By the end of each December, all 169 Connecticut municipalities must, by law, file an audit report with the state.
The Annual Comprehensive Financial Report is a detailed accounting of each town’s net worth, and a check of whether its spending is within budget. The law requires that an independent auditor examine whether the town is properly managing taxpayer money.
But, in the final third of March, about 50 municipalities have yet to submit an audit, according to the state Office of Policy & Management. Among them is Stamford, Connecticut’s second-largest city and so-called economic engine. Stamford is a rapidly growing city that provides significant employment, and follows only Greenwich in the amount of tax revenue contributed to state coffers.
During a Stamford Board of Finance meeting this month, Vice Chair Mary Lou Rinaldi wanted to know what’s going on with the city’s independent audit.
“Realistically, when do you think it’s going to be finalized?” Rinaldi asked city Controller David Yanik.
Sometime next month, Yanik said, but it depends on the city’s contracted auditor, RSM, a Chicago firm with offices in 30 states.
“It’s out of my control because the audit work has to be done by the RSM team, and their availability has been the issue at this point,” Yanik said.
Rinaldi said it’s because the city has not provided the auditor with information in a timely way, and had to ask the state for extensions.
“RSM had to move on to other assignments,” Rinaldi said. “Do we have to ask for another extension?”
“We will have to go one more extension,” Yanik said.
“So it will be ready when? May?” Rinaldi asked.
“I’m thinking probably May, yes,” Yanik said.
“Hopefully it will be before early May,” said his boss, Director of Administration Sandy Dennies.
That’s cutting it close, considering the fiscal year ends June 30 “when we have to start the process all over again,” replied Rinaldi, who has said she fears that Stamford’s failure to file the annual audit could jeopardize its AAA bond rating.
AAA, the highest rating, signals that the bond issuer, in this case the city, is likely to repay money borrowed. It helps the city get lower interest rates on loans it needs to rebuild schools, repair roads, and take on other projects.
Dennies said a reason for the delay in Stamford’s filing is that auditing firms are short-staffed.
“We have filed everything with the auditors that they asked for … the problem now is in the industry,” Dennies said. “Because of the educational requirements to be an auditor … there is a national shortage being recognized, and it’s affecting us as well as many other municipalities.”
Connecticut’s biggest city, Bridgeport, has filed its audit, according to the state Office of Policy & Management’s website. So have Hartford, Waterbury and Norwalk. Besides Stamford, other cities that haven’t filed are New Haven and Danbury.
After the meeting Rinaldi said she looked back a dozen years and found that Stamford has a history of falling behind on audits.
Records show that, in 2011, then-auditor O’Connor Davies Munns & Dobbins wrote that the city, which is supposed to close its books by the time the fiscal year ends on June 30, had not done so.
“At the commencement of our audit in mid-August, the year-end closing process was not complete,” the auditor reported. “Account reconciliations and analyses had not been prepared for many accounts, and certain schedules, reconciliations and analyses had not been reviewed by a supervisor. … many adjustments had to be made as a result of account reconciliations and analyses completed after the start of the audit or to correct errors resulting from information” that had not been reported to the controller by city departments, including the tax collector.
O’Connor Davies reported that several factors were at fault, including insufficient financial reporting procedures; poorly defined responsibilities in city departments for maintaining information; a lack of monthly financial reporting; and inadequate staffing in the controller’s office. Some departments may not have a “sufficient understanding” of accounting and reporting practices, the auditor wrote.
The report included a response from city managers, who wrote, “Management agrees with these various suggestions to improve the accounting and financial reporting transparency in the areas noted and will implement such changes during fiscal 2012.”
But the 2012 audit report, also by O’Connor Davies, described the same deficiencies. Worse, the city had not “enhance(d) its reporting mechanism for fraud, abuse and misconduct,” as promised the previous year, the auditors wrote.
Auditors had recommended that department heads establish “open-door policies,” distribute complaint forms, and set up a whistleblower hotline to allow city employees to confidentially report wrongdoing. The auditor also recommended ethics training for managers and those handling accounting functions.
Rinaldi said she found no Stamford audits filed with the state for the next two years, 2013 and 2014.
From 2015 to 2020, the city’s independent auditor was Blum Shapiro & Co. That firm reported repeated deficiencies in the tax collector’s office, the grants office, and pension fund reporting.
Auditors said the city needed to establish procedures to ensure receivables were collected on projects funded by grants. “Numerous capital projects appear to be several years old and grants personnel are uncertain as to why the receivables hadn’t been collected,” auditors wrote.
“Revenues and expenditures are not being properly recorded in the Grants Department database, which is used to manage project spending, resulting in a lack of appropriate control over project … management,” they wrote.
They reported during those years that audits were delayed because the tax collector was months late in reporting final adjustments. Supporting documentation was missing, and tax revenues collected did not reconcile with amounts received, they wrote.
In 2021, the city’s independent auditor was CliftonLarsonAllen. That firm reported the same problems in the tax collector’s office as Blum Shapiro: “The tax collector’s report was not ready at the start of final field work, and during our review we noted the revenues per tax collector’s report did not reconcile to the general ledger.”
CliftonLarsonAllen added another deficiency – cybersecurity management.
“Municipal governments must be proactive in securing operations and data,” auditors wrote, because 70 percent of money lost to cyber attacks is not recoverable. In Ransomware attacks, most governments have to pay to restore access to their data, auditors wrote.
“Cybersecurity is now considered a key organizational risk, and spending on cybersecurity is projected to increase each of the next 10 years,” they wrote.
For those reasons and more, Rinaldi said, she is anxious to see RSM’s 2022 audit report.
“It continues to be concerning that we are not keeping up with other communities,” she said during the finance board meeting.