Audit Clean Despite Education Overspending, Material Weaknesses

The Board of Finance (BOF) received a draft of the 2012-13 audit Wednesday night, in which the auditors are giving an “unmodified clean opinion” of the town’s financials despite finding a number of material weaknesses in internal controls and almost $1.18 million in overspending in the education budget over two years.

“From our perspective, we have proposed adjustments, so although you do have material weaknesses we will give an unmodified clean opinion on your financial statements,” auditor Michael VanDeventer explained, noting that the bottom line for the financial statements were correct, even if best practices were not always followed.

VanDeventer and John Bauer, of the firm Mahoney and Sabol, went through a number of policy recommendations to tighten internal controls on both the municipal and education sides of the budget and suggested the town go through a formal fraud risk assessment.

“The board might think that everything is squeaky clean,” VanDeventer said. “But we recommend that the board look at certain areas that might not be significant to the town where certain things could occur, such as fraud.”

The auditors also discovered approximately $707,000 and $471,000 in the education financials that were attributed to the 2012-13 and 2013-14, respectively, but should have been paid in prior fiscal years.

“Probably going back for some period of time, there are certain costs that were reported in the subsequent fiscal cycle,” VanDeventer said. “My thought is that there’s probably a certain amount of monies associated with that practice but given other constraints through the year that amount increased to about $707,000” by the end of 2011-12.

No vendors are owed and there are no outstanding invoices, according to the district’s Director of Business and Technology Art Colley. However, because those expenses should have been included in the prior year, they constitute an overspending of the education budget for that fiscal year.

The district’s financials are sound, VanDeventer explained, though the town will have to hold a Town Meeting vote to retroactively approve the spending.

A similar issue occurred with the 2012-13 budget, which first brought the issue to the auditors’ attention. A health insurance payment of $471,000 was deferred from June — the end of the fiscal cycle — into the current fiscal year.

The insurance company, Cigna, agreed to give the Board of Education (BOE) a credit of $471,000, essentially clearing that accounting issue, which the auditors hope to confirm on the next billing statement.

First Selectman Bill Tinsley, an ex-officio member of the BOF, noted that “the credit isn’t being given because they over-billed us or because we overpaid them, it’s just negotiated: ‘We need some help and can you give us some money back.’”

Tinsley said he wanted to be sure that the credit was given without any conditions.

“I’m sure [Cigna is] hoping that [the BOE] will continue their relationship,” VanDeventer said. “But the town has the right to go out and shop around for insurance coverage. So yes, no strings attached.”

Had Cigna not offered the credit, a retroactive appropriation would have had to been approved for $471,000, as well.

“We have identified this, everybody has reviewed it at the management level — from our perspective the town has done everything we need them to do,” Bauer said. “So long as we have final resolution on all these amounts, I think we are satisfied that the financials are properly stated.”

“We’re going to take action and get this corrected properly,” BOF Chairman Phil Kurtz assured. “We’re not dumping this on the Board of Ed. We’re one town and we’re going to get this fixed, all of us are going to get this fixed.”

Tinsley said he is meeting with Kurtz, BOE Chairman Scott McCarthy and the town attorney Thursday morning to work out the next steps.