The widespread belief that East Hampton’s large budget gap was caused by fiscal mismanagement was confirmed by New York State Comptroller Thomas DiNapoli’s office in a comprehensive audit that was released on Thursday, October 1.
“The Town of East Hampton ignored basic accounting principles,” said Mr. DiNapoli in a press release announcing the completion of the audit.
East Hampton began 2007 with a surplus of $6.9 million, but ended that year $10.8 million in debt and has not been able to stay within its budget since. Town officials concede that the budget gap could swell to $20 million by the end of this year, and many estimate it could be even higher than that when all of the town’s accounts are finally settled.
The State Legislature has allowed the town to float $15 million in bond anticipation notes to cover its deficits in 2007 and 2008, but the town has not yet established a method to pay for its expected 2009 deficit. The town was granted an extension to June 30, 2010 to convert the $15 million in financing to long-term bonds, because the state has been unable to certify the actual size of its deficits since 2007.
The report also found that the town improperly charged $480,000 for the Montauk Playhouse reconstruction project to the construction of a new justice court, which caused the second project to go $330,000 over budget and that the town had no documentation for $1.47 million in payments for work on the justice court.
The audit finds several problems in the town’s competitive bidding process, including two contracts, totaling $2.5 million, which were awarded without competitive bidding.
One was a purchase of $2.2 million of aviation fuel at the East Hampton Airport in 2007 and another $270,299 in aviation fuel from the same company in 2008. Town officials told the state comptroller that they selected the vendor based on the suggestion of the company that dispenses the fuel at the airport. The report also stated that the town may have missed out on $248,000 in revenue from aviation fuel in 2007 because it did not re-evaluate its fuel contract that year. The town also reportedly awarded 15-year contracts for airport operations between 2001 and 2005 without seeking competitive proposals.
The town also paid $36,812 for food at a senior nutrition program without competitive bidding and did not give a reason why it did not put the contract out to bid.
The report also states that the town paid $72,753 for telecommunication services to a company owned by a husband of a clerk in the Town Parks and Recreation Department without that employee’s disclosure of her interest in that company. The report said that the town’s code of ethics dictates that she should have disclosed her interest in the company.
The report also found that, due to a lack of internal financial controls, an employee who didn’t have authorization was able to make $8.5 million in electronic bank transfers and that the town had no controls over who uses its checkbooks.
“The town spent more money than it had, and officials made matters worse by ‘appropriating’ fund balance moneys that just weren’t there,” said Mr. DiNapoli. “Now taxpayers are facing a significant deficit, and those same taxpayers will have to pay higher interest rates when the town borrows money to cover the deficit.”
The report recommended that the town follow a number of “best” practices, from preparing realistic budgets to generating accurate financial information to adopting internal controls for money transfers and claims vouchers. Many of those projects have begun to be implemented by Town Comptroller Janet Verneuille, who was hired in January and is the first Certified Public Accountant to manage the town’s finances.
The town’s former budget officer, Ted Hults, resigned in May and is facing seven felony charges for allegedly misappropriating funds and filing misleading bond documents.
The audit is available online at www.osc.state.ny.us/localgov/audits/towns/2009/easthampton.pdf.