Numbered Letter 2023-1 (2023-1) was recently issued by the Michigan Department of Treasury (Treasury), Local Audit and Finance Division of the Bureau of Local Government and School Services. The Numbered Letter provides guidance on Sinking Fund and Bond Fund audits and went into effect on November 2, 2023, and is applicable starting with fiscal years ending June 30, 2024. The new Numbered Letter replaces Bulletin 7 and Numbered Letter 2004-4. Overall, 2023-1 includes statutory changes made to Sinking Funds resulting from Public Act 26 of 2023, additional changes related to submitting Bonded Construction Fund Audits, and creates a single source of information.
Bonded Construction Fund Audits (Bond Audit) – Major Changes
Deadline: The first change comes in the filing and completion dates for the Bond Audit. The completion date for audit is now the later of June 30 immediately following the date of the Certificate of Substantial Completion, or June 30 immediately following the date when 95% or more of the bond proceeds have been expended. Also, school districts no longer need to formally request an audit extension from Treasury as they are to follow the above deadlines.
Options for filing: There are still two options for filing the Bond Audits. They can be completed on either an annual basis or a cumulative basis after the completion date. A separate audit opinion for the Bond Audit is not expected, as all school districts in Michigan must be audited following Government Auditing Standards; therefore, the report letters issued by the auditor with the financial statements meet the reporting requirement for the Bond Audit.
Submission: A certification letter will be submitted to Treasury no later than November 1. If the bond is audited on an annual basis, the certification letter should be submitted annually. If the bond is audited cumulatively (at the end of bond spending), the certification letter will be submitted only in the final year. Specific filing requirements and step-by-step instructions are included in 2023-1.
The Bond Audit will now be submitted as part of the school district’s annual audited financial statements to Michigan Department of Education. This will satisfy the requirement to file the Bond Audit with Treasury. This change is included in 2023-1; Treasury will no longer accept Bond Audits, and they may only be submitted as noted above.
Other Auditors: If the audit firm that does the compliance testing differs from the firm auditing the annual financial statements, the bond auditors will provide a compliance testing letter to be included in the submission. Details to be included in this letter are included in 2023-1.
Bond Series: 2023-1 states that Bond Audits may combine more than one series of bonds if the series being audited were for the same project. Specifically, the “same project” would include everything approved at a single election. In recent years, it has become more common to see several series approved at one time (single election). This is a significant change from prior Treasury guidelines. Now, school districts no longer need to formally request approval from Treasury to combine more than one series into a Bond Audit.
Audit of Sinking Funds – Major Changes
Allowable Costs: Public Act 26 of 2023 related to Sinking Funds was effective May 8, 2023. This most recent change affected allowable costs for Sinking Funds by adding vehicles including trucks, vans, and buses to the allowable costs group. There was a change in 2017 to include security improvements and technology costs as allowable, both of which are still allowable under the new guidance.
Reporting: Sinking Funds have different allowable uses depending on the date they were authorized: 1) before March 29, 2017; 2) between March 29, 2017, and May 7, 2023; and 3) after May 7, 2023. If your school district has multiple sinking funds, they should not be commingled. Each fund must be accounted for separately in the audited financial statements.
Bond & Sinking Fund Audits
Both funds require specific disclosures, which are included in 2023-1.
Please refer to Numbered Letter 2023-1 and contact Yeo & Yeo’s Education Services Group if you have questions.