Audit rules raise costs, concerns

New standards leave some towns irritated

Sunday, December 14, 2003

By Alexander MacInnes
© 2003 Republican-American

When considering the cost-benefit of implementing the biggest changes in the history of public accounting, some municipal finance directors don't like the balance sheet.

As auditors finish poring through municipalities' books for their annual independent audits, many towns are going through growing pains as they comply with new accounting standards.

In 1999, the Governmental Accounting Standards Board — the governing body of municipal accounting — introduced a sweeping change in how towns report their financial statements and account for their infrastructure.

The new standard, known as GASB 34, has forced many towns to spend more money on outside consultants, new software and employee time in order to meet a litany of new requirements. So far, some finance directors are unimpressed with the results, and their towns are poorer for their efforts.

When all finished, towns such as Thomaston and Seymour will have spent approximately $25,000. Oxford will spend approximately $15,000 to meet some of the requirements, while Middlebury could shell out up to $22,000.

Meanwhile, accountants and software companies are happy with the new fees. While the larger cities were required to implement changes last year, the smaller towns — usually with less staff — are relying more on their outside auditors and new accounting software to guide them through the

accounting jungle.

"The key to implementation is planning," said Scott Basset, a certified public accountant with McGladery & Pullen of New Haven. "There's much more time spent. There's an increase in the hours on the audit side and fee side, as well as prep time with the client."

Basset added his firm, which helped Litchfield through its new requirements, has seen a 15 percent to 25 percent increase in fees.

GASB hopes its Statement 34 will provide governments a clearer financial picture to show to bond rating agencies, investors and taxpayers. However, the biggest change for government is to report on the value of its infrastructure.

Towns must now put a value on such things as roads, bridges, sidewalks and sewer systems.

A building constructed in the early 1900s, for example, will have a price tag today that has been devalued over time.

"I think it's a big waste of time with respect to the capital asset piece," said Susan Whitney, Thomaston's finance director.

"I think the Board of Finance is still going to look at the one column — the general fund balance — and not pay attention to anything else."

Although other finance directors may feel Whitney's frustrations, they must make their towns compliant regardless.

"People aren't sure what the benefit is," said Joseph Centofanti, a CPA with Kostin, Ruffkess and Co.of Farmington. "You have to do it because GASB sets the rules. If not, I have to issue an adverse opinion and no wants to go to bonding with that."

Like many CPAs, Centofanti said the biggest obstacles for a town are inventorying the town's infrastructure and then putting a price tag on it. While bond rating agencies will get a clearer picture of a town's finances and capital assets, some town finance directors wonder how useful that is.

"It's great, but it's not like when I'm trying to pass a budget in tough times I can go sell Main Street for $1 million," said Frank Nardelli Jr., the finance director for Watertown. "That's where this whole GASB thing has gotten out of hand."

Not everyone agrees with Nardelli, however. Carl Serus, finance director for Oxford, said he hopes the finished product will provide a much better and consistent picture of the town's infrastructure.

"It's a tremendous planning tool," Serus said. "What you'll be able to do on a regular basis is be able to look at — for example, in the town of Oxford — the condition of 100 miles of roads for determination of how many miles ... will need to be worked on. This will help budgeting that money to get work done."

Serus added that, while he decided to meet requirements in phases, he has spent countless hours working on the new system. When asked how many hours, he said, "I don't want to even think about it."

Serus said he did most of the work instead of relying heavily on outside consultants. Oxford is not the only town to do this.

In Southbury, Board of Finance member John Michaels said his town has not spent "one nickel" on outsourcing any of the work. Southbury, which does not need to be compliant until next year, has prepared itself well for the new standard.

"We're going to be what is known as a ‘fast follower,'" Michaels said. "We don't need to be first. We're just a little town and I don't think there's much at stake here."