Fire Districts

The Governmental Practice Group of Freed Maxick CPAs works with Fire Districts in Western New York to help meet the recent legislative auditing requirements mandated by New York State.

The source for the following information is from the New York State Office of the State Comptroller.

The new law phases in the audit requirements for fire districts over a three-year period. For fire districts with revenues of $1 million or more (excluding bond/note proceeds), the audit requirements begin for the fiscal year ending in 2006. Districts with revenues over $500,000 but less than $1 million will be required to obtain an audit for fiscal year ending in 2007. Districts with revenues between $200,000 and $500,000 must obtain an audit for the fiscal year ending in 2008. The cost of obtaining this audit is excluded from the district’s spending limit. Those districts with less than $200,000 in revenues are not required to obtain an independent audit, but they are required to report to OSC the district’s financial condition and resources for the fiscal year ending in 2006 and other such things as designated by the State Comptroller.

All fire district audits must be conducted in accordance with standards applicable to financial audits prescribed in the Government Auditing Standards issued by the Comptroller General of the United States. Beginning January 1, 2007, all districts must use a request for proposals (RFP) process when contracting for annual audits. OSC strongly encourages districts to begin using an RFP process immediately, and will be providing districts with an RFP template in the near future to assist them. Beginning January 1, 2007, no audit contract may be for a term exceeding five consecutive years.

Districts without an existing multi-year contract must issue an RFP before signing a new audit contract. If a district has an existing multi-year contract for a fixed term, it may continue to obtain audits under that contract for the duration of its term without issuing an RFP, but the district must issue an RFP upon expiration of the contract. A district may permit an auditor that is engaged under an existing contract to submit a proposal and can award the new contract to that auditor. However, boards should consider the appropriateness of changing the audit firm or partner to ensure independence and provide a fresh financial perspective.

OSC does not mandate local governments to fulfill their statutory filing requirement in accordance with Generally Accepted Accounting Principles (GAAP) and will continue to accept the annual financial reports with fund level statements in accordance with the USA. To minimize the costs associated with complying with these new audit requirements, districts that prepare their financial statements in conformity with the USA, an other comprehensive basis of accounting (OCBOA) prescribed by OSC, may be audited in accordance with Statement of Auditing Standards No. 62 to meet this new auditing requirement.

Districts that have adopted GAAP financial reporting may continue to have their GAAP financial statements audited. The new law requires all audit reports to be sent to OSC within 180 days following the end of the fiscal year. Districts are also required to prepare a corrective action plan within 90 days in response to any findings contained in the annual external audit report or management letter, or any audit report issued by OSC.

Fire District Audit Frequently Asked Questions (FAQ)

Which fire districts are required to obtain independent audits?

Fire districts with annual revenues of $200,000 or more will be required to obtain an independent annual audit. The audit must include, but is not limited to, the district’s financial conditions and resources, and such other things as the State Comptroller may designate. A copy of the audit must be given to the fire commissioners, the town board(s) of municipalities served by the fire district and the Office of the State Comptroller (OSC) within 180 days of the end of the fiscal year audited.

Those districts with less than $200,000 in annual revenues are not required to obtain an independent audit but will need to report on the district’s financial condition and resources and such other things as designated by OSC in 2007 for fiscal year ended 2006.

When does this new requirement take effect?

The new law phases in the audit requirements for fire districts over a three-year period. For fire districts with annual revenues of $1 million or more, the audit requirements begin in 2007 for fiscal year ended 2006. Districts with annual revenues over $500,000 but less than $1 million will be required to obtain an audit beginning in 2008 for fiscal year ended 2007. Districts with revenues between $200,000 and $500,000 must obtain an audit beginning in 2009 for fiscal year ended 2008.

How should the district go about hiring an auditor?

Effective January 1, 2007 districts will be required to use a request for proposals (RFP) for soliciting proposals to provide the annual audit. The RFP must be used at least every five years beginning with the first audit or, for those with multiyear contracts in place, the first year after the conclusion of the current contract. OSC provided districts with a model RFP. The cost of the independent annual audit is excluded from a fire district’s spending limit.

Are smaller fire districts also required to have independent audits?

No. Fire districts with annual revenues of less than $200,000 are authorized to obtain independent audits, but are not required to do so. However, the new law requires these smaller fire districts to report to OSC the district’s financial condition and resources within 180 days after the end of the fiscal year, unless OSC determines that the report is not required. Because all fire districts with annual revenues less than $200,000 already provide OSC with information on their financial condition and resources through the filing of the Annual Update Document (AUD), OSC has determined that the filing of the AUD satisfies this requirement.

What kind of audit is required of fire districts?

All fire district audits must be conducted in accordance with standards applicable to financial audits prescribed in the Government Auditing Standards (GAS) issued by the Comptroller General of the United States. OSC does not require that local governments fulfill their statutory filing requirements in accordance with Generally Accepted Accounting Principles (GAAP) and will continue to accept the annual financial reports with fund level statements in accordance with the Uniform System of Accounts (USA).

To minimize costs associated with compliance with these new audit requirements, districts that prepare their financial statements in conformity with the USA, an Other Comprehensive Basis of Accounting (OCBOA) prescribed by OSC may be audited in accordance with the Statement on Auditing Standards No. 62 (SAS 62). Those districts that have adopted GAAP reporting should continue to have their statements audited in accordance with GAAP.

What reports must be submitted with the audit?

Audits of Financial Statements Prepared in Accordance with GAAP. Following completion of the audit of the fiscal year’s financial statements, the auditor shall issue:

1. Independent Auditor’s Report
2. Management Discussion and Analysis
3. Basic Financial Statements
4. Fund Financial Statements
5. Required Supplemental Information
6. Supplemental Information
7. Report on Compliance and on Internal Control Over Financial Reporting and Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with GAS
8. Such other things as designated by OSC, including district responses to the Fire District Questionnaire to be filed as part of the AUD

Are fire companies required to be audited?

Starting with fiscal years ending on and after August 1, 2007, “entities” such as volunteer fire companies, which contract with municipalities or fire districts to provide fire protection services and which have revenues of more than $200,000, must obtain an annual audit of revenues and expenditures in connection with such contract or contracts. Although statute provides that OSC may designate a lesser revenue amount as an audit threshold for fire companies, OSC has not designated such an amount at this time.

The audit must indicate whether the entity has filed IRS form 990 and any report required pursuant to Section 30-a of the General Municipal Law (receipts and disbursements of foreign fire insurance tax money). If such filings are required, but not made, the audit must examine all revenues, expenditures and resources from any source. Upon completion of the audit, a certified copy must be provided to the fire company and the contracting municipality within 180 days of the end of the fiscal year.

Fire companies with annual revenues of less than $200,000 are not required to obtain an independent audit of revenues and expenditures. This threshold does not exempt them from any requirement to file IRS form 990 or the report required by Section 30-a of the General Municipal Law.

What should the audit of fire companies include?

The audit must be an examination of the revenues and expenditures in connection with such contract or contracts. The audit must indicate whether the entity has filed IRS form 990 and any report required pursuant to Section 30-a of the General Municipal Law. If such filings are required, but not made, the audit must examine all revenues, expenditures and resources from all sources.

Are fire companies required to file additional financial information with OSC?

Other than any report required by Section 30-a of the General Municipal Law (receipts and disbursements of foreign fire insurance tax money), fire companies are not required to file additional information with OSC. However, a copy of the audit report in the form prescribed by OSC and certified by the accountant must be furnished to the fire company, and each municipal corporation with which the fire company contracts, within 180 days following the end of the fiscal year audited.

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