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Andover, CT 06232
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| First Selectman's Report to Residents - January 3, 2007 |
Town of Andover, Connecticut
Office of the First Selectmen
Town Office Building
17 School Road
Andover, CT 06232
Phone 860-742-7305
Fax 860-742-7535
January 3, 2007
To: The Residents of Andover
This report is focused on what residents have questioned; how did we arrive at the fiscal crisis of last year and where did our money go? I have either quoted or summarized Auditor’s comments found in their recent and earlier reports (on file at town hall). In other cases I am using approved minutes, reports, and notations by the former First Selectman that I have been researching.
In reviewing the data, I found there were significant communication problems between the former First Selectman, the Board of Finance chairman and the regular members of the Board of Finance as early as the 2003-2004 budget. Estimates of a large balance in the investment account were reported to the Board of Finance members that year but information was not provided that most of this balance was already designated money and there was only a small portion of the total fund which could be used for new appropriations. The information given to the members was so misleading that the Board of Finance members believed there was a huge surplus of $1.2 million and they would be able to allocate this surplus money to lower the mill rate and transfer money into a school building project by the end of the 2003-2004 fiscal year.
This misconception was never corrected by the First Selectman. When the former administration realized the amount that could be appropriated was smaller then had been predicted, they failed to notify the Board of Finance members. In the meantime the Board of Finance had voted to appropriate these surplus monies and transfer amounts to other accounts by the end of the 2003-2004 year and applied money to lower the mill rate for 2004-2005. Instead of notifying the Board of Finance of the error, the First Selectman used tax receipts from the next year to finance these appropriations. Therefore the 2004-2005 budget began with a large unauthorized expenditure which would place the town in a deficit position by the end of that fiscal year.
The following year the Board of Finance continued to believe the town had a surplus and once again applied investment account funds to the budget. But by this time the undesignated money in the investment account was gone.
The former First Selectman and former chairman of the Board of Finance failed to adequately report financial information to the Board of Selectmen, Board of Finance and a public hearing then hid information from the Board of Selectmen and Board of Finance. The former First Selectman as a result allocated the same money in several areas and spent money the town actually did not have.
The scenario began in 2003-2004 not just last year. Last year was the culmination of the events.
Problem #1 – Misinformation in 2004 (2003-2004 budget period)
- On April 28, 2004 (2003-2004 tax year), the Board of Finance members were told that the Town would start the new fiscal year (2004-2005) with approximately $1.1 million in the investment fund. (See April 28, 2004 Board of Finance Minutes).
- On April 30, 2004 at a public hearing First Selectman Barnett told those present that the town was currently holding 12% in the investment funds. She continued that “The auditor’s recommendation is for us to bring the investment account down for a number of reasons.” (The auditor later denied making this statement) “one of the main reasons is we look too financially well off for Grant opportunities”. A Selectman at this public hearing asked how much of this amount was in uncommitted funds. Those present were told by the former Finance Board Chairman that “currently there is about $650,000, by the first two weeks in May the account should reach $1.2 million. If the state monies come in the account could reach as high as 1.5 million” (Minutes of April 30. 2004 public hearing on file in Town Clerk’s Office).
The figure of 1.2 million actually was the total of the investment fund but was not the amount of available money to spend. Review of the 2003-2004 auditors report showed only $424,110 was reported in undesignated funds. The remaining amount was listed for liabilities, encumbered money and designated funds. The next year the Auditor adjusted this figure downward to $384,740 after receiving word of additional expenditures he had not included in the original figure.
With such a prediction of $1.2 million, the recommendation of the First Selectman to lower the percentage and not knowing that some of these funds were already spoken for the Board of Finance voted to transfer approximately $308,000 from town funds to the upcoming budget and thereby reduce the taxes needed for the 2004-2005 budget. (See auditors report 2004-2005). They also voted to use more of the money in the investment account and place $546,000 in the Andover Elementary School Expansion Fund. This transfer needed referendum approval and on May 18, 2004 at referendum voters approved this transfer. (See May 4th BOF minutes and Referendum vote of May 18, 2004).
These appropriations proved to be a mistake and a major contribution to the deficit. The amount finally reported by the auditor as $384,000 in undesignated funds was far less then the $1.2 million to $1.5 million Board of Finance members had been told. This amount also failed to include the referendum vote of May 18th of $546,000 that was to be transferred into the Andover Elementary School Fund. But neither the Board of Selectmen nor the Board of Finance was informed.
The 2004-2005 budget began in the red.
With the miscalculation of the anticipated surplus/undesignated funds, it turned out that the $546,000 total for the AES Expansion Fund, which voters thought was deposited into the account by the end of 2003-2004, was never deposited at the end of that fiscal year. Apparently according to her notes the First Selectman planned to take the tax receipts in July of the following fiscal year. The note found read “money would be transferred in the next FY year when the cheque arrives.” Because of this action the new budget included a huge unauthorized expenditure that contributed to a deficit.
During May, 2005 the Board of Finance set a mill rate for the 2005-2006 budget. Communications between the First Selectman, Board of Finance chairman and Board of Finance members weren’t any better. The Board of Finance still believed there was more surplus amount that could be applied to the new budget. Based again on erroneous information the Board of Finance designated $434,881 to offset the new taxes. (See Town Meeting book and BOF minutes of June 22, 2005). It was only in January 2006 when the Board of Finance was given the audit report for 2004-2005 that it realized that there was no surplus or undesignated funds at all. They saw the undesignated funds in the 2004-2005 audit report was blank indicating no balance and possibly a minus balance. This was questioned by the Board of Finance and later answered by the auditor, who confirmed there were no surplus funds at the end of the 2005. Consequently, the designated $434,881 applied to the 2005-2006 budget was never available, and by this time there wasn’t any money to pay back funds that the First Selectman had been withdrawing from the School Expansion Fund to pay the bills. Revenue calculations used to set the mill rate for two years were flawed and the result was the deficit. The town had no reserve money to draw upon.
Problem #2 – Money removed from school fund
School officials subsequent to two town meeting votes in 2004 believed that there was approximately $868,000 in the school expansion account including $546,000 approved by town meeting from surplus and $322,000 from state reimbursement for a previous school construction project, which town meeting also approved by town meeting vote. Because of this belief these funds had been committed to the state as matching funds and a state grants for the new school building project were approved. But by March, 2006, that money was not in this school account. Instead money had been used to pay bills and there was approximately $240,000 in the account locally and the $312,000 still in the state account in New York. In order to maintain the construction grant needed since contracts were signed for the addition, the new BOF realized that there was no alternative other then to stop the First Selectman’s juggling act, pay bills that were accumulating, reimburse the AES account so what was committed in funding by affidavit to the state was there.
Problem #3 – Cashing performance bonds
Continuing the need for cash, the former administration directed the Treasurer to cash out two performance bonds. The Auditor noted “These funds are maintained by the Town, in an agent capacity, until such time as they are released to the contractor, or utilized to properly complete the project . “In an agent capacity, the Town has a legal responsibility to ensure that performance bond accounts are utilized for the completion of a related project, or returned to the contractor upon successful completion of the project.”
The Board of Selectmen and Board of Finance then had no choice but to reimburse these funds in the amount of $46,000.
Problem #4 – Unauthorized contract signed - Proper procedures not followed.
The previous First Selectman and previous Board of Finance chairman signed an agreement to replace Times Farm Bridge without following proper procedures and obtaining approval of Board of Selectman, Board of Finance and Town Meeting vote. Payments for Times Farm Bridge amounting to over $60,000 were paid without even a designated line item. These payments were 80% reimbursable by a federal bridge grant but paperwork was not completed, therefore reimbursements were never received.
Problem #5 – Practices of the past administration that also effected revenue to town
- June 23, 2004 placed $13,450.30 back taxes on suspense list.
- Wrote off $143,000 in back taxes for the budget year 04- 05.
- Wrote off $15,000 in back taxes for budget year 05-06.
- Some reimbursements from governmental grants for dispersed funds were not requested
- Revenue was reduced when the former First Selectman made handwritten changes to a tax bill, reducing the tax but not taking into account that the tax rate was set using the full value of the assessment of the organization.
- Purchases were paid from the general fund that were not authorized.
- The Auditor’s noted that in July 1, 2005 – June 30, 2006 abatement of taxes were granted without the approval of the Board of Finance whose approval is required by law.
Problem # 6 – On expenditure side
While the revenue was being affected by erroneous non-existent money being applied to the budgets and effecting the tax rates and monies collected, on the expenditure side budgets were questionably spent which include but are not limited to:
- Unauthorized expenditure for non-employee insurance benefits $18,000 over several years
- Expenditure for insurance policies for town agencies not authorized.
- Hiring unfunded personnel that are now entitled to unemployment benefits.
- Paved road that was not authorized by the BOS at cost of $38,000
- $8000 phone systems installed with a $2,000 service contract agreed to for a system that does not function well.
- Copier agreement signed for $8,000 with over $1200 a year maintenance contract.
- Personal use of a town credit card which the auditor said in his report he cannot verify were reimbursed to the town.
- Hundreds of dollars spent on $10 pens and $20 engraved calendars and a purchase of a $200 ash tray.
- Three years in a row, Resident State Trooper salary was underestimated when presented to the Board of Finance for a total of $45,000.
Other problems:
After the former First Selectman resigned the following problems were found
- bills were not paid and sometimes found hidden in drawers
- overpayments were made to vendors
- there was ineffective use of the town’s accounting system
Auditor’s concerns in recent audit of 2005-2006 fiscal year:
The auditor in his management letter noted other concerns:
- Checking account was not reconciled again during 2005-2006 year as they had not been in the two previous years.
- Purchasing procedures needed to be reviewed
- Officials needed to verify that there was money in place before spending it
- Revisions were needed in the payroll process to align with contracts and wage paperwork
- Treasurer’s duties needed to be separated from receipts and disbursement duties
- Better budgetary records were needed to list approved expended and amendments to the budget
- If there were transfers between funds the Board of Finance must be advised.
- A time frame and plan must be established by the Board of Finance for repayment of the borrowed funds
- Credit cards must be monitored
The town has a long history of contributing to designated funds. In the long term those funds have saved the town money and enabled us to obtain state grants. The auditor stated in his report if these funds must be dipped into for cash flow, which should be avoided, it must be done using the proper procedure i.e. notification to the Board of Finance of a cash flow problem. Then as the financial authority of the town they should in consultation with the Board of Selectmen decide what action should be taken. Again as the auditor stated a repayment plan should be formalized so that all know what is happening to these funds.
We may never find all inappropriate activities. The above information accounts for the additional taxes that were levied.
Since July
Complete information is being provided monthly to the Board of Selectmen and the Board of Finance. Balances are monitored daily on line for accurate information on our financial situation.
Reimbursement have been applied for and received on grant monies owed to the town from previous years.
Monies in the bank formerly at risk and unsecured are now fully insured by the bank with a Treasury note.
Accounting procedures have been updated
The accounting system will be fully operational this fiscal year, giving easily obtained up-to-date financial information. It is linked to accounts which provide early warnings of possible over spending in budgets so adjustments can be made before a crisis occurs.
Purchasing procedures have been set up. No purchase or procurement of services can be completed without a purchase order that is approved by the First Selectman who checks the line item. In case of emergency appropriations or unexpected expenses, the Board of Finance is notified at its next meeting that a year end transfer between accounts, as outlined in the Charter, may be forthcoming if funds can not be found in other areas to cover the unexpected expenses.
The elementary school addition is near completion without additional cost
The addition of the Community Room at the Town Office Building will be completed in the spring.
No major building projects are on the horizon.
I hope this report puts an end to any uncertainty as to the cause and resolution of Andover’s fiscal dilemma. I am prepared, with your help, to move forward.
Respectfully submitted
Robert F. Burbank
First Selectman
On expenditure side
While the revenue was being affected by erroneous non-existent money being applied to the budgets and effecting the tax rates and monies collected, on the expenditure side budgets were questionably spent which include but are not limited to:
- Unauthorized expenditure for non-employee insurance benefits $18,000 over several years
- Expenditure for insurance policies for town agencies not authorized.
- Hiring unfunded personnel that are now entitled to unemployment benefits.
- Paved road that was not authorized by the BOS at cost of $38,000
- $8000 phone systems installed with a $2,000 service contract agreed to for a system that does not function well.
- Copier agreement signed for $8,000 with over $1200 a year maintenance contract.
- Personal use of a town credit card which the auditor said in his report he cannot verify were reimbursed to the town.
- Hundreds of dollars spent on $10 pens and $20 engraved calendars and a purchase of a $200 ash tray.
- Three years in a row, Resident State Trooper salary was underestimated when presented to the Board of Finance for a total of $45,000.
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