Austin accounting firm Calhoun, Thomson and Matza’s audit report for the 2021 year financials of the Surplus Lines Stamping Office included high marks for the agency’s financial records, information and management’s cooperation. The audit was completed on Feb. 22 and Marie Musalem reported the CPA firm’s findings to the SLTX board of directors when it met on March 31. The accounting firm opined that SLTX’s net position is fairly stated in all material aspects.
Bottom line on the audit is that SLTX completed the 2021 year with total assets of $37.35 million, an increase over year-end 2020, which was $35.84 million.
Liabilities dropped between the two years, setting total liabilities and net position at $36.88 million at year-end 2021, compared with $35.27 million at year-end 2020.
SLTX’s 2021 year ended with a net position that was $3.13 million greater than budgeted. Total revenues exceeded budget by $1.25 million; expenses were under budget by $1.88 million.
Management explained the over budget income and under budget expense occurrences in the Management Discussion and Analysis, a requirement of the Government Accounting Standards Board.
Stamping fee revenue was 28 percent greater than budgeted, coming in at $7.7 million or about $1.7 million more than expected. Management attributed this over budget result to continued hard market conditions.
Under budget expenses included salaries and benefits at $209,000 below budget “due to budgeted increase in head count occurring later in the year than budgeted,” along with corresponding associated taxes and employee benefits. Below budget operating and occupancy expenses were explained as software expenses $169,000 under budget; internet service $14,000 under budget; education and travel $170,000 under budget, and professional services $405,000 under budget. A category of expenses budgeted as miscellaneous and contingency was under budget by $855,000. SLTX adjusted this category in the current budget by reducing it from five percent to one percent of budget.
The management analysis tagged the average cost to process a surplus lines policy at $4.07 in 2021, versus $3.80 in 2020 and $3.55 in 2019. Total operating expenses for SLTX were up $1.3 million, or 27 percent, in 2021.
The impact of the reduced stamping fee in 2021 was that total revenues for the year decreased by $4.8 million, or 39 percent, despite the 14.9 percent increase in premiums processed.
The audit report also includes detail on the agency’s investments, which are consistent with the agency’s investment policy, and fiduciary accounts held for employee retirement purposes. Employees are fully vested in the retirement plan after three years. Employee benefits include 100 percent coverage for medical, dental, vision, short-term and long-term disability, group term life insurance and accidental death and dismemberment.
Musalem further commented that the CPA firm found no material weaknesses in the agency’s internal controls, there were no audit issues, and the report opined that there were no subsequent events that would require further disclosures or adjustments.
The stamping office is considered a discretely presented proprietary unit of the state, and its audited results are included in the state’s comprehensive annual financial report (CAFR) with some lag, as the state’s fiscal year is September to August; whereas, SLTX’s reporting is on a calendar year basis. The state’s CAFR for the year ending Aug. 31, 2021, uses SLTX’s audited financials as of Dec. 31, 2020.