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KY House Bill 1: Impact on Special Purpose Governmental Entities

On May 1, 2013 Kentucky Governor Steve Beshear signed House Bill 1 into effect. This bill was sponsored by Kentucky State Auditor, Adam Edelen, with a goal of bringing greater transparency to Kentucky’s special districts.

Special Purpose Governmental Entities (SPGE) are created or authorized by statute and exist to provide one or more limited service(s).  The governing boards are separate from state or local governments and have independent authority to generate public funds. Additionally, a SPGE may receive and disburse public funds. SPGE’s includes libraries, fire protection districts, sewer districts, public health taxing districts, and other similar agencies.  SPGEs are NOT cities, countries, school districts or private entities.

By March 1, 2014, the Department for Local Government (DLG) will create forms and an online reporting portal central registry, and they will also provide public access to a searchable online registry by October 1, 2014.  DLG will be responsible for collecting the following information from the SPGE:

  1. most recently adopted budget;
  2. budget to actual comparison;
  3. audit or attestation reports; and
  4. financial oversight reports.

The DLG will also collect annual filing fees, which are based on annual revenues.  The filing fees for SPGE’s will vary as follows:

  • $25 annual fee for entities with revenues less than $100,000
  • $250 annual fee for entities with revenues ranging $100,000 – $500,000
  • $500 annual fee for entities with revenues greater than $500,000

Financial Reporting and Audit Requirements

House Bill 1 also established both financial reporting and audit requirements that are to apply to the SPGEs for fiscal periods beginning on or after July 1, 2014.  The audit or attestation requirement is based on annual revenues or expenditures, as follows:

  • SPGEs with revenues or expenditures less than $100,000 are required to prepare an annual financial statement and contract for an attestation engagement once every4 years.
  • SPGEs with revenues or expenditures between $100,000 – $500,000 are required to prepare an annual financial statement and contract for an independent audit once every 4 years.
  • SPGE’s with revenues and expenditures over $500,000 are required to prepare an annual financial statement and to contract for an independent audit on an annual basis.

The audit or attestation must be performed no later than twelve months from the close of the fiscal year.  The Bill requires these engagements to conform to generally accepted government auditing or attestation standards.  It is important to note that the Bill requires SPGEs to give the public access to these reports.

The Bill establishes penalties for the failure to submit information in a timely manner or for submitting noncompliant information. The DLG will notify the SPGE within 30 days after the due date and provide the SPGE with 30 days from the date of the notice to submit the required information.  Failure to submit required information could result in state government withholding any funds due to the SPGE until the information is submitted.

All existing SPGEs must register with the DLG by December 31, 2013.  Any SPGE created after January 1, 2015 is required to register within fifteen days of its creation.  All SPGEs are required to supply the following information when registering:

  1. name, address and appointing for each board member;
  2. fiscal year;
  3. primary contact;
  4. mailing address, phone and website;
  5. listing of all taxes, fees, and charges;
  6. applicable code of ethics;
  7. listing of governmental entities with oversight authority;
  8. area the SPGE will serve; and
  9. the KRS provision used for establishing entity.

Other Requirements

Other requirements under the bill include each SPGE will become subject to the code of ethics adopted by the entity that established the SPGE or the county in which the SPGE’s principal office is located.  ; SPGE’s must adopt an annual budget and give access to the public.  An important element of the Bill is the requirement for a SPGE to  hold an open, regularly scheduled meeting ten days prior to an increase in taxes or fees.

If you have any questions about House Bill 1 and its potential impact on your special purpose governmental entity please contact me or any member of our Governmental Services Group.

Jackie Bales, CPA

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