State Police, at the direction of the Cape & Island district attorney, are conducting what auditors called a “broad investigation” of possible fraud in the Edgartown wastewater department. The discrepancy relates in part to fees paid to the town by private septic haulers who empty wastewater at the town’s treatment plant.
Independent auditors say the wastewater department accounting practices required the haulers to tell the town how much to bill them. There is no accounting trail to make sure the town has billed the proper amounts to the private companies.
“You’re relying on people who are disposing of the waste to write down the number,” auditor Chris Rogers told selectmen Wednesday morning, at a meeting continued from Monday afternoon. Mr. Rogers is a certified public accountant and a partner at Sullivan, Rogers & Company, the firm Edgartown hires to audit its books. “Internal controls have nothing to do with questioning people’s integrity, but when you don’t have internal controls, I suspect everyone. You’re relying on somebody who you’re going to be sending a bill, to write down what you’re going to bill them. That to me is a major, major, problem. It doesn’t make any sense. I don’t know even why you would ever want to go there.”
The accounting deficiencies discussed by Mr. Rogers are serious enough that the auditor will not issue his annual report, a development that could affect the town’s bond rating and may effectively prevent the town from borrowing money at all.
“I will not issue the final report until the fraud examination piece is completed,” Mr. Rogers told the selectmen, “and we have the detail behind the sewer accounts receivable. The fact that your auditor is not signing the report is a problem. It could have an impact on the town when they go out to bond. So there is a sort of snowball effect these things can have.”
Selectmen listened to the auditor’s review in stoic silence, their brief comments and grim expressions indicating their reactions.
“It’s really upsetting,” town administrator Pam Dolby said. “We worked really, really hard to get a high bond rating, the highest bond rating on the Island. If we go out to borrow money this summer, we’re not going to be able to.”
“This isn’t rocket science, when you bill someone,” selectman Michael Donaroma said. “It’s all negligence and lack of focus.”
Wastewater plant manager Joe Alosso, wastewater commission chairman James Carter, and commissioner Cliff Karako also attended the meeting. Commissioner Timothy Connelly was unable to attend. The wastewater officials said when they were notified on January 10 of the auditor’s concerns, they took immediate action to change the billing practices.
“Up until the most previous audit there has been no reconciling or checking to see if the numbers placed on the manual sheets were accurate,” the commissioners wrote in a letter to the selectmen. In response to the auditor’s findings, the commissioners now require a plant operator to witness the unloading, and sign off on the metered amount of septage dumped. They also purchased a new metering system, which is to be working next month.
Also, they began charging the same rate, 28 cents per gallon, for all septage pumped off the trucks, instead of offering a discounted rate to Edgartown residents. The town bills the private companies who haul the septage. The companies then bill the homeowners based on the amount of septage pumped out and the rate charged to dispose of it.
“We are not at all confident that the savings is consistently passed along and have some doubts about whether the septage generated outside of Edgartown isn’t being recorded as Edgartown septage, so the hauler gets charged a lower rate per gallon,” wrote the commissioners in their January 10 letter.
Under a system in place since 2002, septic haulers pulled into the wastewater facility and dumped their septage through a metering system. But the wastewater department did not bill the private haulers based on the meter readings. Instead it relied on a manual log filled out by the haulers, with no plant operator supervising any part of the process. The meter records were unreadable, according to the auditor, so there was no way to reconcile the bills against the meter readings.
“The electronic receipts aren’t maintained,” Mr. Rogers said. “I don’t know why they’re thrown away or not available. There’s no substantiation of the amounts that are being billed, except for something that the third party wrote in a book and said ‘this is what you’re going to bill.’” Mr. Rogers said the practice violates the state law requiring the town to keep financial records for seven years.
The auditor also said he had grave concerns about the sewer bills being issued from the same office that collects the payments, an issue he raised in the 2009 audit. At that time the wastewater department agreed with the auditor and welcomed a change to the town’s MUNIS accounting software.
But the town’s water department, which uses the same billing practice, strenuously objected to changing its accounting methods, and the change has not been implemented.
“We’re really relying on the board of selectmen and the financial offices,” Mr. Alosso said. “We’re all for it, I don’t know what else we can do to segregate it.”
“Your commissioners are elected officials,” selectman Margaret Serpa responded. “They are the ones who should be overseeing this.”
Ms. Dolby said the process of change is underway, but the town wanted to wait until it could change both departments at the same time to save on the cost of software and training.
Another serious concern for the auditors was substantial increase in accounts receivable, or sewer bills not yet paid by homeowners. “There are $150,000 in sewer accounts receivable, for which we haven’t been able to get any evidence or any detail that supports that,” Mr. Rogers said. “The other thing that’s a little odd is that this year’s balance is $150,000 that’s owed to sewer, and when you look at it historically and compare it to prior years, it’s tripled. Add that to the septage billing, we have issues.”
The wastewater commission met Wednesday afternoon to discuss the auditor’s findings. They issued a response in the form of a letter to the auditor.
“We would like to thank you for the thorough explanation of the recently discovered material deficiencies,” the commissioners wrote. “Updated equipment has been ordered and is expected to be installed and running by April 19, 2011, which will automatically register all activity that takes place at the septage unit into our department computer with both on-site and off-site backups being done daily.”