Preliminary results of an audit of Southampton’s capital budget confirmed many of the findings uncovered by the town’s administration earlier this year and exposed numerous financial blunders and bookkeeping errors from 2003 through 2007, according to town officials.
The town’s auditing firm, FTI Consulting Global of Baltimore, found more than $11.25 million in authorized transactions that were never made from 2003 through 2007, Supervisor Linda Kabot said in an e-mail. The money was supposed to go to the capital fund to pay for projects, but instead stayed in the general fund and overinflated the general fund’s balance.
“This is budget gimmickry at its worst,” Ms. Kabot said in the e-mail.
Although they discussed its findings, town officials refused to release the preliminary report to the public this week. FTI presented a 21-page status report on the audit to the Town Board in a closed meeting on October 13. Much of the information contained in the report—including the number of faulty transactions in prior years—remained confidential as the Town Board mulled whether to pursue litigation against external auditors and town officials formerly charged with overseeing Southampton’s books.
Town Attorney Daniel Adams said the details of the report fall under “attorney-client privilege” and are not to be made public. He declined to comment on agencies and town officials possibly involved in the accounting errors.
Even though Ms. Kabot said the Town Board took a straw vote last week against litigation, despite her “strong feelings” that it consider opening lawsuits—FTI warned the board that “negligence and purposeful acts” by former auditors and town officials would be difficult to prove in court—she said Wednesday that the report would not be made public yet. She said she plans to urge the Town Board to reconsider taking legal action.
“Until the Town Board is back behind closed doors to do the people’s business to determine whether or not there is culpability here, the document is going to remain in the possession of the town attorney,” Ms. Kabot said. “It is not going to be released.”
New York State Committee on Open Government Executive Director Robert Freeman said the town’s argument against releasing the report “doesn’t seem to be meritous.” Mr. Freeman said documents that are prepared for reasons apart from litigation are considered open public records under New York State law. Generally, documents related to a municipality’s budget are considered public records.
“I don’t think the attorney-client privilege applies. It’s not confidential. It’s subject to Freedom of Information Law,” Mr. Freeman said. “The blanket denial of access, I would guess, is inconsistent with law.”
The Press filed a FOIL request seeking the document on Wednesday.
Ms. Kabot said the audit report shows an apparent “pattern” of officials fudging figures in the general fund between 2004 and 2007. She said the past accounting errors “smacks of a Ponzi scheme” that has “happened all under our noses.”
“What I am doing is unraveling the Ponzi scheme,” Ms. Kabot said.
Repeated accounting errors led the town to compile inaccurate year-end financial statements that were approved by the Town Board and led the town to receive high bond ratings from Wall Street, Ms. Kabot said. “The misleading math and distorted reporting to the Town Board and our creditors in official financial statements adopted during the years 2004 through 2007 is shameful,” she wrote in her e-mail.
Despite the inaccuracy of the statements, the town was awarded a “Certificate of Achievement for Excellence in Financial Reporting” from the Government Finance Officers Association—a foundation that judges conformance to accepted accounting practices—for at least two financial statements in 2005 and 2006. Plaques of the achievement awards still hang in the town comptroller’s office.
Town Comptroller Tamara Wright, who took office earlier this year, said she was stunned by the audit report.
Exposed in the report were examples of booking mistakes, including numerous errors by former Comptroller Charlene Kagel, Ms. Wright said. One common error, Ms. Wright said, was failure to alter budget records to reflect approved Town Board amendments. In one such instance, a Town Board resolution to reduce spending on a sidewalk project from $100,000 to $75,000 was never recorded.
“I was surprised, definitely, definitely,” Ms. Wright said. “What was most surprising to me was how many mid-year amending resolutions were not recorded.”
In addition, budget transactions between the general fund and capital fund were made inconsistently or not at all from 2003 through 2007, Ms. Wright said. “In some years those direct appropriations were made, and in some years they were not,” Ms. Wright said. “They really were not consistent.”
As the results of the 2003 through 2007 audit are “double checked” by town officials, Ms. Wright said FTI is continuing an audit of the town’s 2008 and 2009 capital project spending. Those results are expected later this month, Ms. Wright said.
The 2008 and 2009 audit will aid the town and external auditor Nawrocki Smith of Melville in determining the total debt of Southampton’s capital fund, which is believed to be about $10 million. “The actual deficit is still unknown,” Ms. Wright said.
Councilwoman Sally Pope said not knowing the full extent of the capital fund deficit is a hardship for officials as they debate the tentative budget for 2010, which proposes 44 layoffs and numerous cuts to town services. To help pay off capital fund debt, the Town Board is mulling a proposal by Ms. Kabot to amend the town’s property tax cap law and create a new tax line in the property tax bills of Southampton Town residents.
“I’m very unhappy that we have to deal with all these deficits,” said Ms. Pope, who took office in 2008. “It’s a very difficult time to be stepping into Town Hall.”
Ms. Wright expected a final capital fund deficit number will be arrived at as early as the end of the month.
“We’re working diligently to get closure on this,” Ms. Wright said. “I’ll be so happy when it’s over. Really, we are so close to the finish line, so close.”
Bryan Finlayson on Oct 21, 2009