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Securities Law

Issuers' Annual Auditing Delays Persist: Report

WASHINGTON — Fewer than 10% of general obligation bond issuers filed annual audited financial reports within the Municipal Securities Rulemaking Board’s recommended 120-day period in 2011, according to a report from muni research firm Merritt Research Services.

The report said the median audit time for muni bond issuers in all sectors in 2011 was 145 days, or nearly five months. That’s only one day less than the median amount of time in 2010, and the same as in 2009.

The report, which Merritt Research has conducted annually for three years, examines the period between the end of an issuer's fiscal year and the date when their statements are signed and complete. Additional time may pass until an issuer files its statements on the MSRB’s online EMMA system.

The report, which includes data from 38,112 audits in 16 sectors between 2007 and 2011, found that GO issuers consistently complete audits later than issuers in other sectors.

In 2011, only 3.8% of states, 7.4% of cities and 7.8% of counties filed within 120 days.

Median audit turnaround times in 2011 were 182 days for states, 173 days for counties and 169 days for cities.

By comparison, roughly 70% of issuers of some revenue bonds filed within 120 days.

The report said median completion times were 107 days for wholesale electric borrowers, 110 days for nonprofit hospitals and 113 days for private higher-education borrowers.

Special-purpose governmental entities like airports, toll authorities and water and sewer districts took more time than revenue bond issuers but less than state and local governments. 

Merritt president Richard Ciccarone said the data indicate the issuers aren’t making a notable effort to file annual disclosures faster, despite calls for improvement from analysts and attention from regulators.

“I believe they can speed it,” said Ciccarone. “They haven’t pushed themselves much harder, in most cases, to do better than they did in the past.”

Ciccarone said he sent the report to the Securities and Exchange Commission and MSRB.

The MSRB, which did not respond to a request from The Bond Buyer for comment, has encouraged issuers to make a “voluntary undertaking” to submit annual financial reports within 120 days after the end of the fiscal year.

An SEC spokesman noted that the commission addressed filing times in its July 31 report on the municipal securities market.

The report asked Congress to grant the SEC authority to set the content and time frames of continuing disclosures, including financial statements.

Many analysts have also called for more timely reports, noting that financial data can quickly become stale and of little value.

But issuers and other groups have said some municipalities might lack resources needed for faster completion and that the complexity of issuers’ filing vary.

Kinney Poynter, executive director of the National Association of State Auditors, Comptrollers and Treasurers, said 145 days to complete a financial statement isn’t bad considering that states are “very large, complex entities.”

Unlike corporations, states typically cannot complete financial statements until they get data from “component units” like public universities, which themselves must wait on affiliates like foundations. “It just takes a while to get all the data in from the components,” Poynter said.

Still, he said NASACT is working to reduce auditing times, noting that states have cut reporting periods in recent years.

The Government Finance Officers Association had not reviewed the report and declined to comment.

Ciccarone said that many issuers, both large and small, are able to meet the 120-day deadline. He noted that New York City and New York State, which have complex financing, consistently complete audits within 115 and 120 days.

“You would expect other GO [issuers] to be able to do it, too,” he said.

New York State is required by law to file its CAFR within 120 days of the end of the fiscal year.

Ciccarone noted that Syracuse University, another issuer with complex statements, completed its 2011 audit in 28 days.

He added that the relatively small city of Moore, Okla., with a population 55,081 in 2011, filed its 2011 financial statement in 63 days, the fastest city in the study.

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