Town officials and residents express surprise and frustration regarding audit report and mil rate impact.
On August 31, Select Board and Budget Committee conducted a joint workshop, followed by a community forum. The meeting was called by Select Board Chair, Brian Sites, to address questions regarding information from the FY20 audit report and the higher-than-expected mil rate increase. Interim Town Manager, Chris Bolduc, gave a high-level summary of issues that contributed to the raise. Sites stated the meeting was to share what information the Select Board had at this time. He cautioned against speculating and committed to finding answers to any remaining questions.
Tax bills were posted on August 19.
Based on Town Meeting (June 2021) votes regarding budget warrant articles, North Yarmouth mil rate was projected to increase from 16.55 to 16.81. However, tax bills were calculated using actual mil rate of 17.10.
A number of changes occurred from the time warrant articles were posted for North Yarmouth’s Town Meeting to commitment. These included valuation and assessment changes, increases to municipal appropriations, published restrictions to ARPA fund qualifying expenses, discrepancies with Wescustogo Hall construction fund, and modifications to the overlay.
At Town Meeting, residents approved 2.7% in additional appropriations, which included Cumberland County Sheriff coverage and Mill Road paving. Additionally, Tax Increment Financing (TIF) assessment was under projections by $38,948, with actuals at $368,552. Final taxable valuation base for North Yarmouth was $4.6M higher, at $597M.
The most significant impact was associated with disqualification of American Rescue Plan funds (ARPA) as a revenue source. North Yarmouth projected to apply $192,617 to offset the mil rate. In May 2021, federal guidelines were posted restricting how these funds could be used. Criteria was related to COVID and very specific. Application to General Fund expenses was not a valid use, rather, expenses needed to be related to losses incurred due to COVID. North Yarmouth was not the only municipality affected. Bolduc confirmed that Cumberland and other municipalities were impacted by the ARPA fund use restrictions.
Total ARPA funds are expected to be approximately $408,000. Bolduc will explore options for ARPA fund uses and bring proposal to Select Board.
Further surprises with Wescustogo Hall building fund added to the problem. Unexpended funds were anticipated to be $100,000. At the end of the 2019 audit, $316,000 remained. However, the 2020 audit indicates a deficit of $143,289.40. It is unclear what happened. Preliminary investigation does not show any obvious mistakes. Bolduc did note there is also no clear indication this is linked to misconduct or wrongdoing. There are plausible explanations, such as oversight mistakes due to retainage.
As an initial step, Bolduc contacted the auditor to query whether they can provide insight as to what happened. Further investigation could involve reviewing each invoice. Once complete, Bolduc will meet with Select Board to discuss the facts.
Other corrections were associated with Wescustogo donations and room sponsorships. These funds totaled approximately $15,000 and were being used to offset the mil rate. The intended purpose was more likely to support and maintain Wescustogo.
Considering the cumulative impact of these changes would increase the mil rate 0.62, Bolduc recommended adjusting the overlay. The final number was set at $ 57,134.55 to prevent an even higher mil rate. Projections at Town Meeting was a mil rate increase between 0.25-0.30. Lowering the overlay resulted in an increase of 0.55, rather than the possible 0.62-0.69 increase.
Other details are not as straightforward
Regarding the actual audit report, who knew about it and when, and what was done with the information is not clear.
The official report was dated May 17, 2021. It notes material weaknesses related to bank reconciliations and year-end closing entries. Previous audits did not identify deficiencies or material weaknesses. The report confirmed information had been discussed and corrective recommendations accepted by “management” but does not name the official. Previous years’ reports were typically received in the fiscal 3rd quarter. In 2017 and 2018, audit findings were presented to the Select Board by the auditor during a March workshop.
The audit specifically uncovered confusing accounting practices with two revenue accounts associated with the Wescustogo project, as well as mistakes. Rather than the Insurance Fund and Bond Fund being combined, they were being used and tracked separately. Other discoveries related to General Fund expenses being paid from the Bond Fund.
Both the Select Board and the Budget Committee stated their surprise to learn of the audit issues.
According to Select Board Vice Chair, Jim Moulton, the Board’s assumption, at the time, was that the Wescustogo project was within budget. All Select Board and Budget Committee members stated they had not seen the audit or had any information regarding it prior to the Town Meeting.
Linc Merrill (Budget) and David Reed (Select Board) expressed frustration about not having the information communicated prior to the Town Meeting and whether it would have impacted any warrant article votes. By the date of the report, warrant articles could no longer be amended. Andy Walsh (Budget) stated if information had been communicated to the Budget Committee, perhaps they might have changed the committee’s recommendations.
Merrill referenced the auditors note, “We don’t know where the money went. We just know that it’s not in the account, that it’s overdrawn. It needs to be replaced.” Bolduc responded that this process could be tedious, and require reviewing all invoices and contacting the contractors involved.
Merrill also questioned the potential for further impact due to discover of misappropriation of the Bond Fund.
Other questions to be discussed relate to the budgeting process. According to Merrill, previous two audit reports do not indicate any deficiencies. However, North Yarmouth revenues were less than expenditures during that time. He further questions, “I’m curious whether we knew that, and why we were doing that, and what we were doing about it?…Is there ever a strategy” to review cash flow throughout the year? Merrill proposed creating monthly comparison statements to track year to date actuals against historical data. Software capabilities limit such alerts.
Reed noted North Yarmouth has been using the Undesignated Fund as revenue. According to Walsh, the amount budgeted to the Undesignated Fund is actually based on auditor’s recommendation. North Yarmouth has 12.1% in Undesignated Fund. Sites confirmed current town policy was revised December 2020, and target amount is 17.5%. Sites proposed revisiting the policy stating, “Whether 17.5 is the right number or not is worthy of a discussion.”
The recent resignation of the auditor complicates the process. Multiple towns are seeking an auditor, but few options are available. North Yarmouth received one response to the town’s Request for Proposal, RHR Smith & Company of Buxton. Bolduc will review the credentials and report back to the Board.
During the Citizen Forum, residents voiced frustrations at the communication gap, the situation remedy method, and potential future impacts.
Paul Napolitano questioned the decision to raise mil rate instead of using undesignated funds. “At Town Meeting you passed an article that said any shortage of funds or any overage in accounts would be diverted back to Undesignated Fund.” Napolitano pressed for further clarification regarding repayment to the Wescustogo fund.
Sites clarified that current mil rate increase does not address Wescustogo deficit. Current impact to the mil rate only addresses the $100,000 revenue shortage.
Resident concern about how long it will take for North Yarmouth to correct audit issues could not be answered. Judy Potter asked whether mil rate will fluctuate up or possibly decrease “once this was all taken care of.” Bolduc responded, “It’s hard to say. Most of your tax revenue goes to the school. A low percentage of your taxes is going to your municipal government and county taxes.”
The portion of North Yarmouth taxes designated for MSAD51 is normally significant. For this year, it accounts for 80.58% of resident’s tax bill. North Yarmouth does not directly determine the amount, but it is based on budgets set by the county and the school district. With a school capital building project being considered by the School Board, residents anticipate future increases.
Bolduc highlighted things residents should keep in mind. If funds remain at yearend, the Wescustogo project shortage could be resolved using Undesignated Funds; ARPA funds will be coming to North Yarmouth, and will probably be able to be put into a capital reserve account. Previous fluctuations resulted from budgeting practices related to use of Undesignated Fund, which has dropped the balance below the target level of 17.5%. Bolduc likened correcting the Undesignated Fund to “building up your savings account.”
Federal funds “always come with strings attached.” COVID relief money was not provided to simply cover general fund expenses. Sites confirmed “the town did maximize the amount of money” previously available for which North Yarmouth qualified.
Other tax bill questions centered on confusion with exemption amounts. The state sets the rate. Renee Lachapelle (Assessor) gave a presentation at the August 3 Select Board meeting explaining why residents were only receiving 95% of the possible amount. Bill Shane (Cumberland) summarized that property values are growing at a faster rate than the assessed value.
Bolduc assured residents he will conduct a “forensic audit” of the Wescustogo project to determine what happened and get answers to the Board.