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Shane Mastro

03/25/20

ACCT 322 A

Dr. Koscinski

City of Baltimore Case Study

The five requirements are the Management’s discussion and analysis, government-wide

financial statement, fund financial statement, notes to financial statement, and the required

supplementary info other than MD&A. The breakdown of the document itself is first section is

the Introductory section that has Table of Content and other logistical things and helps the

reader through the report. There is also a Financial section that talks about all the different

budgets and taxes and where all the funds are going and the auditor’s report and this is where

most of the requirements are located. Lastly, the Statistical sections that are required of the

CAFR are the Financial Trends Information which has the information about net position,

changes in the net position, and government funds. The second section is the Revenue Capacity

Information, and this has the information about revenue base, revenue rates, principal revenue

payers, and property tax levies and collections. The third section is the Debt Capacity

Information which is describing the amount of debt the government can repay in a timely

manner from available resources without jeopardizing its financial viability. This section entails

information about ratios of outstanding debt, ratios of general bonded debt, direct and

overlapping debt, debt limitations, and pledged revenue coverage. The fourth section is the

Demographic and Economic Information which is self-explanatory talking about principle

employers and the demographic and economic indicators. The lasts section is the Operating
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Information which is about government employees, operating indicators, and capital assets.

The city of Baltimore does have the requirement sections the Introductory, Financial, and

Statistical sections and all needed information.

The independent auditors were Clifton Gunderson LLP from 2008 to 2011 and

CliftonLarsonAllen LLP they audited from 2012 to 2017 then was taken over in 2018 by SB &

Company LLC. So, they went from a national company in CliftonLarsonAllen LLP to a locally-

owned and regional company in SB & Company LLC. SB & Company LLC doesn’t have expertise

with municipal auditing. “The auditor’s opinion was based on our audit and the reports of the

other auditors, the financial statements referred to above present fairly, in all material

respects, the respective financial position of the governmental activities, the business type

activities, the aggregate discretely presented component units, each major fund, and the

aggregate remaining fund information of information of the City, as of June 30, 2018, and the

respective changes in financial position and, where applicable, cash flows thereof for the year

then ended in accordance with accounting principles generally accepted in the United States of

America.”(CAFR, 2018). There were no emphasis paragraphs it the opinion part of their

statement, but they had another matters emphasis paragraph below the opinion. The auditors

did not mention the cyber-attack that happened in 2018 where hackers shut down the 911 and

311 systems so that crime couldn’t not be reported to the police. It definitely should have been

mentioned so that it was made aware of what they were doing to help fix the issue. The 911

attack was a sign that internal control was not present in 2018 because if they had control they

would not have been hacked in the first place and put in a place of pandemonium and they also

should have paid them instead of not because that most likely caused the 2019 attacks on them
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also. This attack in 2019 took control of around 10,000 Baltimore government computers and

they demanded over $100,000 worth in bitcoin and took over for two whole weeks. This attack

stopped citizens from being able to pay their bills, taxes, and tickets.

Also, in the 2018 CAFR the cyber-attack was not mentioned in the Notes to the Financial

Statement or the Management’s Discussion Analysis section. Something that I found to be

interesting was that in the CAFR in the beginning in the High Performing Government section

had in it that the Mayor’s Office of Information Technology moved the City’s data to the cloud

and also said that they improved cyber securities but made no mention in the other sections. It

should have been mentioned because the effect on the performance of the city of Baltimore

was affected by this incident. There are rules set in place for cyber-attacks nationally, cyber-

attacks affect a company’s product, service, etc. so they have to provide a disclosure of the

incidents to the public. Then the city of Baltimore also did not mention the ransomware attack

in 2019 in the Notes to the Financial Statement or the Management’s Discussion Analysis

section. This should have been mentioned because it is similar the shutdown of the 911 system.

This incident had a direct effect on the cities performance, but it also effected the finances of

the city. The other rules for the previous incident are similar in this case as well. These two

cybersecurity breaches would have cost city of Baltimore about 10,000,000 dollars and

repairing the cybersecurity lost them $8,000,000 dollars. The city of Baltimore lost a total of

$18 million dollars.

Fund accounting is accountability for the flow of current financial resources. The

revenues are inflows of financial resources available for finance expenditures and expenditures

are outflows of the current financial resources. This type of accounting uses a accrual basis of
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accounting. The city of Baltimore has three different major funds. The three funds include

general funds, grants revenue fund, and the capital projects fund. The General fund covers

property taxes, income taxes, other local taxes, licenses and permits, federal and state grants,

etc. The Income taxes make up 16% of the government revenue. Most of the governmental

fund revenue is made up of property tax income which is around 40%. Also, the other local

taxes made up 8% of the governmental revenue. The grants fund revenue, the operating grants

make up 14% of the government fund revenue. Lastly, the capital project fund is mainly capital

leases and transportation revenue. The government funds revenue is 2.1 billion dollars. The

revenue from the prior year in the general fund went up almost 7 million dollars.

Yes, I believe if I was the auditor the mayor convicted for fraud does influence the

internal control of Baltimore. This is because as an auditor, I would have to take a deeper look

at the financial statements and other documents in the CAFR to make sure that the mayor did

not take any of the money from the city of Baltimore. Also, one of Pugh’s employees, Gary

Brown Jr. pleaded guilty to the same illegal activities as Pugh was charged with. So overall,

looking into these documents is essential in determining where or if fraud was committed

against the city of Baltimore and if any money was reported not properly
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Work Cited

https://nces.ed.gov/pubs2015/fin_acct/exhibits/exhibit_07.asp

https://www.baltimorecountymd.gov/Agencies/budfin/accounting/12cafr.html

https://www.vox.com/recode/2019/5/21/18634505/baltimore-ransom-robbinhood-mayor-jack-
young-hackers

https://comptroller.texas.gov/transparency/budget/cafr-faq.php

“Financial Accounting for Local and State School Systems: 2014 Edition.” National Center for
Education Statistics (NCES) Home Page, a Part of the U.S. Department of Education,
nces.ed.gov/pubs2015/fin_acct/exhibits/exhibit_07.asp.

Government, Baltimore County. “2012 Comprehensive Financial Reports.” 2012

Comprehensive Financial Reports, 3 Mar. 2017,
www.baltimorecountymd.gov/Agencies/budfin/accounting/12cafr.html.

Stewart, Emily. “Hackers Have Been Holding the City of Baltimore's Computers Hostage for 2
Weeks.” Vox, Vox, 21 May 2019, www.vox.com/recode/2019/5/21/18634505/baltimore-
ransom-robbinhood-mayor-jack-young-hackers.

Accounts, Texas Comptroller of Public. Guide to Understanding Comprehensive Annual

Financial Reports (CAFRs), comptroller.texas.gov/transparency/budget/cafr-faq.php.

https://comptroller.baltimorecity.gov/sites/default/files/CAFR%20FY'18%20(4-4-2019)7.pdf
This is the CAFR for 2018 for Baltimore

Ch 10 Fund Acctg Basics

https://moravian.instructure.com/courses/12059/files/964400/download?download_frd=1

Ch 12 ppt
https://moravian.instructure.com/courses/12059/files/964288/download?download_frd=1