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
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
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.