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‘UNREALISTIC BUDGETS’: State says Seneca Falls Town Board failed to budget properly, provide necessary oversight to finances

The second report highlighting the Town of Seneca Falls’ failure to maintain appropriate oversight and records was released by the New York State Office of the Comptroller this week.

Auditors were tasked with determining whether the Town Board and Town Officials effectively managed and provided oversight to the Town’s financial operation.

The findings report highlighted several issues. According to auditors, the general, water, and sewer funds were $2.7 million, $1.7 million, and $3.8 million in 2017. The amounts represent 55%, 92%, and 136% of 2018 appropriations for each respective fund.

The findings also indicated that the Town Board had not adopted a multiyear financial and/or capital plan, which would have helped establish adequate reserves.

Auditors initially examined the period between Jan. 1, 2015 and July 10, 2018, but ultimately extended the examination period to Dec. 4, 2018. This was part of the state’s effort to gain understanding into the budgeting trends for legal and engineering services sought out by the Town of Seneca Falls.

The Board Adopted Unrealistic Budgets, Which It Did Not Appropriately Monitor

Auditors say the Town Board did not effectively manage and monitor the budgets for the general, water and sewer funds. As a result, total fund balance decreased significantly in the general fund between 2015 and 2017 by $2.89 million. It was a reduction of 68% due primarily to a significant one-time expenditure for the Town hall capital project, along with unbudgeted engineering and legal fees.

Auditors say the unrestricted fund balance of $2.7 million at year-end, or 55% of the 2018 appropriations – remains excessive. Auditors say the unrestricted fund balance in the water and sewer funds increased between 2015 and 2017 by approximately $830,000 – or 87% and $1.9 million – or 54%. The increases occurred due to the Board not adopting budgets that included realistic estimates for revenues and expenditures. Furthermore, auditors were critical of the board’s failure to establish written policies governing the unexpected surplus funds that the Town should reasonably maintain.

Auditors say that Town Officials informed them that the amounts in water and sewer funds were going to be used for significant upgrades to the system.s However, because the funds were unrestricted, this intended purpose is not clear or formally established. Again, auditors noted a lack of long-term planning to support maintaining such ‘a significant’ fund balance level.

Auditors say the variances in each fund were driven by a variety of factors, including inaccurately budgeting personnel and utility expenditures. Town officials told auditors that budgeting for these accounts is difficult because utility use and prices are variable and personnel are often changing due to salaries and pay rates, which also vary. Further, revenues received from the host agreement, which are based on the landfill’s annual revenues, were often under-budgeted.

“We identified a history of significant variances in accounts related to legal and engineering services, for which the Town expends significant funds annually. Due to current litigation and projects, these fees were significantly overexpended in 2018,” Auditors said in the report. “Historically, the Board did not receive or request budget status reports detailing the year-to-date results of each revenue and expenditure account and necessary budget modifications. Without this information, the Board did not have an accurate depiction of the Town’s finances with which to make decisions. As a result, appropriation accounts were often overexpended and transfers were not made until year-end. As of May 2018, the account clerk began providing budget status reports to the Board prior to the monthly meeting.”

The Board Did Not Adopt Multiyear Financial and Capital Plans 

Auditors say the Town Board failed to develop and adopt comprehensive multiyear financial and capital plan. “Such documents are especially important given the unknown nature of payments from the landfill under the host agreement. The Town is currently involved in litigation with the landfill and it is unclear if the landfill will continue to make payments while the litigation is ongoing,” auditors said in the report.

The payments account for nearly $3 million annually, or 25% of the Town’s total budget.

“Historically, the Board budgeted to use these revenues for operations, which allowed the Town to maintain a low tax levy. Because it was uncertain whether payments would be received, the Board did not budget for host agreement revenues in 2018,” the auditor’s report added. “Therefore, an increase in the tax levy of $2.37 million (89 percent) was necessary to fill this revenue gap.”

Auditors said that while the Town received host agreement revenues in 2018 – officials need to plan what services it will continue to provide and how to fund those services absent the landfill revenue in the future.

“Town officials informed us that the water and sewer infrastructure will require upgrades estimated to cost $24 million over the next several years,” auditors explained in their report. “However, minimal reserves are maintained, and a formal reserve plan has not been developed.”

While unrestricted fund balance in each of the funds is excessive, the sewer fund has less than 25% of its total fund balance in reserves, while the water fund has no reserves as of 2017.

“Further, the unrestricted fund balance in either fund would not be adequate to fully support these repairs. In total, the available fund balance in the water and sewer funds is approximately $6.94 million, or enough to fund 29 percent of the estimated repairs and upgrades,” auditors added.

“The lack of comprehensive long-term plans inhibits the Town’s ability to effectively manage finances and address needs without overburdening taxpayers. Town officials must remain cognizant of future needs and available revenue streams when strategically planning,” the Comptroller’s Office concluded.

Auditor’s provided the following explanation for what effective management looks like:

“The board is responsible for making financial decisions that are in the best interest of the town and its taxpayers. The board may retain a reasonable portion of fund balance for unforeseen circumstances and to provide cash flow – for example, to compensate for timing differences between revenues and expenditures. Sound budgeting helps ensure that budgets include realistic estimates for revenues and expenditures and appropriate a reasonable amount of fund balance based on historical or known trends. The Board should establish written policies governing the unexpended surplus funds that should be maintained. If there are insufficient appropriations, a budget transfer moves funds from one appropriation account to another to avoid overdrawing the account. The board is responsible for monitoring expenditures to ensure they stay within annual appropriations and for reviewing budget status reports to determine if significant variances exist. Multiyear financial and capital plans for a three- to five-year period help the board assess long-term needs and alternative approaches to financial issues, such as accumulating fund balance, obtaining financing or using surplus funds to finance annual operations. The board can legally set aside or reserve portions of fund balance to finance future costs for a variety of purposes – for example, capital projects. A formal reserve plan should be adopted that clearly communicates to taxpayers the purpose and intent for establishing each reserve fund, the manner in which the Board will fund and maintain each reserve fund, and the optimal or targeted funding levels and conditions under which assets will be used or replenished.”

The Board Did Not Ensure Adequate Contracts Existed and Did Not Appropriately Monitor Contracts and Agreements

Auditors examined a series of third-party contracts with private operations throughout the Town. Here’s how the 10 contracts fared under the audit.

Seneca Meadows Host Agreement

“The host agreement requires the landfill to provide specific reports to the Town on a regular basis, along with a copy of its annual audit and to make payments quarterly. We confirmed that the Town receives reports as stipulated and that payments are made quarterly. The reports are maintained in the Town Clerk’s office, but there is no evidence that these reports are reviewed by the Board or a designee and the information verified. Because host agreement funds are a significant revenue source to the Town, and these payments are based on the landfill’s quarterly self-reported gross receipts, verification of this information is especially important.”

House Rental Agreement with WWTP Operator

“The Town has a lease agreement with the Chief Wastewater Treatment Plant (WWTP) Operator to rent a house that is within the water treatment plant property5 fence for $600 per month. The executed and signed lease agreement could not be provided, and only an unsigned copy was available, which was outdated. In January 2018, the Supervisor unilaterally approved the discontinuance of rent payments, in lieu of a raise for the Operator. This decision was not approved by the Board, nor were Board members aware of it until July 2018. Rent-free housing may be a taxable benefit; however, the Town was not withholding taxes from the employee for this additional amount nor was there evidence that a determination had been made that it should not be taxed.”

Out-of-District Sewer Customers

“The Town has some sewer customers that are outside the Town. However, the Town did not have contracts, or contracts were outdated, for these customers. These specific contracts are important because unpaid sewer bills cannot be re-levied through taxes for outside Town customers, which is a significant enforcement method.”

Payments to Local Economic Development Corp.

“The Town pays approximately $55,000 annually to the local economic development corporation without a contract detailing services to be provided. Town officials could not provide a definitive response to support what these funds were used for or the specific services provided.”

Payment to Local Museum ‘Without Consent’

“The Town pays $5,000 annually to a local museum without a written agreement detailing services to be provided, which would constitute a donation or gift of public funds to a private organization for which there is no statutory authority.”

Auditors say that without written contracts or agreements, the intent of the Town and related parties is unclear. “A lack of contracts could result in additional liabilities to the Town. By not periodically monitoring contracts and agreements, the Board cannot ensure that related parties are complying with contract terms in the best interest of its taxpayers,” auditors concluded.

Auditors suggested that the board should do the following:

1. Develop and adopt budgets that include realistic estimates for revenues and expenditures, and which appropriate a reasonable and necessary amount of fund balance.

2. Establish written policies governing the amount of unexpended surplus funds that the Town should reasonably maintain. 5 The property is surrounded by a fence, and access is restricted.

3. Ensure that budget transfers are made in a timely manner so that budget line items are not over expended. Transfers should also be presented to the Board for approval at the next Board meeting.

4. Develop and adopt comprehensive multiyear financial and capital plans for a three- to five-year period that assess long-term needs and alternative approaches to financial issues.

5. Adopt a formal reserve plan that clearly communicates to taxpayers the purpose and intent for establishing each reserve fund, the manner in which the Board will fund and maintain each reserve fund, and the optimal or targeted funding levels and conditions under which each fund’s assets will be used or replenished.

6. Review all contracts and agreements periodically to ensure they are in place where necessary and that terms are still relevant and updated.

7. Review the tax implications of providing free housing as compensation to an employee.

8. Establish procedures for contract monitoring to assure that all services are provided to the Town as documented, and parties generally comply with contract terms.

In a response letter dated April 1, 2019 Supervisor Lazzaro said he agreed with the findings of the audit report. Click here to read the full-report.

Reporting in this story by News Director Josh Durso. He hosts a pair of podcasts on FingerLakes1.com. Check out Inside the FLX and Sunday Conversation each week on FingerLakes1.com.  Email tips and leads to josh@fingerlakes1.com.

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