Simon Doer: The Most Sensitive Man in Bexley asks"Does the City Need an Audit Committee?"

Audit Function in Bexley City Government – Best Practices?

By the Most Sensitive Man in Bexley, Simon Doer


RECENT AUDIT LORE IN BEXLEY.

An August 28, 2009 news article by Dean Narciso for The Columbus Dispatch reported that “among the notable candidates to be bumped” in the removal by the Franklin County Board of Elections of “26 candidates from the Nov. 3 general election for failing to properly fill out paperwork or gather enough signatures” was “Bexley Auditor Larry A. Heiser, who didn't complete circulator statements as required by law. Heiser was running unopposed for his second term.”

While simply an introduction to the fact that Bexley has an auditor, that event (without in any way reflecting on the audit services provided by Mr. Heiser or his most recent predecessors, Gary Qualmann and Richard Al Levin) may also suggest an opportunity to examine best practices in city government related to proper auditing oversight.

THE RISE OF THE AUDIT COMMITTEE IN THE PRIVATE SECTOR.

In the private sector a crisis in corporate governance led to Sarbanes Oxley legislation and requirements that public companies focus on establishing Audit Committees on corporate boards of directors to ensure proper oversight.

In 2002 Congress enacted the Sarbanes-Oxley Act in response to allegations of corporate ethics issues, problems with financial statements and business failures. A focus of the Act known as Section 404 requires management to acknowledge, establish and maintain adequate internal controls. The auditor and senior management must separately and respectively attest or assert in writing that the controls are effective.

MUNICIPALITIES MIMIC BUSINESS AND ESTABLISH AUDIT COMMITTEES.

Similarly the governance of many cities has required Audit Committees for proper oversight. For example, the City of Cleveland in 2000 established an Audit Committee composed of seven (7) members as a requirement of Chapter 154 of its Administrative Code:

The City Audit Committee members consist of the following:
“the Mayor, or his designee; the President of Council, or the Chairman of the Finance Committee as his designee; the Director of Law; one member appointed by the Mayor; and two members appointed by the President of Council. The final member, who shall serve as Chair of the City Audit Committee, shall be chosen jointly by the Mayor and Council President, shall have at least ten years experience in auditing or financial accounting, including some experience in governmental finance or auditing, and shall have no financial or contractual interest with the City of Cleveland in accordance with the ethics provisions of the Ohio Revised Code. In addition, the Chair shall not have had any duties pertaining to the audit of the City of Cleveland for at least five years prior to his appointment.”

The stated purpose of the Audit Committee in Cleveland “is to serve as the focal point for communication between the legislative and executive branches of the City of Cleveland, the independent auditor retained by the City, the Department of Finance, and the Division of Internal Auditing as their duties relate to financial accounting, reporting, internal controls, and compliance with applicable laws and regulations. The City Audit Committee is to assist the staff and employees of the City in fulfilling its responsibilities as to accounting policies and reporting practices of the City of Cleveland and sufficiency of auditing relative thereto. The City Audit Committee shall be the principal agent in ensuring the independence of independent auditors, the integrity of management and the adequacy of disclosures to the public.”

STATE AUDITOR ENDORSES AUDIT COMMITTEE.

In the Winter of 2006 then Auditor of State, Betty Montgomery, in the Ohio State Auditor’s Best Practices publication endorsed audit committees by city councils:

“Audit Committees – Governments should establish audit committees to oversee internal and external audit functions.”

The article continued:

“The National Committee on Fraudulent Financial Reporting (i.e., The Treadway Commission) has stated that audit committees can serve as “informed, vigilant and effective overseers of the…reporting and internal controls process.” To be an effective independent overseer, the audit committee must be positioned between senior management and the external auditors. The audit committee should serve as a liaison between management and independent auditors. Although the committee could include officials from the entity, it is preferable that the committee include representation that is independent from elected officials and management. Thus, such committees provide an independent perspective on an organization’s control environment, which greatly bolsters an organization’s ability to mitigate fraud even at the highest organizational levels.”

(As further stated in the Ohio State Auditor’s Best Practices publication: “For an extensive discussion on audit committees, please see the Spring 2005 issue of Best Practices at www.auditor.state.oh.us/Publications/. Additionally, by visiting the AOS website, governments can access a toolkit developed by the American Institute of Certified Public Accountants (AIC-PA) that is designed to help government audit committees operate as efficiently and effectively
as possible.”)

PRECEDENT BY BEXLEY’S SISTER CITY.

Even Bexley’s sister city, Bexley in England has an Internal Audit Committee. It has been active. A September 11, 2009 Bexley Times article reported that Audit Committee exonerated former Bexley Council leader, Ian Clement, on August 10 in connection with his use of a council credit card when he agreed to pay back charges he claimed on that card (however, continues to face other charges under the British Fraud Act related to credit card use).

SHOULD BEXLEY ESTABLISH AN AUDIT COMMITTEE?

Just as Sarbanes-Oxley was intended to increase investor confidence, hold corporate leaders accountable and focus on effective financial controls, it may suggest that public confidence in city government can be similarly addressed by the Bexley City Council seriously considering and establishing an Audit Committee to oversee internal and external audit functions. An advantage may also be the engagement of properly qualified residents to serve on the audit committee as active citizen participation in that aspect of oversight of city governance.

That is one sensitive man’s opinion. What is yours?

Bexley Public Radio Foundation broadcasting as
WCRX-LP, 102.1 FM, Local Power Radio
2700 E. Main St., Suite 208
Columbus, OH 43209
Voice (614) 235 2929
Fax (614) 235 3008
Email wcrxlp@yahoo.com
Blog http://agentofcurrency.blogspot.com

Bexley Public Radio Foundation is exempt from federal taxes under IRC Section 501(c)(3). Donations are deductible from federal income taxes for individuals who itemize. Checks may identify the payee as Bexley Public Radio Foundation or WCRX-LP, 102.1 FM.

Design is copyright 2009. All rights reserved. Bexley Public Radio Foundation. Text is copyright 2009. All rights reserved. The Most Sensitive Man in Bexley.

MSMIB asks questions about county auditor and Bexley real estate taxes.

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FALSE LOGIC: NO FRANKLIN COUNTY-BEXLEY TAX DOWNTURN IN HOUSING.

By the most sensitive man in Bexley, Simon Doer

So the housing market is slow or stalled, home prices are down.

Logic would assume that with home values down, based on our firm American foundation of the relationship between taxation and representation, responsive government officials would quickly respond to adjust comparable tax assessments.

Yet in a contrary fashion the Franklin County Auditor’s Office decided simply not to increase house values for 2009, but in a “catch 22” after the fact proposition, was poised to assess any homeowners who recently upgraded their homes, even if the upgrade was simply to maintain market value in the declining market.

If a Bexley resident remodeled a kitchen, bathroom, basement or improved outdoor landscaping and a permit for the work was filed with the City of Bexley, the tax man awaits a return from that expense and labor in 2009.

In an August 6, 2008 news release the Franklin County Auditor Joseph W. Testa advised residents that:

“Residential values will remain unchanged through the next three years.”

“In a first for Franklin County , Testa has ordered no increase in residential values for the 2008 appraisal update. Unless homeowners improve their property or voters pass new tax levies, there will not be an increase in residential real estate taxes payable in 2009, 2010 and 2011.”

Question: Does remodeling always constitute “property improvement” that consistently results in an increased market value of a house from that previously recorded by the Franklin County Auditor?

This sensitive resident checked several neighborhoods and the assessment process. The Franklin County Auditor made a decision, which this resident contends appears to be based on false logic, that while it would not increase tax assessments for 2009 across the board for all residents, it would assess those residents who recently performed permit “improvement” work on their houses.

In one example a neighbor finished a basement and significantly upgraded a kitchen in 2006 without affecting their tax valuation, yet when a next door neighbor performed similar lesser value updates two years later the Franklin County Auditor’s Office revalued that neighbor’s home value using the current “property improvement” guidelines. So although the adjacent neighbor’s updates were simply keeping with adjoining homeowners’ properties the more recent updates resulted in a market value thousands of dollars above the higher end house next door.

Where is the equity and fairness by the Auditor’s Office selecting recent permit work while ignoring earlier updates?

The false logic is that remodeling always increases the value of the homes and that those residences should be singled out as being subject to an increase in the tax assessment. It does not account for remodeling that simply maintains the previously determined value of the house.

Residents intent on merely keeping their home value in line with competing houses in the neighborhood may have remodeled their kitchen, basement or a bathroom during 2007 or 2008. Unfortunately those residents now targeted by the Franklin County Auditor’s Office for an increased market value based on the permit value that was filed with the City of Bexley. So, if your neighbor remodeled their kitchen in 2006 and you simply remodeled to keep pace in 2007 or 2008, you, not your neighbor will experience an increase in Franklin County and resulting Bexley City and school property taxes.

The failed logic is that every remodeling activity results in an equal increase in market value. Houses that are not maintained and remodeled periodically should tend to decline in market value in comparison to neighboring properties. Even if we board up our homes and fail to upgrade them market value continues to keep pace according the Franklin County Auditors.

Is there any evidence that the Franklin County Auditor’s Office reduces the market value of houses that do not keep pace with the value of neighboring homes?

Assume side-by-side Bexley neighbors each with a house of equal market value. If the middle house never remodels during a twenty year period that house’s tax value will still keep pace with neighboring upgraded houses even without remodeling efforts as long as none of the homeowners make additions to their homes. Now adopting the false logic of the Franklin County Auditor’s Office, if the middle house remodeled a kitchen or bathroom during the past year or finished a basement or outdoor landscape two years after the neighbors made those decisions, the middle house will be tax assessed above the value of the neighbors’ houses.

Let’s test the logic theory…. If we boarded up our front windows (as one neighbor did while waiting for new replacement windows) the Most Sensitive Man In Bexley thinks that the value of the house is reduced, but the MSMIB also thinks that the Franklin County Auditor’s Office will not voluntarily reflect a decline in value in the tax assessment process.

That is one sensitive man’s opinion. What is yours?

Bexley Public Radio Foundation broadcasting as
WCRX-LP, 102.1 FM, Local Power Radio
2700 E. Main St., Suite 208
Columbus, OH 43209
Voice (614) 235 2929
Fax (614) 235 3008
Email wcrxlp@yahoo.com
Blog http://agentofcurrency.blogspot.com

Bexley Public Radio Foundation is exempt from federal taxes under IRC Section 501(c)(3). Donations are deductible from federal income taxes for individuals who itemize. Checks may identify the payee as Bexley Public Radio Foundation or WCRX-LP, 102.1 FM.

Design is copyright 2009. All rights reserved. Bexley Public Radio Foundation. Text is copyright 2009. All rights reserved. Bexley Public Radio Foundation. The styles MSMIB and Most Sensitive Man In Bexley are the property of Bexley Public Radio Foundation.