Law Michael Bear described the documentation concerns as “nitpicky,” despite the fact that documentation failures are the reason Galion is classified as high risk.
FINANCIAL RISK EXPOSURE
PORT AUTHORITY AND PEACE LUTHERAN PROPERTY
The July 28 meeting also revealed significant financial liabilities that increase Galion’s overall risk profile.
PORT AUTHORITY INSOLVENCY
The Galion Port Authority receives a $75,000 annual allotment from the city. It is now claiming insolvency and requesting an additional $75,000.
INSURANCE SETTLEMENT ALLEGATION
Council discussion indicated the Port Authority settled a storm damage insurance claim for approximately $120,000, allegedly under pressure from someone inside city operations because the policy was held by the city’s insurer and the city “didn’t want problems.”
DEMOLITION COST
Demolition of the deteriorating Peace Lutheran structure is estimated at $200,000.
COUNCIL FRUSTRATION
Council members stated the Port Authority owns other real estate that could be liquidated instead of relying on taxpayers. They expressed frustration that the city was being treated like a “piggy bank.”
ADDITIONAL 2024 AUDIT FINDINGS
SUBJECTS ALREADY COVERED IN PREVIOUS MARION WATCH ARTICLES
The previously published Marion Watch articles regarding the 2024 Audit already covers:
Bypassing federal procurement safeguards on the $779,165 ARPA contract.
Reliance on interfund debt totaling $4,373,637.
Operating losses in the Water and Sewer Funds.
Budgetary overspending in violation of Ohio Revised Code 5705.39.
Legacy debts from the terminated American Municipal Power Generating Station project and the 1967 pension liability.
To look closer check out Marion Watch Investigates article” GALION’S FINANCIAL PENDULUM: 2024 AUDIT REVEALS NEW THREATS & OLD HABITS”
INTERNAL CONTROL OVER FINANCIAL REPORTING
The audit states that internal control over financial reporting was not sufficient to prevent or detect material misstatements. This documented weakness was not included in the previous Marion Watch article intentionally, but it is highly significant.
DEFICIT FUND BALANCES
The audit documents deficit balances in the State Highway Fund, FEMA Grant Fund, Airport CARES Act Fund, Airport Fund, Brownfield Grant Fund, Cheshire Special Assessment Fund, and Urban Paving Fund. These deficits show structural strain across multiple departments.
ENTERPRISE FUND LIABILITY STRUCTURE
The Water, Sewer, Electric, and Storm Water funds carry significant short term liabilities, including notes payable, OWDA loans, OPWC loans, retainage payable, accrued interest, and contracts payable.
CAPITAL ASSET DEPRECIATION AND INFRASTRUCTURE WEAR
The city recorded $1,407,578 in governmental depreciation and $1,377,737 in business type depreciation. These numbers indicate ongoing wear on infrastructure.
GENERAL FUND ADVANCES AND CASH FLOW DEPENDENCY
The General Fund advanced $300,000 to the Water Fund and $600,000 to the Sewer Fund to maintain operations until external funding arrives.
ENTERPRISE FUND CASH FLOW RELIANCE ON NONCAPITAL FINANCING
The Water and Sewer funds relied heavily on advances, transfers, and capital grants to maintain positive cash flow. Without these inflows, both funds would have ended the year with negative cash flow.
DEFERRED INFLOWS AND OUTFLOWS DISTORTING TRUE FINANCIAL POSITION
Deferred inflows and outflows related to pension and OPEB significantly distort the city’s reported net position. The audit states that end users must adjust for these items to understand the city’s actual financial condition.
WHAT GALION MUST DO TO REGAIN LOW RISK STATUS
Under federal rules, Galion must complete two consecutive years of clean Single Audits with zero material weaknesses, zero significant deficiencies, unmodified opinions on major federal programs, and full documentation compliance.
Current administrative activity shows that Galion must also address purchase order sequencing, fraud questionnaire completion, procurement documentation, Port Authority liabilities, insurance settlement transparency, and administrative oversight consistency.
SUMMARY
Galion’s high risk audit designation is not an indicator of missing funds.
It is a warning sign of administrative oversight failures. Current documented trends show that the same internal control weaknesses identified in the ARPA audit continue to appear across city operations, from procurement sequencing to documentation and Port Authority liabilities.
The most important line in the entire audit, “Low Risk Auditee? No,” is a declaration that Galion’s internal controls failed and the city is now under heightened federal scrutiny.
Resolving these issues will require structural reforms, strict adherence to procurement rules, completion of basic compliance requirements, and decisive action on liabilities such as the Peace Lutheran property and the Port Authority’s financial instability.
