Jan. 19, 2019 — Audit reports dominated January board meetings held by Siuslaw Valley Fire and Rescue (SVFR) and Western Lane Ambulance District (WLAD) earlier this week. The required yearly reports were presented to directors at both board meetings by Chris Mahr, CPA.
While there were similarities in Mahr’s assessment of the financial situations of the two organizations, the reports were marginally different in one major regard — the ultimate determination of state compliance requirements.
The initial determination by Mahr’s firm was an “unqualified” approval of the SVFR financials and a “qualified” designation for WLAD.
The terms qualified and unqualified, as used in the world of auditors and CPAs, have a different meaning than in other contexts.
According to the website Investopedia, “An unqualified audit refers to a complete audit that has been performed and researched so thoroughly that the only possible remaining discrepancies stem from information that could not be obtained by the auditor.”
The use of the term “qualified” means the assessment is made with one or more issues highlighted by auditors, which give them pause, or to the firm’s inability to access all the relevant information for the audit. This term also may refer to a particular aspect of the organizational accounting process or an accounting error that can be adjusted to alter the end determination of the report.
Generally, these “qualified” assessments are not the result of serious errors or the result of any type of malfeasance; they are used to indicate an area in the financials that may need closer attention. In WLAD’s case, Mahr’s firm was concerned with a potentially unfunded future PERS liability.
Another aspect of the discussion is the level of “materiality” that the error or information provided to the auditors meets. In the case of the WLAD report, the actual amount involved was approximately $88,000. For SVFR, the amount was less than half of that total. That amount was not judged to be “material.” The much higher WLAD liability number was the reason for the “qualified” designation for that district, although the accounting practices used were the same. It was the total dollars involved that caused the different assessment determination.
The difference in the assessment does indicate there are issues that may need to be addressed immediately or, in the case of the “qualified” assessment given to WLAD, the possible use of personal medical plans available to PERS employees would require the district to increase its PERS contributions in order to adequately address this possible future financial liability.
Mahr’s report was well received by the SVFR Board of Directors, but the members of the WLAD board decided to immediately address the pending PERS healthcare liability issue.
WLAD directors were unanimous in their meeting with Mahr that they wanted to take whatever action was possible and necessary to avoid the designation of “qualified.” To this end, the board passed a motion to reject the report and take internal actions to meet the potential PERS liability issues immediately.
This course of action would require the district to make the financial adjustments to cover any type of liability to PERS.
Interim Chief Director Steve Abel, who oversees the administration of both SVFR and WLAD under an intergovernmental agreement, wants the public to know that the report presented by Mahr to WLAD was a concern that the district takes seriously.
“Both SVFR and WLAD take their fiduciary responsibility seriously and want to ensure that we are in full compliance with Oregon Laws and accounting practices. We are pleased that we are in compliance,” Abel said. “Due to a change in audit requirements to fully account for reporting potential future liabilities, we have asked the auditor to include Post Employment Health Benefits report in the WLAD audit, which will allow the audit report to be considered ‘unqualified’ — meaning that there are no significant issues that need to be addressed.”
The decision to ask for the audit to be put on hold while the necessary financial arrangements were made to cover the potential liabilities will postpone the acceptance and forwarding to state officials of the report but should be accomplished within the timelines required for filing an audit with the state.