September 29, 2010

Audit finds deficits and financial problems at fewer local governments despite bad year

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By Megan Poinski
Megan@MarylandReporter.com

While the fiscal picture looks dreary for some local governments with deficits and missing audit reports, the annual review of financial reports by the Office of Legislative Audits found that most counties and municipalities were able to stay in the black and produce independent audits with no problems.

The auditors looked at whether the counties, municipalities and taxing districts complied with accounting standards and state law. They also analyzed financial data to find potential problems.

At first glance, the findings look bleak. Six local governments — Anne Arundel County and five municipalities — ended the year with a negative balance. Three local governments — Caroline County and two municipalities — appear to be trending toward bigger financial problems. Several had problems with their audit forms.

However, auditors and advocates said that these results are fairly standard. Regardless of the year, there are always local governments that have problems, said Robert Garman, assistant director for quality assurance at the Legislative Audits office. He said that 2009 was a “pretty routine year.” Local governments faced severe financial challenges in 2009, but Garman said that didn’t translate to problems on audits and with budgets.

“They’ve all taken a hit budgetarily,” he said. “It’s been a challenge for all local governments.”

Jim Peck, the Maryland Municipal League’s director of research, has been following the results of these audits for two decades. He said the report always finds some problems among the state’s 157 municipalities. This year, however, there was a steep drop in the number of municipalities who have unsecured cash deposits – meaning that they could lose their money if the institution the fails. This violates state law. In fiscal 2008, the report found 17 municipalities in violation. Last year, there were just seven.

Peck found the rest of the report unremarkable, with little change to the frequency and types of problems reported. The fact that there were no dramatic changes in a year marked by financial turmoil is probably the part of the report that Peck found most remarkable.

“Even in these difficult times, people adjust,” Peck said. “Municipal governments lost more than 95 percent of their state aid in the last two years. To that extent, some definite issues arose. But I am not surprised.”

According to the audit:

·         Nine municipalities still had not filed their fiscal year 2009 audit reports. They include Capitol Heights, Eagle Harbor, Fairmount Heights, Forest Heights, Hyattsville, Lonaconing, Sharptown, Westernport, and the Mount Savage Special Taxing Area.

·         28 local governments submitted their audit reports late.

·         Sykesville’s audit was found to be out of conformity with general accounting principles because some financial data was missing and the town skipped one analytical portion of the report.

·         Westminster’s audit did not meet general accounting principles because city management skipped a required analysis.

·         Nine local governments did not have audits that met generally accepted standards. Four of them did not have all of the information, three did not have opinions where they were required, and two were missing critical pieces like the auditor’s signature.

·         Eighteen local governments had problems with their financial statements. Thirteen presented information incorrectly, and six did not present all of the needed information.

·         Six local governments did not have all the necessary disclosures in their financial statements. Four had problems with their long-term debt disclosure, and two had problems with cash deposits with financial institutions.

·         Eleven local governments did not have fully insured deposits. They include Anne Arundel, Caroline and Dorchester counties; and the municipalities of Chesterton, Cheverly, Crisfield, Luke, Morningside, Mount Rainier, North East, and Thurmont.

·         Six local governments had deficits in their general funds. They include Anne Arundel County, and the municipalities of Cambridge, Cumberland, Fruitland, Princess Anne and Ridgely.

·         Three local governments showed negative trends. This means that they had general fund expenditures that exceeded revenues, decreases in general fund balances, and decreases in the ratio of general fund balances to expenditures. These were Caroline County, District Heights, and Riverdale Park. Both of the municipalities have shown these trends since fiscal year 2008.