Municipal Audits
Each municipality’s governing body is responsible for obtaining annual audits of "all departments, boards, and agencies under its jurisdiction that receive and disburse funds ... [including] general funds, highway funds, school funds, public utilities, and municipal courts." The official accounting records of the municipality are required to be closed and available for audit no later than two months after the close of the fiscal year. T.C.A. § 9-2-102(b) The audit must be completed and submitted to the Comptroller of the Treasury no later than six months following the end of the municipality's fiscal year." T.C.A. § 6-56-105(e)(1).
Copies of the audit must be furnished to the mayor, the "chief executive officer," each member of the governing body, and the comptroller and "shall also be made available to the press". T.C.A. § 6-56-105.
Such audits must meet minimum standards prescribed by the state comptroller and shall be approved by that office. The audits may be made by certified public accountants, public accountants, or auditors from the comptroller’s office. If a city fails to have an audit, the comptroller may require one at the city’s expense. T.C.A. § 6-56-105.
Effective July 1, 2025, there are new consequences for municipalities with two or more outstanding late annual audits. The state-distributed sales tax revenue may be reduced by an amount agreed upon by the Comptroller of the Treasury and the Commissioner of Revenue, with the reduction capped at 15% of the amount otherwise due to the municipality in a fiscal year. The money is held in reserve and subsequently allocated to the municipality once the city comes into compliance. The Comptroller also has authority to waive the penalty under its policies and procedures. T.C.A. § 6-56-105(e).
The Comptroller of the Treasury may establish minimum standards for audits by the internal audit staffs of local governments. The department also may require all such audits to contain a statement of compliance with those standards. T.C.A. § 4-3-304(9).