WELLFLEET — A long-awaited financial management review by the state Dept. of Revenue (DOR) blames a “lack of definitive leadership” for the town’s “years of distress, inconsistent financial planning, and loss of community confidence.” The review calls for sweeping institutional changes to impose basic financial procedures and foster accountability “from top policymakers on down.”
The 37-page report from DOR’s Division of Local Services was delivered to the Wellfleet Select Board on Jan. 25 and made public on Feb. 24. There was no immediate explanation for why the scathing review, with 20 recommendations for policy and management change, was kept under wraps for more than four weeks.
“Over the last few years,” the report states, “Wellfleet has labored to provide steady leadership, financial stability, proper procedures, and an environment that fosters communication and collaboration.” A major cause of problems has been staff turnover. In the past 10 years, the DOR reports, Wellfleet has had six town administrators, six assistant town administrators, nine town accountants, and six treasurers.
The list of deficiencies in the review is long and includes several items that raised concerns at the DOR. They include “nonconformance with generally accepted accounting practices,” “breach of internal controls in the treasurer’s office,” and “notice from the Securities and Exchange Commission (SEC) for violating continuing disclosure requirements” related to the issuing of municipal bonds.
The DOR cited the town’s failure to submit Schedule A, a year-end statement of revenues, expenditures, and balance sheet information that is due annually by Nov. 30. Town Administrator Richard Waldo reported on Tuesday that Schedule A has now been submitted. He declined to respond to a question about the notice to the town from the SEC.
‘Inaccurate and Incomplete’
“Over the last three years,” the state reviewers wrote, “financial reporting to the Division of Local Services has been inaccurate and incomplete. The FY2020 and FY2021 year-end balance sheets and accompanying documentation, for example, were not completed for free cash certification due to the fact that the annual audit could not be completed, which was caused by the town’s inability to close its books.”
This, in turn, means that the town is not permitted to spend what is likely to be at least $2 million in so-called free cash, which refers to unexpended funds from previous fiscal years. The average annual amount of Wellfleet’s free cash for the 10-year period from fiscal 2011 to fiscal 2020 was $1,173,455.
The town’s inability to use free cash for the last two years has led to an increased reliance on property taxes and transfers from reserve funds. The DOR review notes that “average single family tax bills have increased close to 40 percent in the last six years, from $4,399 in FY2018 to $6,088 in FY2023.”
Meanwhile, the town’s reserves have been dangerously depleted. “As a matter of best practice,” the DOR reported, “it is recommended that combined reserves amount to at least between 10 and 15 percent of the operating budget, or more for smaller towns.” In fiscal 2014, the town’s reserves amounted to 11.7 percent of the operating budget. By fiscal 2022, this number had dropped to 4 percent, “significantly lower than the recommended target,” the DOR observed.
The town’s books for fiscal 2022, which ended last June 30, are still not closed. “Cash and receivables are not reconciled to the general ledger,” the review states, “resulting in the balance sheet and other information for FY2022 to be pending as of this report.”
In plain English, the report says that Wellfleet still does not have accurate books.
The town’s “unorganized and mismanaged finances,” in the review’s words, first came to light in early 2021 and resulted in the presentation of an unbalanced budget at that year’s annual town meeting, which had been delayed until late June. The town administrator and town accountant had both resigned on April 23. No explanations were given by town officials for either resignation.
In its review, the DOR found that “many financial operations are paper driven and lack consistency, such as timesheets, accruals and turnovers, and some staff seem ill-equipped and not properly trained.” The report does not specify which staff members it is referring to.
Some of the problems were attributed to a “poorly executed conversion to the VADAR Systems financial software,” which had been overseen by former Town Administrator Dan Hoort, who had previously served as finance director in Provincetown. “This conversion,” the review states, “initiated a total destabilization of the town’s finances.”
Among the DOR’s recommendations is that the town “procure new auditing services.” The work of Powers & Sullivan, the town’s auditors for the last 27 years, has been questioned because no management letter accompanied the fiscal 2019 audit even though serious deficiencies and errors had been found. The report notes that financial experts recommend that municipalities “change external auditing firms every five to eight years.”
Wellfleet has been unable, however, to find another firm willing to bid on a contract to carry out the town’s audit, for which the town has been paying about $25,000 per year. It put out a request for proposals, and nobody but Powers & Sullivan responded.
The DOR also warned that the town has been relying too heavily on Proposition 2½ overrides to fund operations. “This growing dependence on overrides, as well as debt exclusions for capital purchases, is a cause for financial concern,” the review states. “In the last 12 years, taxpayers have approved 15 of 19 override requests, including six for the current FY2023 budget. The town’s permanent overrides in total represent $3.1 million or 15 percent of the $20,540,850 tax levy base.” This represents an increase from 2.3 percent in fiscal 2012.
Among the DOR’s recommendations is that the town be prepared to set its tax rate and send out property tax bills on time. “The October 1 date has been missed in seven of the last ten years,” the report states, “reflecting bad policy and poor practice for a community that needs to build credibility in the way it manages municipal finances.”
Other recommendations include hiring a finance director and combining the offices of treasurer and tax collector. The review calls for the town to seek professional training for its financial staff, to implement standard financial reporting methods, and to institute financial management team meetings. The town needs to develop a financial plan, the DOR says, including policies and long-range forecasting, and it ought to publish a comprehensive budget document.
These changes, the report concludes, “will require all involved, from top policymakers on down, to display a sense of diligence and responsibility for changing the narrative and restoring the community’s financial management reputation.”
On Tuesday the DOR’s Zack Blake would not directly answer a question about whether the state was considering recommending that Wellfleet be placed in receivership because of its longstanding financial problems.
