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Kabot Says Capital Budget Deficit About $6 Million

Posted on 30 October 2009

According to Southampton Town supervisor Linda Kabot and comptroller Tamara Wright, the capital fund deficit from 2003 through 2007 is likely lower than originally estimated by the town’s external auditors FTI consulting. FTI presented their preliminary findings to the board in an executive session on October 13. In the report — a status update on a forensic audit of the fund which was being withheld from the press but was reviewed by The Express — the company estimated that approximately $21 million in direct appropriations were never moved into the capital fund from 2003 through 2007, meaning money that was appropriated for this fund was never put into the fund’s account.

The auditors also noted that nearly $11.25 million in approved town board funding from the general fund, or monies for general town operations, wasn’t transferred into the capital fund which created inaccuracies in the general fund balance sheets. FTI further concluded that only $7.4 million worth of transfers were correctly recorded during this time period. After vetting these numbers with Wright and the board in the last couple of weeks, however, town officials say the actual deficit figures are drastically different than what was first presented by FTI.

According to totals revealed by Kabot at a town board meeting on Tuesday night, the actual amount of failed transfers, or bookkeeping errors, into the capital fund is about $13.2 million from 2003 to 2007. Of these monies approved to be transferred into the fund, only $5.3 million were actually spent during this time,  said Kabot.

Wright corroborated these tallies. She added that the town discovered nearly $8 million that was used to fund a road reconstruction project from 2003 to 2006. The money for the project was slated to be moved from the highway operating fund to the capital fund, however, the transfer was never completed and the project was financed out of the highway fund. This discovery decreased the amount due to the capital fund from $21 million to $13.2 million, said Wright. In addition, FTI said close to $4.6 million in failed direct appropriations were also conducted in 2008, but Wright expects these numbers to significantly decrease as the 2008 audit is fully completed over the week.

Although the board is still awaiting final numbers from 2008, Kabot estimated in a later interview that the total amount the town needs to pay off past capital fund deficits is between $5.75 million to $6 million. Wright said she couldn’t confirm Kabot’s numbers and added that the town should have completed 2008 figures by next week.

These preliminary findings by FTI were presented in executive session, said Kabot, because the board is still deliberating over suing their former auditors AVZ, or Albrecht, Viggiano and Zureck. The town fired the auditing firm in June and later hired Nawrocki Smith, LLP. AVZ worked as the town’s external auditors from 2004 to 2007, when several accounting errors occurred within the town’s capital fund, causing an overstatement of the town’s general fund by around $8 million. When completing their audits for the town, AVZ failed to notice discrepancies in the general fund and the capital fund.

Asked if AVZ committed illegal acts against the town, Kabot said “that is the debate that is under review in executive session. AVZ didn’t do something illegal but they didn’t complete [their work] with due diligence  …They gave the town a clean bill of heath. I believe that is a breach of contract.”

FTI, however, advised the town against pursuing legal action. Kabot added that the board took an informal vote in executive session and she claimed three council members, Chris Nuzzi, Throne-Holst and Pope, voted against suing AVZ.

At Tuesday’s meeting, the board appeared divided on how to finance these existing debts in the capital fund. Kabot proposed a five-year pay off plan. In the first year, the town would sell municipal properties that weren’t purchased through community preservation funds. Over the following four years, the taxpayers would foot the bill for the rest of the deficit, which might necessitate piercing the five percent tax rate increase cap, noted Kabot at the meeting.

Councilwoman Anna Throne-Holst argued the town shouldn’t rely on selling these properties as the local real estate market is floundering.

“There are still large amounts of money that have not been accounted for …  the bottom line isn’t there,” added Throne-Holst.

During a later interview, councilwoman Sally Pope said it has been difficult to craft a 2010 budget without final numbers, and said the budget might need to be amended at a later date after it is adopted on November 20.

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