Categorized | Government, Page 1

Audit Reveals Possible Financial Violations by Southampton Town

Posted on 26 December 2009

In 2008, Southampton Town may have violated the covenants concerning bonds, or borrowing, by co-mingling money in the capital fund, said the town’s recently hired auditing firm Nawrocki Smith. The town board had waited months for the 2008 audit, which had to be restated after the discovery of numerous accounting mistakes in tracking monies in the capital budget, and the report was finally presented at a last minute work session on Tuesday, December 22.

During an initial presentation, a representative with Nawrocki Smith pointed out the violation most likely stems from the mismanagement of funds for capital projects. As the representative explained, the town would be granted bond money for a certain project. Because the funds for all projects were often pooled together, this bond money might have been used for another project, though this wasn’t its intended purpose. The representative cautioned, however, that this was a preliminary finding and required further analysis to be validated as truth. 

In the audit report, Nawrocki Smith listed the deficits in the town’s major funds as of December 31, 2008. The police district showed a debt of around $2.7 million, whereas the Community Preservation and Park Districts demonstrated a deficit of about $4.5 million. Capital projects revealed a near $3.5 million debt with the debt service deficit hovering at around $74,000. The Fire Protection Districts and Water Districts deficits were significantly lower at $182,035 and $159,055, respectively. 

“The Police District Fund deficit resulted from under-budgeting contractual salary increase and use of anticipated surplus funds that were not realized over the course of several years … The Community Preservation and Park District Fund deficit resulted from temporary financing of land acquisitions,” explained the audit report.

The report shows that both the Community Preservation and Capital Projects funds used temporary financing, through Bond Anticipation Notes (BAN), for their project costs. The auditors added that the 2008 deficits in these two funds would be eliminated when the town converts to permanent financing for these costs. 

At the start of 2008, the town’s general fund, or spending account for general expenses, surplus was around $14.5 million and by year-end the fund balance was close to $10.6 million.

The town, however, faced a grim economic outlook throughout 2009 as shown in a document detailing the highlights of the audit. In 2007, the town received around $40.1 million in additional revenues compared to their expenses, but in 2008 the extra revenue was just $12.6 million. Overall, the town’s revenues were decreased by 14.7 percent, or $123 million, though these decreases were offset by raising property taxes and other local revenues.

The reduction in revenue, added the Nawrocki Smith report, is mainly attributed to declining Community Preservation Funds (CPF) revenues. As the town was confronted with lowered revenue, town expenses in 2008 increased by 6.1 percent or $110.4 million.

Despite these findings in the audit, Nawrocki Smith reported that of seven recommendations made for improving the town’s management of financial statements, five of these suggestions were already implemented and two were in the process of being implemented. 

“Today is the presentation. I am looking for a special meeting on Monday [December 28] to adopt [the 2008 audit],” said supervisor Linda Kabot.

Of the work analyzing last year’s spending, councilwoman Nancy Graboski said, “We’re making process.”


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