City audit delays costly to taxpayers
By Johnny Brannon
Advertiser Staff Writer
This is the second year in a row that key audits of city financial documents have been delayed by problems with information supplied by Mayor Jeremy Harris' administration, according to city records.
The holdups increased the cost to taxpayers both times, and this year the city will almost certainly miss a deadline set by the U.S. Securities and Exchange Commission.
The city's audited Comprehensive Annual Financial Report is supposed to be filed by Friday, but accountants warned earlier this month that they wouldn't meet the deadline because the city provided faulty figures that had to be sorted out.
That raised concerns that the city's bond ratings could slip. City spokeswoman Carol Costa said late yesterday that unaudited financial statements will be filed today with four Nationally Recognized Municipal Securities Information Repositories. That will keep the city in compliance with disclosure obligations to bondholders, she said.
Martha Haines, Chief of the SEC's Office of Municipal Securities, said there are no immediate federal sanctions for cities that fail to file their audited reports with the repositories on time. But delays could trigger lawsuits by major bondholders if any disclosure agreements are violated, she said.
Typically, however, bondholders unhappy with a municipal government's failure to make timely disclosures simply sell off the bonds rather than engage in costly litigation, Haines said. It was not immediately clear whether a failure to eventually file audited reports would break any bond agreements.
Bond raters say tardy audits would not automatically trigger a ratings downgrade, but that an extended delay could cause problems.
Bond ratings determine how much interest must be paid on money the city borrows to pay for major projects and equipment. City Council members are also concerned that a delay would disqualify the city from receiving some federal grants.
Delays last year increased the cost of the annual report and an audit of sewer fund financial statements by $37,000, records show. The PricewaterhouseCoopers accounting firm said in a February 2002 letter that the overrun should have been more, but that it would absorb the cost of 125 extra work-hours as a courtesy.
The company wrote that it "encountered a number of problems and delays by the administration" while working on the reports.
The firm warned this month in another letter that it had missed city deadlines for the new audits, and could not guarantee the SEC deadline "due to the errors in the financial statements and audit schedules we have been provided" by the administration.
Last year's audits cost a total of $246,000, including the overruns, but met the SEC deadline, records show. The new audits were originally to cost $209,000, but the delays have been longer than last year.
Officials could not say how much the added cost will be, and the accounting firm said it does not comment on matters related to clients.
City budget and finance director Ivan Lui-Kwan was not available for comment yesterday or Monday.
Costa said this year's delays are the result of new requirements by the Government Accounting Standards Board, which require the city to calculate the value of equipment and assets such as buildings, roads and sewer lines. The requirements were adopted in 1999 but did not immediately take effect.
The task is massive, and requires the city to assess 311,644 pieces of equipment and other assets — including zoo animals, Costa said. That number does not include major fixed assets like buildings.
"Because this is the first year we must report depreciation, the city's accounting staff and other departments have been overburdened with the extra work," Costa said.
But City Council budget chairwoman Ann Kobayashi said the new requirements don't justify the delays. "They knew it was coming, so there's no excuse," she said. "They had three years to set it up; they just didn't do it."
Kobayashi, who has frequently butted heads with Harris' administration over access to accurate financial information, said she sympathized with the accounting firm.
