State Scrutinizes Sullivan

Town Clerk’s Office, Budget Planning Found Lacking

By Martha E. Conway

(Town of Sullivan, NY – Jan. 31, 2014) The Office of the State Comptroller has issued its report after spending several months auditing the Sullivan Town Clerk’s Office and Town Board. The report, which examines the period of Jan. 1, 2011, through Dec. 31, 2012, directs the Clerk and the board to establish a system of internal controls to safeguard taxpayer dollars after identifying a number of deficiencies in their respective systems.

According to a Dec. 5, 2013, letter from Supervisor John M. Becker, “…the Town Board through the Town Supervisor initiated the request for the audit to address concerns with regard to the operation of the Town Clerk’s Office, in particular with relation to the fiscal responsibilities of Town Clerk as Clerk and Receiver of Taxes.”

Following are excerpts from the OSC report.

Clerk’s Office

“We found significant weaknesses with how the Clerk handled the $17.1 million of tax and penalty payments collected during our audit period,” the report read. “Tax collections were not deposited in the bank or remitted to the Town and County in a timely manner. Tax collection money was not properly secured in the Clerk’s office, and $3,140 went missing from the safe.

“The Clerk also did not perform bank reconciliations for the tax collection account. As a result, in 2011, the Clerk had $4,500 of unidentified funds; however, in 2012, the Clerk had to use approximately $4,200 of penalty moneys for other items including $2,900 to correct errors.

“In addition, even though the Clerk’s office is staffed with two part-time Deputy Clerks and a part-time assessor’s clerk who assists with tax collections, the Clerk performs all aspects of transaction processing, including collecting cash receipts, recording transactions and preparing reports for the Board.

The report went on to say that having responsibility for these transactions would allow the Clerk to misappropriate cash and make entries in the tax records to conceal the misappropriation.

According to the OSC, moneys received are required to be deposited in the official bank within 24 hours of collection; the Clerk is required to remit tax collections, including interest on late payments and penalties, no later than the 15th day of each month following receipt, first to the supervisor to satisfy the town’s tax warrant, and then to the County Treasurer.

Other findings in the Clerk’s Office concluded that:

* The Clerk did not deposit all collections within 24 hours as required. We reviewed 84 tax bills7 totaling $205,199 over fiscal years 2011 and 2012. The payment of these tax bills consisted of 92 payments totaling $200,789, which included $1,810 in penalties for late payments. Of the 92 total payments collected by the Clerk, 41 payments (45 percent) totaling $46,735 were not deposited timely, averaging nine days from date received to date deposited.

* The Clerk did not perform monthly bank reconciliations. In addition, when she returned unpaid taxes to the County for collection in 2011, she had a remaining balance of $4,500 in her tax collection bank account that was unidentified. We performed an analysis of collections recorded and deposited compared to the final settlement of paid and unpaid taxes. We were able to identify $951 from an erroneously returned unpaid tax bill but were unable to identify the remaining amount of $3,549. The Clerk did not know why there was a difference.

* Our analysis of 2012 did not find any unidentified moneys; however, when the Clerk settled with the County, she again failed to accurately report unpaid taxes. As a result, the County sent delinquent notices to taxpayers who had already paid their tax bills. In addition, the Clerk paid the Town about $4,200 less in penalties than she collected, because she used the penalties to pay other items. One of these was the $951 from 2011, which the Clerk paid the County from the 2012 penalty moneys. There were also three other taxpayers who paid over $5,000 during 2012 but were reported to the County as unpaid.

The Clerk also used about $2,900 of penalty moneys for the following tax collection errors:

* A cash payment of $2,640 was collected by the Clerk’s office but not recorded, deposited or remitted. The County sent a delinquent letter to the taxpayer requesting payment of his property tax; however, the taxpayer had a copy of his tax bill marked paid and collected by the Clerk. The Clerk remitted the money to the County using penalties collected from other late tax payments. The Clerk’s office employees recall the taxpayer making such payment but had no explanation of where the money had gone.

* A payment totaling $2,403 was mailed to the Town; however, the envelope with the payment had not been opened; therefore, the payment was never recorded or deposited. The County sent a letter to the taxpayer stating the payment was delinquent, which caused the taxpayer to contact the Town. Upon review of the situation, Town officials discovered the mailed-in payment had been received but not opened. Because the payment was subsequently sent to the County, the taxpayer paid the County $223 in late penalty fees. The Clerk reimbursed the taxpayer for these fees in December 2012 using penalties collected from other late tax payments because it was an error of the Clerk’s office.

* Another payment of $51 was collected by the Clerk’s office but recorded and deposited under an incorrect tax map number. The County sent a delinquency letter to the taxpayer requesting payment of his property tax; however, the taxpayer had a copy of his tax bill marked paid and collected by the Clerk. The Clerk subsequently remitted the $51 to the County using tax collection moneys for 2012 to correct the error. In addition, the clerk paid $509 in tax software fees out of penalties ($66 in 2011 and $443 in 2012). Monthly software application fees are automatically withdrawn from the Clerk’s tax collection bank account. These fees should have been approved through the claims audit process and paid by the Supervisor as a regular operating expense and not taken out of the tax collection account by the vendor.

The Clerk does not have authority to use penalty money for Town expenditures or to cover shortages.

* Tax remittances were not always timely. For example, in 2011 the Board adopted a resolution to have all taxes collected as of January 17, 2011 remitted to the Supervisor at that time. After that, the Clerk was required to remit collections to the Supervisor or County by the 15th of the month following collection. The first payment for $1.5 million was made Jan. 20 – three days late. As of March 15, 2011, $936,918 in tax collections was not yet remitted to the Supervisor or County Treasurer. An additional $387,969 collected in March was not remitted to the Supervisor or County Treasurer by April 15, and the Clerk did not remit penalties to the Supervisor until May 19, 2011. Furthermore, the Clerk did not remit the $4,500 unidentified balance until Nov. 11, 2011 – six months later.

* In 2012, the Board adopted a resolution to have all taxes collected as of Jan. 16 to be remitted to the Supervisor at that time. As of Jan. 16, the Clerk had collected approximately $1.1 million in taxes of which only $700,000 was remitted to the Supervisor Jan. 17. As of March 15, $236,557 in tax collections was not remitted to the Supervisor or County Treasurer timely and an additional $450,026 was collected but not remitted timely as of April 15.

The Clerk did not remit penalties10 and bank interest to the Supervisor until Dec. 11, 2012 – seven months after the end of the collection period.

* The Clerk is responsible for ensuring assets in her custody are physically secured and that unauthorized access to assets is prevented. The Clerk did not properly secure tax collections. The Clerk’s office has a vault and a safe within the vault where cash is placed until deposited in the bank; however, the Clerk does not lock the safe because she does not know the combination and would not be able to reopen it.

In addition, the vault is unlocked and opened during business hours and access is not always monitored throughout the day. As a result, there were two instances of missing tax collections totaling $3,140. This includes the taxpayer who paid his tax bill in cash totaling $2,640. Because the money was not secured until deposit, it is gone.

An additional $892 tax payment was later found to be short $500, which the Clerk told us she replaced with her personal money.

* Town clerks must report and remit collections to other governments (for example, the state Department of Health for marriage license fees or the County Treasurer for landfill residential punch cards) and the supervisor. The Clerk, on a monthly basis, should prepare a monthly accountability to compare cash, both on hand and on deposit in the bank, to a detailed list of liabilities, including amounts due to various State and local agencies to ensure that all moneys are identified and accounted for properly. The Clerk did not prepare monthly accountabilities and did not reconcile bank statements. The Clerk prints out a monthly bank statement and decreases the ending balance by the amount to be remitted to entities; however, she never determines to whom the remaining cash belongs.

Due to this weakness, we performed a reconciliation as of December 31, 2012, for the Clerk’s two bank accounts and found the Clerk’s available cash exceeded known liabilities by $2,889. The Clerk was able to identify $2,089, which consisted of dog license fees collected for the period January 2011 through December 2012. These fees are no longer remitted to the County but should have been remitted to the Supervisor.

In addition, during our reconciliation, we found that $25 received in December 2012 for Department of Environmental Conservation commissions had not yet been remitted to the Supervisor. The Clerk was unable to identify the reason for the remaining excess cash balance totaling $775. The payment of the DEC commissions to the Supervisor was not made in a timely manner, as required by law; however, the other remittances were generally made in a timely manner.

In her response, Town Clerk Charlotte Ferstler said she agreed that improved processes needed to be implemented, but she was simply following the procedures that had been put into place before she became town clerk.

Ferstler wrote that she felt the report misrepresented what work she allowed her part-time deputy clerks to perform, and that she did have help from them during her busiest season. She also wrote that she cannot explain the $2,403 payment that went missing. She said if she had known about it, she would have paid it herself.

“… I have always been responsible for any shortages,” Ferstler wrote. “Mistakes are made. I would rather think this is a mistake than to have to think that someone took this [$2,403].”

Ferstler’s letter ended by saying she wished the problems were brought to her attention sooner, so as to protect the reputation she has earned during her 30 years in various positions with the town.

Corrective actions

The OSC reported that as of June 20, 2012, Town officials passed a resolution authorizing tax collection at the bank beginning with the 2013 tax collection period, thus improving the timeliness of deposits and reducing the risk that cash will be misappropriated.

In addition, auditors reported among other measures that:

* The Board should establish policies and procedures to provide adequate internal controls to ensure that tax money collected is recorded and deposited in an accurate and timely manner.

* Town officials should follow up with their bonding company or recoup the $2,640 lost tax payment from the Receiver of Taxes.

* The Clerk should segregate duties, such as collecting, recording and depositing of receipts. Someone independent of the collection process should reconcile the Clerk’s bank statements.

* The Clerk should perform accountability analyses to ensure that all moneys are identified and accounted for properly.

* The Clerk should remit the $2,089 dog license moneys to the Town, along with the $775 of unidentified moneys retained in the bank account.

Town Board

According to the OSC, the Sullivan Town Council has not implemented adequate financial management policies and procedures to govern or monitor fund balance. As a result, the unexpended surplus funds in the general outside-village fund, highway funds and the lighting, water and fire district funds are excessive.

“The Board is responsible for making sound financial decisions that are in the best interests of the Town and its residents,” the report reads. “This requires the Board to balance the level of services desired and expected by the Town’s residents with the ability and willingness of the residents to pay for the services. A basic component of local government budgeting is the prudent use of fund balance, which is the difference between revenues and expenditures accumulated over time.

The report recommends the board adopt policies and procedures to govern and monitor fund balance and should adopt budgets that include realistic estimates of revenues and expenditures and use surplus fund balance as a funding source, when appropriate.

“If these practices are followed, only the necessary amount of real property taxes will be raised,” the report reads.

To read the entire report and Sullivan Town officials’ plans for complete corrective actions, visit osc.state.ny.us/localgov/audits/towns/2013/sullivan.pdf.

Martha E. Conway is vice president of M3P Media, LLC, and publisher of the Madison County Courier. She can be reached at 315.813.0124 or by emailing martha@m3pmedia.com. Follow her on Twitter at twitter.com/marthaeconway or Facebook at facebook.com/meconway.