BY CHARLES McCLURE
news@ltveiw.com
The Lakeway Municipal Water District received a clean audit from Rick C. Reed and Company during its regular meeting last Wednesday.

 ”We have audited the LMUD for the year 2008,” said auditor Steve Lee. “Our job is to state an opinion on this audit. We conducted our audit based on accepted auditing standards in the U.S. Those standards ascertain a reasonable assurance as to whether the financial records are free of material misstatements.”
Lee said LMUD’s books were “in accordance with accepted accounting principles,” including debt service and LMUD’s various accounts.
Board secretary Jerry Hietpas was curious about the overall fiscal health of LMUD, given the challenging economy.
“As your independent auditor, we focus on whether or not there are any material misstatements or errors in your financial statements,” Lee said. “Where that is concerned, you are fine. I think what you are asking is not what we do. That is a performance or proficiency audit, which is something completely different.”
However, Lee said he thought LMUD’s financial situation “was fine.”
“A performance or proficiency audit will tell you how much bang for your buck you are getting,” Lee said. “But that is not what we do.”
Board president Tom Rogers pointed out that LMUD’s credit rating was AAA.
“We are probably one of the top 10 MUDs in the state, as far as credit rating is concerned,” Rogers said. “That is done by Moody’s Investment Services out of New York. I have a lot of faith in that.”
Attorney, Mike Willatt, said LMUD is “one of the most respected MUDs in the state.”
Kay Andrews has expressed concerns with some operational procedures at LMUD and challenged the veracity of the audit.
“There are many things I am concerned about with the level of our audit,” Andrews said. “I am not sure that I agree with Mike [Willatt].”
Andrews questioned whether LMUD’s audit was in accordance with a new law, Rule 112, intended to prevent the type of corruption that occurred when ENRON went bankrupt several years ago. Lee said the audit had been conducted under the new law and closely scrutinized internal controls.
“What level of audit would cover Rule 112,” Andrews said.
“What do you mean by that?” Lee said.
“You said we used the lowest level of audit,” Andrews said.
“No,” Lee said. “What I said is that there are different types of audits. If you are saying that you can have an audit at a higher level, I don’t think you can. What you may be asking might not even require an auditor, but a consultant to measure performance. When people say you are getting an audit, that is exactly what you got.”
“I just think that the one statement that you have in the overview, that we have ‘effective management and board of directors’ effectively monitoring and controlling expenses,’ I really don’t feel we have the internal controls that other MUDs have,” Andrews said. “And so we would need a performance audit to show that?”
“I don’t know how to reply to that,” Lee said, but he reiterated his firm’s opinion that LMUD’s accounting practices are within acceptable parameters. He said the LMUD had met its Management Discussion and Analysis (MDA), a statement by the auditor that is required by law.
Rogers said the board had conducted an MDA a four years ago, just after accounting laws changed.
Andrews said she believed the MDA should be discussed by board members.
“I would like to understand it,” she told Rogers.
Rogers said the MDA would have to be discussed when LMUD closed out its fiscal year.
“I don’t have any problem with that,” Rogers said. “If you want to edit it, fine.”
Andrews said there were other members of the public that would like to ask questions of the audit that could not attend. The board meeting was moved to a different date this month.
“Why did you want more time to work on this [the audit]?” Andrews asked of LMUD staff.
“That wasn’t the issue,” Rogers replied. “Margaret [Cathey, LMUD's Finance and Administration Manager] was out of town.”
Andrews continued to quiz Lee about her concerns over Rule 112, noting she did not believe the auditor had met the requirement, including use of gas, trucks, selling of surplus equipment and other concerns. She then asked if Rick C. Reed and Company audited any other MUDs.
Lee said auditing principles are the same, regardless of entity, but in fact the firm did audit similar agencies.
Hietpas asked Lee if LMUD was in compliance with Rule 112. Lee again affirmed the audit was in compliance.
“But Kay [Andrews] thinks we are not?” Hietpas said. “Is that what we are saying here?”
Andrews said she had a long list of issues with the audit.
“But what you are saying is very serious – that our auditor has not lived up to what we are paying him for?” Hietpas said.
“I’m not an auditor,” Andrews said.
“I know, and that is why I am saying this, because you are so limited in what this is about,” Hietpas stated. “Do you think we need to get another auditor?”
The questioning continued until board members forced a floor vote, which passed with only Andrews dissenting.