Southampton Town Gets Glowing Reviews From Auditors; Trustees Admonished For Not Monitoring Savings Levels

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Southampton Town got good marks from its auditors last week for sound financial management and careful budget practices in 2012, which left it with a healthy a fund balance, falling costs and declining debt obligations.

The auditors and the New York State comptroller’s office did raise two minor issues about the bookkeeping of the Southampton Town Trustees, regarding the handling of cash revenues that come in to the Trustees’ offices at Town Hall and the bank accounts that they keep independently of the town’s broader accounts.

Overall, the Town Board got glowing praise from accountants with its independent auditor, Nawrocki Smith.

“It’s still a little mind-boggling that we were able to close a town of this size within two months of the year-end—and we made only a few adjustments,” accountant David Tellier said. “So not only were the books closed, they were close accurately.”

The auditors’ report suggests no significant changes in the town’s accounting practices and confirms that the town finished the year with a surplus of more than $4 million, thanks to conservative forecasting and stringent cost constraints. They also highlighted that recent adjustments made by the town to its borrowing practices will save it some $1.8 million in debt service on long-term loans in coming years. Revenues also increased in 2012 by $2.5 million over the prior year.

“That is something that we proud of and it’s not something that has always been the case in Southampton,” Councilwoman Bridget Fleming said. “We’ve made a few adjustments in the last few years that have brought us into a new level of professionalism.”

The auditors nodded at issues with the Town Trustees’ collateralization of their bank accounts, a requisite insurance policy to ensure that their deposits are protected. Auditors found that the Trustees’ bank accounts have ballooned this year with revenues from the sale of thousands of tons of sand from Mecox Bay and Sagg Pond to private homeowners for rebuilding protective sand berms in the wake of Superstorm Sandy. As a result, the collateralization came up short.

“Their bank account went higher than what their insurance covered,” Town Comptroller Len Marchese said. “You’re supposed to monitor. In my office, we do it for the town every day. They weren’t doing that, and because they had a spike in cash, they under-collateralized.”

The Trustees have said they have sold more than $800,000 in sand to homeowners since Sandy hit in late October, spurred by a parade of strong winter storms that repeatedly decimated beach protections and demanded more and more sand. The sand they are selling is being mined from the expansive flood plains at the mouth of Mecox Bay and, to a lesser extent, Sagg Pond, where storm waves have deposited millions of tons of sand from the barrier beaches on the bay bottoms. The Trustees own all pond and bay bottoms and maintain the “cuts” at Mecox and Sagg Pond in order to facilitate their periodic draining of stagnant water.

The auditors also recommended that the Trustees consolidate their accounts, a step the board had already taken earlier this year.

After an additional audit by State Comptroller Thomas DiNapoli’s office, the state accountants also said that the Trustees need to tighten the controls on the handling of cash collected by secretaries in the Trustees office to ensure that they are more carefully tracked and secured and deposited in bank accounts quickly.

“Although auditors found all deposits to be intact, the failure to deposit receipts in a timely manner increases the risk that moneys received will not properly accounted for and that moneys could be lost or stolen,” a report on the comptroller’s audit of the Trustees procedures said.

Mr. Marchese noted that the Trustees’ internal accounting is done by an outside firm, not the comptroller’s office, because the Town Trustees are officially semi-independent from the town—an issue that has been the subject of an ongoing lawsuit between the Trustees and residents and officials of West Hampton Dunes Village. The funds the town contributes to the Town Trustees’ annual budget, however—about $300,000 annually, primarily for the salaries of bay constables, marine facilities maintenance workers and pump-out boat pilots who are controlled by the Trustees—are kept in town accounts until they are expended as needed by resolution of the Town Board, and are monitored by his office.

The lawsuit surrounding the Trustees financial relationship with the town puts the monitoring misstep, however minor, in a spotlight. Last year, a state judge ruled that the Trustees are an independent municipal authority from the town and can maintain their own bank accounts for the revenues they take in through their own fees. In the fall, however, the judge vacated the decision at the request of both sides.

Trustees’ attorney Richard Cahn said that the town attorney’s office had noted that the judge’s original decision had seemed to indicate that the Trustees had complete control of all their funds, including those appropriated by the Town Board from its tax levy on residents, which town attorneys said should be clarified in the original record. Attorneys for the other side also said they have found new evidence that the Trustees should be considered an adjunct of the town, and that all of their funds should be controlled by the Town Board.

The residents, including West Hampton Dunes Mayor Gary Vegliante, brought the lawsuit after years of legal battles with the Trustees over control of a spit of land in the village that the Trustees claim ownership of, because it was once bay bottom, but adjacent homeowners claim is privately owned and should be developable. The suit was an apparent attempt by the West Hampton Dunes group to derail the Trustees’ funding for their legal costs by giving control to Town Board members, some of whom have expressed the belief that the Trustees should drop the legal fight over the village land.

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