City audit shows surplus, reveals accounting woes

It seemed to me they got in this vicious circle.
— auditor Teresa Kajenski

VERGENNES — Longtime professional auditor Teresa Kajenski brought some bad news and some good news to the Vergennes City Council at its Feb. 9 meeting.
The bad?
For the first time in the many years Kajenski has been working with the Fothergill Segale & Valley team that performs annual audits for the city, she felt it necessary to report to the council in person that there were “significant deficiencies” in the city’s accounting practices.
The good?
Her firm’s audit uncovered a $297,000 surplus in Vergennes’ 2019-2020 fiscal year that ended this past June 30.
Back in late May, when council members adopted a spending plan for the 2020-2021 fiscal year, former city manager Daniel Hofman told them he estimated the fund balance, or surplus, would be about $90,000. At Tuesday’s meeting Kajenski pegged the actual working number at $107,000.
Hofman also projected a $79,000 revenue increase, and the council used some of the surplus to keep the city’s municipal tax rate level at 92 cents.
At the Tuesday meeting, Councilor Mel Hawley said if council members this past spring had been aware of the size of the surplus they might have acted otherwise.
“Had the city council known there was a general fund balance of nearly $300,000, I think that the city council would have set a different tax rate,” Hawley said.
Kajenski said she could not project what the city’s fund balance might look like on this coming June 30, when the current fiscal year ends. But she did say she had seen worse audit results, especially given ongoing pandemic uncertainty.
“However that happened in the past, knowing what that number was on June 30 is very important for you,” Kajenski said. “This has to be the highest (fund balance) it’s been in a while. Not a bad year to have it.”

She and Hawley both pointed out some of that larger fund balance is earmarked for a return to the several accounts within the city treasury that are dedicated for specific purposes, including the Water Tower and Ray Davidson funds.
Kajenski stressed that she had received cooperation during the audit from Hofman, Treasurer Abby Farrar, City Manager Ron Redmond, interim manager Renny Perry, and former city clerk Joan Devine, who has been helping at city hall in recent months.
“We had no disagreements with management,” Kajenski said.
But results were delayed because she and city officials were working remotely, and the task was further complicated because so many people had worked on city finances in 2020. 
“It took a little bit longer to get this audit done … just with all the turnover at the city and also COVID-related items. But we had no difficulties with anybody. It was just getting the information we needed,” Kajenski said, adding, “There were too many people doing journal entries.” 
The fact that so many people had worked on the books was a central reason for the major accounting issue — the city’s accounts have not been reconciled since June, she and officials acknowledged.
“There were some balance sheets that were not reconciled to what we call detailed supporting schedules,” Kajenski said. “Because there were a lot of them it became what we call a significant deficiency in internal controls.”
A major problem occurred in July when payroll information was entered into the wrong fiscal year, and then it snowballed, she said.
“It seemed to me they got in this vicious circle,” Kajenski said. “Daniel got close to figuring it out, but he was running out of time. He was leaving. And with COVID Abby just didn’t have enough time to commit to figure these numbers out.”
She said she understood how things went wrong.
“I just think they got slammed … with everything that was going on,” Kajenski said. “There are numbers recorded in your system. They’re just not reconciled quite yet.”

Kajenski recommended and the council agreed Farrar should study and reconcile balance sheets monthly. Kajenski added she believed Farrar was up to the task, but that Redmond and the council should monitor the situation.
“It will provide the city with more accurate and timely accounting information,” Kajenski said. “I do believe that will happen.”
Redmond said he would put that approach in place. Redmond added he had a plan in place to reconcile all the accounts by Feb. 21 by having Farrar devote five and a half full days this month to that project.
Elected Vergennes auditor Sivan Cotel said he and fellow city auditor Jen Russell had recently met with Redmond and Farrar. Cotel said he and Russell were confident in the manager’s and treasurer’s abilities to put city accounting back on track, in part because the city employees agreed with the audit findings.
“The fact that the view is shared … is exactly what we want to see,” Cotel said.
Cotel also cited the pandemic and city hall turnover as factors, and said pledged support from the professional auditors and Hawley would also be vital.
“It seems Ron and Abby will have the right resources to tackle this,” he said. “They just need some time to catch up after all the chaos.”
Hawley said once bookkeeping is back on track the biggest loss will have been the chance to invest the fund balance.
“The city really is not in financial trouble. Its accounting may be in trouble,” Hawley said.
“We’d have a whole different conversation if we were told we were suddenly $297,000 in the hole. This is a pretty simple problem. The point is Teresa is just pointing out that it does appear the balance in the checking account, over an extended period of time, has not been put to work.”

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