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October 25, 2012

 

DiNapoli: Inadequate Oversight Contributed To Newburgh's Poor Financial Condition

Newburgh officials failed to accurately track the city's budget which led to millions of dollars in shortfalls and a higher than necessary tax hike for residents, according to an audit released today by State Comptroller Thomas P. DiNapoli.

The audit revealed the city, after failing to account for a $1.3 million deficit, passed an unbalanced budget in 2010 that created a new $6 million shortfall. The city then closed the gap in 2011 with a 41 percent tax levy increase.

DiNapoli's auditors determined the city's inaccurate financial records and the failure to address poor recordkeeping practices hindered the city council's ability to monitor financial operations. Auditors found Newburgh's financial position was essentially unknown to the city council for five years.

"For too long, oversight of the city's finances was unacceptably weak," said DiNapoli. "Although the city made progress in addressing its budget condition after our audit was complete, Newburgh still has considerable financial issues that require continued attention."

In Newburgh, city managers and comptrollers failed to perform the routine and basic activities needed to maintain complete and accurate records. City council oversight was so diminished that the poor condition of the accounting records went unnoticed from 2007 through 2010. Officials also failed to prepare and file the city's annual financial reports to the Comptroller's office in a timely manner for a number of years.

Additional audit findings include:

  • The city paid more than $570,000 in interest charges for borrowings that they did not need.
  • No revenue was collected by the city through its non-owner occupied rental property registry in 2011, although code enforcement for these properties cost an estimated $453,000.
  • Officials did not establish policies or procedures for the enforcement of utilities gross receipts tax and franchise fees, and as a result, the city failed to collect all the revenue it was entitled.

As a result of the audit, DiNapoli's office made a series of recommendations. They include:

  • Require the city manager and comptroller to maintain complete, accurate, and reliable financial records and prepare periodic and timely reports for the council to use to assess the city's financial position and make informed financial decisions;
  • Ensure only available unexpended surplus funds are appropriated; tax levy increases are supported by documentation; short- and long-term debt is only issued after completion of a thorough cash flow analysis; and long-term financial plans are completed;
  • Identify new sources of non-property tax revenue to help pay for the services provided by the city. For example, auditors noted the city could generate up to $930,000 in additional revenue by replacing its rental registry fee with an annual fee to cover the cost of monitoring non-owner occupied rental properties; and
  • Establish written policies to analyze, monitor, and enforce the collection of cable service franchise fees and utilities gross receipts taxes. Without proper monitoring and analysis, there is a risk that the city may not collect all the revenues it is entitled to.

Current city officials disagreed with some of the audit findings and stressed that many of Newburgh's financial problems were the result of unrealistic budgets and poor financial oversight during previous administrations and that the audit does not give current officials enough credit for the corrective actions they have taken. Their full response is included in the audit.

Recently, DiNapoli's office unveiled details of a new fiscal monitoring system that will calculate and publicize an overall score of fiscal stress for municipalities and school district across the state. The 'early warning' system will identify those headed down the path to fiscal crisis sooner and give local officials and the public sufficient time to discuss options for turning things around.

For a copy of the report visit: http://osc.state.ny.us/localgov/audits/cities/2012/newburgh.pdf


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