WELLFLEET — The adoption of new accounting software and the turnover of personnel were blamed by auditors this week as the causes of their finding a “material weakness” in the town’s internal controls in the most recent audit. Such a finding is the most serious level of deficiency possible in a financial audit.
“We’ve been auditing the town since 1996 and we’ve never had any issues to the magnitude that we’re dealing with now at all,” Michael Nelligan, a partner and audit manager at Powers & Sullivan, told the select board on Tuesday. “You combine a turnover in the accounting department with trying to implement a new system and it’s just a recipe for failure, and that’s basically what happened.”
While management letters have been issued to the town’s financial officers in the past, Nelligan said, they were usually operational efficiency recommendations. “Whatever we put in there, the town certainly addressed on a timely basis,” he said.
The fiscal 2019 audit did not include a management letter, even though it now appears that the current crisis in the town’s finances was years in the making. “I made a decision that it was really late in the process to issue a management letter,” Nelligan said. “Why don’t we give them another year and let them get the VADAR [new accounting software] implementation finished, and we’ll see how next year’s audit goes.”
The auditors were able to reconcile about a $5 million difference between the treasurer’s balance and the town’s general ledger balances in the fiscal 2020 audit. An “unknown variance” of $765,000 was determined by Nelligan to be related to “the agency fund,” which was “totally out of balance,” he said.
“It made sense that that entry for $765,000 to increase the town’s cash on the ledger side would go into that agency fund,” he said. “Although it was written up in the management letter as unidentified, I’m very confident that’s what the problem was.”