WESTBROOK - A recent audit report from Roberts, Green and Drolet has shed some light on just what went wrong with Westbrook’s finances, especially in the school department’s 2009, 2010 and 2011 budgets.
The report is giving city officials a better grip on the situation than they have ever had before, according to School Superintendent Marc Gousse and City Administrator Jerre Bryant, who laid out the issues in interviews this week. Both said that new measures in place would prevent similar financial problems from occurring again.
The report, released this spring, led to an understanding of a $756,000 school department shortfall from fiscal year 2010, which passed over to 2011, and later 2012, as a debt before the City Council, through approving the 2012-2013 budget this year, offered to pay off the deficit with money from the city’s fund balance.
Signs of disarray in the city’s bookkeeping first became public in 2010, when the city rejected the 2009 audit from the South Portland accounting firm of Runyon Kersteen Ouellette.
That firm, city officials said, conducted annual audits of the city’s finances for years. It did not find any problems with the finances for the fiscal year 2009, but a follow-up audit, conducted by Roberts, Green and Drolet, of Barnstead, N.H., found a number of what city officials have in the past referred to as “red flags.”
In particular, that firm noted a lack of checks and balances in the finance department, lack of supporting documents for balance sheets, and balance sheets that “do not present fairly” the financial position of the city as of June 30, 2010.
The problems led to gaps in the city’s books that, at the time, could not be explained, gaps that amounted to thousands of dollars in some places. Other financial data, officials have said, were unreliable without proper vetting from a trusted auditing firm.
As auditors from Roberts, Green and Drolet, and city and school officials struggled to understand the financial issues, both the city and school budgets suffered from shortfalls in state and federal revenues, leading to massive budget gaps, especially on the school side, that wound up costing jobs and leading to the city’s first municipal tax increase in years.
According to Gousse and Bryant, the report uncovered misrepresented funds in the school department, left over from the end of the 2009 budget. That year, according to the audit, the department managed to finish 2009 in the black by $418,000, carrying that money over into the 2010 budget.
At the same time, the audit confirmed that the department was in the red at the end of 2010 by $456,000. After applying the newly discovered $418,000, the report showed that the district still had a shortfall at the end of the 2010 fiscal year, but only by a little more than $38,000.
But there were more problems. The audit report also uncovered a major oversight in spending from 2010. Normally, Gousse said, a school district’s fiscal year ends on June 30, after the school year is over, too.
But as teachers and staff members have summers off, the school department is expected to hold over money from the previous fiscal year to pay salaries through the summer. Due to what Gousse described as an “oversight” by the finance department, in 2010 that didn’t happen. Instead, that money, paid out through the summer of 2010, was pulled out of the fiscal 2011 budget, totaling more than $750,000.
With all the corrections, according to the audit, the school department ended the 2011 fiscal year with a total shortfall of $762,864. The correction took the form of a holdover debt, which had to be paid off to balance its books.
Gousse said he took over as superintendent in the spring of 2011, late in the fiscal year, and the newest audit reports weren’t available yet. But as Gousse took the reins, the city already sensed something was wrong. By now, Bryant said, the city had hired Dawn Ouellette as the new chief financial officer, who, as Roberts, Green and Drolet auditors were processing the city and school department’s books, was also trying to untangle the situation.
“She knew there was an issue, and it took the auditors to confirm the numbers,” Bryant said.
Even before he knew the exact figures, Gousse said, he was already taking steps to cover the $762,000 shortfall, setting up what he called a “deficit appropriation.” Starting in fiscal year 2012, Gousse said, he was planning to dedicate $250,000 of the department’s annual budget toward paying off that shortfall, which continued to dog the department.
Instead, Bryant said, he and the City Council stepped in to help. Bryant said since he started as city administrator 11 years ago, the city’s budget has included what he calls a “fund balance.” Most municipalities, Bryant said, set this up as a sort of “emergency fund” designed to cover unexpected shortfalls.
The 2011 audit confirmed that the fund stood at $9,049,076. New changes to city policies, enacted by the council in February, Bryant said, set rules for how much should be in the fund, what it should be spent on, and other conditions.
As part of that policy change, the city now requires that fund to represent approximately 20 percent of the city’s annual budget, which is approximately $6.1 million.
Rather than sit on nearly $3 million in extra taxpayer money, Bryant said, the city elected to use the extra funds to pay for fiscal year 2013 capital improvement expenses, and also to pay off the school department’s deficit, relieving the department of a burden of $250,000 through the next three years.
“We felt that a quarter of a million dollars was going to continue to handicap the school department,” Bryant said.
Gousse said that money will now instead be folded into the regular budget, and that he and Bryant are putting mechanisms and personnel in place to better monitor the city’s money in the future.
Ouellette resigned for personal reasons in December 2011. Bryant said the restructured finance department, which covers both municipal and school budgets, now works so well that the city no longer needs a full-time chief financial officer, so that position has been eliminated.
But Alicia Gardner has been named the city’s comptroller, which is a new position that will oversee the day-to-day duties of the finance department. The city plans to hire outside accounting firms on an as-needed basis during busy periods such as the annual budget season, Bryant said.
On the school side, Gousse said, the department has hired Dean Flanagin as the new director of operations, replacing Jeremy Ray, who left to take a job as superintendent of the Biddeford School Department. Flanagin, Gousse said, has a master’s of business administration degree, and served for 15 years as business manager of the Lewiston School Department. He will, Gousse said, help keep the department’s books straight.
The school budget shows some signs of improvement. Gousse said the city’s figures for fiscal year 2012 show that the department actually is in the black again, partly due to further curbing of the department’s spending during the 2012 fiscal year.
Early estimates, Gousse said, are that the department is more than $700,000 ahead. When asked if he made sure that included salaries for the summer of 2012, he indicated they were, saying, “Checked it four times.”
That extra funding, Gousse said, will go toward capital improvement projects such as roofing on the high school, and an elementary everyday math program. Gousse said he is confident that the 2012 audit report, due out next spring, will confirm at least a $500,000 overage.
If it turns out there’s even more money than that available, Gousse said, he didn’t know what he would do with it yet.
“That’s a very good problem for the community to have,” he said.