Bethany spots another spotless financial review

Bethany Beach’s financial practices got yet another clean report recently with the completion of the town’s annual audit by Trace, Geary & Myers LLC (TGM).

TGM has regularly praised the town’s financial and accounting practices, in each recent year heaping compliments on the work of Finance Director Janet Connery, who both manages the town’s day-to-day financial operations and prepares the annual discussion and analysis report that accompanies the audit statement from TGM.

The auditors in their report formally stated that they had found no deficiencies in the town’s financial reporting system – high praise and a comfort to the town in a time when criminal charges are pending against the former finance director of Harrington, who is alleged to have embezzled more than $800,000 from that town over a period of several years.

Connery’s statement on the 2007-fiscal-year budget, for the period ending March 31, 2007, accompanies TGM’s audit statements and makes up most of the 45-page booklet that was given to members of the Bethany Beach Audit Committee and other town officials in early August.

Committee members were given a sparkling mid-audit review at their May 24 meeting, and focused again on the town’s new internal auditing practices as resident and former CPA Phil Rossi takes over the formal internal auditor position previously planned to be filled by a contractor.

Once again, the primary element of risk noted for the town’s finances was its small financial staff, consisting only of Connery, with part-time help from two other staff members. Connery noted that vacations among those three employees sometimes necessitated taking shortcuts on standard checks and balances between them. But the town’s financial record has nonetheless been cited regularly by TGM as exemplary.

That small risk is something the town has, however, been working to minimize as much as it can with a staff of that size, so when the Audit Committee met again on Sept. 6, focus had shifted back to the subject of internal auditing.

That meant tackling a task left them by TGM — reviewing a standard checklist of internal audit controls to determine which areas the town, and Rossi, need to pay particular attention to as they develop a schedule of work for Rossi and a formal system of internal auditing.

Connery said the shift to risk-based auditing made the step particularly important, as the new system will focus on risk-proofing processes and procedures the town uses with its finances, rather than spot-checking individual numbers and looking at the bottom line.

One of those checklist items — dealing with how employees report suspected fraud and other wrongdoing — led to the recommendation that a formal policy for reporting fraud be developed and included in future employee handbooks, so that employees know to whom and when they should be reporting suspicious activity.

“Much of what is in the manual we already do,” assured Rossi, continuing a history of the town being proactive on accounting and finance issues. Recent shifts in municipal accounting and auditing practices have been difficult for smaller municipalities, TGM representatives had previously noted, but Bethany has always been ahead of those trends.

The committee members on Sept. 6 also asked Connery to continue to prepare a monthly finance report for their use, saying they preferred the report that they — and council members — have been receiving each month to the new quarterly balance sheet-style report that the council has asked Connery to switch to for their benefit. Rossi also plans to prepare a quarterly report for the audit committee to apprise them of his work and any issues he discovers.

The Audit Committee members planned to thoroughly review the internal auditing book left with them by TGM and to discuss any concerns it raised for the town’s financial systems at their next meeting.

Highlights of the 2007-fiscal-year report on Bethany Beach’s finances, as contained in the TGM audit booklet, included:

• Bethany’s assets exceeded its liabilities at the end of the fiscal year by $15.7 million, with $4.6 million in unrestricted net assets available.

• Net assets increased by 2.3 percent — or $356,722 — in 2007. Most of that amount was from the town’s water department, whose assets increased by $335,694, while assets of governmental activities increased by $21,028.

• At the close of the fiscal year, the town’s governmental funds reported an ending fund balance of $3.77 million, with $753,000 of that amount held for beach and boardwalk improvements, $250,000 held for emergencies, $750,000 held for replacement of sanitation trucks and $1.24 million held for capital improvements and debt payments in that fiscal year.

• Some $776,244 was left as undesignated by the town at the end of 2007, representing 17.6 percent of its general fund operating budget for the 2008 fiscal year.

• The town’s bonds and notes payable decreased by $889,828, or 29.7 percent, as the result of regular scheduled payments and paying off one loan early. Some 65.4 percent of the town’s total $2.1 million in bonds and notes payable was payable within the next five years. The remaining $728,774 is the outstanding bond for the water plant, which is scheduled to be paid off in the 2015 fiscal year.

• A decrease of $492,251 in revenue from governmental activity was made up entirely of reductions in the real estate transfer taxes the town collects as its second-largest revenue source. Revenues from the transfer taxes decreased 45.2 percent, or $703,235, from the 2006 fiscal year as the real estate market slumped. Town officials also decreased the importance of the taxes in the town budget, from 28.2 in 2006 to 17.4 in 2007.

In contrast, parking revenues were up 8.5 percent, or $75,038. Real estate rental taxes also increased, by 4.9 percent, or $35,541. Property taxes increased only slightly, 0.5 percent or $3,884, which should increase again in 2008, as the town doubled its property tax rate from 8 to 16 cents per $100 of assessed value. Sanitation revenues increased 0.9 percent or $5,658, in 2007, while licenses, permits and other fees decreased 13.9 percent, or $96,608 — also linked to the decline in the area’s housing market.

• Town expenses were up across the board, from repair and maintenances of buildings, up $107,000 with the need to repair town hall water damage, to salary costs, health insurance, electricity, one-time consulting costs for developing architectural guidelines in the C-1 and C-2 districts, beautification efforts and new technology for the town offices and council members.

• The town’s water department continued to operate at a near break-even point, with revenues increasing only 0.2 percent, or $3,041. Expenses at the water department decreased 1 percent, or $10,819.

A copy of the report is available to the public at town hall.