Independent Auditor Says Oro Valley Faces No Immediate Financial Difficulties

Audit report looked T town's financial condition
Assertions by some that the Town is operating in a fiscally irresponsible manner or facing financial trouble are not supported by the audit record. Over the past eight years, including the most recent audit, the town's independent auditors has consistently issued clean "going concern" opinions. They have not identified any condition suggesting financial distress. 

Foresees no immediate cause for concern

The Town’s independent auditor, Brian Hemmerle of the audit firm of Baker Tilly LLP, presented the results of Oro Valley’s fiscal year 2024–25 audit to the Town Council and earlier to the Budget and Finance Commission.  The audit addressed whether there are conditions that could impair the Town’s ability to continue operating and meeting its obligations. Hemmerle found no such conditions. 

While the audit does not predict long-term policy outcomes, the auditor identified no financial difficulties or financial problems facing the Town in the immediate future.

Rumors of future financial problems are based on a long-term forecast and not on audit findings
The only forward-looking concern that has been raised comes from a five financial forecast prepared by the Town’s finance staff, which showed a potential revenue shortfall of four years from now. That forecast formed the basis for a staff request that the Town Council consider new taxes, proposals that the Council ultimately rejected.  Financial forecasts are inherently sensitive to assumptions and are not audit findings. In addition, the further out the projection, the less likely it is to occur. To date, nothing in the Town’s audited financial results or the opinion of the town outside auditor indicates current or near-term financial trouble.

The audit affirmed that the town is on solid financial footing, spending well below its expenditure limit and...
As part of the audit, the auditor also reviewed the Town’s compliance with Arizona’s voter-approved expenditure limitation. He reported that Oro Valley remained well below its authorized spending limit for the fiscal year, meaning the Town did not approach or exceed the legal cap on expenditures. In addition, the auditor stated that he identified no conditions or events that would raise substantial doubt about the Town’s ability to meet its obligations and continue operating as required over the applicable look-ahead period. Together, these findings indicate that the Town not only complied with its legal spending limits but also demonstrated the financial capacity to meet its ongoing commitments.

...with strong reserves

The audited financial report also shows that the Town ended the fiscal year with a General Fund balance of $20.7 million, equal to about 39 percent of annual General Fund expenditures. This reserve level is well above the Town Council’s adopted policy threshold of 25 percent. While auditors do not set or evaluate reserve policy, they do verify that reported balances are accurate and available. The absence of any audit findings or concerns related to reserves indicates that the Town’s General Fund balance is correctly reported and provides a substantial financial cushion to manage revenue fluctuations, unexpected costs, or economic uncertainty.

A "Clean Opinion: " The financial results as reported can be relied upon

Hemmerle reported that the Town received an unmodified, or “clean,” audit opinion. This opinion confirms that the Town’s financial results are accurately reported, free of material misstatement, and prepared in accordance with required accounting standards. The audit does not evaluate policy choices or future decisions, but it does confirm that the numbers relied upon by residents, council, and outside parties are reliable.
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"The December Event"

The “Devil Is In The Details” 

In December, Oro Valley Council Member Tim Bohen confronted Assistant Town Manager Chris Cornelison at the town's Pusch Ridge Golf Course. The confrontation was the culmination of months of fruitless effort by Bohen to get substantiation of the reported rounds and revenue at the facility. Bohen did not believe the numbers reported to town by facility operator Indigo Golf.

Bohen searched for answers regarding Pusch Ridge rounds and revenue accounting

From June 2023 through early September, Tim Bohen tried in vain to get answers from town staff on the manner in which Pusch Ridge Golf rounds are gathered. Then, while listening to a September 19 town Budget and Finance Commission meeting, he learned that the town was going to have a special procedures audit performed on Indigo Golf financial information. This was a month and a half after the audit firm of Baker Tilly had already been engaged and actively working on the project.

As it turns out, Indigo Golf is the only organization that could provide answers to Bohen’s questions. In an email to Baker Tilly, Deputy Finance Director Wendy Gomez noted: "We wouldn’t have any of the contractor’s transaction data in our financial software system. We receive their monthly financials and book the activity in our system. Actual transaction data would need to come from [Indigo Golf]." (Source: Email from Gomez to Barter [Baker Tilly Employee], 8-31-23). Thus, Bohen sent emails to the audit firm with questions because they were going to have the access to the information he needed.

Bohen either did not get answers to his questions or received answers that were generic in nature. Indeed, the town may have played a role in that. Town Finance Director David Gephart told Baker Tilly not to respond to Bohen's questions because “…his questions only serve to generate additional questions.” (Source: Email from Gephart to Barter, 1-4-24).

(All of this is documented in the correspondence between the Town, Bohen and Baker Tilly.)

Bohen's frustration got the best of him

It was now December 18. Bohen still had no answers. The town scheduled a tour of the Pusch Ridge Golf facility to look at possible capital improvements. Bohen saw this as his chance to get his questions answered. 

According to Chris Cornelison, Bohen said that "... he didn't need the tour because he had already seen it... he wanted to see the clubhouse...he brought a list of questions he wanted to ask." Cornelison told him "... there is a process and protocol for getting those types of items...Bohen then started yelling at him." (Source V23120927). 

Three days later, Cornelison reported the incident to the police. He said he felt threatened. That was around the same time that Town Manager Wilkins told Bohen that he would need an escort to enter town facilities.

Bohen understands that his expression of anger towards anyone is unacceptable.  He has issued a statement regarding this (See panel).

Bohen never did get his questions answered...

 …even when the Baker Tilly auditor reported the results of their special procedures audit to the town at the January 10 town council meeting, Bohen's inquiries were abruptly curtailed by the Mayor. The matter should have been discussed first in a study session to give Bohen ample opportunity to ask questions because he had many.

Questions that are still reasonable to ask

At that meeting, Town Manager Wilkins told the town council that the special procedures audit gave a 'thumbs up' to the Indigo Golf reported financial results. That is an overstatement, according to the remarks of Baker Tilly partner Hemmerle.  Hemmerle stated repeatedly to the council and in communications with town staff that his firm could not express an opinion as to the fairness of the Indigo Golf provided  numbers... nor could he guarantee that there was no fraud. They had not performed an audit of the reported results. Indeed, the numbers have never been audited.

So, we will never know about the veracity of the past or future golf financial results...

… as reported by Indigo Golf to the town. The numbers have gone unaudited in the past. And as reported in a previous article, the town does not provide oversight of the numbers. As Ms Gomez said in her August email, the Town accepts the numbers and inputs them into the town's ledger.

Instead, we have Council Member Solomon leading the charge to punish Bohen

The council never did focus on what Bohen was trying to accomplish. Led by Council Member Steve Solomon, who is no stranger to threatening controversy, the council instead focused on punishing Bohen for his behavior. He was censured by the council and ordered to attend the next two council meetings by zoom or phone. The council also ratified the town manager's decision that Bohen must now be accompanied on any visits to any town facility.

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Oversight Challenges: Oro Valley's "Blank Check" Reliance on Indigo Golf's Financial Reporting Should Raise Concerns

A special procedures test of contractor "accounting"

The town's golf operator, Indigo Golf, does the bookkeeping and accounting of Oro Valley Municipal Golf.  Indigo handles the cash. It pays all bills. It provides a report to the town of financial results. The town relies on this information for making entries into its books; and for decision making.

The town contracted Baker Tilly, the town's external auditor, to perform special procedures to check the reported results. They performed four "tests" on the information provided by the town's golf operator, Indigo Golf.  The time period covered was fiscal 2022 and 2023.  They did not find any irregularities in reported revenues and expenses, as well as in "round of golf" reported.

Found no irregularities but did not offer an opinion on the accuracy of the numbers

The auditor did not express an opinion on the fairness (accuracy) of Indigo Golf's numbers based on its test of perhaps 100 transactions in total. The auditor did not perform a financial audit of the numbers. The Town Council will rely on the Indigo Golf prepared financial results on February 7 when it assesses the future operations of the Pusch View Golf Course. 

The audit did reveal oversight challenges the town needs to meet

The auditor noted in their report that Indigo is not providing proper support for the bank account reconciliations. The town is a joint owner of this account. "We recommend the Town require their TPMC to maintain proper supporting documentation of review and approval of bank reconciliations with supervisor signature or initial. Additionally...we recommend the Town request and review monthly bank reconciliations."

One would have thought that the town would have been requiring this information. After all, this is "basic stuff".  Reconciling a bank account is an important oversight measure (see panel above) to ensure that the revenues received are deposited and that the expenses paid are accurately reflected in the financial records.

The current measures for overseeing the accuracy of information from a third-party business, which is owned by the town, are insufficient

According to Oro Valley Finance Director David Gephart, speaking to the town's Budget and Finance Commission last week, Indigo Golf handles all the accounting. The company submits its report to the town, and the town, without conducting an audit or verification, directly incorporates the received information into its financial records, accepting the numbers without further scrutiny. 

Three things the town can do now to enhance the assurance of Indigo's financial reporting

Municipal Golf is a town owned venture. The town should be engaging in oversight activities of the golf operator's bookkeeping and accounting. It is not. There are some things it can and should do. First, mandate that Indigo Golf submit an annual independent audit report to the Town, verifying the numbers provided. The town's annual audit does not encompass a review of these figures. Second, consider performing the bank reconciliations periodically, instead of relying on the operator. This involves the town examining a bank account under its ownership to ensure the accuracy of the information. Third, implement its own periodic review of reported revenues and expenses.

Town can institute these actions now

Council member Tim Bohen brought the town's attention to the necessity of scrutinizing the numbers provided by Indigo Golf. He did not believe that the revenue numbers were accurate. The special review did not confirm his suspicions. Regardless, his instinct that the current system is susceptible to fraud is accurate. Thus, there is a pressing need to establish oversight control.

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Gephart: Oro Valley Is Financially Stronger Than It has Ever Been

Fiscal responsibility was an issue in last election

The four challengers in last summer’s Town of Oro Valley Mayor and Council contended that the incumbent candidates had been financially irresponsible in their four years in office. They had difficulty proving their assertion. Indeed, the facts, simply did not support reality.

Independent audit tells the story

Once a year, the town provides an independently audited report of its financial condition. It is called the Annual Comprehensive Financial Report (ACFR).  Last week, staff and town’s independent accounting firm, Baker Tilly LLP, presented this report to the town council. The report was for fiscal 2022, which ended in June.

Providing a short-term and long-term perspective

The report differs from the financial reports that staff provides during the year in two ways. First, the monthly staff reports have not been audited by an independent third party. Second, the monthly staff reports provide information based on “cash in and cash out”. The ACFR, however, includes a report that matches revenues when they are earned with expenditures when they are incurred. These are called accrual-based statements.

According to Finance Director David Gephart, these accrual-based statements provide an accurate basis for gauging the long term financial health of the town; while the monthly reports town council receives provide a picture of the town’s short-term financial health.

Oro Valley got stronger from both perspectives in 2022
Referring to the both types of financial reports, Gephart noted that “The town’s financial position is strong” on both counts. From a short term perspective, the town’s fund balances increased $22.5m in fiscal 2022. From a long term perspective the town increased its “net position” [assets minus liabilities] by $15million. Since 2018, the town has reported both an increase in its fund balances and an increase in its net position. This was not the case in fiscal 2017, the year before the incumbents began their first term in office.

Gephart: Town is well positioned financially 

Gephart’s conclusion: “This town is stronger than it has ever been financially and it is well positioned to navigate a potential recession.”

Watch Gephart's remarks here. Our thanks to Take Back OV for that. Read their report on this here.

From time to time, we plan to post highlights of fiscal 2022. Stay tuned.