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December 21, 2007

DiNapoli: Proper Oversight Could Have Prevented Town of Mamakating’s Financial Woes

Town Overstated Cash Balance by $1.25 Million

Insufficient oversight and extremely weak controls over financial operations in the Town of Mamakating led to the town’s fiscal stress which included overstating the town’s cash balance by $1.25 million and not collecting $144,000 in fees, according to an audit released today by State Comptroller Thomas P. DiNapoli.

“It’s the duty of public officials to responsibly manage taxpayer dollars,” DiNapoli said. “When the basic fundamentals of responsible government finance are not met, everyone loses.”

The audit found deficiencies in internal controls, combined with a lack of board oversight, resulted in errors that were not detected and corrected in a timely manner. These errors led to misinformed decisions by the town that had long-term, detrimental financial effects on the town’s finances.

Auditors determined the supervisor did not meet the fundamental expectations of his financial duties. He assumed the town’s accounting firm was performing significantly more accounting work than they were contractually required to do. This caused the board to make decisions based on incomplete and inaccurate financial records. Auditors found:

  • The supervisor reported to the board that the town’s general fund cash balance was $1.3 million as of June 2006, when in reality the town’s balance was only $50,000. The error occurred because town employees failed to record $1.25 million in wire transfers and payments in the town’s accounting records.
  • The supervisor did not reconcile accounting records with bank account balances from December 2005 through August 2006. Such reconciliations would have detected the unrecorded wire transfers and payments.
  • For the town’s 2005 annual report, the supervisor did not update accounting records to reflect the adjusted figures used by the town’s accounting firm. The supervisor’s failure to maintain complete, accurate and timely financial information caused the board to make uniformed decisions about the town’s operations.

Auditors also discovered the board failed to provide adequate oversight of the town’s financial operations including:

  • failing to determine if budget projections were realistic and if the town had sufficient cash resources to pay for services;
  • attempting to balance budgets by appropriating highway fund balances when none existed;
  • insufficiently budgeting for the town’s capital infrastructure and deferring maintenance of the town’s equipment and roads, which decreased their quality; and
  • failing to provide minimal oversight of the supervisor’s financial operations through an annual independent audit as required by town law.

Auditors also learned the town did not collect $144,000 in building department revenue that it may have been entitled to because town employees incorrectly calculated fees and did not enforce the renewal fee for expired permits.

DiNapoli’s audit recommends the supervisor and board:

  • take immediate action to strengthen the town’s control environment and establish a proper system to manage the town’s finances;
  • maintain complete, accurate and timely accounting records;
  • reconcile net cash in the bank to cash balances recorded in the accounting records;
  • review the town’s contract with its accountant and clarify what services are to be provided;
  • should not adopt budgets that appropriate fund balances that are larger than what is actually available; and
  • ensure all fees are collected as authorized by the town’s fee schedule.

In addition, DiNapoli’s audit recommends the supervisor and board members should attend training on the financial operations of towns, such as that offered by his office’s division of local government and school accountability.

The town’s response is included in the audit.

Local Government and School Accountability
The State Comptroller’s office is responsible for monitoring the fiscal affairs of local governments and school districts statewide. To help local government and school officials successfully fulfill their public duties, each year the State Comptroller’s office offers numerous training sessions on accounting procedures and governmental accounting as well as customized training and workshops on a variety of other topics. In 2006, more than 12,900 local government and school officials attended 95 training sessions across the state.

Click here for a copy of the audit.



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