FISCAL NOTE

Date Requested: February 05, 2018
Time Requested: 02:12 PM
Agency: Auditor, State of WV
CBD Number: Version: Bill Number: Resolution Number:
2417 Introduced SB479
CBD Subject: Municipalities


FUND(S):

Local Government Funds / Various Fund Types

Sources of Revenue:

Other Fund Local Government Funds

Legislation creates:

Increases Existing Expenses, Decreases Existing Expenses, Creates New Program



Fiscal Note Summary


Effect this measure will have on costs and revenues of state government.


The purpose of the proposed legislation is to assist in the audit and review of local governments. The Bill establishes the local government monitoring by the Auditor. The Bill also clarifies the caps and fees associated with audits of local governments in West Virginia.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2018
Increase/Decrease
(use"-")
2019
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 34,000 -20,000
Personal Services 0 0 0
Current Expenses 0 34,000 -20,000
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 0 0


Explanation of above estimates (including long-range effect):


IMPACT ON LOCAL GOVERNMENT: Segment 1- Small Government Monitoring - (WV Code 6-9-7) This Program will utilize accounting students enrolled at higher education institutions in the State of WV to perform financial monitoring procedures of certain smaller local governments under the supervision of Chief Inspector staff. These monitoring procedures, for eligible participating governments, would be in lieu of the annual examination requirements currently required. The monitoring report would be performed at a significantly reduced cost with an estimated (decrease) in audit fees of approximately ($96,000) annually for the local governments. The participating governments during the first year of the program would primarily be municipal governments. Segment 2 - Municipal Audit Fee Caps (Class 3) – (WV Code 6-9-8) The removal of billing caps for audits of Class 3 municipalities (population of 2,001 to 10,000) will improve the success of procuring audit services. Currently, CPA firms are reluctant to conduct the audits since the billing caps make the engagements cost prohibitive. The Chief Inspector Division frequently incurs losses on Class 3 municipal audits. The increase in audit fees for Class 3 municipalities will be approximately $78,000. Segment 3 – Municipal Audit Fee Caps (Class 4) – (WV Code 6-9-8) Change of billing caps for audits of Class 4 municipalities (population 2,000 or less) will improve the success of procuring audit services. Currently, CPA firms are reluctant to conduct the audits since the billing caps make the engagements cost prohibitive. The Chief Inspector Division frequently incurs losses on Class 4 municipalities. The increase in audit fees for Class 4 municipalities will be approximately $88,000. Segment 4 – Eligibility for a Review rather than an Audit – (WV Code 6-9-7) Currently, local governments are eligible to have a review conducted instead of an audit if expenditures from all sources are less than $300,000. The scope of the work performed by an auditor is significantly less in a review than an audit. Raising the threshold from $300,000 to $500,000 would potentially (decrease) audit fees for local governments by ($36,000).



Memorandum


The $34,000 increase in expenses in FY 2019 is the net increase in audit costs for local governments with the increase due to removal and raising of audit fee caps for Class 3 and Class 4 municipalities respectively. This is offset by the reduction in fees due to participation in the Small Government Monitoring Program. The column titled “Upon Full Implementation” has a net decreased cost to local governments of $20,000 annually due to an anticipated increase in eligible participating entities in the Small Government Monitoring Program which will decrease audit fees approximately $54,000 from the prior year.



    Person submitting Fiscal Note: Michael E. Sizemore, CPA
    Email Address: Mike.Sizemore@wvsao.gov