Audit of Southfield Redevelopment Authority Objectives, Scope, and Methodology

An explanation of what the Southfield Redevelopment Authority audit examined and how it was conducted.

Overview

In accordance with Section 12 of Chapter 11 of the Massachusetts General Laws, the Office of the State Auditor has conducted a performance audit of certain activities of the Southfield Redevelopment Authority (SRA) for the period July 1, 2014 through December 31, 2016. In the area of SRA’s solvency, we extended our review to include certain documents dated through June 30, 2017.

We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Below is a list of our audit objectives, indicating each question we intended our audit to answer; the conclusion we reached regarding each objective; and, if applicable, where each objective is discussed in the audit findings.

Objective	Conclusion
Has SRA taken the appropriate corrective actions on audit findings and recommendations from the prior audit report in the following areas?
improving its board of directors’ oversight of agency management	Partially; see Other Matters
improving internal controls over the procurement of services	Yes
publishing and filing its annual financial audit as required by Section 31 of Chapter 291 of the Acts of 2014	No; see Finding 2
Has SRA taken the appropriate steps to ensure its financial solvency?	No; see Finding 1

To achieve our objectives, we gained an understanding of the internal controls over SRA’s activities related to budgeting, revenue, and expenditures that we deemed significant to our audit objectives, and we evaluated the design and tested the effectiveness of those controls.

We also performed the following audit procedures.

• We assessed the adequacy of the oversight provided by SRA’s board by interviewing SRA employees and board members and reviewing board minutes.
• We tested 35 out of 802 payments processed during the audit period to determine whether they were for project-related expenses and approved by the SRA board and whether payments agreed to amounts billed. 
• We tested 10 out of 57 payments to vendors who were paid more than $4,000 during our audit period to ensure that procedures in place for managing procurements were working as planned. Our test also served to follow up on the prior audit finding related to the procurement of legal and consultant expenditures.
• We obtained copies of all key documents that were required to be updated under the 2014 legislation (e.g., the Tax Plan, Bond Indenture Certificate of Trustee, Redevelopment Plan, Second Amendment to the Amended and Restated Memorandum of Agreement on Financing for the Parkway, Parkway Phase Two Financing Agreement, and Amended Zoning By-Laws and Regulations) to confirm that all key documents required by the new law were updated and submitted as required by Section 19 of Chapter 291.
• We reviewed the approved budgets for fiscal years 2015, 2016, and 2017 to determine whether SRA had adequate funding to cover its annual operating costs of approximately $1 million, in addition to required annual debt payments of approximately $1.1 million. We also reviewed SRA’s audited financial statements for fiscal years 2015 and 2016. Additionally, we reviewed SRA’s annual reports of operational activities for fiscal years 2015, 2016, and 2017 to gain an understanding of the progress and development work completed for the period under audit.
• We reviewed the Disposition and Development Agreements (DDAs) that were in effect during the audit period, as well as the third amended DDA, signed June 30, 2017.
• We reviewed SRA’s outstanding accounts receivable as of the end of the audit period, identified customers with the largest balances, prepared an aging schedule (a list of accounts-receivable balances based on due dates), and followed up on any receivable balances that had been outstanding 90 days or longer to determine their collectability.
• We tested 25 out of 302 customer billings to determine whether customers were accurately billed and whether adequate documentation supporting the billings was attached.
• We examined all six invoices (for entitlement fees¹) billed to the master developer, SRA’s largest account, during the audit period to determine whether invoices were accurate and supported by appropriate documentation and whether the revenue was recorded in the proper accounts.
• We performed analytical procedures to identify unusual trends for consideration when designing our testing.

Where sampling was used, we used nonstatistical judgmental samples; accordingly, we could not project the results of our tests to the entire population.

We performed various document inspection procedures on spreadsheets SRA provided to us to determine whether the information on the spreadsheets was complete and accurate. We selected 10 payments from bank statements and traced them back to SRA records to ensure agreement with the general ledger and board-approved check warrants. Our data reliability assessment of SRA’s proprietary general ledger accounting system determined that the information obtained from SRA’s accounting software was sufficiently reliable for the purposes of our audit work.

1. Entitlement fees are amounts paid to SRA by the master developer for development permits issued by SRA.

Date published:	July 1, 2014