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Bethany Beach aces its audit once again
By M. Patricia Titus
Staff Reporter
In what has come to be a nearly foregone conclusion for Bethany Beach officials, the town’s finances this year yet again got a gold star from the town’s auditing firm.
Herb Geary III of Trice, Geary & Myers presented his formal report on the 2006 fiscal year to members of the town’s Audit Committee on Aug. 11 and again praised the work of Finance Director Janet Connery as top-notch among his many clients.
“I really don’t know how you could get any better,” Geary said, noting that the town has only Connery as a full-time financial-department employee, with the assistance of several other town employees. Barring an increase in that staff, he said, the town can’t really do any more than it currently does to ensure its financial health; and even that increase would be a question of cost-benefit analysis.
Particularly, Geary praised the annual financial statement that Connery prepared, calling it “well-written” and saying to committee members, “If your constituents read anything on your Web site regarding town finances, I hope it’s this.” Geary cited coverage in the report of the town’s planning for its financial future and strong analysis of finances past and present to plan for that future.
“It went really well,” Geary said of the overall auditing process, which entailed some changes starting last year due to changes in auditing standards. He noted an emphasis on transactionally auditing five “cycles” or types of transactions routinely performed by the town: payment of parking tickets, cash disbursements, payroll, transfer taxes and property taxes.
In each case, Geary said, auditors had followed transactions through the processes to ensure the town was following its own established procedures and internal controls — everything from marking bills paid to keeping close track of cash assets. Other “substantive testing” also involved testing with additional transactions, he noted, with the bottom line being that the town does, indeed, follow its established procedures and has a very clean pathway for all financial transactions.
“I’m anxious to hear from the other audit firm comes up with,” Geary added, referencing the town’s plan to, for the first time, hire a second auditor to specifically address internal controls. “I doubt it will be anything other than possibly adding employees,” he noted.
Auditor Craig Boyce is expected to start his internal controls audit in the coming weeks, now that TGM has completed its annual perusal of the town’s finances.
In addition to the general praise for Connery’s work, Geary reviewed eight areas of his report to the committee members, noting:
(1) The records were free from misstatement and followed established internal controls.
(2) No new audit procedures were required this year, but the town is far ahead of the game on new requirements that will first come into place for it in the 2008 fiscal year, such as the requirement for municipalities to have audit committees.
(3) The inclusion of accounting estimates in the town’s budget — something he said was to be avoided as much as possible but had been done very well when needed in Bethany Beach, in areas such as infrastructure costs and depreciation expenses. “There was little or no effect” on the final numbers due to the estimates, Geary said.
(4) Some 20 “auditing adjustments” across five of the town’s accounts — “which is pretty impressive,” Geary said, adding that most of his clients had 70 to 100 adjustments found in their general accounts alone. “You’re making budgetary decisions based on good information,” he emphasized.
(5) Not a single disagreement with management during the audit, but rather extraordinary cooperation from Connery.
(6) No interaction with other accounting firms, i.e., for a second opinion.
(7) All previous areas of discussion with TGM implemented.
(8) And, no general difficulties in this year’s audit (aside from some parking problems and traffic hassles, Geary admitted).
Looking ahead, Geary questioned whether the town would be looking at changes in the 2008 fiscal year as to how it handles accounting for health-care expenses for its retired or future retiring employees. Connery said only two retired employees and their spouses were expected to be covered in the accounting change. All others, now covered under the state plan, are managed by the state itself. It was more good news.
Audit Committee Chairman Don Doyle had some concerns, however, about how the detailed audit report addressed the town’s investment of some $266,000 in the Delaware Local Government Investment Pool.
The investment itself is considered extremely safe but was ranked as a Category 3 investment in the audit, indicating that the town’s individual investment is not backed up by any sort of insurance. The whole pool has only $100,000 in insurance, in fact.
Councilman and Audit Committee member Lew Killmer agreed that financial novices could read the Category 3 classification as an indicator of possible trouble or decry it as a violation of a town investment policy that calls for secure investments. But all three men, with Connery and Town Manager Cliff Graviet, were in agreement that the investment met town criteria and had value for the town.
To alleviate the concerns, Connery and Geary agreed that a future footnote and added paragraph in the financial analysis statement were warranted, to explain what the investment pool is and its safety as a way for the town to invest its cash holdings.
Doyle, eyeing the details of the report, also noted a $65 net operating loss in the town’s water department — another detail he said might be cause for concern for those who would nitpick the town’s finances.
Geary said the tiny loss was not a real concern, since it was covered by depreciation amortization and since the town had taken the additional step of working to fund future capital needs in the water department (and its trash collection as well). In both cases, the town is nearing the target point where its services break even, with funds set aside for future replacement of infrastructure and trucks, respectively.
The accountant said the town’s determination to cover future capital costs and account for depreciation was another area in which it was head and shoulders above many of his clients.
“I have several clients who are nowhere near able to fund depreciation like you are,” he told the committee members. “And they don’t want to raise taxes,” he added.
Council Member and Treasurer Tony McClenny, present at the meeting, noted that it had been Doyle who had led the effort several years prior from the Budget and Finance Committee to fund such capital expenses and deprecation in advance of the need to replace town resources.
Doyle continued at the Aug. 11 meeting his press to make sure the water department is self-sustaining, noting that the town had lost six months of increased water fees intended to cover its costs and the capital cost planning due to the notice required for rate increases.
Graviet assured him the town was getting in ahead of the game this year, planning to consider the issue again at a six-month budget review scheduled for September or October. That review could net adjustments to the current 2007 fiscal year budget, or plans to make adjustments in the 2008 fiscal year, which will begin April 1, 2007.
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