Request By:
Mr. Michael L. Judy
Johnson, Judy & Gaines
326 West Main Street
P.O. Box 756
Frankfort, Kentucky 40602
Opinion
Opinion By: Steven L. Beshear
In your capacity as General Counsel for the Kentucky Press Association, you have asked the Office of the Attorney General to reconsider OAG 80-594. It is your position, on behalf of the Kentucky Press Association, that this office has misinterpreted certain provisions of the law added by the 1980 General Assembly and further that no distinction was made between an annual audit report and a financial statement in OAG 80-594.
In OAG 80-594, this office concluded that cities of all classes are now required to simply publish a summary of an annual audit required to be made of its finances and that the publication of a detailed financial statement was eliminated. Upon further reflection of the law on this matter, we are now of the opinion OAG 80-594 is in error. That opinion is hereby withdrawn. This opinion is to supersede in all respects conclusions reached in the prior opinion.
The genesis of our examination of this matter must be the new language contained in Senate Bill 18, passed by the 1980 General Assembly. This piece of legislation related to local government in general. New requirements were placed on cities with respect to accounting records and financial reports. KRS 91A.020. Each city was directed to operate under an annual budget ordinance. KRS 91A.030. Particularly pertinent to the subject of this opinion is the new language of KRS Chapter 91A, which was subsequently codified as KRS 91A.040. This new provision reads in full as follows:
"(1) Each city shall, as soon as practicable and in no event later than two hundred seventy (270) days after the close of each fiscal year, cause each fund of the city to be audited by the auditor of public accounts or to a certified public accountant.
(2) The city shall enter into a written contract with the selected auditor. The contract shall set forth all terms and conditions of the agreement which shall include, but not be limited to, requirements that:
(a) The auditor be employed to examine the balance sheets of all governmental proprietary and fiduciary funds of the city;
(b) All audit information be prepared in accordance with generally accepted governmental auditing standards which includes such tests of the accounting records and such auditing procedures as considered necessary in the circumstances. Where the audit is to cover the use of state or federal funds, appropriate state or federal guidelines shall be utilized;
(c) The auditor prepare a typewritten or printed report embodying financial statements and his opinion and statements relating thereto;
(d) The auditor express an overall opinion as to whether the statement of receipts and expenditures presents fairly the financial condition of the city or state the reasons why an overall opinion cannot be expressed;
(e) The completed audit and all accompanying documentation shall be presented to the city legislative body at a regular or special meeting;
(f) Any contract with a certified public accountant for an audit shall require the accountant to forward a copy of the audit report and management letters to the auditor of public accounts upon request of the city or the auditor of public accounts, and the auditor of public accounts shall have the right to review the certified public accountant's work papers upon request.
(3) Upon completion of an annual audit, the city shall forward two (2) copies of the audit report to the department for local government for information purposes.
(4) Upon completion of an annual audit, the city shall publish a summary of the audit in accordance with KRS Chapter 424.
(5) A copy of an annual audit report which meets the requirements of this section shall be considered satisfactory and final in meeting any official request to a city for financial data, except for statutory or judicial requirements. (Enact. Acts 1980, ch. 232, § 4, effective July 15, 1980.)"
It is clear from subsection 4, that a summary of the audit is to be published.
Neither Senate Bill 18 nor any other 1980 legislation amended the requirements of KRS 424.220. KRS 424.220 relates specifically to financial statements and requires, with few exceptions, local governmental bodies including cities to publish a financial statement at the conclusion of each fiscal year. "The statement shall show the amount of funds collected and received, from what sources received, the amount disbursed, the date of each disbursement, for what purpose expended, and to whom paid, . . ." We well recognize the difference between an audit and a financial statement. This office discussed the distinction between an audit report and a financial statement in OAG 80-240, copy attached. In that opinion we were looking at the requirement of an annual audit report for a fire protection district organized pursuant to KRS Chapter 75 and the responsibilities required by KRS 424.220. We stated in OAG 80-240 at page 3.
"KRS 424.220 places the burden for preparing and publishing the required financial statement upon the officer of the district whose duty it is to collect, receive, have custody, control or disbursement of public funds. The officer's responsibility for the financial statement required by KRS 424.220 is a separate and distinct matter from the requirements pertaining to the audit and the audit's report. The officer required to prepare and publish the financial statement involved in KRS 424.220 cannot escape his statutory duty by publishing a copy of the CPA's audit. "
Thus, we think it is apparent that a summary audit and financial statement are two different creatures under the various applicable laws, and the publishing of one is not a substitute for publishing the other.
In final support for the conclusion we have reached in this opinion, we believe the "repealer" section of Senate Bill 18 is helpful. Senate Bill 18, Section 7, repealed various sections of preexisting statutes, two of which were KRS 92.403 and 92.405. These two statutes applied to cities of the second class and third and fourth class respectively. The provisions called for the making of an annual audit and the publishing of a summary of the audit. Most importantly, KRS 92.403(2) read: "Compliance with the provisions of this section and KRS 92.405 shall be in lieu of the requirements of KRS 424.220." (Emphasis Ours). Again, this "in lieu of" language, that is, the publishing of a summary audit in lieu of a financial statement for cities of the second, third and fourth classes has been repealed. We are aware of no new "in lieu of" language.
Therefore, in view of the above, we believe the 1980 action of the General Assembly was to make the law such that each city must publish a summary of the audit report, KRS 91A.040, and also fully follow the publication requirements for a financial statement set out in KRS 424.220 .