Bonds

MSRB report confirms audit delay increase

The average time municipal issuers take to submit their audited financials to the Municipal Securities Rulemaking Board has been steadily rising since 2018 and for 2023 has reached its highest ever recorded by the board at 209 days.

“The 2024 study reveals that the average length of time audited financial statements were submitted to the MSRB following the end of the issuer’s fiscal year increased slightly between 2018 and 2023,” said John Bagley, chief market structure officer at the MSRB. “Meanwhile, the average length of time annual financial/operating data were submitted to the MSRB decreased a bit.”

But the incremental increase, up from 197 days in 2018 still might not be giving off enough smoke to make analysts concerned. The MSRB’s report also follows the other recent reports pointing to the same trend other analysts have recently started pointing to.

“The concept of disclosure is not at the top of everyone’s mind,” Kozlik said. “I think that the point the MSRB is making is that the numbers have increased, albeit very very slightly,” said Tom Kozlik, head of public policy and municipal strategy Hilltop Securities. 

Hilltop Securities

Tom Kozlik, head of public policy and municipal strategy at Hilltop Securities, told the Bond Buyer that despite the incremental rise, the trend so far has had no market impact and in recent survey conducted by Hilltop, disclosure ranked 16th in its polling of the most important market trends influencing the muni market as of April 2024.

“The concept of disclosure is not at the top of everyone’s mind,” Kozlik said. “I think that the point the MSRB is making is that the numbers have increased, albeit very very slightly.”

Kozlik also added that even during the intense COVID years of 2020 and 2021, where there were real market concerns and a great deal of uncertainty, disclosure was not among the top issues being discussed. 

The MSRB report also notes that the average number of days between document receipt date and end of the fiscal year has been steadily decreasing, coming in at 262 days in 2023, down from 310 days in 2018. The report also highlights in a similar table the average length of time between the end of the fiscal year and the date on which annual financial information for such fiscal year was submitted to and made publicly available on EMMA, following a similar downward trend with 2014 being a large outlier.

“The increase in the number of days for annual financial statements in 2014 coincides with a significant increase in the number of annual submissions in the second half of the year due to issuers and underwriters participating in the SEC’s MCDC initiative,” the MSRB said. For the larger figures today, the MSRB points to another cause that could be responsible.

“One potential explanation for the recent growing length of time for audited financial documents could be a shortage of government finance officers,” the MSRB said. “Retirements, the rise of contract workers and decreasing numbers of college accounting majors have resulted in a supply and demand imbalance.”

That conclusion follows reports that have come out about staffing issues and talent resources at municipal issuers’ disposal. Emily Brock, director of the federal liaison center for the Government Finance Officers Association said that conclusion gets to the heart of the matter at hand but the report doesn’t necessarily flesh out the details of it.

“If you look at it, you see a period of time where there’s increased audit in a time where states and local governments received about $5 trillion dollars of federal funds,” Brock said. “That’s going to take more time.”

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