Special District Audits

Summary

The Grand Jury reviewed compliance by special districts with their reporting requirements. Government Code requires each special district to file an annual audit report with the County Auditor and the State Controller. Special districts must also file an annual Financial Transaction Report with the State Controller’s Office. The Grand Jury discovered that several special districts are not complying with the auditing requirement.

Findings

1. There are thirty-one special districts within Amador County.
2. All special districts are required to file annual audits with the County Auditor and the State Controller within twelve months of the end of the fiscal year or years under examination.
3. Of the thirty-one special districts in the county, all but five comply with their auditing requirement.
4. Several special districts are unaware of their audit reporting requirements.
5. Audits are costly for small special districts with limited budgets. A special district may, by unanimous request of their governing board and with unanimous approval of the county Board of Supervisors, replace the annual audit requirement with a biennial or a five-year audit. These options would represent cost savings to them.
6. The State Controller’s Office provides written information regarding the audit requirements for special districts.
7. The Auditor/Treasurer is required to audit or contract with a Certified Public Accountant (CPA) to audit those districts not in compliance with their audit requirement at the expense of the special district.
8. All special districts are required to file an annual financial transaction report with the State Controller’s Office within ninety days of the end of the fiscal year. Fines for failure to comply range from $1,000 to $5,000.
9. Several special districts have had difficulty completing the State Controller’s report.
10. The Auditor/Treasurer assists some special districts with preparing the required State Controller’s report.

Conclusions

1. Five special districts do not comply with their auditing requirement.
2. Some special districts would benefit by going to a biennial or five-year audit.
3. The Auditor/Treasurer does not make or contract for audits of those special districts out of compliance.
4. The assistance the Auditor/Treasurer provides to the special districts with their financial transaction report to the State Controller is helpful.
5. Training for special districts regarding their reporting requirements is needed.

Recommendations

The Grand Jury Recommends that the Auditor/Treasurer:

1. Provide information to all special districts regarding the option and procedure for obtaining multi-year audit approval.
2. Continue the practice of assisting special districts with their annual Financial Transaction Report for the State Controller’s Office.
3. Conduct periodic workshops to review both the auditing requirements and the Financial Transaction Report requirements.
4. Audit or contract for audits of any special district failing to submit an audit as required by law.

Comment Requirements

The Grand Jury requests that Auditor/Treasurer respond within 60 days and the Board of Supervisors respond within 90 days from the official filing date of this report as required by Penal Code 933(c).

Authority to Investigate

Penal Code Section 925 authorizes the Grand Jury to review the operation of county government. As required by Penal Code Section 916, at least twelve Grand Jurors voted to review the County Auditor’s role in special district financial audits.

Method of Review

Members of the Grand Jury conducted interviews with the following people:

• County Auditor-Controller
• representatives from four special districts

Additionally, members of the Grand Jury reviewed:

• several special district’s financial statements and audits for the last 3 fiscal years
• the 1993/94 and 1994/95 Financial Transactions Concerning Special Districts of California Annual Report from the State Controller’s Office

The Grand Jury also contacted the Accounting and Reporting Division and the Division of Audits of the State Controller’s Office.

Description of Issues

By law, all special districts must file two financial reports. One report is filed with the county auditor and the State Controller. This report is the district’s audit report. The other report is the Financial Transaction Report required by the State Controller’s Office. Both these documents contain information about a special district’s financial affairs.

The Grand Jury reviewed how the Auditor/Treasurer ensures that special districts comply with their audit requirements. By law, county auditors are required to perform an audit or hire a CPA to audit all special districts failing to meet their reporting deadline.

The Grand Jury learned that of the thirty-three special districts in the county five are not meeting their audit responsibilities. These districts gave different reasons for not complying. While most knew about the annual financial transaction report filed with the State Controller, they either misunderstood or were unaware of the requirements for annual audits. For small districts with limited resources, annual audits are costly.

The Grand Jury learned that special districts can obtain approval to file multi-year audit reports. Multi-year audit reports span two or five years. District boards wanting to use multi-year audits must vote unanimously to request the Board of Supervisors for approval. The Board must unanimously approve the request. Multi-year audit reports list financial information by year for several years in one report. This approach can save districts money. It is of greater benefit to districts with small budgets.

Regardless of the audit period, the Auditor/Treasurer must by law act to ensure districts meet their audit obligation. In doing so, the Auditor/Treasurer has two options:

• do the audit for the district and bill the district
• contract for a CPA to do the audit and bill the district

In addition to an audit, special districts must file an annual financial transaction report with the State Controller’s Office. Information from this report is consolidated in a report published yearly by the state entitled, "Financial Transactions Concerning Special Districts of California." Failure to file requirements for this report can result in fines ranging from $1,000 to $5,000.

The County Auditor stated that in his opinion special districts could not afford these fines. After one district was fined $1,000, the County Auditor offered to assist districts having trouble with this report. The County Auditor told the Grand Jury that providing this service is not difficult.

During its investigation, the Grand Jury found other sources of information in Sacramento for special districts. These are:

• California Special Districts Association
• Association of California Water Agencies
• California Controller’s Office, Division of Audits and Division of Accounting and Reporting
• a pamphlet available from the State Controller’s Office, Division of Audits entitled "Minimum Audit Requirements and Reporting Guidelines for California Special Districts"

Supplementary Information

State Controller’s Annual Report on the Financial Transactions Concerning Special Districts of California, 1993-94 and 1994-95 Fiscal Years

Office of the State Controller, Division of Audits, pamphlet entitled "Minimum Audit Requirements and Reporting Guidelines for California Special Districts," July 1991