STAMFORD – Elected members of the Board of Finance seemed taken aback when the city’s contracted auditor explained why the annual financial report due to the state on Dec. 31 is still not finished.
Scott Bassett, a partner with the U.S. arm of RSM, one of the largest accounting firms in the world, told the members of the board’s Audit Committee at their June meeting that the city’s accounting department isn’t doing the basics.
Bassett provided examples for finance board members, who have been asking for months why the city is not meeting the deadline for filing the audit to the Connecticut Office of Policy & Management, especially since the city was significantly late last year, too.
Bassett explained what he says happened when RSM auditors requested information on accounts receivable.
“It’s a question of, who owes you money? That’s it. But what we get is a line that says ‘auditor adjustment.’ How do you audit that?” Bassett said. “So we send it back. Then we might get something, and it might not be correct. So that happens.”
He said RSM auditors asked for documentation on the cost of removing mold from municipal buildings.
“We were laying it out – so here’s what it was last year, here’s what it was this year. We get a response back, ‘Oh, there was a $15 million error last year,” Bassett said. “So that’s a problem.”
The city is not rectifying revenues and expenditures regularly, Bassett said. That won’t work for a city that brings in revenue to cover a budget of nearly $650 million, he said.
“That’s a big tax base. It should be reconciled monthly,” he said. “Trying to reconcile that at the end of the year just isn’t going to happen.”
RSM auditors waited months for a reconciliation of what the tax collector took in and what was recorded on the general ledger, he said.
“That’s a typical close-out process. That’s not RSM asking for the moon,” Bassett said. “I’m just asking for what a typical auditor would ask for.”
But it “took forever,” he said.
It’s not the hard stuff
Public-sector accounting has become complex over time, Bassett said. The Governmental Accounting Standards Board, an independent organization that sets financial reporting standards for state and local governments, now has more than 100 criteria that must be met, and new criteria can be added each year.
“But that’s not what’s holding me up,” Bassett said. “It’s really the nuts and bolts that are holding me up.”
About 85 percent of the information requested by auditors is the same year to year, Bassett said.
“Reconciling the tax collector to the general ledger has been going on as long as you’ve been collecting taxes. You’ve had accounts receivable as long as people have owed you money. That’s basic accounting 101,” he told the committee. “When these things are not done, you know it’s going to be an uphill battle.”
The city was reporting account information to RSM too long after June 30, 2022, the end of the last fiscal year, Bassett said.
“Close-out has to begin July 1. Typically you close your books by Sept. 3, and get ready for the audit,” he said. “But I don’t think there’s a process that closes the books and gets the city audit-ready.”
Board of Finance Chair Richard Freedman interrupted.
“So the books are never closed?” Freedman asked.
“It doesn’t seem like there’s a hard close. It seems like I get the books and it’s like, ‘Let me know what you find.’ So we get them and they’re wrong and we have to hand it back. That takes a lot of time and stalls a lot of processes,” Bassett said. “Significant audit adjustments were made over multiple funds and that’s still happening. Everybody is asking, ‘When is the audit going to be done?’ Once we stop having audit adjustments, I can finish the audit.”
It’s like “auditing a moving target,” Bassett said.
Board of Finance Vice Chair Mary Lou Rinaldi has had city Controller David Yanik and former Director of Administration Sandra Dennies, who retired May 31, appear before the Audit Committee, which Rinaldi heads, for months.
Yanik and Dennies have said the audit is delayed because this is the city’s first year using RSM. Rinaldi pointed out the audit was almost as late last year, when the city used the same accounting firm it’d had for years.
Dennies said another reason for the delay is that there is a nationwide shortage of public accountants.
Dennies acknowledged that Yanik’s office did not submit all the required information to RSM by December. That was because accounting firms usually begin their work in May, but RSM’s contract was not signed until September, Dennies said.
Yanik has said that the city’s switch this year to a new financial reporting system and software slowed things down.
So Rinaldi asked Bassett to provide his take on the situation.
The last time the city was on time with its audit was 2019, Bassett told the committee.
“Something changed from 2020 to 2021,” he said.
Rinaldi said the city’s former assistant controller, Karen Vitale, left during that time.
Bassett said Vitale must have been driving the audit for the city.
“I do audits across the country, and typically for a big city you want to funnel information through a coordinator, someone who is responsible for the audit,” Bassett said. “What I see lacking with audit readiness (in Stamford) is we’re getting information directly from different people throughout the city. When there are 16 different people getting the information, it isn’t efficient for me, and it isn’t efficient for the city.”
‘Someone from Nebraska’
Connecticut law requires that every town hire an independent auditor to examine its books each year to ensure financial health. The deadline for municipalities to file the Annual Comprehensive Financial Report is Dec. 31. If there’s a hold-up, they get another 30 days. After that, municipalities have to ask the Office of Policy & Management for extensions.
Bassett said firms don’t usually have “people sitting on the bench to go to a job in mid-January,” since audits are supposed to be completed by then.
The city “budgeted 2,000 hours and we probably have 3,000 hours on this job,” he said. “I’m not going to say RSM is perfect … but I begged, borrowed and stole from other clients and other partners across the country to meet this goal. I have someone from Nebraska working on this job right now. We were not at full strength in February and March last year … and we will not be out there full strength in February and March next year. That’s not how the process works within a firm. People go to jobs that are scheduled and ready.”
When things do work, city accountants close the books in early September and meet with auditors to agree on dates, he said.
“We say, ‘Here’s what we need and here’s the time we’re going to be in here to do it. Can you commit to that?’” Bassett said. “We had a lot of legwork to do the first year … that’s what happens when you change auditors. But that did not delay you getting ready for audit. I was not there in July, August or most of September, when you close your books and get ready for audit. The dates we committed to were not met.”
Stamford is among 26 of Connecticut’s 169 municipalities that have not filed their audits as of June, according to the state Office of Policy & Management’s Electronic Audit Reporting System. Other cities are Danbury and New Haven. Greenwich is one of the few towns in the area that also has not filed.
During the meeting finance board members asked Bassett to sketch out a plan for how the city can prepare for the next audit. Barrett said it has to begin July 1.
There should be a clear kickoff to inform city departments what information is needed and when, Bassett said. Finance board members should get that schedule and monthly progress reports, he said.
“In any city with decentralization of records, it’s very difficult to get everybody to understand the importance of getting everything done. I think it’s … a lack of organization,” he said. “There has to be some accountability … (and) a sense of urgency.”
“We asked for updates every month,” she said. “We just weren’t getting the full story.”