On July 30, The Sun published an op-ed by Mary Alice Ernish, founder of the grassroots non-profit Audit Baltimore, which contained a series of questions about the city's auditing practices. This week, Comptroller Joan Pratt, who oversees the city's auditors, provided responses.
•Why have some city agencies not been audited in over three decades?
The city's financial statements, which are prepared by the Department of Finance, include all of the expenses and revenues of all city agencies. These expenses and revenues are tested as part of the Comprehensive Annual Financial Report (CAFR). This testing determines if the expenditures and revenue are recorded properly and in accordance with city policy and procedures. Therefore, although individual audits have not been performed for all agencies, the CAFR provides assurances that the financial statements are presented fairly. Similarly, the federal financial assistance to agencies is included in the city's annual Single Audit.
•Why are individual financial statements of city agencies not being prepared?
Pursuant to the city charter, preparation of the financial statements of the city is the responsibility of the Department of Finance. Finance is required to supervise and direct the accounting of the city agencies.
•Please explain the procedure by which financial data of the city's agencies are collected and included in the city's CAFR.
The Department of Finance prepares the city's CAFR from the financial data contained in the accounting records. Each city agency's financial data is included in the city's accounting system.
•Is the CAFR reliable, given comments by Budget Director Andrew Kleine that "most city agencies, boards and commissions do not prepare annual financial statements, and lack the expertise to prepare these documents"?
The reliability of the CAFR is based upon the Department of Finance's maintenance of all financial accounts and its preparation of the city's financial statements. The Department of Audits reviews the CAFR's financial data to ensure that all financial transactions of the city are included in the CAFR.
•Why were copies of the 2010 and 2011 CAFR's not available on the comptroller's website?
A material internal control weakness was identified by Ernst and Young and the Department of Audits in the 2010 CAFR. This finding was presented to the Department of Finance, and it did not agree that a material weakness in internal controls existed. Subsequently, the finance department concurred, and in order to resolve the issues identified as the material weakness, the 2010 CAFR was recalled and is now in the process of being restated. The 2011 CAFR cannot be completed until the 2010 CAFR is restated.
•Many city charters require an annual audit plan, but not the Baltimore's. Does Baltimore prepare one? How are audit findings communicated to the Board of Estimates?
The Department of Audits prepares an annual audit plan. The purpose for developing this audit plan is to identify, select and execute the management of audit and non-audit activities that will be performed during the calendar year and to allocate our limited audit resources. Mandatory audits include the CAFR, the Single Audit and audits of the city's three retirement systems and the Enoch Pratt Free Library. The Department of Audits also performs non-audit services, which include the review of abandoned property and examination of items submitted to the Board of Estimates. With available resources after completion of mandated audits, staff is allocated to other audits, which include performance audits and internal control reviews. The Department of Audits will post on its website the list of agencies it plans to audit this year and the list will be updated each year.
As required by the city charter, audit reports are presented to the comptroller, and at the same time, to each of the other members of the Board of Estimates.
•When and by which external auditor(s) was the last independent audit of the comptroller's office completed?
The Office of the Comptroller was last audited by Ernst & Young for the fiscal year ending June 30, 2008, and it will next be audited by KPMG during their contract with the city.
•In the past five years has the city auditor received any formal requests for specific audits? What were actual audit recoveries for the past fiscal five years, as opposed to the expected audit recoveries mentioned on the comptroller's website?
In 2008, the office completed audits of a Head Start program under the Department of Housing and Community Development and of hotel tax payments under the finance department. In 2009, it completed an audit of a federal grant for mentoring children of incarcerated parents and a low-income senior citizens discount program administered by the city's Water and Wastewater Bureau. In 2010, it completed another audit of a low-income water assistance program. And in 2012, it completed an audit of the city's water billing programs.
Audits have been requested and are now underway of parking tax payments, the Department of Recreation and Parks and the Department of Finance.
The audit savings listed on the comptroller's website are actual audit savings, not expected recoveries. The total actual audit savings for my tenure as comptroller total $45,313,493. The actual audit savings, for the past five fiscal years total $9,607,891.
•Why were no peer reviews of the Department of Audits conducted between Jan. 1, 2006 and Dec. 31, 2008?
Consistent with standards for peer review, CPA firms of similar size as the Department of Audits were historically used to perform the peer review. Despite exhaustive efforts, the Department of Audits was unable to identify and retain a CPA firm of similar size during that period that was able to review the variety of financial and compliance audits that were performed. In consultation with the big four CPA audit firms, the department was able to receive approval to use the Association of Local Government Auditors. ALGA determined that the inability to retain a firm for that period did not put the Department of Audits in non-compliance, only "out-of-cycle." The peer review for the period Jan. 1, 2009 through Dec. 31, 2011 brought the department back "in-cycle."
Joan Pratt, a Democrat, is Baltimore's comptroller.