Investor Relations

Most Municipal Audits Still Slow, Despite Push for Timely Transparency


In the corporate bond market, the Securities and Exchange Commission (SEC) requires that annual audit reports be submitted within 60 to 90 days of the close of the fiscal year.  While the Municipal Securities Rulemaking Board (MSRB) has said that it would like to have municipal issuers submit financial audits to its Electronic Municipal Market Access (EMMA) system within 120 days of the close of the fiscal year, no enforcement policies are currently in place.

Despite this increasing push for timely financial transparency, municipal borrowers do not appear to be completing their financial audits with any increased urgency, according to the third annual Merritt Research Services analysis of municipal audit turnaround time. In 2011, the average turnaround time between the end of a municipal issuer’s fiscal year and the completion of its audit was 145 days, showing little change from the findings of past years’ studies.

“Timely financial reporting can make a difference in warning investors, as well as taxpayers, about potential credit vulnerabilities, and can also clarify credit standing in cases where distress has already been identified,” said Richard Ciccarone, President and Chief Executive Officer of Merritt Research Services. “The importance of receiving timely credit information in the municipal bond market was reinforced over the past year by bankruptcy or default concerns related to a small but significant number of highly publicized cities that have been in the headlines.”

“Timely financial reporting can make a difference in warning investors, as well as taxpayers, about potential credit vulnerabilities, and can also clarify credit standing in cases where distress has already been identified …”

The study found a wide variance in audit completion time among sectors, and among individual issuers. Wholesale electric entities were the fastest to complete their audits, with a median reporting time of 107 days followed by not-for-profit hospitals (110 days), and private higher education institutions (113 days). On the flip side, borrowers in the states and territories sector were the slowest to complete their audits, with a median completion time of 183 days.

Syracuse University received special recognition for its consistently timely reporting; in 2011, its audit was completed within 28 days of the close of its fiscal year. Syracuse University has completed its annual report and independent audit within a range of 27 to 37 days in each of the last five years. Ciccarone said, “It’s a fine statement when an academic institution teaches a best practice by its reliable example.”

Merritt Research Services is an independent municipal bond data and research company based in Hiawatha, Iowa. Merritt conducted its first analysis of audit timing in 2010.

For a complete copy of this year’s audit timing study, entitled New, Expanded Municipal Audit Timing Study Shows Little Change from Previous Years, please contact Mardee Handler.

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