As elsewhere discussed, NRS 354.624(1) mandates that as a Nevada “local government” subject to the Local Government Budget and Finance Act¹ (“LGBFA”), each year IVGID must “provide for an audit of all of its financial statements.” Given NRS 354.486 provides for eight (8) different kinds of possible audits, and the District and its auditor are free to perform any of those audits as long as “the form of the(ir) financial statements…shall (be as) prescribe(d by) the Department of Taxation,”² what type does the District commission?

The Type of Audit a Local Government is Required to Perform in order to comply with its responsibilities under NRS 354.624(1): Surprisingly, there is no such requirement. Which means the District and its auditor are free to perform any of the eight (8) types of audit described in NRS 354.486 of their choosing.

The Type of Audit IVGID Commissions: Our current auditor, DavisFarr, tells us³ that it “audit(s) the financial statements of the governmental…(and) business-type activities (of) each major fund, and the aggregate remaining fund information of the Incline Village General Improvement District (‘IVGID’)…(including) related notes to the financial statements, which collectively comprise the District’s basic financial statements”⁴. Although this language comes from DavisFarr’s 2022 Report, it tells us the same thing every year⁵.

The Types of Audit The District Does Not Commission: So why doesn’t the District commission one or more of the other seven (7) types of audits? After all, DavisFarr represents in its “Report on (its) Audit” letter that “in (its) opinion, the accompanying financial statements present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the District, as of June 30, 2022, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with” GAAP⁶. Because if it were the one which actually opined on the matters it represents, it might face liability for misrepresenting the state of a client’s financial statements.

Which returns us to DavisFarr’s engagement letters⁶ which precede its final Report(s). There one learns that our auditor’s opinion is basically worthless given it forces the District to hold DavisFarr free and harmless from any liability for:

“(a) The preparation and fair presentation of the basic financial statements in accordance with (GAAP);

(b) The design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of basic financial statements that are free from material misstatement, whether due to error, fraudulent financial reporting, misappropriation of assets, or violations of laws, governmental regulations, grant agreements, or contractual agreements;

(c) Including the auditor’s report in any document containing basic financial statements that indicates that such basic financial statements have been audited by (DavisFarr);

(d) Identifying and ensuring that the (District) complies with the laws and regulations applicable to its activities including (its) policies, practices and procedures related to financial reporting;

(e) Adjusting the basic financial statements to correct material misstatements and confirming to us in the management representation letter that the effects of any uncorrected misstatements aggregated by us during the current engagement and pertaining to the current year period(s) under audit are immaterial, both individually and in the aggregate, to the basic financial statements as a whole; and g. For acceptance of nonattest services, including identifying the proper party to oversee nonattest work;

(f) Maintaining adequate records, selecting and applying accounting principles, and safeguarding assets;

(g) Informing (DavisFarr) of any known or suspected fraud affecting the entity involving management, employees with significant role in internal control and others where fraud could have a material effect on the financials; and,

(h) The accuracy and completeness of all information provided.”

With regard to the supplementary information referred to above, DavisFarr forces the District to “acknowledge and (affirm its) understand(ing of its) responsibilit(ies below):

(a) The preparation of the supplementary information in accordance with the applicable criteria;

(b)To provide DavisFarr with the appropriate written representations regarding supplementary information;

(c) To include DavisFarr’s report on the supplementary information in any document that contains the supplementary information and that indicates that we have reported on such supplementary information; and,

(d) To present the supplementary information with the audited basic financial statements, or if the supplementary information will not be presented with the audited basic financial statements, to make the audited basic financial statements readily available to the intended users of the supplementary information no later than the date of issuance by you of the supplementary information and our report thereon.”

But wait. There’s more! “As part of DavisFarr’s audit process, (it represents it)…request(ed) from management (and received), written confirmation concerning representations made to DavisFarr in connection with the audit…(And it) has provide(d DavisFarr) with:

i. Access to all information of which management is aware that is relevant to the preparation and fair presentation of the basic financial statements such as records, documentation, and other matters, including the (District’s) Policies, Practices and procedures related to financial reporting;

ii. Additional information that (DavisFarr has)…request(ed) from management for the purpose of the audit;

iii. Unrestricted access to persons within the (District) from whom DavisFarr determine(d) was necessary to obtain audit evidence;

iv. A written acknowledgement of all the documents that management expects to issue that will be included in the annual report and the planned timing and method of issuance of that annual report; and,

v. A final version of the ACFR (including all…documents that, together, comprise the report) in a timely manner prior to the date of the auditor’s (intended) report.”

But wait. There’s more! DavisFarr tells us that because it is “District’s management(, rather than DavisFarr, which) is responsible for the preparation and fair presentation of the financial statements in accordance with (GAAP), and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error,” it means that the type of audit DavisFarr provides expressly does not:

1. “Determin(e) the propriety and mathematical accuracy of material financial transactions⁷;

2. Ascertain…whether financial transactions have been properly recorded⁸…

3. Evaluat(e) internal accounting controls over financial reporting of the handling of the public money and public property⁹;

4. Determin(e) whether the fiscal controls established by law and administrative regulations are being properly applied¹⁰;

5. Determin(e) whether there is any evidence that fraud or dishonesty has occurred in the handling of funds or property¹¹;

6. Determin(e) whether the acquisition, depreciation and disposition of property and equipment are accounted for in accordance with (GAAP)¹²; (nor,)

7. Determin(e) whether the removal of the uncollectible accounts receivable from the records of (the District has been)…done in accordance with the procedure established by law and administrative regulations¹³.”

Basically, everything one would expect an audit to reveal. Wouldn’t you agree?

The Type of Audit IVGID‘s Auditor Furnishes: Okay. So which of the eight (8) types of NRS 354.486 audits does the District’s audit represent? The answer appears to be the one “ascertaining whether the financial statements prepared from the (District’s) 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” GAAP¹⁴. And why does this type of audit appear to be the one the District provides? Because of the various disclaimers (see a more comprehensive description below) in both of DavisFarr’s audit reports. And that is because of DavisFarr’s engagement letter(s) which require IVGID to agree that it’s “management (rather than DavisFarr will be) responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America (‘GAAP’), and…the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.”¹⁵

And now you know!

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1. See NRS 354.474(1)(a) which defines the term, in part, to mean “districts organized pursuant to chapter…318…of NRS.”
2. See NRS 354.624(4).
3. See page 7 of its “Independent Auditor’s Report” (“the Report”) for the fiscal year ending “as of June 30, 2022.”
4. See page 11 of the District’s “Annual Comprehensive Financial Report (‘ACFR’) [for the] Fiscal Year Ended June 30, 2022” (the “2022 ACFR“).
5. See page 6 of the District’s ACFR for the fiscal year ending June 30, 2023 (the “2023 ACFR“).
6. See pages 174-175 of the packet of materials prepared by staff in anticipation of the IVGID Board’s May 11, 2022 meeting (“the 5/11/2022 Board packet“).
7. See NRS 354.486(1).
8. See NRS 354.486(2).
9. See NRS 354.486(4).
10. See NRS 354.486(5).
11. See NRS 354.486(6).
12. See NRS 354.486(7).
13. See NRS 354.486(8).
14. See NRS 354.486(3).
15. See page 7 of the 2022 ACFR.