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Auditor responds to city termination

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by WILLIAM B. CARROLL, Spencer Magnet Editor

According to Kevin Peercy of Peercy and Gray PSC, the recent audit of the city of Taylorsville’s financial statements turned out to be somewhat unique.
“I can’t recall any entity I have audited in the past not allocating salaries and wages to the general fund,” Peercy said of the city of Taylorsville’s audit.
Peercy said he has performed a number of public audits over the last twenty five years.
“I am unable tell you how many, but I have been performing governmental audits since I began in public accounting in 1988,” Peercy said.
A city that Peercy’s firm has audited consistently for several years is the city of Bardstown. According to information pulled from The Kentucky Standard, Peercy’s firm has issued unqualified opinions to the city of Bardstown for the last few audit cycles.
Taylorsville’s “qualified” opinion was based primarily on one predominate factor according to Peercy, namely how the city classifies employees with respect to the city’s general fund.
“The purpose of an audit is to make sure that the financial statements are “fairly presented,” Peercy said. “Fairly presented requires the financial statement meet the standard that a prudent reader of the financial statement be able to assess the financial position of the entity. In order for financial statements to be fairly presented, they have to meet several assertions, one of them being the assertion of accuracy and classification. This assertion requires us to perform tests to assess whether the city’s financials are accurate and results of operations are properly classified.”
Peercy went on to state, “The city records the operations of sewer and water in one fund and city operations in the general fund. When we performed our testing of the general fund for accuracy and classification, we found that several members of the administrative staff performed duties for both the sewer and water fund and the general fund. However, the financial statements of the general fund did not show administrative salaries or wages.”
Peercy said the discovery of the city’s policy to record salaries and wages of employees in the fund for which the employees perform the majority of their duties led to a qualified opinion for the city.
“We had to assess whether this policy met the assertion of accuracy and classification and we felt that the administrative staff performed enough duties for the city that the financial statement for the general fund was not fairly presented,” Peercy said. “This required us to “qualify” our opinion on that fund.”
The city specifically rejected the methodology used by Peercy and provided the following response in the original audit documents, “The city of Taylorsville respectively disagrees with allocating salaries for administrative staff to the general fund. The city of Taylorsville allocates salaries to the department of which the employee spends the majority of their time.”
The city further went on to state that any allocation of employee wages to the general fund would require, “extensive time studies on the employees … This allocation would require constant review and some employees would have to be allocated to as many as five departments, which further increases the inaccuracies.
The city also blamed on the auditor for failing to provide assistance in the determination of appropriate numbers, “The external auditor stated that he was unable to provide us with an accurate number to calculate this allocation.”
The city relied on the fact that previous auditors had approved the city’s accounting method, “Mr. Peercy contacted the city’s prior auditor, Robert Ryan, CPA, and he agreed with how the city of Taylorsville has been allocating payroll. In addition, the three auditors prior to Mr. Ryan agreed with the method of payroll allocation.”
During the city commission meeting to terminate Mr. Peercy’s services, the commission and city clerk also voiced concerns over the timeliness of filing the audit. Peercy responded to those allegations by written correspondence to the Spencer Magnet.
“Auditors do not take the issuance of a qualified opinion lightly,” Peercy wrote. “Releasing a qualified opinion takes more work to make sure the issue is adequately addressed.”