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Monday, April 14, 2014

Message from Town Administrator Bob Markel


The Department of Revenue has always discouraged the use of free cash to balance the budget.  Bond rating agencies do the same, and the low bond rating for the Town reflects, in part, the lavish use of free cash to fund the operating budget.  However, this is not illegal; it is simply unsound financial policy. 

The amount of free cash available changes yearly, and it is not predictable.  Free cash is considered one-time revenue, and the Department of Revenues recommends that it used to augment the Stabilization Fund (reserves) or for one-time purchases like capital items. 


Audit firms do not do a thorough job of auditing the books (unfortunately).  They come and test various areas of the town’s finances to see if there are problems, but some problems are not caught and can persist for years.  They tell you up front that they cannot do a thorough audit for the relatively modest amount they charge.  The DOR representative at today’s meeting called the standard municipal audit a “hit and run” audit.  Still, some firms are more reputable and more competent than others.  I cannot name names in this message, but there are several firms that I would never hire. 

Recommendation:  The Selectboard should create an Audit Committee of knowledgeable citizens who will have two responsibilities:  1) Bid the audit contract every three years, and hire an independent auditor; and 2) Receive the annual audit and do a public review of the findings and the management letter.  Municipal auditors are typically hired by the Town Administrator, Town Accountant or Finance Director.  This is an inherent conflict of interest since town officials who do the hiring are the ones whose work is being audited.  Hiring and receiving the audit should be an arm’s length transaction from the Town’s financial team.   

The Department of Revenue oversees 351 cities and towns in the Commonwealth.  They accept data provided by the Town Accountant, the Treasurer/Collector and the Assessors.  They often question the data, but they are not always able to verify if data submitted on the Tax Recap or Schedule A are accurate.  The DOR does not have access to the town’s accounting system.  For example, the DOR was in Templeton today to question whether the Town has properly reported debt obligations on the DE-1 section of Schedule A.  Some debt is paid from general revenue within the town budget and some debt is paid through debt exclusion. There is a correct way to report these two types of debt on Schedule A.   The DOR representatives checked to see if the Town reported the data correctly, but they are limited in their ability to verify the accuracy of the data. 

The long term solution to Templeton’s financial problems is to hire a professional Town Administrator who will put in place a competent financial management team – Accountant, Treasurer, Collector and Assessors.  The Selectmen and Advisory Board have the responsibly to oversee the T.A. and the financial team on their management of the Town’s finances.  To complement the BoS and Advisory Board, the  Audit Committee should retain a reputable accounting firm to conduct an annual audit with the results made public. 

Bob Markel
Interim Town Administrator

1 comment:

  1. What is Free Cash? According to the DOR/Division of Local Services; A Guide to Financial Management for Town Officials, Free Cash is the term used for a community's funds that are available for appropriation. Specifically, free cash is generated when actual revenue collections are in excess of estimates, when expenditures are less than appropriations, or both. Free Cash must be certified by the Director of the Bureau of Accounts as of July 1 of each fiscal year upon submission of a community's balance sheet and cannot be appropriated until certified. Once Free Cash is certified, it is available for appropriation at the annual or any special town meeting. Free Cash may be used for any lawful municipal purpose and provides communities with the flexibility to fund additional appropriations after the tax rate has been set. Free Cash balances do not necessarily carry over to the next July 1; the Director's certification expires on June 30 at the end of the fiscal year. Factors that affect free cash are actual revenues and expenditures versus amounts budgeted as stated above. The amount of collections on property taxes ( the less you collect, the less free cash you have), the amount spent in the previous year and deficits in both the general fund and other funds. This information can be found online and is available to any selectmen or taxpayer who wishes to take the time or cares enough to look up the information.

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