KRS 91A.040: Annual and biennial city audits -- Exemption -- Agreed-upon procedures

engagement -- Financial statement -- Publication -- Contents -- Enforcement

action -- Penalties -- Extension -- Withholding of state funds for

noncompliance -- Audit expenses to be billed to audited city.

(1) Except as provided in subsections (2) and (3) of this section and KRS 91A.044,

each city shall, after the close of each fiscal year, cause each fund of the city to be

audited by the Auditor of Public Accounts or a certified public accountant. The

audit shall be completed by March 1 immediately following the fiscal year being

audited. The city shall forward an electronic copy of the audit report to the

Department for Local Government for information purposes by no later than April 1

immediately following the fiscal year being audited.

(2) In lieu of the annual audit requirements in subsection (1) of this section, a city with

a population equal to or less than three thousand (3,000) based upon the most recent

federal d ecennial census may elect to have an audit performed every other fiscal

year in the following manner:

(a) For a city that is not performing an agreed -upon procedures engagement

under KRS 91A.044, after the close of each odd-numbered fiscal year, the city

shall for that odd -numbered year cause each fund of the city to be audited by

the Auditor of Public Accounts or a certified public accountant. The audits

shall be completed by March 1 immediately following the fiscal year to be

audited. The city shall forwa rd an electronic copy of the audit report to the

Department for Local Government for information purposes by no later than

April 1 immediately following the fiscal year being audited; and

(b) After the close of each even -numbered fiscal year, the city shal l not be

required to complete an annual audit but shall forward an electronic copy of

its financial statement prepared in accordance with KRS 424.220 to the

Department for Local Government by no later than October 1 immediately

following the close of the even-numbered fiscal year.

(3) Any city, which for any fiscal year receives and expends, from all sources and for

all purposes, less than five hundred thousand dollars ($500,000), and which has no

long-term debt, whether general obligation or revenue debt, shall not be required to

audit each fund of the city for that particular fiscal year. In addition, each city

exempted in accordance with this subsection shall:

(a) Annually prepare a financial statement in accordance with KRS 424.220 and

shall, not later t han October 1 following the conclusion of the fiscal year,

forward one (1) electronic copy to the Department for Local Government for

information purposes; and

(b) If exempted under this subsection for more than four (4) consecutive fiscal

years after July 1, 2022, have performed an agreed -upon procedures

engagement covering the fifth fiscal year in which the city qualified for an

exemption under this subsection. An agreed -upon procedures engagement

required under this paragraph shall be completed in accord ance with KRS

91A.044(3) to (9) and any other requirements established by the Auditor of

Public Accounts through the promulgation of administrative regulations in

accordance with KRS Chapter 13A.

(4) If a city is required by another provision of law to audit its funds more frequently or

more stringently than is required by this section, the city shall also comply with the

provisions of that law.

(5) The Department for Local Government shall, upon request, make available

electronic copies of the audit repor ts and financial statements received by it under

subsections (1) to (3) of this section to the Legislative Research Commission to be

used for the purposes of KRS 6.955 to 6.975 or to the Auditor of Public Accounts.

(6) Each city required to conduct an audi t under subsection (1) or (2) of this section

shall enter into a written contract with an auditor, who shall be a certified public

accountant or the Auditor of Public Accounts. The contract shall set forth all terms

and conditions of the agreement which sh all include but not be limited to

requirements that:

(a) The auditor be employed to examine the basic financial statements, which

shall include the financial statements prepared in accordance with the basis of

accounting used by the city;

(b) The auditor shall include in the city audit report an examination of l ocal

government economic assistance funds granted to the city under KRS 42.450

to 42.495. The auditor shall include a certification with the audit report that

the funds were expended for the purpose intended;

(c) All audit information be prepared in accord ance with generally accepted

governmental auditing standards which include tests of the accounting records

and auditing procedures considered necessary in the circumstances. Where the

audit is to cover the use of state or federal funds, appropriate state o r federal

guidelines shall be utilized;

(d) The auditor shall prepare a printed report embodying:

1. The basic financial statements and accompanying supplemental and

required supplemental information;

2. The auditor's opinion on the basic financial stateme nts or reasons why

an opinion cannot be expressed; and

3. Findings required to be reported as a result of the audit;

(e) The completed audit and all accompanying documentation shall be presented

to the city legislative body at a regular or special meeting; and

(f) Any contract with a certified public accountant for an audit shall provide that

the Auditor of Public Accounts shall have the right to review the certified

public accountant's work papers upon request.

(7) A copy of an audit report which meets th e requirements of this section shall be

considered satisfactory and final in meeting any official request to a city for

financial data, except for statutory or judicial requirements, or requirements of the

Legislative Research Commission necessary to carry out the purposes of KRS 6.955

to 6.975.

(8) Each city shall, within thirty (30) days after the presentation of an audit to the city

legislative body, publish an advertisement in accordance with KRS Chapter 424

containing:

(a) The auditor's opinion letter;

(b) A budget-to-actual comparison schedule for the general fund;

(c) A statement that a copy of the complete audit report, including financial

statements and supplemental information, is on file at city hall and is available

for public inspection during normal business hours;

(d) A statement that any citizen may obtain from city hall a copy of the complete

audit report, including financial statements and supplemental information, for

his or her personal use; and

(e) A statement which notifies citizens requ esting a personal copy of the city

audit report that they will be charged for duplication costs at a rate that shall

not exceed twenty-five cents ($0.25) per page.

(9) Any resident of the city or owner of real property within the city may bring an

action in the Circuit Court to enforce the provisions of this section. Any person who

violates any provision of this section shall be fined not less than fifty dollars ($50)

nor more than five hundred dollars ($500). In addition, any officer who fails to

comply with any of the provisions of this section shall, for each failure, be subject

to a forfeiture of not less than fifty dollars ($50) nor more than five hundred dollars

($500), in the discretion of the court, which may be recovered only once in a civil

action brought by any resident of the city or owner of real property within the city.

The costs of all proceedings, including a reasonable fee for the attorney of the

resident or property owner bringing the action, shall be assessed against the

unsuccessful party.

(10) In the event of extenuating circumstances that prevent a city from completing and

submitting a required audit or financial statement in compliance with the applicable

deadlines in subsections (1) to (3) of this section, the city may submit a written

request for an extension of time to the Department for Local Government on a form

prescribed by the Department for Local Government. The Department for Local

Government shall approve the request if, in the judgment of the Department for

Local Government, the request is warranted by extenuating circumstances beyond

the control of the city or other factors that justify the city's noncompliance with the

required deadlines. The Department for Local Government may consider any

evidence it deems appropriate, inc luding but not limited to proof of the city's

progress towards compliance. Extensions granted under this subsection shall not

exceed eighteen (18) months from the original due date of the audit or financial

statement. If the Department for Local Government approves an extension for a city

and the city fails to complete and submit the required audit or financial statement in

compliance with that extended deadline, then the provisions of subsection (11) of

this section shall apply.

(11) If a city fails to com plete an audit or financial statement and submit it to the

Department for Local Government as required in subsections (1) to (3) and (10) of

this section, the Department for Local Government shall notify the Finance and

Administration Cabinet that the city has failed to comply with the audit

requirements of this section and that any funds in the possession of any agency,

entity, or branch of state government shall be withheld from the city until further

notice. The Department for Local Government shall immediately notify the Finance

and Administration Cabinet when the city complies with the requirements of

subsections (1) to (3) and (10) of this section for all prior fiscal years it has failed to

comply with the audit requirements of this section, and the Fi nance and

Administration Cabinet shall direct the reinstatement of payments to the city,

including any funds that were withheld due to the noncompliance. This subsection

shall not be interpreted or construed to permit the state to withhold any

nondiscretionary payments to a city that are due the city for the provision of

services by the city to the state or any of its agencies, including for the use of city

utilities.

(12) Within a reasonable time after the completion of a special audit or examination

conducted pursuant to KRS 43.050, the Auditor shall bill the city for the actual

expense of the audit or examination conducted. The actual expense shall include the

hours of work performed on the audit or examination as well as reasonable

associated costs, including but not limited to travel costs. The bill submitted to the

city shall include a statement of the hourly rate, total hours, and total costs for the

entire audit or examination.

(13) A city shall provide a copy of any audit report completed pursuant to this section to

the Auditor of Public Accounts upon request.