Bethany Beach finances, while tighter these days, have proven so well managed by Finance Director Janet Connery that, come audit time, members of the Audit Committee are used to looking far forward rather than at the numbers immediately in front of them.
That was the case again last Thursday, May 24, when committee members met with auditors from accounting firm Trice, Geary and Myers (TGM) to get an update about the progress of the ongoing annual audit of the town’s books and procedures.
TGM’s Herbert J. Geary III again used the word “clean” in referring to Bethany Beach’s books. “You’re records look awfully clean,” he said, adding on to the “clean opinion” of town finances from the same midpoint in the 2006 audit.
TGM’s auditors had already performed some brief control testing, Geary said, and were progressing through their more in-depth work to assure the town’s finances were being operated properly.
In sharp contrast to recent financial scandal in Harrington, Connery’s record with the town has been so spotless that the work on this year’s audit was given very limited discussion — pending the completion of the work, with a report due to the committee in mid-June and to be finalized in July. Instead, talk pertained more to planning how the town can best handle its future financial and accounting procedures so that there is never any real concern about fraud and other problems.
With new auditing standards in place for small municipalities this year, Geary said the town had been well prepared for the shift. More such changes are online for next year, he said, and Bethany Beach is one town that could actually come out ahead in the process, according to Geary.
Rossi pitches in on internal controls
Last year, in fact, the committee’s focus shifted to internal controls — the only thing the town and its small finance staff really lacked from an oversight standpoint.
While the town initially contracted with an outside accountant who planned to test internal controls in conjunction with TGM’s annual audit, resident Phil Rossi — a retired accountant and auditor, as well as chairman of the independent Fourth of July Parade Committee — volunteered to take over in the internal controls checks and has been performing those duties since late last year.
Geary said he would spend part of his auditing time this year determining what checks and what schedule for those checks Rossi should follow in the future.
“That should go a long way toward assuaging any concerns with internal controls,” Geary said, recommending that the committee consider not contracting out its internal auditing again, for at least a while, after the original contractor left the business.
Rossi said he had followed TGM’s example and tracked a handful of individual financial procedures through the system, from start to finish. That kind of tracking will be a focus for TGM under the new risk-based accounting standards, and Geary said he believed Rossi could do the same job for internal controls auditing and at less expense — in this case, none. Chairman Don Doyle and Council Member Lew Killmer agreed.
Bethany spared rising audit costs
The cost of TGM’s audit to the town is expected to run about the same as last year, with only minor additional expense anticipated. But that won’t be the case for many of TGM’s other clients, Geary noted, as the new accounting standards will cost a pretty penny for many small non-profits and other small municipalities.
Geary said he expected some of his clients to pay 20 to 50 percent more for their annual audits under the new risk-based auditing standards. Those with the smallest finance staffs face more risk from lack of oversight, he said, and they also tend to be the clients whose financial administrators have the least finance experience and often wear more than one hat, too.
“If they only have one accounting person, and we do a review of their risks, how are you going to rely upon their controls?” Geary asked rhetorically. “You can’t. And then you have to start the process of auditing their controls all over again.”
That extra work may result in as much as 50 percent higher auditing fees for small governments, while large businesses could see their costs drop. Towns as large and prepared as Bethany Beach should see minimal, if any, increases in auditing costs, Geary said.
For instance, he noted, TGM is now required to send an official letter notifying a town and its residents if the person or persons who handle town finances are unable to prepare the town’s own financial statements.
In the case of Bethany Beach, Geary said, Connery doesn’t do the financial statements herself. The town contracts TGM to do them.
“But I feel she can do them,” Geary emphasized — a fact that negates the need to issue a letter that might seem to suggest a lack of confidence in what TGM might otherwise consider sound financial management. (Geary noted less of an impact this year on some non-profits, since those receiving federal funding were on more stringent standards in prior years.)
Bethany is also ahead of the curve in having its own audit committee. Most area municipalities do not have such a committee, to which TGM reports as an independent entity. Geary said having Killmer serve on the audit committee, as a liaison to the town council, was also a good idea.
Further, Geary praised the makeup of the committee, which features retired accountant Doyle and former Internal Revenue Service commissioner Chuck Peterson, as well as Rossi’s input.
The committee is scheduled to meet again in the coming weeks, shortly after they receive a preliminary report from TGM. Any concerns they have should be addressed prior to TGM’s final report to the town, which is due to be finalized in July and published shortly thereafter.
But, as usual, no one expects anything less than a spotless report on Bethany Beach’s books.