Many people wonder, ‘What is an audit and why does the town need one?’ The short answer is the town charter and state statutes require an annual financial audit. The annual audit is conducted by an independent firm of certified public accountants appointed by the town council. The goal of each audit is to receive an unmodified (or “clean”) opinion on the financial statements from the audit firm. The financial statements are included in an Annual Comprehensive Financial Report (ACFR).
There are other reasons the town needs an audit. The town issues bonds to raise cash for capital assets such as school buildings, buses, computer hardware and software, police cars, fire trucks, ambulances, roads, snowplows, etc. When these bonds are sold, potential buyers (investors) require an offering document describing how the cash will be used and how the town will pay back the bonds to the buyers. These offering documents require an audited financial statement of the town. The town is then required under a continuing disclosure requirement to file the audited financial statements, until the bonds are paid off, into an online repository.
The town also applies for and receives various grants from the federal government. The spending related to these grants must be audited annually and reported to the federal government on a Single Audit report.
The Finance Department prepares the financial statements, schedules, footnote disclosures, and statistical tables for the ACFR. The town’s fiscal year ends on June 30; therefore; the preparation and audit process typically happen between July 1 and Dec. 31.
Several unique factors occurred in the fall of 2022 causing the audit process to be delayed, including the retirement of key longtime staff and the onboarding of a new audit firm. Our new Finance Director, Norman Kildow, joined the town on Jan. 3. He joined Jennifer Lord, deputy finance director. Since then, he has been busy learning about the town and its processes as well as rebuilding the finance staff. Donna Rosacha, senior accountant, joined the Finance Department team on March 6. Kildow has also made various presentations to the town council on topics such as fund balance.
Fund balance is the excess (or deficiency) on the financial statements of the town’s assets (cash, accounts and taxes receivable, inventory, etc.) over its liabilities (accounts payable, unearned revenue, etc.). Fund balance can be somewhat equated to the town’s savings. There are various classifications of fund balance (non-spendable, restricted, committed, assigned, and unassigned) that are placed on fund balance by accounting rules, external entities, or internally by town council or town management. These classifications determine how fund balance can be spent in the future. The external auditors review the classifications of fund balance for proper categorization.
The town has a minimum fund balance policy, the details of which can be found on the town’s website. Fund balance is one of the many indicators bond rating agencies review to determine the financial health of the town. Since a better bond rating translates to lower borrowing costs, it has never been more important to consider fund balance and bond ratings as the Town considers large capital investments in the next few years.
As of this writing, the Finance Department is expecting the audit to be complete very soon. Completion of the audit will allow the town to begin the process of issuing bonds to raise cash needed for capital projects. The Finance Department will complete the required annual continuing disclosures. The town’s annual budget process nears completion for fiscal year 2024. Soon, fiscal year 2023 will come to an end and the Finance Department will turn its attention to preparing the schedules and financial statements for the next audit, with the full intention of completion before the start of the next budget.
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