Audits Help Improve Government Functions in Carbon County and Provide Valuable Information to Citizens
It’s budget season for government entities in Montana, and they are hard at work applying the lessons learned from last year’s financial audit to the budgets, policies and procedures of the next cycle. The fiscal year for government entities in Montana ends June 30. Financial audits are performed regularly to assess for accuracy and compliance and to identify system weaknesses. Constant changes in laws and regulations that affect how governments conduct business and report financial information mean that audits often find issues needing correction. In fact, it is rare to see an audit free of issues.
Financial audits for the last three years were requested from Carbon County, the Town of Bridger, the Town of Joliet and the City of Red Lodge. Carbon County directed me to the financial page on their website which provides audits back to 2007. The Town of Bridger readily provided hard copies. Within minutes of the request, the Town of Joliet sent emails with the reports as attachments and also provided the website address (https://svc.mt.gov/doa/lgs/home) for public access to the records for any town or city in Montana. The City of Red Lodge did not respond to a records request submitted through their website, which is required by their policy when requesting public records. Their records were obtained through the State website.
The goal of the audit reports is to identify and address issues that are under a government’s control, ideally so they are not issues in the following report. Two ongoing items that show up for both the City of Red Lodge and the County year after year are Segregation of Duties and Auditor Prepared Financial Statements. Both entities cite lack of personnel and financial resources to resolve the issues and so they continue to work around them to the best of their abilities.
Common issues that occur mostly seem to be around how equipment is obtained and accounted for and properly accounting for grant funds. The following are a couple of recurring issues falling outside of the commonly occurring ones:
The Town of Joliet has a recurring issue of keeping their revenue at the level their sewer bond requires. This was due to an increase in repair and maintenance costs. This issue will be resolved by October 2023 by lowering expenses and, if necessary, raising rates.
The City of Red Lodge has an ongoing issue that is resulting in the over-collection of property taxes from its citizens. In the Schedule of Findings and Responses for the Year Ended June 30,2021, the following was noted:
“Condition: In order to fund the fiscal year 2021 budget, the city carried forward 17.54 mills from fiscal year 2020 that were not available for carryover as they had been levied in the prior year.
Cause: Error in completing the HB 124 mill levy calculation worksheet. Effect: Taxes were over levied by approximately $129,000.
Recommendation: Procedures should be developed and implemented that will provide for accurate completion and review of the HB 124 mill levy calculation worksheet.
Response (from City): The HB 124 mill levy calculation sheet does not factor in the property tax relief that our Resort Tax fund generates. The City has to do a manual calculation to determine the amount of mills to be decreased, which in turn leaves carryover mills for the subsequent year. It does not state anywhere in Statute that those mills cannot be carried forward in subsequent years. The City was not aware that the carry over mills could not be used. Going forward no carryover mills will be used in subsequent years.”
In the Schedule of Findings and Responses for the Year Ended June 30,2022, the following was noted:
“Condition: When preparing the budget document for fiscal year 2022, the city levied 5.90 mills that were not available for carryover as they had been levied in the prior year.
Cause: Error in completing the HB 124 mill levy calculation worksheet. Effect: Taxes were over levied by approximately $44,500.
Recommendation: Procedures should be developed and implemented that will provide for accurate completion and review of the HB 124 mill levy calculation worksheet.
Views of Responsible Officials: The HB 124 mill levy calculation sheet does not factor in the property tax relief that our Resort Tax fund generates. The City has to do a manual calculation to determine the amount of mills to be decreased, which in turn leaves carryover mills for the subsequent year. It does not state anywhere in Statute that those mills cannot be carried forward in subsequent years. The City was not aware that the carry over mills could not be used. Going forward no carryover mills will be used in subsequent years.”
There was an opinion published by the Montana Legislative Services Division in 2020 that states that mills can be carried over, but I was unable to determine if that pertains to The City of Red Lodge’s particular situation. The City of Red Lodge was asked what happened to the approximately $173,500 that was over-collected from its citizens and if this practice has been discontinued. No response has been received.
Angela Newell, Administrator for Carbon County, and Kirstin Sweet, Clerk for the Town of Bridger, were asked how their governments handle mills.
Newell stated, “We mill our full authority annually and ‘save' for larger capital purchases by transferring funds to Capital Accounts. Capital funds do require a capital plan; the money is set aside for a specific future purchase not just “stashed” in another fund. These are the 4000 series funds in our budget documents.”
Bridger follows the same practice because they believe exercising the full mill authority is in the best interest of the taxpayer. In Sweet’s opinion, “It is much easier on the taxpayer to pay the full amount of any authorized mills as they are authorized.” As an example, she asked me to consider the difference between paying $300 every year versus being hit with an unexpected $3,000 bill after ten years. “If you wait until the Town has a big capital expense or emergency and then levy the mills, the taxpayers can get hit with a much larger than expected property tax bill. That’s not fair to the taxpayer.”