2013-04-25 / Front Page

County receives audit report

General fund, DTR balance questioned after letter

MANISTIQUE – The Schoolcraft County Board of Commissioners’ request to enter a tax sharing agreement with the Manistique Downtown Development Authority resurfaced during a recent meeting of the county board. Clarification of the county’s financial condition, which prompted the proposed agreement, was requested by DDA Chairman Rick Demers during a recent audit-finance meeting of the board.

The commissioners formally approved a letter requesting a tax sharing agreement with the DDA in early April. The letter was then sent, in slightly modified forms, to residents and other entities. In the request, commissioners not only ask for a tax sharing agreement, they go on to outline the DDA’s anticipated budget over the next 30 years, noting that the DDA will collect an “extreme” amount of tax revenue.

During the county board meeting, Demers spoke under the public comment portion, requesting answers to questions about the county’s finances. He noted he was attempting to better understand the county’s need for a tax sharing agreement when they appeared to have adequate means to address their responsibilities.

Using the county’s most recent audit, performed by the accounting firm of Anderson, Tackman and Company, PLC in September 2012, Demers outlined the counties fund balance which appears to be substantial.

“The audit shows that the county has $956,859 sitting in their fund balance, $831,000 that appears to be unrestricted” he said. “I’ve been repeatedly told that $500,000 of it doesn’t exist, but it’s on your books and I don’t understand how you can continue to carry it there if it doesn’t exist.”

According to Audit-Finance Committee Chairperson Dan LaFoille, that $500,000 was a loan the county had taken from its own Delinquent Tax Revolving fund. He explained that, in 2007, commissioners borrowed the money, creating a liability that should have been paid back to the DTR. However, he noted the county was unable to pay it back, so they decided to “forgive” the loan in 2011.

“(It) basically did away with the liability and put $500,000 into our fund balance that doesn’t exist,” he said.

According to the Michigan Department of Treasury website, any board of commissioners may establish a DTR fund for each year’s delinquent taxes. The taxes are kept in the separate fund until the delinquent taxes for that tax year have been collected. From there, the county “settles” with taxing units (such as townships) and keeps the interest and penalties accumulated from its collection process. Commissioners may transfer this surplus to the county’s general fund.

“My problem has been, and public perception – I can’t disagree – that was a debt or liability while it was in the DTR, then, all of a sudden in fund balance, it becomes an asset,” LaFoille said. “If someone would like to find that half a million someplace, I would be very, very grateful.”

Alan Stotz, an auditor with Anderson, Tackman and Company, was present during the meeting, and chimed in about the county’s DTR loan.

“It’s not an issue that it doesn’t exist,” said Stotz. “What it is – if you took the total of the general fund and the DTR fund that they borrowed the money from, back when they borrowed it, the totals were the same. One fund was $500,000 less; one fund was $500,000 more. By forgiving it, the total still didn’t change, but the general fund went up by $500,000, the DTR went down $500,000.

It does exist – it’s in equity; the cash was spent,” he continued. “But if you take the two funds and add them together, nothing changed.”

When asked after the meeting if the county’s fund balance of $957,076, consisting of $75,000 in budget stabilization, $99,738 in assigned funds and $756,165 in unassigned funds, as shown on page 15 of the county’s audit, was accurate, Stotz said it was.

Sheila Aldrich, Manistique city manager, was also present during the meeting and commented on the county’s DTR confusion.

“Once you forgave it, you freed up cash in your general fund and you increased your fund balance,” she said. “So, if you’re going to look at it as not having it, you really need to record that liability. What it did in my mind, the minute you forgave it, was you freed up $500,000 cash in your general fund.”

LaFoille responded to Aldrich and Demers, explaining the county couldn’t spend the $500,000.

“It would really just tear apart our cash flow. So, that figure, while we don’t owe it to the DTR anymore, it goes right to the fund balance,” he said. “You’re smart folks, I get that … we’re (the county) betwixt in between. Either way, we have an issue here with money that appears to be spendable and ready to go.”

Stotz added that the county’s obligation to repay the $500,000 DTR was, in fact, eliminated.

In an interview following the meeting, Demers further questioned the response from LaFoille.

“I am not sure why they refuse to recognize the funds are there,” he said. “According to their audit, they added $651,043 – $494,826 in 2011and $156,217 in 2012 – to their fund balance in the last two years alone.

To their credit, it appears they have managed their funds well,” he continued. “I understand the need to maintain a cushion, but decisions on what to fund and what not to fund are based in part on knowing what your financial condition is or is not. Additionally a fund balance plays an important roll in the budget process. They have repeatedly said that $500,000 of their fund balance does not exist; the audit paints a different picture. An audit is all about accuracy and accountability, the county audit was performed by a very reputable accounting firm; it’s a document that is filed with the state, I am sure they didn’t send it there with a bunch of information that is not accurate.”

Demers pointed out that the county’s audit also shows that there is over $1.8 million in its DTR fund – a figure he said is more than is needed for the county to settle with local taxing units.

“Again, according to the audit, they report $1,836,015 is being held in their DTR,” he explained. “Let’s say their settlement runs between $1.2 and $1.4 million. Based on the high end, this means they have a cushion of over $400,000 in their DTR fund, which is also unrestricted.”

During the meeting, County Treasurer Julie Roscioli addressed the amount generally paid out from the DTR fund.

“In the past, we paid $1.2 million, $1.6 million,” she said. “As soon as we settle, we’ll know what will go out this year.”

LaFoille explained the possibility of such a settlement would leave a balance in the DTR.

“Yes, we have that much money in the DTR – half a million – which, I agree is there and spendable,” he said.

He added he would like to use that amount for “building on” the DTR balance for the next year.

“I certainly understand,” Demers said, following the meeting. “It’s not my decision to spend the money or not; its also a good practice to plan for the future, but in order to do that you need to know what you have available to work with.”

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