According to a recent examination of Oak Bluffs town finances for fiscal year 2014 (FY14) by the accounting firm Powers and Sullivan, the town’s overall financial health continues to rebound, although some troublesome symptoms of past problems still linger.
The 13-page draft management letter provided to town officials in March outlined four items that were resolved since the FY13 audit, one that was partially resolved, and eight that remain unresolved. Because it is a draft management letter, town officials will have the opportunity to clarify and/or correct items deemed unresolved by the auditors before their final FY14 assessment.
The 2014 fiscal year began on July 1, 2013, and ended June 30, 2014.
Healthy indicators
According to auditors, there was a $603,000 increase in the town’s general fund — the town’s primary operating fund, which totaled $3.3 million at the end of the fiscal year. “This increase is attributable to prudent cost controls resulting in $339,000 of unexpended appropriations, and from overall revenues exceeding the prior year by $279,000,” the draft letter states. To put the town’s financial rebound in perspective, in FY11, the town general fund was $913, 021 in the red.
The accountants also wrote that “Oak Bluffs’ assets exceeded liabilities for governmental activities by $35.7 million at the close of [FY] 2014.”
The report concluded that the town had properly followed all federal guidelines over the course of the fiscal year, stating, “No instances of noncompliance material to the financial statements of the Town of Oak Bluffs, Massachusetts, were disclosed.”
Unresolved issues
While many of the topics in the management letter relate to complex accounting rules, some basic shortcomings that were mentioned in last year’s management letter and in some cases, years before that, continued to attract the attention of auditors.
The report was again critical of the amount of time it took the town to reconcile accounts. It stressed that reconciling account activity and accounts receivable “is an integral internal control procedure over the most significant revenue sources of the Town. Without monthly reconciliations, the possibility of errors and/or omissions occurring and not being detected in a timely manner increases.”
The report was also was critical of the lag in closing town ledgers. In FY 14, town ledgers were not closed until December, five months after the end of the fiscal year on June 30.
“A timely close of the financial reporting process would allow the town to know its certified free cash position (among other items) in time for a fall town meeting,” auditors wrote. “We recommend that the town analyze the reasons for the delayed cash reconciliations and develop a plan to speed up the process. The delay in reconciling the treasurer’s cash delayed the town accountant’s ability to reconcile cash per the general ledger on a timely basis throughout the year.”
This year, free cash was not certified by the Massachusetts Department of Revenue (DOR) until the week before annual town meeting in April, after the financial and advisory committee (FinCom) had to make its final recommendations. In some cases, FinCom reversed its recommendations once free cash was certified, and had to hand out a supplemental sheet at town meeting showing those changes, which created confusion on several votes. FinCom chairman Steve Auerbach said the delay in certifying free cash was due in large part to town accountant Arthur Gallagher’s six-week absence due to illness, and to outdated accounting software.
Town administrator Robert Whritenour told The Times that he agreed with the auditor’s assessment of the reconciliation process. “The No. 1 area we can improve this year is the reconciliation of accounts,” he said. “We have to attack the process and get things done in a more timely fashion.”
To that end, Mr. Whritenour said, he has begun weekly meetings with the town financial team — the town accountant, town treasurer, and principal assessor — and he is hiring an outside accounting firm to examine the process, with funding set aside from the auditing account.
Auditors also recommended better communication within town hall walls, in particular between the town tax collector and town accountant.
“We also noted the accounting and collector offices, which should be sharing a mutual dialogue in the process, were reconciling the activity independently and separately from one another,” the report said.
Toughen up and tighten up
Auditors suggested, for the second year in a row, that the town should be more aggressive in collecting delinquent property taxes and wastewater bills.
They also recommended that the town needed to be more aggressive in collecting debts for use of town property and demand payment up front. Mr. Whritenour said this comment was inaccurate. “There’s no outstanding balances for [use of] town property,” he said. “That’s one of the things we’ll question.”
In FY 13, auditors said that the town had to gain control of the police detail fund, which was then $36,000 in the red. However, auditors said the deficit almost tripled to roughly $92,000 in FY 14.
“Given this fact, it remains crucial that the town can be able to verify the exact composition of the fund deficit so that necessary collection procedures can be initiated against the relevant parties on an as needed basis,” the letter states.
Mr. Whritenour said the police detail deficit was a byproduct of the lagging reconciliation process, and that more than $22,000 of the total is from entities that went belly-up after contracting for police details. “There was a festival in the mid-2000s that ran up a big bill that went out of business right after the festival,” he said. “There’s another $14,000 where it appears money was collected, but may have ended up in other accounts.” As an example, Mr. Whritenour said the permit fee for the Monster Shark Tournaments included the cost of police and fire department details and additional highway department costs. “So the licenses and permits revenue went up, and the [police] detail fund wasn’t credited,” he said.
Police Chief Erik Blake cited FEMA monies that never materialized to reimburse the department for details during Hurricane Sandy and winter storm Nemo, and from the department of public health (DPH) for the Island-wide pandemic exercise conducted a few years ago. He also said there were outstanding balances from NStar and Martha’s Vineyard Hospital when auditors last examined the books.
The draft letter also criticized the police department’s recordkeeping procedures. “The system maintained by the Police Department to track outstanding amounts owed relies heavily upon hard copies of bills sent. Reliance on a manual system increases the risk that accounts are misfiled and that collections efforts are not taken against parties who owe the town money.”
Chief Blake said the comment was not entirely accurate. “We do our billing for details in QuickBooks, and the town uses MUNIS,” he said. “We bill companies through QuickBooks, and when the money comes it, it’s put in the town’s MUNIS system.The next fiscal year the town is going to add the component to MUNIS that lets us do all the billing in the MUNIS,” he said.
Overall, Mr. Whritenour said he was pleased with the rigorous examination of town finances. “This is why we do an audit,” he said. “We ask them to come in and identify the items we can improve. We pay a lot of money for people to tell us how to do better. We’re on our way, we’re just not 100 percent there yet.”