Tax revenue freeze should thaw soon

Another missed audit deadline means the state has frozen Archuleta County’s property tax revenues for the fifth consecutive year, yet county finance director Don Warn says this year’s situation is markedly different than audit problems experienced in the past.

According to documents from the Office of the State Auditor, the property tax freeze was imposed Oct. 22 after the county failed to provide the 2007 audit by the Sept. 30 deadline.

“The county has been prepared for the 2007 audit since June 30, 2008. The firm of Wall, Smith, Bateman & Associates is contracted to complete the audit, and is currently performing field work. Anticipated completion of the audit is Oct. 31, 2008,” Warn said.

Archuleta County Administrator Greg Schulte concurred. “We’ve been ready for the audit since the end of June,” Schulte said.

So why the delay?

“The auditing firm just finished the 2006 audit in March (2008). They spent lots of hours and we are not their only client,” Warn said.

With the late completion of the 2006 audit, Warn said the firm was delayed in meeting obligations to other clients, which pushed back completion dates for those projects, which ultimately pushed back the date Wall, Smith, Bateman & Associates could return to Archuleta County to conduct the 2007 audit. In fact, during the 2006 audit presentation in February 2008, Karla Willschau of Wall, Smith, Bateman & Associates warned that her firm would have difficulty returning to Archuleta County for the 2007 audit much before late 2008.

“It’s like a domino effect,” Warn said. “It’s no fault of their own.”

As an option, Warn said the county could have contracted with a different firm in hopes of expediting the audit’s completion. However, he explained that Wall, Smith & Bateman’s history, knowledge and experience with the county’s cryptic financials has proved invaluable, and since 2005, the firms’ auditors have played a significant role in getting the county back on financial track.

Looking back, the Office of the State Auditor has imposed similar sanctions in the past.

In the case of the county’s annual, state-mandated audit, the report is due July 31 — seven months after the close of the county’s budget year. State auditors typically provide a 60-day grace period after the July 31 deadline, yet, beginning in 2003, the county has failed to meet audit deadlines, including the grace period, for each consecutive year since.

For example, Archuleta County missed the 2003 audit deadline of July 31, 2004, and the state froze Archuleta County’s property tax funds from Dec. 20, 2004, until Feb. 9, 2005. The missed deadline delayed awareness of financial problems looming on the horizon.

A similar scenario unfolded for the 2004 audit, and the state froze the county’s property tax revenues from Nov. 12, 2005, until Feb. 23, 2006.

For the 2005 audit, the county missed the deadline again, and the county endured one of the longest freezes yet — Nov. 6, 2006 to April 20, 2007.

For the 2006 audit, the county provided a repeat performance with property tax funds frozen Dec. 10, 2007, until Feb. 29, 2008.

Although Warn said the timing of a freeze such as the one imposed for the late 2005 audit could have a major impact on cash flow, both he and Schulte anticipated the current freeze will have little if any effect on the county’s ability to pay its bills and meet its other financial obligations.

“They freeze them (property tax revenues), then they’ll unfreeze them in a couple weeks. It’s a timing issue and it won’t hamper us as far as cash flow,” Schulte said.

Archuleta County’s former finance director Bob Burchett issued similar statements in year’s past, yet Warn explained a number of key differences between now and when the county’s financial crisis mushroomed in spring of 2007.

The first key difference is the duration of the freeze. Compared to the freeze imposed for the late 2005 audit — Nov. 6, 2006, to April 20, 2007 — this year’s freeze for the errant 2007 audit should be significantly shorter, a matter of weeks as opposed to months. In addition, the current freeze comes at a time when the county has already collected the bulk of its property tax revenue. (Warn said property tax collections to-date are at 94 percent.) Lastly, and perhaps most importantly, the county is not running negative funds balances, has cleaned up its ledgers, has discovered or paid all past due accounts left in the wake of the 2007 financial debacle, and has instituted a series of policies, procedures and internal controls which have helped keep the county on financial track. The same cannot be said for the county’s financial practices during 2005, 2006, and 2007.

“The fiscal impact is not huge right now,” Warn said.

In addition, Warn said he will have an audit ready for submittal to the state well before year’s end, and contrasted against the last four audits, that achievement marks a milestone.

“We won’t enter the new year with a freeze,” Warn said.

Warn estimated an audit presentation and the document’s submittal to the state would come in November, and, as the county continues to take major financial strides, he forecasted smoother and timelier audits in 2008 and beyond.

“We’ll be ready (for 2008) sometime in March and they (the auditors) will be here in April or May and we’ll be back to a normal schedule,” Warn said.