by Kristina Gabalski
An audit recently released by the Office of the State Comptroller Division of Local Government and School Accountability is critical of budgeting practices utilized by the Town of Parma.
“The Board’s budgeting practices decreased the transparency taxpayers are entitled to and caused town-outside-village (TOV) taxpayers to pay real property taxes that were higher than necessary,” the Financial Management section of the audit states.
The audit also found the Town Board did not allocate adequate revenues to the TOV highway fund, which caused the highway fund to report a deficit fund balance since 2007.
“Without a formalized budget process, the Board repeatedly adopted unrealistic budgets for the majority of its operating and special district funds, which led to the Town maintaining financial resources in excess of the Town’s operating needs. The effect of these unrealistic budgets was most apparent in the general and highway funds, where there were significant budget variances. The library fund also accumulated excess fund balance,” the audit states.
The audit examined the Town of Parma’s management and oversight of financial operations and information technology (IT) for the period of January 1, 2010 to January 20, 2012.
Regarding TOV funds, the audit states that during the budget process, it is important that the Board either include budgeted transfers from the general fund to the highway fund, or allocate sales tax revenues to the highway fund for the purpose of funding highway department operations and ensure that taxpayers are not being unnecessarily taxed.
“For the past five fiscal years,” the audit continues, “the Board did not allocate adequate revenues to the highway fund. Instead, the Board allocated and recorded all sales tax revenues in the general fund and then transferred resources to the highway fund as needed during the year. However, the Board did not transfer sufficient resources to cover highway operations which caused the highway fund to report a deficit fund balance since 2007.”
Town officials explained that the Board used this budgeting process to strengthen the Board’s control of surplus funds.
“However, it is misleading for the Board to carry negative fund balances in the highway fund while sufficient funds are available in the general fund to eliminate the deficit,” the audit states.
The State Comptroller’s Office says the Board should transfer additional moneys from the TOV general fund to make up for the highway fund deficit.
Included in the audit is information on the 2012 town budget which – although it was about $7,000 less than the tax cap – may have resulted in the town levying unnecessary taxes for 2012.
“The Board could use the general fund’s excessive fund balance to eliminate the highway fund’s deficit and fund some current expenditures,” the audit states.
As of November 30, 2012, the Comptroller’s Office found that the town’s general fund had already received $269,000 more in sales tax than budgeted.
“The Board has transferred almost $224,000 from the general to the highway fund, but has not made extra transfers in an attempt to eliminate the highway fund’s longstanding deficit fund balance. Thus, we expect the Town to again report excessive surplus funds in the general fund and a deficit fund balance in the highway fund,” the audit reports.
In a letter of response by Parma Supervisor Carm Carmestro, Supervisor Carmestro says the Town of Parma has positioned itself to prevent tax spikes for its citizens.
“In doing such, the Town is able to finance capital improvements, bridge replacements, salt shed and a septic system replacement without borrowing which incurs interest. Beginning in 2009, the Town Board established its first reserve account and have added three additional reserve accounts in 2011 and 2012, Highway Equipment, Farmland and a Capital Library Reserve,” Supervisor Carmestro writes.
Supervisor Carmestro tells the Suburban News the town has not been doing anything wrong. “We felt the audit was not very fair to us,” he says, however; he adds that the town is taking the audit seriously and will do things the way the state recommends. “We’re acting on every issue … we’re going to set up more reserve funds and get in compliance probably by June.”
Supervisor Carmestro points out that although the audit is critical of what the state regards as “over taxing,” the town is debt free. “We just did $2.2 million in bridge work with no bonds,” he explains. “On Tuesday, (February 5), we are accepting bids for a salt shed … we don’t have to go out and get a loan.” He says the salt shed is a joint project that will benefit the town, the village of Hilton and the fire and school districts.
In regards to Highway Department funds, “The Highway Department does not go without,” Supervisor Carmestro says. “Whatever they need, we buy for them.” He adds that the Highway Department could be doing more work to increase revenues.
Highway funds were an issue during the 2011 race for Parma Highway Superintendent between incumbent Brian Speer – who won re-election – and challenger Mike Clark.
During the campaign, Clark cited the Hungerford Report – an internal audit of the Town – which found the highway department was struggling with accumulated debt and decreasing revenues.
Superintendent Speer criticized town government for its years of lowering tax dollar support for the Highway Department.
“There was a lot of tax dollars denied the Highway Department while the general fund increased beyond what the State Comptroller recommends,” Speer told the Suburban News before the 2011 Republican primary.
He now tells the Suburban News that the recent State Comptroller’s audit reiterates his concerns. “These are things we have tried to tell the Town Board for seven to eight years and it fell on deaf ears,” Speer says.
Other key findings in the State Comptroller’s audit include:
•The Board appropriated nonexistent fund balance in the highway fund budget for three of the last five fiscal years, all the while knowing that the highway fund had a deficit fund balance.
•The Board did not audit or contract with an independent accountant to audit the books and records of the Supervisor or Town Clerk and did not develop a multi-year financial plan to address the Town’s long-term operational needs.
•The Board has not adopted comprehensive IT policies and procedures or a disaster recovery plan to follow in the event of emergency.
•The Town did not designate an administrator over the Town’s financial software application who is independent of the financial record keeping functions.
•The town does not maintain an inventory of its IT assets.
Key recommendations include:
•Develop and adopt budgets that include realistic estimates for revenues and expenditures and the appropriation of fund balance only in amounts that are available and necessary.
•Conduct an annual audit of the financial records and reports of all town officers and employees who received or disbursed money during the preceding fiscal year or contract with an independent auditor to conduct the audits. Develop a comprehensive multi-year financial plan.
In his letter of response, Supervisor Carmestro states that in 2013, the Town will proceed with an adoption of an Acceptable Internet and Computer policy along with a Disaster Recovery Plan.
“We have contacted various companies to start the process to establish the safeguards and security that reflects the changes in technology environment. The Town does have an inventory of our IT assets,” Supervisor Carmestro writes.
He also states that the Town will continue to work closely with Department heads to build budgeting policies, “so that timely information is available to the Town Board to closely monitor the needs of our community. This will help with any long term planning that needs to be put in place. We agree that an independent CPA firm should and will audit the Supervisor’s and Town Clerk books on a yearly basis.”
According to the Office of the State Comptroller the audit’s results and recommendations are “resources for local government officials to use in effectively managing operations and in meeting the expectations of their constituents.”
