WELLFLEET — Nineteen months after Wellfleet was supposed to close its books on fiscal year 2021, the town finally received that year’s audit from Powers & Sullivan — and it is looking like the same song as the 2020 audit with a different tune.
The 72-page audit is accompanied by a 12-page management letter that outlines three “material weaknesses” along with 14 additional comments on the finance dept.’s deficiencies in internal control. A material weakness is a significant misstatement of the town’s finances that was not prevented, detected, or corrected on a timely basis, according to the management letter.
The first material weakness in the audit is a repeated offense from 2020, Powers & Sullivan’s Reneé Davis told the select board on March 14. The town’s cash accounts continued to be unreconciled in 2021. When the reconciliation was finally accomplished at the end of January 2023, the auditors reported an “unknown variance” of $325,000.
It was a positive variance, however, or, as select board Chair Ryan Curley put it, it was in “the town’s favor.” In other words, the town’s bank balance was found to be $325,000 higher than the book balance.
Davis cautioned the board against thinking of this as good news. “It has not been a consistent variance from month to month,” said Davis. “What we’re finding is that every month it has been a moving target.”
The two other material weaknesses recorded in the 2021 audit had been mentioned in the auditors’ 2020 management letter as additional comments but “have since risen to the level of being considered material weaknesses,” Davis said.
The first was “inadequate design of internal control over the town’s receivable reconciliation process” and the maintenance of documentation to substantiate the town’s receivables. Receivables are monies that come in, such as taxes and grants, said Town Administrator Rich Waldo.
According to the audit, the general ledger contained multiple receivable accounts that were not reconciled, meaning the town accountant and the town’s tax collector did not compare records to confirm the amount of outstanding taxes. Additionally, the amounts in the receivable accounts did not have adequate supporting documentation, such as journal entries, receipts, and wire transfers, the audit found.
“In many cases, the town was not able to provide detail to support those receivable balances,” Davis said. “Or the support didn’t completely tie into the amount on the ledger.”
The largest inadequately supported receivables were the real estate taxes, tax liens, septic betterments, septic loans, and water loans, according to the management letter.
The audit also described the third material weakness as the town’s failure to record transactions to the town’s general ledger in a timely and consistent manner. “If the town isn’t able to produce a general ledger and trial balance to be audited until January 2023 for the 2021 audit, there has to be a material weakness,” Davis said. “I don’t think anybody would disagree with that fact.”
The auditors tested the amounts and disclosures on the town’s financial statements and spoke to employees about conflicting records. They found that it was difficult to obtain answers “without the assistance of individuals who did not have responsibility over the general ledger.”
Of the 14 additional comments in the 2021 management letter, 12 were either unresolved or partially resolved carry-overs from 2020. The review noted “several instances where unionized employees were compensated at a rate falling outside the executed bargaining contract.” Pay periods were not standardized across departments, and timesheets were not properly maintained and did not require the employee’s and supervisor’s signatures for approval of hours.
The audit also discovered the “commingling” of stabilization funds and Other Postemployment Benefits (OPEB) — that is, retirement trust funds — with other funds, meaning the balances and activity in each of these funds were posted to a different expendable trust fund.
The audit also found that the accountant’s office and assessor’s office were not reconciling the tax abatement reserve accounts, and that $111,000 of real estate and personal property tax receivables were out of balance.
One new comment emerged from the 2021 audit, which was that the town’s payroll withholding accounts were in a year-end deficit of $114,000. Withholding accounts contain money to be paid out for health insurance, the county retirement assessment, and state and federal taxes, said Waldo.
Waldo said that the withholding accounts issue has since been resolved.
Town Officials Respond
Although the 2021 audit is alarming, Waldo said, town hall has been working to resolve the problems it reported for the past year and a half.
“None of the information in there is new to us,” Waldo said. “We know all of it, and it’s stuff we’ve been dealing with for the past year. No matter how bad it stings, we still have to go through it, because the public needs to know.”
He added that Powers & Sullivan “has done a good job and has given Wellfleet everything we need.”
But during the March 14 meeting, members of the select board began to question Wellfleet’s longstanding collaboration with the auditing firm.
“You describe a couple of the issues that have risen to material weaknesses as being pervasive,” said Curley. “If there was a pervasive problem, how does an auditor miss that for an extended period of time?”
“We didn’t miss it — it was reported for 2020,” Davis responded.
“It was happening well before 2020,” Curley said. “And in 2019, Powers & Sullivan didn’t issue a financial management letter and delivered the audit six months late.”
Davis said that a management letter is issued only when the auditor discovers a problem with internal controls that is considered a material weakness. She added that the $59,000 of unreconciled cash in 2019 did not rise to the level of being considered a material weakness, and therefore the firm did not write a management letter.
“But if you had a management letter in 2018 with unresolved comments, why was there no management letter issued in 2019?” Curley asked. Vice Chair Michael DeVasto added that the firm had provided management letters up until 2019, when the town’s finances began to spin out of control.
“I can’t answer that,” Davis responded. “I don’t know.”
Powers & Sullivan has been the town’s auditor for the past 27 years. Last year, the town asked for bids on the auditing contract but only Powers & Sullivan responded. “People got scared off,” Waldo said. “There aren’t a whole lot of auditing firms for the Commonwealth, but typically we should see more than one putting in a bid.”
The town currently has a $30,000 contract with Powers & Sullivan for the fiscal 2022 audit, with an option to extend the contract for two more years. “Whether we keep them on is to be determined,” Waldo said.
Waldo added that filing a malpractice claim against Powers & Sullivan “won’t go anywhere.” That action was suggested by retired lawyer Buddy Perkel in a recent op-ed column in the Independent. “I don’t think it’s a solution for the problems we had in the past,” Waldo said. “The auditing firm is the least of my worries. They can only audit the financials that are given to them by the town, and the things that need to be fixed are our responsibility.”
Waldo said he believes the town is rounding a corner. And while Wellfleet is on standby for its 2022 audit, which Waldo said will contain lingering issues from the town’s financial meltdown in 2020, “it’s looking a lot better than previous years.”
The town was able to reconcile its 2022 books within a couple of thousand dollars, “which is where we want to be,” Waldo said. “And we expect that moving forward, because we are routinely reconciling our books now. Things are going to improve, and they will continue to improve. It’s just going to take time.”
