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Deficits and other accounting conditions have raised some red flags for the City of Portsmouth, and as a result, Auditor of State Dave Yost today declared the city to be in a state of fiscal caution.

“Portsmouth is the perfect example for why we created the fiscal caution designation,” Auditor Yost said.  “We are concerned about the city’s financial condition and trust, with this early notice, city officials will take the necessary steps to bring Portsmouth back to fiscal health.”

The declaration of fiscal caution is based on the city’s 2010 audited financial statements.  The audit report disclosed that the city’s general fund had a deficit fund balance of $530,043 at December 31, 2010.  The city’s municipal court grants and rural AIDS state grant special revenue had deficit fund balances of $9,482 and $10,332, respectively.

In addition to deficit fund balances, the city’s audit report included direct and material noncompliance with Ohio laws.  The city also must update a cost allocation plan used for allocating general fund costs to other funds and has consistently not certified the availability of funds prior to making commitments.  In addition, Portsmouth’s insurance fund is owed $426,000 by other city funds.

The city also must correct a practice of appropriating more for expenditures than available resources in the general fund.  In 2010, the city appropriated approximately $10,500,000 with only $9,600,000 in available resources.

Under the declaration and under Revised Code 118.025, the city has 60 days to submit to the Auditor of State a plan to correct the budgetary conditions that led to the declaration of fiscal caution, including eliminating deficit fund balances.

The authority to declare a state of fiscal caution for municipalities was established through the course of Ohio’s biennial budget passed earlier this year.  Auditor Yost believes that, rather than through sudden declarations of fiscal watch and emergency, local governments should be provided with earlier notice of financial concerns.  Instead, these political subdivisions should have access to the same tool provided for school districts, allowing a declaration of fiscal caution. Under fiscal caution, the subdivision has an opportunity to make adjustments to avoid a declaration of fiscal watch or emergency.

Guidelines for declaring fiscal caution, as well as the Portsmouth declaration of fiscal caution, can be accessed online at www.auditor.state.oh.us.

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The Auditor of State’s office, one of five independently elected statewide offices in Ohio, is responsible for auditing more than 5,600 state and local government agencies.  Under the direction of Auditor Dave Yost, the office also provides financial services to local governments, investigates and prevents fraud in public agencies and promotes transparency in government.