City Auditors considering Going Concern Opinion on Bay St Louis Financials

Four hours into a marathon Bay St Louis City Council meeting that lasted almost five hours, City Clerk David Kolf disclosed to the City Council that the municipal auditors have been in discussion with City officials regarding the issuance of a going concern opinion on the September 30, 2013 City of Bay St Louis financial statements that are included as part of the annual Single Audit of the City’s finances and compliance with applicable laws and regulations. The single audit report for the City is due on June 30, 2014, a due date which Kolf admitted would not be met as the auditors are still waiting on the Administration to provide the firm with crucial information needed in order to complete the report, a complete list of which was provided to the Mayor on  May 6, 2013 when Auditor Jennifer Bell presented the audit firm’s preliminary findings to the City Council.

Mayor Fillingame, who has previously steadfastly maintained the city’s finances were solid, made no public comments on the City’s dire financial situation to the Council before Slabbed’s deadline for publication instead relying on Clerk Kolf to explain the auditor’s proposed  opinion.  Kolf blamed the City’s Utility fund for the financial problems leading to the rare proposed audit opinion, which essentially means the City’s solvency is doubtful absent a bankruptcy filing within one year of the date of the opinion.

Douglas Handshoe, a CPA that is publisher of the Slabbed New Media website explains:

Auditors are reticent to issue going concern opinions as it often represents a financial kiss of death for the entity being audited.  While the academic research on this topic has been fairly exhaustive, it mostly focuses on the instances where an entity fails without the auditors ever issuing  a going concern opinion.  Business solvency, bankruptcy and auditor reports are closely intertwined by operation of the legal system so there is a compelling interdisciplinary interest in this topic.

The academics find that reticence in their study results. Handshoe noted that in a Wall Street Journal article on the topic, Anne Simpson, senior portfolio manager and director for corporate governance at California Public Employee’s Retirement System (CalPERS) said “A going concern warning from an auditor is rarer than a hen’s teeth, you have to be dangling off a cliff, hanging on by your fingernails before the auditor blows the whistle.”

Handshoe noted going concern opinions are even rarer in public sector audits due to the taxing authority inherent to the financial operations of a typical municipaliy.

Kolf, citing the impending going concern opinion, urged the City Council to approve a second utility rate hike in less than nine months. Councilperson Wendy McDonald revealed the last rate hike targeted the higher volume water users in the City, evidently despite the fact that segment of the City’s Utility has been in decline over the past three years.

Councilman Lonnie Falgout contacted both the Cities of Waveland and D’Iberville, obtaining personnel head courts and salary information for those municipal water and sewer funds. Falgout revealed his survey revealed Bay St Louis charges more payroll to the fund than D’Iberville, a much larger City than Bay St Louis.

Ultimately the council took no action on the City’s utility rates instead scheduling the topic for a special meeting set for June 26th.

9 thoughts on “City Auditors considering Going Concern Opinion on Bay St Louis Financials”

  1. Doug, looking at bond issues (the generic term for public evidences of indebtedness) over time which are ridiculously “standard form” such that the language reads from the 19th century, the “failure to communicate” can constitute a basis for default. Looks like public finances over there are in for a world of hurt.

    1. Ye ol’ cascading defaults. Seen it once or twice. To the extent the Administration is still downplaying the problems I figured leaving a surprise or two would add to the car wreck type entertainment in store once Hizzoner completely runs the City into the mud.

    2. First, somebody needs to take all financial responsibility away from Kopf & The Mayor. They obviously don’t have a clue. In Ward 6, we pay $738 for the same services that they pay $420 for in the City (water, sewer, garbage) , so what’s the commotion about a rate hike?

    3. Kolf blamed the City’s Utility fund for the financial problems leading to the rare proposed audit opinion,

      As opposed to blaming: those actually making the financial decisions at the City, those charged with overseeing the financial decisions and ensuring that appropriate controls are in place at the City, those at the City who are either unable or unwilling to provide the necessary records so that the audit may be completed.

      PICK NONE or ONE or SOME:
      said financial records possibly either not having ever existed,
      used to exist but are now cannot be found,
      used to exist but have been destroyed,
      those in control of the City’s records don’t understand the auditor’s request and thus can’t comply,
      City staff are too busy lawyering up to answer questions of a substantial nature,
      when you are trying to pawn the City assets who has time to answer questions?

  2. They are trying to create a pool of money to run the harbor which opens in 2 weeks. That is the reason for the rate increase in utilities. Stick to the utility customers, the majority of whom don’t even own a boat.
    The dismal timing of the harbor opening right when they have to admit they are flat broke, and are begging everyone they owe for debt forgiveness is their own fault. They could have had a year’s start on this, but they lied for a year about the whole situation.
    Has Bay St. Louis turned into the Mayor’s video store?

  3. Given the info that Councilman Falgout put forth, it would be interesting to compair the headcount of city employees to other cities with gross revenues approximating those of Bay St. Louis.

  4. Larue65,
    It is not just the no. of employees compared to other cities our size, it is the co-mingling of funds to pay these people who supposedly work in more than one department at a time. I wonder if a certain I really wish the city could afford to hire the company that appeared before them the other night offering a contract to run the public works dept. Long Beach, Gulfport, Pascagoula all went this route, and I am sure they are run more efficiently.
    Another thing, the Mayor just recently touted that our population was right back up to pre-Katrina numbers, but the city clerk said that the utility customers were down by a thousand. What are we supposed to believe? And, no one on the Council questioned him on it.

    1. I could not make any sense out of the explanations offered by the administration on both how and why they have so many employees partially charged to the Enterprise Fund. Based on what I heard my take is the Utility department has become a dumping ground for salaries the general fund can’t afford. Councilman Boudin mentioned a couple of examples in fact. IMHO it is in that list of salaries that are charged to everyone’s utility bills where the 500 pound gorilla resides. I know it, the Echo knows it and the Sun Herald knows it.

      Former Pascagoula City Councilman Frank Corder replied to me on Twitter on Utility Partners and he gave them a good recommendation. He said the City Council did a cost / benefit review of the contract annually and the numbers indicated it was tax money more efficiently spent.

      Finally with all the yammering and BS on the State of the BSL Utility fund by the administration I feel compelled to point out I pay for water in two South Mississippi towns. The City of Wiggins has run brand new water lines throughout town. My bill there, generally the minimum is $10 less per month than my bill here in the Bay and the Water quality is far better. What makes that comp intriguing is Wiggins has half the population that is spread out over 11.3 square miles that constitute that municipality. The Bay has 6.1 miles of actual land in its 16.9 square mile municipality so its population density is far greater. In theory that should mean the City of Bay St Louis should be able to deliver City Services like water and sewer at a far cheaper cost per customer than the City of Wiggins yet I pay $10 less a month in Wiggins for Water and Sewer. The Rubbish Truck runs like a precision clock each Wednesdays on my side of Pine Hill. If there is a problem with a broken water line or sewer, the city is on it within an hour of getting that call and I have first hand experience calling in both a clogged sewer line and a water line. Here in Ward 1 just down the street from me the water line has broken twice in the past year and it took days before the City came out to fix it both times.

      To know what is missing in City government here in the Bay one must understand that there are several municipalities down here that actually do a very good job delivering city services in an efficient manner.

  5. I don’t when the taxpayers of Bay St. Louis will get enough and wage war about how the city is being run on a day to day basis. But, when they do, they are going to find out the problems are at the top.
    Nothing, nothing is going to change or improve until the current Mayor and City clerk are GONE. You cannot continue to give these two money to mismanage. No amount is too big for them not to mess up.
    Repeating the same actions over and over expecting a different outcome each time is definition of
    INSANITY.

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