ORLEANS — Mike Nelligan of Powers and Sullivan, the town's new auditors, told selectmen last week that “everything went according to plan” for the fiscal year that ended June 30.
“The numbers for the year were pretty much within budget,” he said Jan. 24. “You were about 2½ percent over on the revenue side, and expenses were about that number under. There were good controls.”
During the audit, the firm “became aware of other matters that we believe represent opportunities for strengthening internal controls and operating efficiency,” according to the management letter submitted to the town. These include moving about $2.4 million in trust funds out of checking, savings and money market accounts into an investment portfolio, and performing a risk assessment “to identify, analyze and manage the risk of asset misappropriation.” A manager of a town department would be the appropriate person to do the assessment. As its third comment, the management letter recommends that the town adopt federal internal control guidelines, considered to be “best practice.”
“It's not a bad letter at all,” Nelligan said. “There were three comments, and two of the three we put in every management letter for all our clients.”
The comment specific to Orleans – moving trust funds into investment portfolios – could earn greater interest on the town's money. Nelligan said the town is working on an investment policy, and that the funds will be reinvested as soon as the new policy is approved by the board.
Powers and Sullivan's suggestion of a risk assessment regarding internal controls is “not indicating that there is fraud anywhere,” Nelligan said. Rather, it's an opportunity to review areas of potential concern – the handling of cash, for example – to ensure that such transactions are monitored and recorded properly.
“Are any towns going cashless?” Selectman Mefford Runyon asked.
“A lot of them have, especially school systems,” Nelligan said. “A lot of towns have come up with online solutions. One client has what they call the gold form. It has all of the activities you could have in the school system and the associated fees. Three years ago, all those things were cash and checks; now they're done by credit card.”
Nelligan said a lot of his company's clients “don't accept cash anywhere except at the town collector's office. I understand you have a different situation with the beaches and parking, (but) automation and improving internal controls takes away temptation when people are dealing with envelopes full of money.”
Selectman Alan McClennen said he reviewed last year's audit findings and questions by a previous firm and was “happy to see all the comments we had last year done, checked off, and gone.” These included, among others, prompter billing for school and road reimbursement funds from the state, establishing a write-off policy for bad-debt ambulance fees dating back to 2011, and perfecting property tax records to allow the town to collect on liens.
The recommendation to centralize cash handling resulted in training and a compliance review. “Also,” the management letter adds, “outside the collector's and town clerk's offices, cash handling has been eliminated in all town hall departments. All petty cash boxes located in town hall departments, with the exception of the collector and town clerk, have been closed out.”
The selectmen also heard a presentation on funding the town's OPEB (Other Post Employment Benefits, such as health care) liability. Each year, Orleans puts $150,000 toward this funding, but Kathleen Riley of Segal Consulting said that $450,000 a year is what it will take to cover the unfunded liability of $53 million over 30 years. At that future date, she said, “you start paying benefit payments out of the trust. That's where the big savings is.”
Speaking from the audience, Bob Renn of the finance committee said a net additional expenditure of $300,000 per year “seems like a very small price to pay for coverage we need.” When the fund gets to $10 million, Riley said, the town would be getting $725,000 a year on that investment, “plus the $450,000 you put in. The sooner you build it up, the more you can generate.”
Noting that the town can't borrow to fund the OPEB liability, Town Administrator John Kelly said a general override vote could authorize an annual appropriation at town meeting of $450,000 for the trust fund, “similar to how we fund roads and water quality. Based on this schedule, that way we could fully fund this after a 30-year period.”
Selectmen chair Jon Fuller said he'd put the OPEB discussion on a future agenda.