I became interested in the East Greenbush, New York government after a concerned citizen contacted me and presented me with evidence of wrong-doing that needed further investigation.
This person had contacted the Governor’s Office, the State Comptroller’s Office, and the State Police. The State Police advised the informant there was credible evidence, but the District Attorney would not act until the State Comptroller’s Office acted.
The State Comptroller’s Office has not responded to several letters the informant provided to them.
I’ve since reviewed the 2009 audit of the East Greenbush financial statements. The 2010 audit is not completed because East Greenbush has fired the prior auditor and hired a new auditor.
Getting up to speed for the new auditor takes some time and the prior audit identified some significant internal control issues that further speak to the problems identified by the concerned citizens.
Here’s what I found:
- The 2009 financial statements had a qualified audit opinion – meaning the financial statements did not present fairly the financial position of East Greenbush. Specifically it said
- “…, the financial statements present only the general fund, special revenue funds, and capital projects fund and do not purport to, and do not, present fairly the governmentwide financial position of the Town of East Greenbush, New York as of December 31, 2009, and the government-wide changes in its financial position and budgetary comparisons for the year then ended in conformity with accounting principles generally accepted in the United States of America.”
- There were material deficiencies in the system of internal control. Specifically,
- Significant accounting and reconciliation entries are required to adjust the December 31, 2009 Annual Update Document. A more timely and complete reconciliation and document review should be developed, implemented and monitored to ensure and maintain a more effective accounting, reconciliation and reporting infrastructure. The general ledger system is currently platformed on a Microsoft Access Database, which lacks access and modification controls and contributes to an increased risk for potential error or misstatement. Our observation of the Town of East Greenbush’s current accounting, reconciliation and reporting process indicates that it does not support the Town’s needs and long-term commitment to strong internal control.
- There were significant deficiencies in the system of internal control. (significant is a term of art meaning not up to the level of a material deficiency, yet important enough to merit attention by those charged with governance.) Specifically,
- There is no systematic method of ensuring that timely and complete monthly reconciliation and closing procedures take place. Accounts receivable, accounts payable, compensated absences, payroll and others were not reconciled on a systematic basis.
- No supervisory review of accounting transactions and month end reconciliations is performed. This allows errors to exist within the books of account, and without subsequent correction they could continue to grow in magnitude.
- There is a lack of segregation of duties within the cash receipts area in the Town Clerk’s office. One employee is responsible for receiving, maintaining records and depositing cash. There is a lack of segregation of duties within the payroll area. One person is responsible for preparing payroll input, entering new employee information, removing terminated employees, reviewing the payroll data as well as distributing payroll checks. There is a lack of segregation of duties within the accounting area. One person is responsible for recording cash receipts, cash disbursements and other related adjusting entries, reconciling cash accounts, as well as having the ability to generate checks with electronic signature. There is also a lack of segregation of duties within the purchasing area. One person has the ability to initiate the purchase order, record the purchase order as well as generate the check for the purchase. The combination of duties in each area indicated above is incompatible and significantly decreases the chance of an error or irregularity being detected on a timely basis.
- There is no formal process of comparing the periodic budget to actual revenues and expenses by senior management. In 2009, the Town has incurred substantial variances between the budget and actual revenues and expenses without adequate documentation of reasons for the variances.
- The Town’s purchasing policy requires an approved purchase order with at least two verbal/FAXed quotes for purchases over $300 to $2,999 for General and $1000 to $2,999 for Highway, and with at least three written/FAXed quotes for purchases over $3,000 to $9,999. During the year ended December 31, 2009, we noted certain purchases with the total amount of approximately $44,000 did not follow the purchasing policy or lacked adequate documentation under the policy as outlined in the Town’s purchasing policy.
- During the year ended December 31, 2009, supplementary compensation was paid to certain employees in addition to their regular salary. There was no formal process of comparing payroll records to approved salaries.
Moody’s Investors Service
The significance of these issues is reflected in the declining credit rating East Greenbush has been receiving from Moody’s Investors Service on its General Obligation Bonds. The following chart is instructive:
According to Moody’s:
The Ba1 rating reflects the town’s depleted financial position after a multi-year trend of operating deficits resulting in a fiscal 2009 General Fund balance equal to negative 22.7% of General Fund revenues. The Ba1 rating balances the town’s depleted financial position against a moderately sized $1.9 billion tax base and above average socio-demographic profile.
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Rating date
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Rating
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Rating Type
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Action
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01 Mar 2011
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Ba1
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Underlying
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RATING AFFIRMATION
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16 Apr 2010
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Ba1
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Insured
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Change in Scale
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16 Apr 2010
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Ba1
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Underlying
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Change in Scale
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10 Dec 2009
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Ba1
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Underlying
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DOWNGRADED
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10 Dec 2009
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Ba1
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Insured
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DOWNGRADED
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13 Apr 2009
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A3
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Insured
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RATING AFFIRMATION
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|
03 Mar 2009
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A3
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Insured
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RATING AFFIRMATION
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05 Nov 2008
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A3
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Insured
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DOWNGRADED
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18 Sep 2008
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Aa3
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Insured
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Possible Downgrade
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19 Jun 2008
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Aa3
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Insured
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DOWNGRADED
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04 Jun 2008
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Aaa
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Insured
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Possible Downgrade
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12 Mar 2008
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Aaa
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Insured
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CONFIRMED
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16 Jan 2008
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Aaa
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Insured
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Possible Downgrade
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09 Apr 2002
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Aaa
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Insured
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NEW
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Aaa – Highest Rating
Aa
A.
Baa
Ba
B
Caa
Ca
C – Lowest Rating
Note: Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating category from Aa through Caa. The modifier 1 indicates that the issuer or obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.
So Back to the Original Complaint
Interestingly, the prior auditors identified the issue of certain town employees receiving supplementary compensation without appropriate controls over its payment – as was initially identified by the concerned citizens.
As I originally reported:
For example, one town employee was paid over $170,000 to be a “town consultant.” The person submitted vouchers for the supposed work done, but was not paid as an independent contractor. Instead, he was paid as an employee. On the surface, something is fundamentally wrong with this.
If you’re a consultant, unless you have some special expertise that justifies a sole source contract, this work should have been competitively bid.
More importantly, favored individuals shouldn’t be getting government business. State and municipal law require all vendors get a fair opportunity to get government’s business.
But why pay him as an employee and incur additional payroll costs? The less expensive way is to pay him as the independent contractor he seemed to be from the vouchers he submitted (employees don’t submit vouchers, contractors do).
The town incurred additional payroll taxes and pension contributions that were unnecessary by paying him as an employee.
The Solution
It’s clear the agencies with oversight responsibility have fallen down on the job.
Hopefully, the voters of East Greenbush recognize the job now is in their hands. They need to vote for people who will recognize accountability for government resources is the responsibility of the elected officials entrusted with tax dollars.
East Greenbush residents deserve better than what is now happening.
The Solution
It’s clear the agencies with oversight responsibility have fallen down on the job.
Hopefully, the voters of East Greenbush recognize the job now is in their hands. They need to vote for people who will recognize accountability for government resources is the responsibility of the elected officials entrusted with tax dollars.
East Greenbush residents deserve better than what is now happening.