Cash Basis Financial Reporting-Update

The following is an update from the Illinois CPA Society Government Relations office on the Office of the Comptroller’s Local Government Division’s acceptance of audited financial statements. Our office continues to receive many calls from interested practitioners and therefore felt it was a good time to distribute an update. The Illinois CPA Society Government Relations staff continues to work with the Comptroller’s staff, legislators, legislative staff, and other stakeholder organizations to provide a remedy to the Comptroller’s change of practice.

During the second week of veto session, the House Government Transparency Committee held a subject matter hearing on House Bill 4104 which definitively clarifies the Municipal Audit Act to provide for municipal governments to use cash basis accounting.  After hearing testimony from the Comptroller’s Local Government Division, Committee Chair Representative Stephanie Kifowit stated that the Comptroller’s office should work with stakeholder organizations to resolve the issue or the legislation would be considered when the House resumes in January. Senator Dale Righter introduced companion legislation in the Senate, SB 2258.  It should be noted that during testimony by members of the Comptroller’s staff, legislators asked specific questions on the impact that this change of practice would have on municipal governments. 

Yesterday I was included in a panel discussion with the Comptroller’s staff before the Illinois Association of County Board Members Annual Meeting. There were extensive questions from the county board members on the fiscal impact of this change in policy as well as the short timetable to transition to accrual based accounting. The Comptroller’s staff, while acknowledging the transitional costs, recognized that the timeframe for implementation may need to be pushed back beyond FY 19.  
The issue was also raised of audits being categorized as non-compliant on the Comptroller’s website and the impact that non-compliance would have on receipt of federal grant money. It was recognized that this could prevent units of local government from receiving federal grant money and that the Comptroller’s office would have to revisit the categorization of cash basis audits received. Lastly, county board members asked about reporting of late state payments and how the Comptroller’s office would like late payments from the State of Illinois to be recorded on the financial statements. There was no answer to that issue. 

Lastly, county board members asked the Comptroller’s staff that, if the basis of their change in practice was to enforce the law, why do they not change the law to allow for the continuation of cash basis accounting. It was stated that the Comptroller’s office does not initiate legislation of this nature.

My sense is that the Comptroller’s staff continues to hear the unintended consequences of this change of practice and is realizing that the conversion to accrual based accounting is not an easy undertaking.  
There seems to be some flexibility by the Comptroller of extending the deadline beyond FY 2019.  
There is also emphasis on a legislative remedy to the change in policy. HB 4104 and SB 2258 address the Illinois Municipal Audit Act only. These bills could be amended to include county government and other units of local government. The House returns on January 23rd and the Senate on January 30th. I suspect that legislative remedies to this issue will be at the forefront of the legislature’s agenda.
There is a pending opinion request of the Attorney General to interpret the Illinois Municipal Audit Act. While an opinion from the Attorney General would provide persuasive precedent to move forward, my sense is that the legislative remedy will come before the AG’s Opinion.

We will continue to keep you informed of further developments.  

Vice President Government Relations, Illinois CPA Society
524 South Second Street, Suite 504, Springfield, Illinois  62701
Phone: 217.789. 7914|  Fax: 217.789.7924
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