Guest Post: David Singer Questions Palmetto Bay Financial Report
Something just doesn’t add up in the Village’s Annual Financial Report.
In my previous life for 7 or 8 years I was an auditor. An auditor is usually a CPA who reviews and verifies accounting records for public, private or governmental agencies.
I’ve had a the opportunity to review the Comprehensive Annual Financial Report that was presented to the Mayor, City Manager, and Council at the last Council meeting on April 1st . I found what seems to be a glaring and possibly material error in the way litigation is reserved and footnoted.
One would think that pending litigation would be material if the ultimate cost to the Village of Palmetto Bay was, say, a million dollars, but somehow the firm auditing the Village of Palmetto Bay did not find or may not have been given accurate information regarding pending litigation between Palmer and the Village, and pending litigation between Shores of Palmetto Bay and Palmetto Bay.
The direct quote by the auditor in the Report under the heading Litigation is : “The Village is involved in several lawsuits incidental to its operations, the outcome of which, in the opinion of management and legal counsel, should not have a material adverse effect on the financial position of the Village.”
I’m sure everyone is thinking, we know there is litigation occurring between Palmer Trinity and the Village, and Shores of Palmetto Bay and the Village, so what is the issue?
The issue is that Audits and auditors have guidelines to follow. These guidelines may be foreign to the lay person but are important because they require litigation to be handled in a specific manner on an Audited Financial Statement. (Not to get too technical, but the wonks among you might agree that public and government audits as they relate to litigation contingencies must follow SFAS No. 5, GASB No. 62 and GASB No. 10.)
So what if guidelines weren’t followed and the financials are misstated – then what? The Mayor and the Council should demand to find out why. First, was it the auditing firm that made the error? Was it the Village Manager or Finance Director? Was it the Village Attorney? The auditing firm, Cherry Berkaert, is only responsible for the information that is presented to them by various sources within the Village during the Audit. That’s why all Auditors require a Representation Letter to be signed by the Auditee, in this case, the Village of Palmetto Bay. Note that the auditor makes the determination that litigation is not material based on the opinion of management and legal counsel.
The Auditors are required to send out what is called an Attorney Confirmation to all law firms who have been paid during the year to find out what type of litigation is occurring in the Village and what effect it may have on the Finances of the Village. In this case, I would hope that our Village Attorney Eve Boutsis received and sent one back. If not the auditing firm has some, as Ricky Ricardo once said to Lucy, some serious “esplaining to do”.
With millions of dollars at stake should this information been handled differently on the Comprehensive Annual Financial Statement? Once again, did the Village Attorney fill out the Attorney Confirmation completely, honestly and accurately?
A Million Dollar judgment or settlement with either of these Plaintiffs does, in my opinion (and any sensible universe,) have a materially adverse effect on the financial position of the Village. Is the Village once again not being open and honest? Did the Village Staff, specifically the Village Manager or Village Attorney, mislead the auditors or is it just incompetence?
Regardless of the reason, the record needs to be set straight and if needed the Comprehensive Annual Financial Report corrected. I call upon the Mayor and Council to investigate as these are their Financial Statements. In the mean time it’s important that the Council set up a Board of Financial Advisors to keep this from happening again. Our Village, without a doubt, could call to service any number of financially seasoned resident-professionals to assist with the Financials and help the Village weave through numbers and guidelines to get the budget and reporting finally in order.