COVENTRY -- The town of Coventry's accounting process is inadequate and lacks oversight, according to a report released by State Auditor Tom Salmon Monday.
While the report is not a formal audit, the auditor found that town treasurer Cynthia Diaz does not deposit tax receipts on a timely basis, makes posting errors, doesn't always document cash receipts, and doesn't always leave a paper trail between individual tax payments and deposit tickets.
Diaz also stopped noting the dates of payments on tax stubs, which Salmon wrote, "presents a serious red flag."
Salmon wrote that this less formal process doesn't allow his office to determine whether "misuse or misappropriation of tax receipts has occurred."
But because Diaz is solely responsible for keeping, recording and reconciling duties, "this would suggest that no internal controls exist for the collection of tax receipts."
On Monday, select board chairman Michael Marcotte said, "There's some things in there that are pretty disturbing."
He and fellow selectmen Richard Lussier and Brad Maxwell received the report Monday and planned to formally open it at their regular meeting Monday evening. Marcotte said discussion of the report would take place at a subsequent special meeting, which will be warned so the public can attend.
Marcotte said he was going to suggest holding the meeting next Monday, Sept. 17, at 6:30 p.m.
"I don't want to draw any conclusions yet," Marcotte said. "I hope people in town are interested in knowing what's going on. This is the first time we've had a report in front of us."
Marcotte said the delay is to give the public -- as well as Diaz -- time to become acquainted with the report, so it's not a "gotcha" situation. He said Joe Juhasz, deputy state auditor, will be invited as well.
"Everybody has the right to know what's going on," Marcotte said.
Marcotte said a formal audit will be conducted. He also asked the New England Municipal Resource Center (NEMRC), which provides accounting software to municipalities, to draw up a proposal to help the town develop new policies and procedures to prevent future problems.
The select board requested assistance from the auditor's office and met with Salmon and Juhasz in March after the initial report concluded that internal controls over the town's financial activities are "extremely weak."
At that time, Diaz told the Orleans County Record, "There's no fraud. Just no internal controls, but I don't think we're any different than any other town."
At the meeting in March, Salmon told officials, "You've got a big problem here."
He said the town needed to segregate duties to prevent fraud and catch innocent mistakes. Juhasz said there is virtually no oversight by the select board of the financial activities in town.
Not only would more oversight protect the town, but also the reputations of people managing town assets, Juhasz said.
Coventry isn't the only town where one person performs all financial duties, both Juhasz and Salmon said at that meeting. And it isn't about right vs. wrong, Juhasz said, but more about "best practices versus what's happening now."
That meeting fell on the heels of a fraud audit, for which the town received no report. Marcotte said that report was first sent to the state's attorney's office and then forwarded to Salmon's office and the attorney general's office.
Marcotte said his conclusion is that the fraud audit found issues in how property taxes and delinquencies were recorded. After an investigation that lasted a year and a half, Marcotte said, the attorney general's office determined there was not enough information to charge Diaz with a crime.
Diaz was charged at the time with tax evasion for her personal income taxes, Marcotte said.
Diaz, who is the town clerk, also served as treasurer of the Coventry Village School until the board received an adverse opinion from an audit conducted by Corrette and Associates.
At that time, the board transferred bookkeeping duties to the North Country Supervisory Union business office. Voters chose to separate the positions of town and school treasurer and elected Deb Tanguay to serve in that role.
Though the audit found an "unlocated variance" of about $29,000, it doesn't necessarily mean money is missing, according to NCSU Business Manager Glenn Hankinson, but he recommended that the board conduct a forensic audit. The board declined to make the decision and decided to put the question to voters, later reversing that decision.
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Because the process undertaken by the auditor's office did not follow generally accepted government auditing standards, the report draws no conclusions and contains no recommendations. Rather, it includes possible "risk mitigation strategies."
After a review of deposits, the grand list, bank statements, and town reports, among other documents, and interviews with Diaz and correspondence with taxpayers with unpaid 2011 taxes, the report identified the following "matters for consideration":
-- There is no procedure for closing tax revenue accounts. Some accounts have been holding a "running balance" since 2004. Because there is no procedure for reconciling tax revenue accounts or actual tax receipts to the general ledger, Diaz was unable to provide a summary of tax revenues for 2010 and 2011.
-- Tax receipts are commingled. Current and delinquent tax receipts, as well as penalties and fees, are posted to one account, when the best practice would be to record those amounts in separate general ledger accounts.
-- There is no procedure to distinguish between check and cash payments, and cash payments are not deposited on a timely basis. Instead, they are collected, stored in the vault, and deposited in one lump sum. That also meant that cash payments could not be traced to individual taxpayers.
-- Of the 24 responses to confirmation notices for 66 parcels marked unpaid for 2011, 33 percent (eight taxpayers) indicated that the information provided by the auditor's office did not match their records. Two didn't own the properties anymore; three had mailed their tax payments, but the payments had not been deposited in a timely manner; and three payments made by check in person could not be located on deposit tickets. As of the date of the report, Diaz had not shown the auditors confirmation that those payments were deposited in the town's account.
-- Three tax deposits from 2010, totaling $25,821, were incorrectly posted for 2011. Diaz assured the auditors that despite the error, the payments were included in the proper fiscal year.
-- Tax receipt documentation contained errors. Out of 583 taxable parcels in 2010, 49 had no payment listed on the deposit tickets, 13 had no amount listed on the tax stub, and 50 didn't have a date of payment on the stub. In 2011, of 584 parcels, 41 had no payment on the deposit tickets, 72 had no amount paid listed on the tax stub, and 568 had no date recorded on the tax stub.
-- The 2010 general ledger report for cash listed no entries for May or June, even though payroll, accounts payable and revenues are normally posted on a monthly basis. A Waste USA receipt for $208,000 was posted in fiscal year 2011, not 2010.
-- Delinquent tax penalties and interest collected for both years were not recorded in the general ledger or annual report. For 2010 taxes, amounts of zero were posted for an estimated $4,569 in penalties and $6,187 in interest. For 2011 taxes, amounts of $317 in penalties and $133 in interest were recorded in the general ledger for an estimated $2,581 and $1,385, respectively.
-- Other errors and issues included outstanding checks dating back to 2002 and inconsistencies in annual reports for the years 2009 to 2011.
Diaz did not respond to a request for comment for this story on Monday; Marcotte said Diaz had not yet been given a copy of the report.