Irrigation districts have distinctive tax and accounting requirements. Many are small special districts organized under state statute that are required to use governmental accounting standards and require audits that are performed under governmental auditing standards, even though their operations work on something more similar to a commercial fee-for-service model. Auditing firms that focus either on governmental clients or on commercial clients may not have the specific expertise necessary to address their issues. Further, because they often bill for annual water assessments before they are provided, irrigation districts must be careful about how they report their revenue. 

Frost, PLLC, is a full-service accounting firm that focuses on agriculture-related clients nationwide, including many irrigation districts. In this interview, Frost Senior Manager Doug Snell tells Irrigation Leader about the idiosyncrasies of irrigation district finances and how his firm helps them with audits and reporting. 

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Irrigation Leader: Please tell us about your background and how you came to be in your current position. 

Doug Snell: I was born and raised on a family farm in northeastern Missouri, which is where I got my firsthand knowledge of the operations of farms and agriculture. I got my bachelor’s and master’s degrees at Northeast Missouri State University in Kirksville, Missouri. Then I went into public accounting, first working for a large, Missouri-based regional firm and eventually making my way to Arizona, which is where I am now. I became a certified public accountant in 1991 and spent about 9 years of my career in industry, working as a controller and chief financial officer for a couple of different organizations. I’ve spent the remaining 20 years in public accounting, providing audit, tax, and consulting services. 

Irrigation Leader: When did you start working with Frost? 

Doug Snell: In 2009, I started working for a firm called Gray & Terkelson, where I became a partner a couple of years later. I left in 2014 and went to work for a firm in Colorado. While I was away, Gray & Terkelson merged with Frost, and the partners at Frost in Yuma asked me to come back to Arizona to work with them. I did so 2 years ago. 

Irrigation Leader: Please tell us about Frost and its services. 

Doug Snell: Frost is a full-service accounting firm. We provide everything from traditional audit, tax, and consulting services to business valuations and litigation support. We also provide other services through our subsidiary Farm Animal Care Training and Auditing (FACTA), which is an animal welfare auditing group. It does animal welfare audits as well as verification audits for different U.S. Department of Agriculture programs, such as the Non-Hormone Treated Cattle Program for ranchers. It makes sense for us to provide services like that, given that we are an agriculture-focused firm. While we have clients in many different industries, the majority of our clients are in agriculture or are somehow related to the sector. Rather than being focused on one geographical area, like a lot of smaller firms, we are focused on an industry. While we only have offices in five states, we serve clients all over the country. We have approximately 150 employees. 

Irrigation Leader: Would you tell us about your work with irrigation and water districts? 

Doug Snell: I began working with irrigation districts in 2009, when I started with Gray & Terkelson. The firm had been performing water district work for many years before I arrived. When I got there, I took over the management of the water district work, so I’ve been involved with most of Frost’s current water district clients for years. 

Irrigation Leader: What distinctive financial services needs do irrigation districts have? 

Doug Snell: One thing that makes them distinctive is that most of them are special districts, so they’re governmental units and typically don’t have a tax return. That means that all they need is an audit or compliance or bookkeeping services. From an accountant’s viewpoint, they’re a bit of a hybrid: Because they are considered governmental units, they have to use governmental accounting standards, and their audits have to be done under governmental auditing standards, but they do business on a fee-for-service or fee-for-product model, and so they also operate as enterprises. Their audits and accounting are much like those of commercial enterprises, but they have to follow the rules for governmental entities. A lot of accounting firms that serve governmental entities focus on governmental accounting, which is fund accounting and is not used by irrigation districts. Meanwhile, firms that don’t work on government accounting don’t have the expertise to do a governmental audit. Many water districts fall into a dead zone between governmental accounting and commercial accounting—it’s a special niche. 

Irrigation Leader: Because many of them bill for water in advance, timing can be an issue for irrigation districts. Would you expand on that and talk about how that interacts with their finances? 

Doug Snell: Revenue recognition is a big issue for irrigation districts. A good number of them bill for water in advance. Often, they’ll bill for the following year’s assessment in October, November, or December and start receiving payments as soon as they send out those bills. Anything that they receive prior to year-end is not actually revenue for that year. That’s a concept that seems to be difficult for some people to grasp, because it’s not a typical commercial fee-for-service model. You’re getting the money at a certain point and providing service later. We have to recognize anything that’s collected in advance as deferred revenue and then recognize it as revenue in the year after it was billed. A lot of accounting systems aren’t built that way, so you have to jump through hoops to make sure it is recognized properly. 

Irrigation Leader: Would you tell us about the importance of providing boards with timely information?

An irrigation canal in Idaho.

Doug Snell: Often, irrigation districts are audited by smaller firms that specialize in tax services, so they don’t do the work until after their busy tax season is over. That means that the December 31 year-end audit doesn’t get started until at least May and isn’t issued until October or November, 10–11 months after year-end. That’s not always the accounting firm’s fault. Sometimes the district itself doesn’t have the manpower or the accounting abilities to get things prepared for an audit or to get financial statements out in a timely manner. The districts usually do their budgeting for the coming year in October or November, and if they don’t have their financial statements for the previous year until October, they might be working on 2021 budgets without even having solid information from 2019. That is essentially working blind. 

Irrigation Leader: What is the best way to resolve that issue? 

Doug Snell: One is to spend the money and the time to get enough staff at the irrigation district level. Many times, districts just have a bookkeeper who may not be trained as an accountant. Of course, manpower is an issue because the districts are running on a shoestring budget and trying to keep their rates as low as possible. However, that can end up costing them in the long run, because they’re not getting financial information that they really need. The next step is to find a firm that has the resources and staffing to provide audit or review services in a timelier manner. 

Irrigation Leader: What are some of the state or federal regulations that irrigation districts should keep in mind when considering their finances? 

Doug Snell: Most districts are organized under state statute, and states set up reporting requirements for special districts. That typically means that the districts have to provide financial information to the state by a given time, often 8–9 months after year-end. It’s not an onerous deadline, but districts often have a hard time meeting even that. 

There are often reporting requirements based on revenue level. Typically, districts with over $100,000 in revenue are required to undergo an audit or a review. For instance, a district with over $100,00 but under $1 million in revenue may be required to have a review, which is a level of service a step below an audit, every year and an audit every 5–10 years, while a district with over $1 million in revenue may be required to have an audit every year. Often, districts are unaware of these requirements or ignore them. Those requirements are set by the state, so the person doing the work, the board, and the district management need to be aware of their individual state’s reporting requirements. 

Irrigation Leader: Would you tell us about the other important financial or accounting concerns that irrigation districts may be unaware of, neglect, or ignore? 

Doug Snell: One issue is the large investment that has gone into constructing ditches and facilities. Often, those facilities have been granted to districts by the U.S. Department of the Interior or the Bureau of Reclamation. The costs were borne up front by the federal government, which then turned the infrastructure over to the district for safekeeping and operation. That situation requires special consideration when it comes to depreciation and related issues. 

Another issue is that many of these districts hold money in reserve for emergency expenses or large repairs. Commercial businesses don’t typically hold a lot of money back for future use, but the districts often do. These cash reserves come with additional accounting and disclosure requirements. 

Finally, one thing I have seen over the years is that small organizations in general and irrigation districts and other nonprofits and governmental entities seem to be susceptible to embezzlement and fraud. When you have a small management or accounting team, there is often just one person, not necessarily paid very well, who has unfettered access to cash and bank accounts. There may be opportunities for individuals to misappropriate funds or use district resources to buy personal items or enrich themselves. I have seen a few instances of that over the years. 

Irrigation Leader: If there are any irrigation district staff who read this interview and are interested in potentially working with Frost, how should they get in touch with you? 

Doug Snell: The best way to reach me is my cell number: (480) 250‑4210. My office phone number is (602) 765‑3089. I can also be reached by e-mail at We are always happy to go to our clients and serve them where they are, so people don’t need to be concerned about coming to us. 

Doug Snell is a senior manager at Frost, PLLC. For more about Frost, visit