A change has come to New Canaan financials
Updated 2:19 pm, Thursday, May 2, 2013
"Changes" was the word of the night at the Town Council audit meeting Tuesday, April 30, as time after time, new audit firm O'Connor Davies had to change and adjust previous accounting practices in the fiscal year 2012 audit.
A presentation by O'Connor Davies accountant Marcia Marien and an accompanying management letter to the town made it clear this week that while no money was missing from town coffers, a good deal of it had been mislabeled or otherwise incorrectly stated, leading to material misstatements.
"We made significant adjustments to your numbers," Marien told the Town Council.
About $10 million had been relabeled or adjusted, but the thrust of the O'Connor Davis management letter indicated that it was accounting processes, not individual mistakes, that would have to be corrected going forward.
Marien noted that many of the problems already have been addressed by the town and said she did not expect any material weaknesses in the fiscal year 2013 audit. She said some of the issues stemmed from the confusion of switching audit firms and financial systems.
The report noted that surpluses from capital projects were built up in some of the town funds and then used to pay for projects, which did not go through the proper appropriation process.
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"There is no indication the capital projects carried from fiscal year 2011 into 2012 were approved by the Board of Finance," the management letter states. "In addition, expenditures related to the capital projects was paid directly out of the reserve fund and not shown on the income statement. This has caused the expenditures to exceed the approved budget."
"Management did not have adequate financial reporting to make decisions and comply with budgeting rules and regulations in the Town's charter," according to the report. "The financial reports that were being produced were materially misstated."
Some of the procedural issues had apparently been going on for years, the report said. One of those was the lack of a monthly closing and accounting of transactions.
"The cash balances in the accounting reports were at times incorrectly reported by millions of dollars, but the misstate in the revenues and/or expenditures were also misstated by equal amounts," the firm's management letter states. "This appears to be how the bank reconciliations had been done for multiple years."
Town Council member Penny Young asked how the problems could be solved, and if more staff might be necessary in the finance department.
"I think what needs to happen is that all boards have to raise expectations and expect to get a financial report every month," Marien responded. "It might be a checklist and someone monitors that it actually gets done. You have every right to be nervous."
Before January 2012, then-Finance Director Gary Conrad, and the audit firm McGladrey LLP, had served the town for the previous 17 years. Since January, when Robert Mallozzi replaced Jeb Walker as first selectman and Conrad resigned as finance director, there have been many changes made to procedure.
"Over the last few years we've had some issues," with the town's independent auditors, Town Council Chairman Mark DeWaele began the meeting. "In the last few years these management letters we were receiving went from pages, to page, to a few comments. (Interim finance director) Kathleen Corbet, Mallozzi and myself recommended going out for a new CPA firm. Instead of a few pages, one page, or a few items, we got a 36-page management letter this year."
Mallozzi did not attend the meeting, saying he was out of town, but that he is well-versed in the findings of the management letter.
The Town Council resolved to use the management letter as a guide to fixing whatever problems remain unaddressed with the town's finances.
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