The logic can work both ways; one the one hand, it might make sense that a small municipal bond issuer with a relatively simple financial ledger would be able to complete its annual financial audit faster than a larger issuer with more complex financial structure. On the flip side, a larger governmental entity with more staff members devoted to financial reporting might be able to turn around its annual audit closer to the end of its fiscal year. Turns out, both are true.
In its third annual study of municipal audit times, Merritt Research Services compared audit times of municipal issuers, which, on the whole, continue to significantly lag their corporate counterparts. Audit time is defined as the length of time between an entity’s fiscal year and the date of the signature on its annual financial audit.
The study also compared financial audit times among the various municipal sectors and individual issuers, and considered a variety of factors, including size, to see if they influenced financial reporting times.
Despite the complexity of its finance, New York’s financial statements were signed by its auditor within 118 days of the close of its 2012 fiscal year.
The fastest municipal entity to complete its annual audit in 2012 was Rapid River Public Schools, which was able to turn in its audited financial statements within a mere 18 days after the close of its fiscal year. Rapid River is an unincorporated community located in the Upper Peninsula of Michigan. Its district population of 2,789 made it among the smallest school districts in the 2013 Merritt study. The District’s speedy turnaround of its audited financial statements continues a trend evidenced over the course of data examined in the Merritt study; Rapid River Public Schools has completed its annual financial audit in in less than 60 days in each of the past six years.
While Rapid River has never had a stated guideline for the timing of its annual audit, the District’s recently retired business manager worked very hard to complete the annual audits as soon as possible, according to a colleague.
Many municipal entities, however, do operate under some sort of rule that governs the timing of disclosure documents. Take the case of New York City.
Despite the complexity of its finances, New York’s financial statements were signed by its auditor within 118 days of the close of its 2012 fiscal year, according to the Merritt study, “just as it has done in each of the past years of the study.”
By charter mandate, New York City must publish a “full and detailed” financial statement within four months of the close of its fiscal year. In addition, the City’s Comptroller’s Office is required to present its financials to the City’s Audit Committee for approval.
“Timely, independently audited financials are invaluable to the core functions of the [New York City] Office of the Comptroller,” said Maria Tavares, Deputy Comptroller for Accountancy in Comptroller John Liu’s Office. She emphasizes the importance of timely financial reporting, as it provides useful information for citizens, taxpayers, municipal financial analysts, city council members, bond counsel, and other decision-makers who might rely on the information in these financial reports.
Over 1,000 city audits were examined in the recent Merritt study, with a median audit time of 171 days. Salisbury, Massachusetts (population: 8,372) completed its annual audited financial statements in 54 days, the fastest in the sector.
In all, the study, entitled “Focus on Credit Quality Puts Sharper Spotlight on Municipal Bond Audit Times,” analyzed approximately 8,000 audits for the 2012 fiscal year.