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.