WELLFLEET — As April town meeting approaches, time is running out for the town to sort through its financial disarray.
The Mass. Dept. of Revenue (DOR) has informed the town that it will not certify Wellfleet’s free cash account until the town’s fiscal 2021 audit is done, interim Town Administrator Charles Sumner told the select board on Feb. 8. At the same time, interim accountants Mary McIsaac and Lisa Souve are still working to close the cash books for both fiscal 2020 and fiscal 2021, which also must happen before free cash is certified. They now say that could happen by the second week of March, after which the auditors could start their work.
Cash Wants to Be Free
Free cash is the total of unspent, unrestricted funds from the previous fiscal year. The money is not available for use until the account is certified by the DOR. Wellfleet’s free cash account has not been certified since June 30, 2019, according to DOR spokeswoman Naysa Woomer.
If free cash isn’t certified by town meeting, now scheduled for April 25, the stabilization fund won’t be replenished, which could affect the town’s AAA bond rating. A lower bond rating would mean higher interest rates on borrowing.
Last month, Sumner told the select board that the stabilization fund had been drained of $639,000 since June and that it was important to replenish the fund to maintain the AAA rating.
Sumner said this week that his financial plan had been put in jeopardy by the DOR’s message but that it was still possible to get the accounting work done by town meeting. He also suggested that the April 25 date might be postponed.
The town’s books have been audited for the past 25 years by the same firm, Powers & Sullivan of Wakefield. Sumner told the select board last week that he lacked confidence in the last audit “for obvious reasons.”
In the fiscal 2020 audit, Powers & Sullivan found an unexplained variance of $765,000, which Sumner described as “significant, particularly for a community the size of Wellfleet.”
The firm’s previous audit, for fiscal 2019, did not include a management letter — an unusual omission, given the magnitude of the accounting deficiencies that now are obvious. The auditors have consistently refused to answer questions from the Independent about the reasons for this omission, why other material weaknesses in the town’s accounting practices (such as the lack of balance sheets and a general ledger) were not flagged sooner, and how the upcoming audit will be approached.
Powers & Sullivan is in the last year of a three-year contract with the town that was negotiated by former Town Administrator Dan Hoort. The fiscal 2021 audit will cost $22,900 under that contract.
McIsaac and Souve have been working since last August to close the cash books, “peeling away layers of the onion and identifying problems,” Sumner said. “There’s still some variance and outstanding questions. The best way to provide clarity is for the next audit cycle to wash through the system. While it’s disappointing, it’s not terribly surprising.”
Other than replenishing the stabilization fund, Sumner did not name any other planned uses for free cash at the upcoming town meeting.
Untangling the Accounts
Progress on the books has been slower than expected because of vacancies at town hall.
Assistant Town Accountant Jane Tesson took a leave of absence Oct.1, and former Town Treasurer Miriam Spencer resigned Nov. 30. “We had to backfill on duties we consider to be mandatory and just try to keep the wheels turning,” McIsaac told the Select Board.
The plan now is to close the records and provide the DOR with system-generated documents, finalize a punch list, and get the auditors in, McIsaac said.
The work McIsaac and Souve have been doing for seven months includes inspecting all the records the town has (audit work papers, source documents, and department materials) and then determining beginning account balances. Once those are determined, they make sure that town meeting votes were recorded properly across all the funds.
“We’re looking at receipts and disbursements as much as possible,” said McIsaac. “We came up with an ending balance first for FY ’20 and then carried that into FY ’21 to be able to close both years consecutively and smoothly, produce the records that the DOR would like to see, and also produce the records that are required for our auditors,” McIsaac said.
Souve said each town fund was a project. She gave the community preservation fund as an example.
“I have resigned myself to the fact that I have to rebuild it from fiscal ’20 forward,” Souve said. “Nine hours just the other night on CPC. It’s not done yet.”
Depending on what CPC funds are available at the end of her search, town meeting articles may be affected, she said. At the same time, McIsaac will be working on untangling the Affordable Housing Trust Fund.
Most town funds are now closed or on the verge of closing, the accountants reported. The largest is the general fund.
“We’ve done the lion’s share of work on those balance sheet items to be able to close the years on that,” McIsaac said.
McIsaac said she expects the auditors will complete a satisfactory audit of the town’s records for fiscal 2021 “and render a good opinion accompanied by a constructive management letter.” The management letter should note fixes of items from the previous management letter plus additional items that hadn’t been addressed before, she said.
Last year, the DOR’s Division of Local Services came to Wellfleet and interviewed town staff for a comprehensive report yet to be completed, Sumner said. “We’re anxiously waiting,” he said. “The state department is swamped, but we should be seeing it in the next several weeks.”
The Search Goes On
Sumner’s choice for the position of town treasurer, Cameron Reiss Scott, was to be presented to the select board on Tuesday, Feb.15.
The Town Administrator Search Committee will begin to discuss candidates in executive session, and preliminary interviews have begun for the town accountant positions. During the Feb. 8 select board meeting, Sumner’s contract was extended until May 15, but if someone is hired as town administrator he will leave sooner.
When the books finally close, “Wellfleet can move on, and we can be in a reasonably good place to get a treasurer and town accountant on board with as good-as-we-can-get records,” Souve said.
