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By William Yacavoni, CPA
William Yacavoni sent this letter directly to Duxbury taxpayers.
I am writing this letter directly to you to provide you with background information to assist you with the upcoming vote on July 28, 2014.
I was contracted by the town of Duxbury, Vermont, to audit the books annually for the past 17 years, ending with the December 31, 2012, calendar year. Having audited the records and assisted the town over that period, I have gained significant knowledge of your town's financial affairs.
I attempted to provide you this information at the May 10, 2014, special meeting. As a nonresident of the town, although a majority of those attending that meeting wanted me to speak, I was not allowed to. Since all five members of the select board voted against me speaking, including your chairman of the select board who twice "objected" to allowing me to speak, it was obvious they did not want you taxpayers to hear what I had to say. Here is what I have to say:
Issue: TOWN DEFICIT
The issue in question is the size of the Town 2013 deficit. Your select board and current auditor, Batchelder Associates, PC, claim the deficit is $338,486 and I claim it is $103,369, and even actually less if the 2013 audit properly included all of the assets of the town. I am enclosing a copy of the audited balance sheet from the 2013 audit prepared by Batchelder Associates, PC to assist you in this analysis. This audited balance sheet shows assets of $543,915 and liabilities of $647,284 leaving the town with a deficit of $103,369. According to the audit, that is the deficit. This level of deficit includes all liabilities of the town including the unpaid line of credit of $228,142. Your select board and Bonnie Batchelder continue to want to add the $228,142 again to the deficit, which is completely inappropriate.
At the May 10, 2014, meeting, one taxpayer brought this up but was immediately cut off by the chairman of the select board, saying he would get to that and then never did. He never got to this, as he had no viable answer to provide.
From a simpler viewpoint, consider the following items from the balance sheet from the General Fund column only:
Cash and Equivalents $ 442,180
Due to Other Funds (275,355)
Net Cash of General Fund $ 166,825
This net cash of the General Fund was confirmed by Dick Charland, chairman of the select board, in an article in The Valley Reporter on May 1, 2014. The General Fund has $166,825 in the bank and owes $228,142 on the line of credit, so it is short by $61,317 of paying off the line of credit at December 31, 2013. Will someone please stand up with a "straight face" and explain to me how this translates into a $338,486 shortfall/deficit? I have shown this balance sheet to other municipal town managers, city financial directors and many others. They are dumbfounded by your select board and Batchelder's claim of the size of the deficit.
Some Additional Facts:
I completed my last audit of the town for the year ending December 31, 2012. The town ended that year with a deficit of $41,710. The select board asked the taxpayers at the March 2013 annual meeting to authorize raising an additional $41,710 in property taxes during 2013 to cover that deficit. The taxpayers approved that request.
At the May 10, 2014, special meeting Dick Charland stated the board made an error and did not raise this additional tax as authorized.
I went to the town offices on May 9, 2014, and using the grand list and approved budgets, I verified that indeed the town actually did include that amount in setting the tax rate. This tax rate calculation was prepared by the previous town treasurer, Ken Scott, and submitted and approved by the select board. Somehow your select board did not even know this additional tax was included in the calculation. How can that be? How can the board not know what was included in the tax rate, yet approved it? Unfortunately, the auditing firm, Batchelder Associates, PC, also was not aware of this, as they presented a balanced budget statement in the audit report. I have enclosed that statement for your review.
If Batchelder had presented this properly, the first column would have shown a budgeted surplus of the $41,710. I have circled the line item, which clearly shows a balanced budget, which is not accurate. How did Batchelder not account for this budgeted surplus?
What is the significance of this? It is very significant, as follows:
Since the town started January 1, 2013, with a $41,710 deficit and the town raised that amount in additional taxes, in effect the town was beginning 2013 with a "clean slate" with no fund balance or deficit. Therefore, the financial fallout of the 2011 storms is now behind the town and 2013 results will stand on their own.
At the special meeting May 10, 2014, Dick Charland stated, "If it had not been for 2011, we would not be here today." WRONG.
FACT: As noted in the previous paragraph, the town's situation at December 31, 2013, had nothing to do with 2011 or 2012. It was caused solely by the results of a 2013 deficit, which was incurred by your select board spending $142,537 in excess of the approved budget.
The chairman of the select board has publicly blamed and criticized many individuals in newspaper articles over the past five months. In an article to The Valley Reporter on February 13, 2014, Charland suggested, "Scott and former auditor Bill Yacavoni were responsible for Duxbury's failure to know how and why the town fell short of paying the line of credit." Then, in an article in the Waterbury Record on April 17, 2014, Mr. Charland stated, "Given the extent of the loss to the town over the past three years, $340,000, there is no question that a fraud was perpetrated on the town." I have enclosed a copy of that article.
Let's review this situation closely. What is fraud? According to the dictionary, fraud is deceit, trickery, breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage. In the financial world, being accused of fraud is an accusation of the highest level.
This allegation of fraud and holding others responsible based on a level of deficit that does not even exist, and with the level of deficit that does exist having absolutely nothing to do with the periods the chairman is claiming, is totally inappropriate, unfounded and has provided gross misinformation to the taxpayers.
To add to the problems, Batchelder states in the same April 17, 2014, article that she urged the board to come up with a feasible plan to repay the town's debt of about $340,000. She said this debt resulted from mistakes made by former town treasurer Ken Scott. Once again, more allegations based on a level of deficit that is incorrect.
The select board asked for my assistance through most of 2013 to help with their ongoing cash flow issues. As part of that, I wrote a letter directly to the chairman on September 28, 2013, based on my analysis of the town's finances through September 10, 2013. I had written an earlier letter to the select board on July 18, 2013. In each of those letters, I instructed the select board to stay within the expenditure budget and in the September letter I told them to have the delinquent tax collector get aggressive and collect as much of the delinquent taxes as possible.
The town audit for 2013 includes a budget and actual report, which I have sent to you. The town spent $842,405 for the year, which exceeded the budgeted amount by $142,537. Is it any wonder the town could not pay all its liabilities at December 31, 2013? How can the select board over-expend their budget by that amount and not understand how it cannot pay all its obligations?
Additionally, in regard to delinquent taxes, the town ended 2013 with uncollected taxes of $94,760, an amount more than any year that I can remember.
I instructed the select board to accomplish two items, and they completed neither, directly leading to the 2013 deficit.
The select board obviously was very aware of the town's cash flow and line of credit issues. However, as it does annually, the town pays the school districts in full the amount of taxes it bills on their behalf in early November. The select board, knowing its cash flow problems, should have considered all options to assist in its cash flow.
Under Vermont State Statute, the town has up to 120 days after property taxes become delinquent to remit to the school districts' their share of delinquent taxes. Therefore, rather than paying all taxes in full in November, the town could have paid the school district approximately $75,000 to $100,000 of taxes in mid- February 2014. The town could have used those funds to pay down the line of credit and reduce the interest cost to the taxpayers. I ask you, if you were having personal cash flow issues and you could legally and properly avoid making payment of such a significant amount for four months, would you not take full advantage of that? Why didn't the select board do this? Are they not aware of this statute?
As I mentioned earlier in this letter, I believe the town's deficit is actually $40,551 less than reported in the audit report, lowering the deficit from $103,369 to $62,818. This $40,551 represents an accounts receivable from property taxes overpaid to the school district as confirmed by the business manager at Washington West Supervisory Union. This money has been received by the town in full during 2014.
In performing an audit at a town, the most significant audit area is the billing and collection of property taxes. A proper reconciliation of this requires working with the state and school district to verify all entities have received their proper share of property taxes. Ever since Act 68 became a law, this process was required to accurately report property tax revenues and, more importantly, to properly account for all property taxes billed. How was Batchelder Associates able to reconcile the property taxes without this receivable? This accounts receivable of $40,551 represents paying the school district too much money and to properly present the town's financial position at December 31, 2013, this receivable needs to be included as an asset, reducing the deficit to $62,818.
I reviewed the audit prepared by Batchelder Associates and it appears they understated the prepaid expenses of the town at December 31, 2013, by at about $10,497.
Had this prepaid been properly recorded, it would have reduced the deficit by that additional amount, lowering the deficit from $62,818 (Item 6) down to $52,321.
In reviewing the 2013 audit report, I noticed the accounts payable on the balance sheet was much larger than it has been in the past audits. I went to the town offices on Monday, July 7, 2014, and worked with the treasurer. I asked her, and she confirmed that Batchelder Associates included her interim work for $3,811 and new approved amount of $36,000 as expenditures for 2013. The new contract of $36,000 was recorded as an accounts payable, i.e., owed but not paid.
How could Batchelder Associates accrue the entire $36,000 as a liability and an expenditure for 2013? In order to do this, all work would have to have been completed. Since the audit was not done until April 2014, I assume a lot of those costs should not have been accrued and should have shown as 2014 expenditures when the costs were actually incurred. I also noted at a select board meeting that Batchelder Associates stated they wanted to charge the fee back to 2013. Why did she want to do this? Obviously accruing these costs back to 2013 increased the level of deficit.
1) The "real" town deficit at December 31, 2013, should be $52,321. This deficit is arrived at by taking the $103,369 deficit provided in Batchelder's audit, reduced by the missing $40,551 accounts receivable and understating prepaid expenses by $10,497. Now, finally some good news for the taxpayers. Since the town included $36,000 for audit fees in the 2014 budget and has already charged those expenses to 2013, the town should come in under budget by $36,000 in 2014. That $36,000 can be used to offset the $52,321 deficit. The remaining amount ($16,321) is insignificant and can possibly be recovered by expenditure restraints during 2014. Therefore, the town needs no plan to cover the deficit. They simply need all of their assets to be reported in the financial statements, be provided more accurate information from their financial consultant and keep expenditures within the approved budget.
2) Since the town receives about 80 percent of its revenue nine months into the operating year, the town needs to obtain a tax anticipation note to provide cash flow from January 1 until tax monies are received in October. This is done by most towns, especially towns operating on a calendar year. The select board has already borrowed monies on a long-term basis, which is unnecessary. The proceeds of this tax anticipation note can be used to repay that borrowing and assist this year's cash flows until property taxes are collected. Then, after tax monies are collected, the tax anticipation note can be repaid before the end of the year.
3) The select board should put the storms of 2011 behind them, realize their current financial status was not caused by those events, pay much closer attention to their budgets and attempt not to over-expend budgets that create deficits the taxpayers have to cover.
4) As taxpayers, after reading this letter, you should have a lot of questions as to what has been presented to you by the select board and I believe they have a lot of explaining to do.
Certified Public Accountant