HomeMy WebLinkAboutAudit Report FindingsMONTANA
DEPARTMENT OF ADMINISTRATION
Local Government Services Bureau-Audit Review Program
301 South Park Avenue Room 340
PO Box 200547
Helena, MT 59620-0547
Mayor and City Council
City of Laurel
PO Box 10
Laurel, MT 59044
April 17, 2002
Attention: John E. Johnson, Jr., Mayor
Phone: (406) 841-2909
FAX: (406) 841-2910
TDD: (406) 444-1421
R E C E ? ll
D
APR 18 2002
CITY OF LAUREL
Thank you for notifying us of the actions you have taken or plan to take regarding the findings
and recommendations contained in the audit report of the City of Laurel for the fiscal year ended
June 30, 2001. The audit was conducted by Olness & Associates, P.C.
Pursuant to Section 2-7-515, MCA, we have reviewed your response to the audit findings and
recommendations, and are notifying you of our acceptance of this response and your proposed
corrective actions.
I would like to comment, however, on several of the recommendations and responses, as follows:
• Finding #01-13 Budgets - 2nd Bulleted Item
This finding indicates that cash available on the tax levy requirements schedule for several
funds did not agree to the June 30, 2000 cash balance. The City's response indicates that
some restricted cash accounts of the General Fund were not included on the tax levy
requirement schedule, and also notes that the City has received several different
interpretations for "cash available". In reviewing your annual financial report on file in our
office, I see that the General Fund has numerous restricted cash accounts reported within its
main cash account. During the 2001 year, the City appropriately transferred two of the larger
of these accounts into capital improvement funds.
The BARS chart of accounts does provide for restricted cash accounts within the General
Fund. These restricted cash accounts would not need to be included as "cash available" for
reappropriation to reduce the General Fund levy, jthey are restricted for a specific purpose,
and if the City has no plans for expenditure of this cash during the year. The City should be
able to clearly and separately account for revenues and expenditures related to any of these
restricted cash accounts. If an expenditure is planned for any of these moneys, they should
be included as "cash available" in the budget for the year of the planned expenditure, to
cover the related appropriation.
"Working Together to Make It Work"
Page 2
City of Laurel
April 17, 2002
The restricted cash accounts should be used on a limited basis, for small donations, etc. In
some cases, for more significant restrictions, the City may wish to consider establishing trust
or special revenue funds. The accounting necessary for excessive restricted cash accounts
could become unmanageable.
Finding #01-13 Budgets - P Bulleted Item
This finding indicates that cash reserves on the tax levy requirements schedule exceeded 50
percent of the appropriations for the Capital Improvement Fund. Your response indicates
that cash reserves for the Capital Improvement Fund will be in compliance with the 50%
maximum rule in the future. The statute referenced here is Section 7-6-4261. (Note: The
2001 Legislature moved this requirement to the Municipal Budget Act, Section 7-6-4034.)
Our Department's interpretation of these Sections is that the 50% limitation applies only to
those funds for which a tax will be levied.
• Finding #01-14 - Capital Improvement Funds
This finding deals with the transfer of cash to the Capital Improvement Fund in excess of the
allowed 10%. The excess transfer to which the auditors refer appears to be the transfer of the
Equipment Reserve and Cemeteray CD restricted cash accounts from the General Fund (see
discussion in Finding #01-13, 2" hollered item, above). The "10 %" compliance
requirement, found in Section 7-6-2220, was effective for the audit period. The 2001
Legislature, in Senate Bill No. 138, renumbered these statutes as Section 7-6-616, MCA, and
amended the restrictions on capital improvement funds somewhat. Effective July 1, 2001,
Section 7-6-616 now provides for a capital improvement program to receive funds from up to
10% of one or more property tax levies and may receive funds from any source." (emphasis
added) Your response indicates that you transferred these funds based on the new language
("any source") contained in SB 138. SB 138, however, did not become effective until 7/1/01,
after the audit period. Based on my assessment of this situation, however, the cash appears
to have been "restricted" in prior years, and the beginning balances of these restricted cash
accounts were appropriately transferred to capital projects funds. As such, the 10%
restriction may not have been applicable in this situation.
Your response indicates that a clearer interpretation of the capital improvement fund law is
needed. I would like to offer our Department's interpretation of Section 7-6-616, as follows.
The full text of Section 7-6-616 is "A county or municipal governing body may provide
for a capital improvement program for the replacement, improvement, and acquisition of
property, facilities, or equipment that costs in excess of $5,000 and that has a life
expectancy of 5 years or more. The capital improvement program must be formally
adopted by the county or municipal governing body. The capital improvement program
may receive funds from up to 10% of one or more property tax levies and may receive
funds from any source." We recommend that the sources of money transferred to a
capital improvement program fund established under Section 7-6-616 be clearly and
separately documented. It should be clear to an auditor or taxpayer that only an amount
equal to 10% of a specific property tax levy has been transferred. The source of funding
for any transfer from a fund in excess of that 10% should be clearly documented in the
accounting records.
Additionally, the capital improvement program referenced here is only one type of
"capital projects" fund that may be maintained by local governments. A capital projects
fund may also be used to account for specific reserves provided through State law, and
projects funded by the proceeds of a bond issue and/or state or federal grants. The
Budgetary, Accounting and Reporting System for Montana Cities, Towns and Counties
(BARS) chart of accounts, which the City should be using for standardized coding,
indicates that a "40XX" fund number should be used for those funds established per
specific State statutes (i.e., the capital improvement program fund (7-6-616), the road and
bridge depreciation reserve (7-14-2506), the library depreciation reserve (22-1-305 &
306), and the fair capital improvement fund (7-21-3414)). A "41XX" or a "42XX" fund
number should be used for capital projects funded by bond issues, and a "43XX" fund
number should be used for capital projects funded by federal or state grants. The
limitations of Section 7-6-616 apply only to the capital improvement program fund.
Your capital projects fund appears to relate only to capital improvement programs per
Section 7-6-616, and as such, would be subject to the limitation of 7-6-616.
Again, we have accepted your corrective action plan for the 2001 FY audit, and no further
response from you is required. However, if you have any questions, please contact me at (406)
841-2905. Thank you for your cooperation.
Sincerely,
KIMBERLY KUHR SMITH, CPA
Audit Quality Control Reviewer
cc: Olness & Associates, PC