AGO Opinion 98025

Contract for Audit of Political Subdivisions; Payment of Audit Fees
Opinion 98025

DATE: April 30, 1998

SUBJECT: Contract for Audit of Political Subdivisions; Payment of Audit Fees

REQUESTED BY: John Breslow, Auditor of Public Accounts

WRITTEN BY: Don Stenberg, Attorney General

Fredrick F. Neid, Assistant Attorney General

This is in response to your questions regarding the authority

of the Auditor of Public Accounts to contract for the performance

of audits of political subdivisions and related questions regarding

payment for the audit services.

As you have noted, it is the duty of the Auditor of Public

Accounts "to examine or cause to be examined, at the expense of the

political subdivision . . . " the financial records of political

subdivisions when examination is determined necessary by the

Auditor of Public Accounts under the provisions of Neb. Rev. Stat.

§ 84-304(3)(b) (Supp. 1997). In furtherance of the statutory

authorization, section 008 of rules and regulations of the Auditor

of Public Accounts, 42 NAC 1, states:

Should any political subdivision fail or refuse to either

cause a complete audit to be made and filed or obtain a waiver

of the audit requirement as required by state statute or

regulation, the Auditor shall have the authority, after due

notice and a hearing to show cause, to appoint a certified

public accountant or public accountant to conduct the audit of

the subdivision. The fee for such audit shall be an

obligation of the subdivision and shall become a lien against

the subdivision.

By way of background, certain political subdivisions of the

state, three townships and two fire protection districts, have

failed to submit audit reports or to obtain a waiver of audit

requirements from the Auditor of Public Accounts. As a

consequence, your office is proceeding to appoint a certified

public accountant to perform the audit. The initial question(s)

you ask is whether the contract for performance of the audit and

the bill for audit services would be between the accountant and the

Auditor of Public Accounts.

In the absence of cooperation by the political subdivisions,

the contract would be between the accountant or accounting firm and

the Auditor of Public Accounts since your office is proceeding to

effect the appointment. As a matter of practical necessity, the

Auditor of Public Accounts would be a party to the contract and

provision for payment of audit fees would be included in the

contract. Of course, the contract appropriately may include

provision that the obligation for payment of the audit services is

the statutory responsibility of the political subdivision under

§ 84-304.

The related question you ask is whether the state would be

able to withhold amounts from the payment of state aid to the

political subdivisions to satisfy the billings if the political

subdivisions refused to pay the billing for audit services. We

believe the statutory procedures set forth in Neb. Rev. Stat.

§§ 72-1501 to 72-1503 (1996) would be appropriately utilized to

collect audit fee amounts if the political subdivisions would

decline to pay the audit costs. Neb. Rev. Stat. § 72-1502 (1996)

provides, "(u)nless otherwise specifically provided by law,

delinquent accounts shall be collected in the manner provided by

sections 72-1501 to 72-1503." The statutes authorize and describe

the procedure for withholding of specified amounts from state aid

payments to political subdivisions to satisfy delinquent amounts

owing to state agencies and offices in excess of one thousand

dollars that have been delinquent for a period of sixty days or


The audit costs would constitute obligations of the political

subdivisions. The Nebraska Supreme Court, in County of York v.

Johnson, 230 Neb. 403, 432 N.W.2d 215 (1988) addressed the issue

whether a county is obligated to satisfy the costs of a county

audit conducted by the Auditor of Public Accounts. In finding that

the county was responsible for the costs, the Court observed that

political subdivisions derive a benefit from an audit of its

activities involving public monies and that auditing the records of

a political subdivision was mandatory upon order of the Auditor of

Public Accounts. Accordingly, it is our opinion that the costs of

audit of political subdivisions upon order of your office would

constitute delinquent accounts subject to withholding from state

aid payments if not satisfied by the political subdivisions within

sixty days of billing.

You also inquire whether "any other types of payments" may be

withheld. Other amounts owed by the state may be withheld. Neb.

Rev. Stat. § 72-1601 (1996) authorizes withholding of other amounts

from any debt owing by the state to "any person" indebted to the

state on account of any tax or other obligation.



Attorney General

Fredrick F. Neid

Assistant Attorney General