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05-06-82 Finance Comm MinutesGary W. Nysful CERTIFIED PUBLIC ACCOUNTANT P. O. BOX 366 KALISPELL, MONTANA 59901 406-257-7997 May 6, 1982 MEMORANDUM TO: Members of the Finance Committee FROM: Gary W. Nystul Purusant to the motion approved by the Council at the Special Meeting on 22 April, the Finance Committee has been delegated the authority to respond to the Department of Administration regarding the annual audit. The D of A requests to know who we intend to have do our audit - the State or an accounting firm. What is the purpose of the annual audit? As stated in the standard audit contract: "the auditor will conduct a financial and compliance audit of the funds and account groups of the Entity. A financial and compliance audit determines (a) whether financial operations are properly conducted, (b) whether the financial reports of the Entity are presented fairly, and (c) whether the Entity has complied with applicable laws and regulations" An audit is not designed to detect fraud. An audit is not to prepare city financial records. An audit is to attest to the records accuracy. An audit done by either the State or an accounting firm will accomplish the same objectives. The primary question then is who may do the better job for the City. The State of Montana, Department of Administration, is the present name for the State auditors. They only audit units of local government (cities, counties, school districts, etc.) They have no experience in auditing other organizations, such as businesses. They are not all Certified Public Accountants and a CPA certificate is not a prerequisite to working for that organization. The Audit Bureau Chief is a CPA and they do have CPAs on staff. We have no indications who may be sent to do our work, since -the resident auditor has quit and gone into another business. Accounting firms licensed by the State of Montana are eligible to do contract audits of local government. These firms are either CPAs or LPAs. For a CPA to perform the work all auditors must be CPAs or the engagement be in charge of a CPA who properly supervises any assistants who may be graduate accountants who are not yet certified. CPA firms audit many different types of businesses - everything from one-man businesses to telephone cooperatives to General Motors. Members of the Finance Committee Page 2 May 6, 1982 They are required to follow established professional standards. They are also local businessmen who pay taxes and turn their dollars in the community. Finance Director Swanson made inquiry of 15 cities on the attached letter. Responses were received from ten cities. Of these ten, six indicated contracting with local accounting firms, one said they would get bids before deciding and the remainder said they would stay with the State. I do not think we should rely on statistics. Most of the responses indicate special circumstances or considerations that city decided upon. The letters are available for your consideration. The staff was asked to prepare a writing in March on their recommendation. That letter is also attached. Time is of. the essence. If we are to solicit proposals from local accounting firms we need to get started. There is certain year end, or June 30 work that must be performed. If we are going to allow the State to audit, they also need to do their planning. The committee should make their recommendation ASAP and get approval from the Council to proceed. CITY OF KALISPELL - FINANCE COMMITTEE MEETING A meeting of the Finance Committee was held May 6, 1982 at 4:10 P.M. in the meeting room at City Hall. Present were Chairman Nystul, Members Ruiz and Saverud, Mayor McDowell, Councilperson Vidal and Public Works Director Hafferman. The upcoming two-year audit of the City was considered. A letter from Finance Director Swanson and a letter from Chairman Nystul were discussed. It was decided to try an accounting firm if the cost difference with the State was not too great. Nystul will contact the State to see if they could give us an estimate. Director of Public Works Hafferman inquired about hiring Tom Flynn for a sewer rate study and D.A. Davidson for handling the bond sale for sewer projects. No one was certain how much we owed on what projects. Director of Finance Swanson ran a tape of the registered warrants. They totaled about $ 1.s8i 7/6,`-/6- It appears that the City has not paid for (funded) a portion of the Big A, and matching portions of the facilities plan and the planning for the changes at the Wastewater Treatement Plant. Due to the uncertainty of just what dollars were where, Chairman Nystul will meet with Hafferman and Swanson to find out where we are and report back to the Committee. The Mayor reported he has the budget preparation process underway. For the record, the procedure will be as follows: The Mayor will receive requests from the departments and compile and adjust them as he sees fit. The Finance Committee will then review the submitted budget prior to the Council as a whole reviewing the budget at the all -day meeting. The Finance Committee with the Mayor and consent of the Council will finalize the budget. The meeting adjourned at 5:20 p.m. City Of Kalispell Phone 406-755-5457 P.O. Box 1035 Kalispell, Montana 59901 TO: Gary Nystul, Finance Committee Chairman FROM: Bill Swanson, Finance Director RE: Audit of City Accounting Records DATE: May 4, 1982 It is my hope that the City of Kalispell will again engage the De- partment of Administration, Local Government Audit Division to audit our accounting records for Fiscal Years 1980-1981 and 1981-1982 for the following reasons: 1. Even though the State has raised their audit fees, I feel the cost of such an audit will still be less expensive than to employ an independent C.P.A. firm. 2. The State has audited our records before and con- sequently are more familiar with the City's opera- tions and with the State Budgetary, Accounting and reporting system. 3. It has been my experience that when the State audits our books, they not only audit but provide helpful suggestions on any problem areas that we may have. 4. The State audit is based on the annual financial re- port that is filled out each year and provided to the Department of Administration. It is my feeling that if an independent auditor were here, we would have to change our financial reports to conform with his way of auditing, even though the State issued financial report comes right out of the G.A.A.P..R. 5. I also feel that an independent auditor would take more time to complete an audit because of other busi- ness that they may have, whereas the only business the State has is in auditing local governments. 6. Lastly, and as stated by yourself in answer to a question, the results are the same, regardless who does the audit. I also feel that whatever the City Finance Committee decides, we should adopt a policy of who is to do an audit and not change from year to year. ms W. J. S. AV 1�