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Decatur’s yearly audit notes cooler housing market in 2019, uncovered two accounting errors

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Decatur’s yearly audit notes cooler housing market in 2019, uncovered two accounting errors

Decatur City Hall.
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Decatur, GA – The city of Decatur’s most recent audit found two errors of note and also indicates that the city’s housing and development activity cooled down in 2019.

In a letter attached to the audit, City Manager Andrea Arnold wrote, “Actual real estate market sales data for 2019 indicate that average sales prices have stabilized and actually dropped slightly over the past year.”

“The average sales price of a single-family home decreased from $687,000 in November 2018 to $661,000 in November 2019, a 4% decrease,” Arnold wrote. “A closer look at the data shows that the number of homes that sold for less than $400,000 in 2019 was almost three times the number sold in 2018. The number of days a home was on the market increased from 31 days in 2018 to 38 days in 2019. The number of dwellings sold decreased slightly from 224 in 2018 to 203 in 2019. Demand for single-family residences remains strong.”

Arnold’s letter also notes that permit and inspection fees decreased in 2019.

“In 2018, the City issued permits for 29 new detached single-family dwellings, while issuing 31 demolition permits for existing dwellings,” Arnold wrote. “It is anticipated that by the end of calendar year 2019, the city will issue permits for at least 28 new single-family dwellings, 24 new attached townhouses and demolition permits for 25 existing dwellings. Overall, permit and inspection fees decreased from $1,460,692 in fiscal year 2018 to $915,876 in fiscal year 2019. The numbers indicate a healthy development environment, however less robust than the prior year.”

On the commercial side of the city’s economy, the city reports a better than average office vacancy rate, noting that Decatur’s vacancy rate is 2.7 percent compared with the 11.5 percent vacancy rate for metro Atlanta.

“A more detailed examination of the buildings within the city limits shows the city’s average vacancy rate for office buildings between 10,000-170,000 square feet at 6.6% which has generally held steady over the last 12-months,” Arnold wrote. “Two of Decatur’s office buildings, Commerce Square and West Court Square, are in transition and have higher vacancy rates than the other commercial office buildings in the City. These two buildings are renovating the interior and exterior finishes to reposition the buildings at higher rental rates. On the horizon is the delivery of a new 33,000 square foot office building with ground-floor retail at the corner of West Trinity Place and North McDonough Street, developed by AMLI and Cousins Properties. The office tenant build-out begins in January 2020 and is expected to be completed in May 2020. Average rental rates in the City of Decatur are $25 per square foot, up 5% from last year. This increase can be attributed to an increase in rental rates at West Court Square.”

Mayor Pro Tem Tony Powers said from his point of view it looks like Decatur has a supply issue when it comes to houses.

“I scan the listings all the time. Force of habit,” Powers said. “You talk to agents there’s just not a lot out there. I don’t know if people are staying longer, or things hit the market or they literally hit the market and they’re gone.”

That said, there’s plenty of construction going on in his neighborhood.

“Maybe the volume of it has cooled off, but I still see projects going on,” he said.

Mayor Patti Garrett said the city also has fewer spaces to develop than it used to have but isn’t sure if what Decatur saw in 2019 is a trend or a blip.

“I think Decatur was able to weather the last economic downturn and I feel like we remain an attractive place for people,” she said.

The audit also checked for errors in the city’s financial statements and found two.

In the first finding, the auditor said, “During our testing, we noted that cash was understated by $2,333,960 at both the Capital Improvement Fund level and governmental activities. We also noted that proceeds and related notes payable in the Capital Improvement Fund and governmental activities were understated by $2,333,960.”

Arnold said this finding is related to financing the city’s new fiber network.

“The project is being financed through the Georgia Municipal Association’s direct lease program,” Arnold said. “The city submitted the paperwork to GMA to borrow the funds needed for the project. When the funds were deposited into the city’s bank account near the end of the fiscal year, they were not immediately recorded on the city’s ledger to identify the cash and notes payable. Due to the timing of the deposit just before the end of the fiscal year and recording the transaction after the end of the fiscal year, and the size of the transaction, the finding was necessary.”

She added, “We always strive to record transactions in a timely manner and we need to be attentive to significant transactions right at the end of the fiscal year. Just to be clear, the funds were properly secured in our financial institution but the journal entries were posted after the end of the fiscal year.”

The second finding is related to the city’s Downtown Development Authority.

“It was discovered that an asset was not added to the Downtown Development Authority’s books in 2011,” the auditor said. “An adjustment of $229,892 was required to increase [the] beginning net position. Adjustments of $257,517, $31,079, and $3,454 were required to properly state beginning capital asset balances, accumulated depreciation, and depreciation expense, respectively, in the Downtown Development Authority.”

Arnold said the DDA omitted the old train depot on East Howard Avenue  — the current home of the Kimball House restaurant — from its books.

“Ownership of the asset was transferred from the city to the DDA in 2011 but the asset was not recorded on the DDA’s fixed assets list with the transfer,” she said.

Arnold said the audit findings will improve how the city keeps its books.

“We take all findings seriously and use the feedback from the auditors to improve our accounting processes,” she said. “Our internal control systems are strong and the feedback from the auditors only helps us improve upon those controls.”

Garrett agreed that the audit is a learning experience for the city.

“I always find the audit is a chance for us to learn how to make sure we are doing things in a timely manner, and I think the two findings that they mentioned were just things that were an accounting error or an oversight that needed to be accounted for,” Garrett said.

Powers said he wasn’t concerned about the findings.

“At a cursory glance, there was nothing that troubled me,” Powers said. “Typically, if there’s any finding, it’s an accounting error, something got put in the wrong column. I’m always happy we have good clean audits.”

To see the city’s audit, click here.

To see a copy of the auditor’s findings, click here.

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