State audit rips Lloyd’s fund balance

By Mark Reynolds
Posted 8/14/19

Earlier this month State Comptroller Thomas P. DiNapoli released his department’s audit of the financial conditions in the Town of Lloyd from January 1, 2014 through January 15, 2019. The …

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State audit rips Lloyd’s fund balance

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Earlier this month State Comptroller Thomas P. DiNapoli released his department’s audit of the financial conditions in the Town of Lloyd from January 1, 2014 through January 15, 2019. The stated objective of the audit was to determine if town officials have been properly managing the town’s fiscal affairs. The findings were critical of procedures that have gone on for some time in Lloyd and made recommendations on how to fix the problems.

The audit revealed that the Town Board’s budgeting practices have, “resulted in an increase in fund balance from $2.4 million in 2014 to $4.1 million in 2018.” The audit further noted that this total as a percentage of 2019 appropriations exceeded 53 percent.

The audit showed that the Town Board from 2014 to 2018 tapped the fund balance for a total of $1.4 million, of which only $340,000 (25%) was used to finance appropriations. It stated that town officials increased the town property tax levy in each of the five years under scrutiny, “while experiencing surpluses totaling approximately $2 million.” It concluded that the Town Board also continued the practice of increasing property taxes and using fund balance for the 2019 budget. More significantly, the audit shows that the Town, “underestimated revenues and overestimated expenditures in the general, water and sewer funds each year” reviewed by the state.

The audit mentions that a town understandably should maintain a “reasonable” fund balance to pay for unexpected items that come up in a given year, but letting the fund balance become “excessive,” as Lloyd has done, places an “unnecessary burden on town taxpayers.”

The audit listed several examples of “consistent” and “significant” underestimations in revenues and over-estimations in appropriation lines from 2014 to 2018. In the General Fund, revenues were underestimated in the County Sales Tax budget [town] line by an average of $37,994 and the Mortgage Tax budget line was underestimated by an average of $41,009, “resulting in excess funds over the five years of $395,015.”

Appropriations were also overestimated in the contingency budget line by an average of $182,000 in each of the past five years, resulting in $910,000 being budgeted but not spent, ultimately resulting in “tax levies that are higher than necessary.”

For the Water Department, town officials overestimated the metered water sales budget line by $23,000 in 2014 and by $2,800 in 2015 but in 2016, 2017 and 2018 the town underestimated these revenues by an average of $66,411 each year, resulting in $173,693 in excess revenues for those three years. The audit notes that town officials budgeted for a future bond anticipation note [BAN] in 2016, 2017 and 2018 that resulted in $640,250 that was not spent, however, “town officials included this appropriation in the budget even though there was no note outstanding.”

The Sewer Fund was also impacted; the town underestimated the sewer rents budget line by an average of $48,369 in each of the past 5 years that resulted in excess revenues of $241,845. The audit further noted that appropriations were overestimated in multiple lines in the audit period that was studied, including sewage system inflow, equipment and administration budget lines that resulted in $245,860 not being spent.

The audit pointed out that town officials claimed that revenues were underestimated because of the timing of payments and appropriations were overestimated due to anticipated upcoming projects. This, the town claimed, resulted in increases in the fund balances in General, Water and Sewer for the five years under review.

The audit highlights, but fails to name, two Town Board members who said they “believed” that the Supervisor or the bookkeeper were not responsive to their questions and one board member who admitted that he did not review the monthly budget-to-actual reports. In his defense the audit points out that the Supervisor said there are monthly workshop meetings that include the bookkeeper and department heads but, “questions are not asked.” The audit states that without proper monitoring the Town Board cannot be certain of the amount of revenues the town has received or the amount that is spent from each appropriation to date. The audit was sharply critical of the Town Board on this point, stating that “without an understanding of the town’s finances, [Town] Board members are not in a position to evaluate the proposed budget before adoption.”

The audit states that Town Officials had discussed but failed to formalize a fund balance policy, leaving the town and staff without guidance, “to make consistent financial decisions in accordance with Board directives and in the best interest of taxpayers.” As a result of Lloyd’s budgeting practices, all three fund balances have increased significantly, leaving taxpayers paying more in property taxes, “than necessary.”

The audit also states that the Town Board has failed to adopt comprehensive, written multiyear Financial and Capital Plans. It pointed out that these types of plans would serve to guide officials in developing their future budgets while providing transparency to taxpayers of the town’s long term financial and capital goals. The audit states that the Town Board informed state officials that they had not established these plans, “because they have limited staff and have not had the opportunity to do so.” The audit concluded that this has left the town without the ability to assess its ability to pay for and provide services and a Town Board that cannot, “assess expenditure commitments, revenue trends, financial risks and the affordability of new services and capital investments.”

The audit offered Lloyd with several recommendations for the town:

“Adopt more realistic estimates of revenues and expenditures when adopting the annual budget and monitor and amend the budget as needed.

Discontinue the practice of adopting budgets with appropriation of fund balance that will not be used to fund operations.

Develop and adopt a fund balance policy to ensure that levels of fund balance are reasonable.

Reduce the amounts of the fund balance and use the excess funds as a financing source in a manner that benefits taxpayers. Such uses could include, but are not limited to: funding one-time expenditures; funding needed reserves; paying off debt and reducing real property taxes.

Develop and adopt multiyear financial and capital plans to establish the goals and objectives for funding long-term operating and capital need and monitor and update these plans regularly.”

Supervisor Paul Hansut acknowledged in a letter to the state of receiving their audit, thanked them for their thorough work and added that his response, “will also act as our Corrective Action Plan...The town has reviewed your findings and recommendations and has taken each suggestion seriously.” He promised that the town will review and increase their water and sewer rent estimates in future budgets.

Hansut is hoping to put forward a resolution in September that will address a way to fund reserve accounts, implement a Fund Balance Policy by October 2019 that will ensure reasonable levels on fund balance and will develop and adopt multi-year financial and capital plans, “to create goals and objectives for funding long-term operating and capital needs.”

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