Depoe Bay was finally able to file its financial audit for fiscal year 2018-19, but not without the city’s independent auditor issuing a disclaimer of no opinion for the filing.

The Depoe Bay City Council met on June 29 to discuss its independent auditor’s findings and approved the submission of the fiscal year 2018-19 audit to the state, with City Recorder Barbara Chestler noting during Tuesday’s regular council meeting that the submission had been received by the state auditor’s office and withheld funds should be released soon.

Depoe Bay hired Merina+Co, a certified public accountant, in March to help rectify the financial reporting issues that have plagued the city since 2018. With the first of several late audits out of the way, Merina+Co will soon begin work on the city’s 2019-20 audit and help the city select new financial reporting software.

While filing the fiscal year 2018-19 audit marks a major milestone and will set important groundwork for future audits, a disclaimer of no opinion is generally considered a harsh stance for an independent auditor to take and may affect the city’s bond rating when it is eventually restored.

“Basically, a disclaimer says that we have money in the bank, but we can’t do any reports to actually balance any of our funds and so our funds are not balanced,” Depoe Bay Mayor Kathy Short said during the June 29 meeting. “We hope to have them balanced for the 2019-20 audit. We didn’t call in the auditor to ask any further questions tonight because basically, we have to accept the disclaimer, and this is as far as we can go with the reports we were able to give to them.”

Short said the city’s bank was able to verify the amount of funds the city had, but much of the other information required for the audit process could not be provided. 

While a disclaimer of opinion isn’t an ideal outcome, filing the 2018-19 audit will help the city move on to the next year’s audit and release some of the $32,331.41 in withheld state revenue funds to the city.

“It’s not good news that the auditor couldn’t do a financial statement audit and provide an opinion, but they were not aware of any malfeasance, so there’s some gratitude for that,” Councilor Fran Recht said. “I spoke briefly with our CPA, and he said this is the launch point to build on and get us the release of the shared state revenue that was held until we filed it.

“We’ll be able to build on this to get the financial statements for the 2019-20 year and at the end of that year we’ll be able to produce a balance sheet for this fiscal year, 2020-21, and then we’ll be set to go,” Recht continued.

According to Investopedia, an online financial encyclopedia and news site, an opinion statement from an independent auditor summarizes an entities adherence to the generally accepted accounting principles used by bond rating companies and investors to rate the risk involved with investing with individual entities, such as cities or municipalities. There are three potential opinions an auditor can give.

Generally, an audited entity would aim for an unqualified opinion, which means the auditor could find no material misstatements in the city’s financial records and the effectiveness of its internal procedures passes inspection. A qualified opinion would show notable, but correctable deficiencies in an entity’s reporting, while an adverse opinion would find gross and pervasive misstatements that could be indicative of fraud.

A disclaimer of opinion does not count as an opinion and indicates that the auditor was not provided enough information to do anything other than distance itself from providing an opinion, which is usually considered a harsh stance for an auditor to take, though not as harsh as an adverse opinion.

In addition to working on the 2019-20 audit, Chestler noted during the meeting Tuesday that staff from the city will be working with Merina+Co and the city of Florence in the near future to acquire the necessary financial software to best serve the city’s financial reporting needs moving forward.

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