WASHINGTON, Sept 26 U.S. cities, counties and states take about six months to finish their annual financial audits, according to a report released on Thursday amid growing pressure on municipalities to post up-to-date and complete financial information quickly.
The report from Merritt Research Services analyzing more than 8,000 financial reports found that "on the whole, municipal bond audits continue to substantially lag the completion time for issuers of corporate bonds."
In 2012 the median time for states to turn in their audited financial reports was 174 days after the close of their fiscal years, nearly twice the time that most corporate issuers take to complete and publish their reports.
That was "a notable eight-day improvement over the prior year, but still a long way from the SEC recommendation of 120 days after the close of the fiscal year," according to Merritt.
Corporate issuers tend to finish their reports within 60 to 90 days of the end of their fiscal years, it added.
Only Utah, New York and the District of Columbia were able to meet the 120-day cutoff, Merritt found.
New Mexico took the longest in finishing its annual report, 426 days, followed by South Carolina at 342 days and Illinois at 335 days.
In May, the U.S. Securities and Exchange Commission took the extraordinary step of charging Harrisburg, Pennsylvania, with fraud for allegedly misleading statements city officials made about its crumbling financial condition.
The regulators said they were forced to use those statements to determine fraud because Harrisburg was remiss in filing annually required financial information. The message from the U.S. government was simple: issuers must improve the timing and extent of their disclosures.
There is no penalty for filing late, and the federal government is limited in how far it can regulate issuers in the $3.7 trillion municipal bond market.
The median audit time for the 1,029 cities in the Merritt study was 171 days and for the 678 counties it analyzed 172 days. The research group noted the Harrisburg charges likely did not affect filing times in 2012 - most municipalities closed fiscal 2012 on June 30, 2012, nearly a year before the SEC's action.
Salisbury, Massachusetts, was the promptest of the cities, and Baltimore, Maryland, the tardiest. Baltimore took more than a year, 415 days, to finish its audit.
Wholesale electric power, hospitals and private higher education were the fastest municipal bond sectors, all completing their audits at less than 113 days.
Merritt, which has conducted this study for three consecutive years, said the size of an issuer did not influence the time it took to complete audits. Credit quality was not a determining factor either.
"There is some evidence that once a distressed situation is fairly advanced, audits take much more time," it added, noting that San Bernardino, which filed for bankruptcy in the summer of 2012, had not yet completed its report by the time of its study.