Inter-fund loan question clouds county audit

SANDPOINT — Bonner County officials are working to refine declarations in the county’s external financial audit amid a haze of uncertainty over whether a pair of million-dollar loans were illegal.

Commissioners transferred $1.6 million in 2011 and $1.5 million in 2012 from the county’s solid waste fund to help pay for a new juvenile detention facility and the overhaul of the courthouse.

There was no question about their permissibility when the inter-fund transfers were effected. Such transfers are common throughout the state and their legality was vetted through various legal counsels.

“These were made in good faith. We had attorneys — more than one — give us opinions at the time that the loans were appropriate,” Commission Chairman Cary Kelly said.

Since then, however, the county’s bond counsel on the courthouse remodel financing concluded that such transfers were contrary to state law. The county sought a 1st District Court judge’s confirmation about the legality of such loans, but the court appeared to sidestep the question.

Although Commissioner Mike Nielsen signed off on the inter-fund loans when they were made, he’s adopted the bond counsel’s opinion that the loans are patently illegal under Idaho Code.

Nielsen’s line in the sand on the issue extends to the external audit, a certification that the county’s finances and financial practices are sound. But the uncertainty regarding the legality of inter-fund transfers raised concerns that the county’s external auditor,  DeCoria Maichel & Teague, might be compelled to issue a qualified opinion on the audit.

A qualified opinion on an audit could scare off future lenders or drive up interest rates on future loans.

“It was my understanding that you would have to issue a qualified audit for 15 years because these loans are for 15 years and I really would like to avoid that,” Nielsen said during a teleconference with DM-T officials on Tuesday.

Mike DeCoria said he didn’t recall framing things in such stark terms, but admitted that the uncertainty could lead to a qualified opinion.

DeCoria suggested the county could avoid a qualified opinion by inserting a lengthy footnote in the audit exhaustively outlining the entire saga and potential ramifications of the loans. An “emphasis of matter” paragraph could also be included, which further underscores the uncertainty issue.

Commissioner Joyce Broadsword questioned DM-T officials whether there was any real difference between the county borrowing the money from itself and paying it back versus a traditional bank loan.

“A loan’s a loan. It doesn’t matter where you borrowed it from as long as you know you have to pay it back and you have that obligation outlined in your financials.

DeCoria disagreed, pointing out that one method is legal and the other is potentially illegal.

But there is still deep disagreement whether the loans are in fact illegal because a court has yet to expressly say so.

Treasurer Cheryl Piehl and Clerk Marie Scott are unconvinced the loans are illegal and emphasized that they were done in the open with the taxpayers’ best interest in mind. The two loans’ interest rates are 0.20 and 0.30 percent.

“They were doing it with the best legal advice they had at that moment in time,” said Scott.