Sutton receives positive audit review
BY TOM REILLY
Scott McIntyre of Melanson and Heath, Sutton’s outside auditors, told the selectmen at their May 4 meeting that the fiscal year 2009 audit “had gone very well,” with all of the key reconciliations in place.
Town Administrator Jim Smith said it was important for the public to know the condition of the town’s finances and the challenges that the town would face in the coming year. McIntyre added that he had met with Smith and Town Accountant Tim Harrison a week before and discussed the need to complete the audit in a more timely fashion. He said that he expected future audits to take place in December or January, six or seven months after the end of the fiscal year.
He noted the town had implemented a new auditing standard—GASB-45— to acknowledge that communities had a significant post-employment unfunded liability in terms of its financial obligations to its employees, primarily in the area of health care. Elsewhere in the report, this was estimated at around $700,000, representing the amount of money that the town would need to come up with if he intended to fund that overall liability.
McIntyre also referenced the 9c cuts made by Governor Deval Patrick in order to balance the budget, noting that the money lost from those cuts had been replaced with stimulus funds. This $578,000 came in as a grant and was entirely spent during the fiscal year.
“In our opinion, your financial statements are totally in accordance with general accounting principals here in the United States for local governmental agencies,” said McIntyre. He noted that the town’s books and records were “well maintained.”
McIntyre told the selectmen that there were a number of issues that had been identified in the firm’s management letter to the town. The first urged the town to develop a more formal risk assessment policy. McIntyre said the town informally performs its own risk assessment for possible fraud or material misstatement through various policies and regular reviews of trends in the financial statements.
He said risk management was a function designed to identify where an organization could be vulnerable to errors and/or irregularities. A complete risk assessment process involves a written description of risk areas identified by those charged with governance and a description of how the organization intends on responding to the risks. McIntyre said Melanson and Heath was recommending the town implement a more formal risk assessment process that includes written identification of areas where potential fraud or material misstatements to the basic financial statements could occur.
McIntyre said regular department head meetings could be used as a starting point for these risk assessment discussions. Smith said he would begin discussions to create this policy.
Melanson and Heath also noted that Sutton maintains capital asset records both in the financial management accounting system and in various summarized spreadsheets. McIntyre said the summarized spreadsheets materially agree with the audited financial statements but do not provide an itemization of individual capital assets, and as a result, depreciation expense must be estimated annually and a single comprehensive listing of capital asset by department cannot be generated.
McIntyre said his firm was recommending the town reconcile and merge the two systems, resulting in a single comprehensive system that provides the necessary detail reports. McIntyre said the implementation of this recommendation would provide internal controls over existing capital assets, as well as improving the accuracy of capital asset records.
He added that if the existing capital asset system was considered to be ineffective, the town should consider purchasing an “off the shelf” capital asset system in order to compile the single system necessary. Smith said the town would investigate the various capital asset programs with the goal of transferring all of the town’s capital asset historical information from the town’s MUNIS system and other databases into a new system in time for June 30.
McIntyre recommended the town establish formal department receipt policies and procedures to decrease the risk of errors and irregularities occurring and going undetected. Smith said it was the town’s goal to have this in place by the end of the current fiscal year.
Management also recommended the town monitor the collateralization of its cash balances and to establish FTC “red flag” security documentation. In each case, Smith said the town would investigate and respond appropriately.