Opinion ID: 2787659
Heading Depth: 3
Heading Rank: 3

Heading: Trial on the Independent Audit

Text: ¶26. Predictably, the District took issue with the Tann, Brown & Russ report, primarily the exclusion of perpetual park operating and maintenance costs from the schedule of contractual obligations. In January 2013, the District filed objections to the independent auditor’s report, 11 objecting “to the auditor’s adverse opinion,” and requesting that “the [c]ourt strike that opinion and rely solely on the auditor’s schedule and render judgment that the amount Lamar County owes” upon withdrawal “is $18,985,536.” The District argued that Tann, Brown & Russ’s refusal to characterize perpetual park operating costs as contractual obligations was a “legal opinion.” ¶27. Lamar County then filed responsive pleadings and the District filed a rebuttal, including a rebuttal auditor report. In May 2013, the State of Mississippi intervened, filing a motion for leave to file an amicus curiae brief. Lamar County then filed a response to the District’s rebuttal and the State’s amicus brief. ¶28. On August 19 and 20, 2013, the trial court held a hearing on the District’s objections. The District called four witnesses: Scott Hodges (the Tann, Brown & Russ auditor who performed the independent audit), Hiram Boone (executive director of the District), George Decoux (comptroller of the District), and Jim Koerber (the District’s rebuttal auditor). In response, Lamar County called John Adler (the County’s own expert accountant).
¶29. Hodges explained that “[t]he contracts existed, but the contracts did not require all of those expenditures. The contracts only required continued use of the parks for recreational purposes.” Hodges further explained that the historical costs the District used to calculate the perpetual operating costs “were not required by those contracts. Those costs were incurred, but they were not required by the contracts.” And Hodges noted that “[i]t’s availability of use, not a spending of money that the [District’s] contract[s] require[ ].” Hodges elaborated on the point: 12 If [the perpetual park operating costs are] within their control, it’s not an obligation. An obligation is something that . . . an outside force is obligating you to do[,] not within your control. It’s not your decision. You’re obligated by contract to do it. So by definition, if it’s within their control, it’s not an obligation. ¶30. Hodges further explained, “[i]f an entity has a contractual obligation, it should be disclosed in the annual financial statements.” The perpetual park operating costs were never included in the District’s financial statements before Lamar County’s withdrawal. ¶31. Finally, in explaining Tann, Brown & Russ’s role in the process, Hodges testified: “[o]ur job was to determine if it was in accordance with the statute. And so, that’s what we did, is determine that [the perpetual park operating costs] that [the District] included was not in accordance with the statute.” Hodges reiterated that the main focus of the audit was to calculate what Lamar County owed under Section 51-15-118, which was paramount in his mind to either Financial Accounting Standards Board or Governmental Accounting Standards Board standards.
¶32. Hiram Boone, the executive director of the District, testified about the District’s value to the state and its obligations. Boone emphasized that the District did more than manage parks and that the District’s responsibilities included periodically inspecting dams and other flood-control structures. Boone said these obligations required continued support from the counties in the District. Boone also noted that the water parks throughout the District spurred regional economic growth and development. ¶33. However, during cross-examination, Boone conceded that the District’s obligations under the contracts were quite amorphous: 13 Q. None of the contracts that Pat Harrison Waterway District has with the federal government tells the Pat Harrison Waterway District how it has to operate the facilities, does it? A. Yes. We have certain responsibilities to the LCWF to operate those structures. Q. All it [says] you have to do is use them for outdoor public recreation, correct? A. That is part of it. When they were built, it was intended for flood control, erosion control, flood protection downstream as a water supply. They could be used for drinking water, industrial or irrigation purposes. So those structures are operated for multiple use besides recreation. Recreation is one of the side benefits. Q. I understand that. But with respect to the contracts that the LWCF applied to. A. Yeah. Q. All they say is you need to operate them as outdoor public recreation . . . [f]acilities, correct? A. Yes. Q. Okay. They don’t tell you how much money you have to spend on them, do they? A. No. But they—when you say properly maintained, it takes whatever it does. ¶34. Further, Lamar County cross-examined Boone about the District’s low park entrance rates compared to other Mississippi state parks. For example, the District charged $30 per person for an annual individual entrance pass to its parks, whereas the State of Mississippi charged $42 for the same pass. The District also greatly undercut the State when it came to annual boat-launch passes: $102 at a state park compared to just $65 at the District’s water parks.
¶35. George DeCoux, the District’s comptroller, testified that the Tann, Brown & Russ auditors had never asked him if the District could increase park user fees to balance its budget and perpetually maintain its parks. During cross-examination, DeCoux also 14 confirmed that “on most things other than camping and cabins,” the District’s park user fees were less than State park user fees.
¶36. Finally, the District called Jim Koerber, the District’s own certified public accountant and expert. Koerber had “no problems” with the numbers in Tann, Brown & Russ’s audit, but he disagreed with Tann, Brown & Russ’s exclusion of perpetual park operating costs as contractual obligations, because he believed that decision was a legal conclusion outside the purview of a Certified Public Accountant. He testified that “[t]here [wa]s no accounting basis to exclude those contractual obligations.” ¶37. Koerber also testified that he primarily relied on Financial Accounting Standards concepts to classify the perpetual park operating costs as contractual obligations, and that he looked to Governmental Accounting Board standards when he classified perpetual park operating costs as contractual obligations, finding that those standards also justified his classification. However, Koerber conceded that there was no real difference between the two standards. ¶38. On cross-examination, the District challenged Koerber’s stance on including the perpetual park operating costs as future contractual obligations: Q. My question was, if you went to the Pat Harrison Waterway District on September 6, 2011 and asked for contracts that had these numbers that would be owed, due and payable at some point in the future, there is no contract that contains those numbers. A. Oh. That’s correct . . . . Q. I’m just trying to establish that unlike with contractual obligations and the figures that are there, there are no supporting contracts you could go lay your hands [on] and say [“]here are the amounts that are due and payable under those contracts.[”] 15 A. No, sir, it would not be specified in the contracts . . . [,][b]ut I do want to be clear [ ] that . . . there would be a cost to operate those contracts. ¶39. After Koerber testified, the District rested.
¶40. Lamar County then called John Adler, the County’s own CPA and expert, who testified that Tann, Brown & Russ conducted the audit in accordance with generally accepted professional auditing standards and accounting principles. Alder unequivocally stated that Governmental Accounting Standards Board principles should be used in determining whether the perpetual park operating costs were contractual obligations. ¶41. Alder disagreed with Koerber and agreed with Tann, Brown & Russ’s exclusion of the perpetual park operating costs as contractual obligations, because “there [wa]s no contractual obligation that they spend money.”