Because most people think that the State’s mandated¹ audits of a local government’s financial statements protect the public from inappropriate financial manipulation because they are reviewed and approved by the Nevada Department of Taxation² (“NDOT”), here we examine what constitutes an “audit” given “the devil is in the details.”³ After all, isn’t an audit’s intent to provide the confidence the public requires to conclude its local government is not guilty of financial “monkey business?” So with that said,

The Local Government Budget And Finance Act⁴ (“LGBFA”): was enacted⁵, in part, to “provide specific methods enabling the public, taxpayers and investors to be apprised of the financial preparations, plans, policies and administration⁶ of all local governments,”⁷ and (expressly) includes…districts organized pursuant to Chapter…318…of NRS.”⁸

As Aforesaid, The LGBFA⁴ Expressly Requires IVGID “to Provide For…Annual Audit(s) of All of Its Financial Statements:”⁹ 

What Exactly is an “Audit” For LGBFA⁴ Purposes? NRS 354.486 instructs that the term “‘audit’ means the examination and analysis of financial statements, accounting procedures and other evidence made in conformity with Generally Accepted Auditing Standards¹⁰ in the United States (‘GAAS’), for one or more of the following purposes:”

1. “Determining the propriety and mathematical accuracy of material financial transactions;”¹¹

2. “Ascertaining whether financial transactions have been properly recorded;”¹²

3. “Ascertaining whether the financial statements prepared from the accounting records fairly present in all material respects the financial position and the results of financial operations and cash flows of the governmental unit in accordance with Generally Accepted Accounting Principles in the United States (‘GAAP’) and on a basis which is consistent with that of the preceding year;”¹³

4. “Evaluating internal accounting controls over financial reporting of the handling of the public money and public property;”¹⁴

5. “Determining whether the fiscal controls established by law and administrative regulations are being properly applied;”¹⁵

6. ”Determining whether there is any evidence that fraud or dishonesty has occurred in the handling of funds or property;”¹⁶

7. ”Determining whether the acquisition, depreciation and disposition of property and equipment are accounted for in accordance with (GAAP)…;”¹⁷ and,

8. “Determining whether the removal of the uncollectible accounts receivable from the records of a governmental unit is done in accordance with the procedure established by law and administrative regulations.”¹⁸

What Type of Audit is a Nevada Local Government Required to Perform in order to comply with its responsibilities under the LGBFA⁴? Surprisingly, there is no such requirement. Which means the local government and its auditor are free to perform any of the eight (8) types of audit described above, as long as “the form of the(ir) financial statements…shall (be as) prescribe(d by) the” NDOT¹⁹. Notwithstanding,

An Audit Must be Conducted by a Certified Public Accountant (“CPA”): “All audits must be conducted by a (licensed CPA) or…partnership or professional corporation…registered pursuant to chapter 628 of NRS.”⁹ For the last several years the District’s auditor has been the licensed firm of DavisFarr, LLP.

An Audit Must Express an “Opinion“ on a Local Government‘s Financial Statements: NRS 354.624(4) instructs that an audit must “includ(e) findings on compliance with statutes and regulations and an expression of opinion on (a local government’s) financial statements…conducted in accordance with generally accepted auditing standards in the United States” (“GAAS”). In addition, “the auditor’s report must…state whether the combining, individual fund and account group financia0l statements, and supporting schedules, are stated fairly in all material respects in relation to the combined financial statements taken as a whole.”²⁰

“In providing for an annual audit of all its financial statements…(unless expressly permitted to omit the discussion and analysis described in subsection 1 by the NDOT), a local government shall include a discussion and analysis of: (a) the financial activities and financial position of the local government, including, without limitation, the reasons for any variations in the financial activities and financial position of the local government from the financial assets and financial position of the local government during the immediately preceding fiscal year; (b) the condition of the capital assets of the local government; and (c) any currently known facts, decisions or conditions that are expected to affect the financial condition of the local government.”²¹

“The Opinion And Findings of The Auditor Contained in The Report of The Audit Must be Presented at a Meeting of The Governing Body: held not more than 30 days after the report is submitted to it” [see NRS 354.624(6)].

An Audit Must be Filed With The NDOT as a Public Record: As aforesaid², NRS 354.624(6)(c) instructs that “the entire report, together with the management letter required by generally accepted auditing standards in the United States or by regulations adopted pursuant to NRS 354.594, must be filed as a public record with…the” NDOT.

A Local Government‘s Audited Financial Statements Must be Filed With The NDOT Annually: NRS 354.624(1) instructs that “each local government shall provide for an annual audit of all of its financial statements.”

A Local Government‘s Audited Financial Statements Must be Filed With The NDOT Not Later Than 5 Months After The Close of the Fiscal Year For Which The Audit is Conducted:”⁹ For local governments like IVGID whose fiscal year ends on June 30, the deadline date for the filing of their audited financial statements is December 31 of each year. Notwithstanding, NRS 354.624(1) and NAC 354.735(1) do instruct that “an extension of this time may be granted by the NDOT to any local government that submits an application for an extension.”

The Four (4) Different Types of “Opinion:” Notwithstanding the above, an auditor’s opinion may take the form of one of “four (4) different types of audit reports….While all are similar in structure, each…shows different results…depending on whether the (client) uses approved financial practices or not.”²² Here are the four audit report types:

1. Clean Report: “A clean report expresses an auditor’s ‘unqualified opinion,’ which means the auditor did not find any issues with (the client’s) financial records. (The term) ‘unqualified’ expresses that the (client) does not need to meet any additional qualifications to improve its financial status. (It)…receives a clean report when it shows it follows the standards set by…GAAP.”²² Obviously, this is the most desired and common type of audit report.

2. Qualified Report: “A qualified report expresses an auditor’s ‘qualified’ opinion of a (client’s) financial standing. This shows that (the client) has not followed all the standards set by the GAAP, but isn’t conducting its fiscal business in an illegal (n)or misrepresenting way. A ‘qualified’ report means that a (the client) must meet certain qualifications to have a financial status approved by (its) auditors. Auditors may issue this report if there are certain business transactions or practices of which they are unsure.”²² “Qualified” reports help financial management teams recognize what parts of their (organization) need fixing to improve its financial status.

3. Adverse Opinion Report: “An adverse opinion report often highlights fraud within a(n organization). Auditors issue adverse opinion reports when they discover instances of irregularities or misrepresentations in a company’s financial statements. The(ir clients) often have disregarded the standards set by the GAAP.”²² An adverse opinion report alerts finance professionals and members of the public of an organization’s possible dishonest practices.

4. Disclaimer Report: “Auditors issue disclaimer reports when they have excused themselves from providing an opinion about a(n organization’s) financials. When an auditor issues this report, it often means (it) felt the (organization) prevented them from making proper observations. This may happen if a (client) does not give satisfactory answers to an auditor’s questions, or…there is a mistake in (its) financial records. If this happens, an auditor may feel (it) cannot make a definite decision about a(n organization’s) financials.”²² A disclaimer report allows the auditor to distance itself from a client if necessary, and maintains its reputation as a fair and professional auditor.

So now you know!

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1. See NRS 354.624(1) which requires most “local government(s), specifically including the Incline Village General Improvement District (‘IVGID’) [see NRS 354.474(1)(a) – the term ‘local government means every political subdivision or other entity which has the right to levy or receive money from ad valorem or other taxes or any mandatory assessments, and (it) includes…districts organized pursuant to chapter…318…of NRS’], (to) provide for an annual audit of all of their financial statements.’
2. See NRS 354.624(1) which mandates every “local government…provide for an annual audit of all of its financial statements.”
3. This was a pet phrase of the District’s former General Manager (“GM”), Steve Pinkerton.
4. See NRS 354.470.
5. See NRS 354.472(1).
6. That would be audited financial statements [see NRS 354.624(1)].
7. That includes the Incline Village General Improvement District (“IVGID”) given NRS 354.474(1)(a) instructs that “the provisions of NRS 354.470 to 354.626, inclusive, apply to all local governments (expressly including)…every political subdivision or other entity which has the right to levy or receive money from ad valorem or other taxes [General Improvement District (“GID”) Boards have the “power and authority to levy and collect general (ad valorem) taxes on and against all taxable property within the(ir) district(s)” (see NRS 318.225)], or any mandatory assessments (GID Boards have the power to impose “special assessments upon lands and premises…specially benefited”{(see NRS 318.350(1)}].
8. IVGID was organized pursuant to the provisions of former NRS 318.055(1)(a) which instructs “the formation of…(GIDs) may be initiated by: a resolution adopted by the Board of (Washoe) County Commissioners” (“County Board”). Such resolution was Bill 57 of Ordinance 97 which was adopted by the County Board on May 20, 1961.
9. See NRS 354.624(1).
10. NRS 354.624(4) further instructs that “each annual audit…must be a financial audit conducted in accordance with generally accepted auditing standards in the United States, including findings on compliance with statutes and regulations and an expression of opinion on the financial statements.
11. See NRS 354.486(1).
12. See NRS 354.486(2).
13. See NRS 354.486(3).
14. See NRS 354.486(4).
15. See NRS 354.486(5).
16. See NRS 354.486(6).
17. See NRS 354.486(7).
18. See NRS 354.486(8).
19. See NRS 354.624(4).
20. See NAC 354.715.
21. See NAC 354.719(1).
22. See https://www.indeed.com/career-advice/career-development/audit-report-types.