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How did Duxbury end up owing $228,000 to the bank?

By Lisa Loomis

The reason Duxbury still owes $228,000 to the bank to cover flood expenses from 2011 is because money that should have gone to repaying the line of credit was used for operating expenses.

That's what Duxbury Select Board chair Dick Charland said caused the debt. He said that the town's municipal auditor Bonnie Batchelder provided him with that information. He also said in an interview this week that had those funds not gone for general operating expenses, the town would have overspent its 2013 budget by $338,000.

Duxbury will be holding a special Town Meeting next month to discuss borrowing $340,000 to cover what Charland said is the total budget shortfall for 2013. But Duxbury's former auditor Bill Yacavoni said that the 2013 balance sheet that Batchelder provided for the town in her recently completed audit showed that the shortfall is only $110,344 and not $340,000.

That balance sheet shows end-of-year assets in the town's general fund of $543,915 (with total governmental funds including those in other accounts such as capital reserve funds of $819,270). The balance sheet shows total liabilities – including a line item for the $228,142 line of credit – of $647,284, resulting in a deficit of $103,369 to which $6,975 in prepaid expenses were added for a total deficit of $110,344.

Yacavoni and former Waitsfield town treasurer and current municipal finance director for the city of Montpelier Sandy Gallup both said that the town's 2013 shortfall was $110,344 although Charland said that the town had to borrow $340,000 to cover the shortfall and had to add the unpaid debt to that shortfall. Gallup pointed to a line from the Batchelder audit that reads "As the general fund is a deficit, the tax rate should be established to increase the fund balance to a positive balance."

The Batchelder audit also suggests that the town switch to a fiscal year ending on June 30. Many towns, including Duxbury, have December fiscal year ends. They collect the bulk of their funds when property taxes are paid in the fall and then use those funds, plus often their other available monies in various reserve funds, to float through the months until the next property taxes come in.

Charland said the town had to add the line of credit debt to the general fund debt at the recommendation of Batchelder. Batchelder could not be reached to answer why the debt should be added back to the deficit, or to explain how monies that should have gone to repay the line of credit were used for general operating expenses.

Charland said that the reason for the town's overspending had to do with the performance of former town treasurer Ken Scott, who resigned last November. He said that Scott opened a new bank account to handle flood-related expenses and FEMA reimbursement checks. He said that the board was unaware of the second account until shortly before the audit and said that Scott moved monies from that account to the town's regular accounts.

"Ideally I don't have problems with the second account or the transactions that were made to or from it," Charland said.

When asked whether or not the select board provided any oversight over the town's finances, Charland said that select board members had to sign off on expenditures as well as the categories of those expenditures.

"I agree that the town has some oversight over the finances and that would be fine if we'd been able to work with our treasurer," Charland asked.

Asked why the board did not escalate, Charland said they did ask questions of the former auditor Bill Yacavoni about how they had not paid the $228,000 line of credit.

"We had meetings with Bill in June, July and September and he said the reason for the line of credit not being paid was because of the float. That answer was not satisfactory to us. He suggested we use funds from the capital reserve to pay it off," Charland said.

Gallup also suggested that because the $110,344 end-of-year deficit already included the $228,000, the town could use regular funds to cover that debt but might end up with a cash shortfall because of how its fiscal year falls and would still find its general fund at a $110,344 deficit –which could be covered by the next tax rate. She praised Yacavoni's work as accurate and professional and noted that he had done many audits for Waitsfield.

Charland is insistent that the town needs to borrow $340,000 to pay back the note (which is due June 30) and to cover the 2013 operating deficit. He said the town needs to build its cash reserves back up.

Charland has publicly stated that Scott did nothing illegal or fraudulent but maintained that the financial situation that the town is in now is representative of fraud.

He referenced the recommendations and issues that the Batchelder 2013 audit found including sloppiness, a need for tighter controls, accounts not being reconciled, things not property posted, etc. Reports from Yacavoni for the 2012 and 2011 audits include similar recommendations and concerns.

The 2011 Yacavoni audit report calls for better reconciliation methods, better ways to formally approve the ordering of goods or services and completing reconciliations between the property tax billing and collection process. He notes at the end of that audit report that for the town to receive state and FEMA help for the April and August flooding the town needed to submit expenditures for reimbursement. "The town established a system to be maintained by the highway foreman to track these expenditures. However, this system did not allow for reconciliation to the town's accounting system which is utilized to pay all bills for the town.... I noted a lot of eligible expenditures were paid by the town but not claimed for reimbursement. Presently the town is in the process of obtaining reimbursements.... In the future I recommend any system used to track these expenditures be reconciled to the town's accounting system to verify all expenditures are submitted for reimbursement."

The audit for the year ending 2012 includes many of the same concerns and recommendations.

"The town opened a new bank account to deposit monies received for flood damage. There were numerous receipts and disbursements from this account. In auditing the account, I noted none of the transactions were recorded in the accounting records. Because of this, revenue and expenditures were understated in the financial data presented to the board of selectmen and the cash balance was not accurate," Yacavoni wrote on December 31, 2012.

Charland, who provided interview and telephone time this week, could not be reached by press time to answer how the board could not have known about inaccurate financial data when creating the 2013 budget.

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