Audit Identifies Omissions and Noncompliance in Town Financial Reporting


Notwithstanding town councilmembers' effusive praise and self-congratulatory remarks on how town hall "is killin' it" and receives excellence in financial reporting awards, the most recent audit from Maze & Associates uncovered some troubling realities: creative accounting, basic accounting failures, violations of our own policies, and noncompliance with covenants and state law.

The report was presented during the December 13 council meeting (see Auditor's report here along with the meeting video itself here beginning at the 45 minute mark).

In a nutshell:

Town Failed to Account for Expected and Approved Sinkhole and Bridge Reimbursements, Understating and Misrepresenting True Financial Position

A basic accounting principle is that when you are owed money, that money is reflected as accounts receivable in the financial statements (balance sheet) to accurately reflect the expected cash receipt and associated financial position. It is accounting 101 that even neophyte Quickbooks users understand.

The audit uncovered that the Town failed to account for several million dollars in expected and approved federal reimbursements for the sinkhole and bridge repairs, and thus has significantly understated the town's true financial position and making it appear there are fewer assets and projected cash availability than there actually is. (see 48 minute mark in the video referenced above)

What should concern residents is that such a basic accounting principle was violated; so basic, in fact, that it is nearly impossible to characterize it as an oversight or mistake with multiple trained accountants on staff and the presumed oversight of an audit and finance committee and the town council itself. It is consistent with the apparent "fear, uncertainty, doubt" strategy being employed to raise taxes, however (see related articles here and here).

The auditor noted that, despite this significant understatement, the town still has almost 2x the reserves recommended by the Government Financial Officers Association.

The auditor also identified the following deficiencies:

Town Violated Its Own Investment Policies

The Town was out of compliance with the Authorized Investment section of its Investment Policy with over $400,000 in money market funds, which is not an authorized investment vehicle under the town's investment policy rules. This is at least the second consecutive year the town has violated this policy.

In the prior year, the town violated policies with respect to investment concentration and quality: over 10% of the town's investment assets were with a single corporation and, more concerning: a portion of that investment was rated BBB- while the town's investment policy requires AA ratings or higher.

Town Continues to Violate Bond Covenants

The town's bond issues and state law require filing annual reports with the Municipal Securities Rulemaking Board.

For at least the second year in a row, the Town was out of compliance with bond covenants and state law related to the annual reporting requirement associated with the 2013 Certificates of Participation because it repeatedly fails to timely file the reports.