Straight Talk about Audits; or, Why Our Tax Dollars Might Be at Risk

Recently, questions have been raised about the current Town administration’s handling of Bolton’s application to the State for reimbursement of eligible costs of the Bolton High School renovation project. This post is an attempt to give voters some information about this issue.

BHSUnfortunately, what little has been put out by the Republican leadership has been misleading at best and has done little to increase our understanding of what went wrong, what the consequences have been, or what consequences the Town might still face.

In fact, we might not have known anything about this problem if a group of concerned citizens had not shown up at the March 7, 2017, Board of Selectmen (BOS) meeting to ask pointed questions of the First Selectman and the Town Administrator (read the minutes here).

When the BHS project was approved by referendum, the voters anticipated that the Town would be able to take advantage of State reimbursement funds available for school renovation. A State grant was sought and obtained to partially fund the project.

However, State funds are not paid up front—they are paid in the form of periodic progress payments to reimburse a percentage of eligible costs, with a “hold back” of 5% that is paid, if at all, after the Town makes a final submission of project costs and documentation and the State completes a final audit of the project.

Pending reimbursement by the State, the Town funded the project by borrowing some of the money and by taking some from the Town’s fund surplus or “rainy day fund.” (The administration has referred to this as the “Town borrowing from itself.”)

We should realize, however, that when money is taken from a surplus fund, the town loses interest income: Money that’s not there doesn’t generate interest, and the lowered fund balance could eventually effect our bond rating if the money is not replaced.

Under the State grant, which items are “eligible” for reimbursement is determined by State rules, and the percentage actually reimbursed (anticipated to be between 50 and 60% for the BHS project) depends on several factors, including the type of project, various incentives, and the Town’s economic status. The state may also impose potential penalties for late or incomplete documentation.

At the time the BHS project was completed, the grant process was administered by the State Department of Education (SDE), which had issued a detailed manual for complying with its audit rules. The manual, which appears to be no longer online, was available on the SDE website as recently as February 2017 (here’s an archived version that was downloaded that month). For a detailed but readable description of the school construction grant process, see this legislative report from 2016. For the current audit requirements, see this bulletin.

img_1552The BHS project was a Town construction project for a building owned by the Town of Bolton; it was not a Board of Education project.

Contracts, inspections, receipt and review of invoices, and issuing of payments were all handled out of Town Hall by Town (not BOE) staff who reported to the First Selectman/BOS through the Town Administrator. Contracts and change orders went through Town Hall and were (or should have been) signed by the Town Administrator and/or First Selectman on behalf of the Town. Invoices from contractors went to the Town Finance Director’s office, which was responsible for keeping the project accounts.

So, although forms requesting reimbursement from the SDE were signed by the Superintendent of Schools, they were prepared by the Town’s Finance Director for the Superintendent’s signature. And the Town Administrator was identified as the “project manager” and/or “project manager facilitator”—a fact that was discussed at a Board of Selectmen meeting on March 7, 2017, but, curiously, not mentioned in the minutes of that meeting.

The BHS project was substantially complete and received a certificate of occupancy by fall 2012, although punch-list items were still being worked on through April 2013, and LEED certification was not obtained until summer 2016. The Town submitted its last interim progress payment reimbursement request in early 2012, before the project was substantially complete and just before the finance director who prepared the request retired. The Town did not make another interim request even though a request for reimbursement of up to approximately $2.1 million in expenditures could have been made in early 2013.

The current administration has never explained this delay, nor has it been candid about the cost to the town in lost interest revenues over the intervening years.

The Town submitted its final reimbursement request with its project close-out application on June 12, 2017—one day before the deadline. The SDE promptly approved a progress reimbursement payment of about $1.5 million, which went back into the Town’s fund balance or “rainy day fund,” where it now earns interest. (Interest on $1.5 million from 2013 through June 2017 at even 1% per year would have been about $60,000.)

That leaves the Town waiting for 1) the State’s final “hold back” on the entire project and 2) the completion of the SDE audit of the project, which could conceivably result in the State disallowing some costs as ineligible or imposing penalties for missing or incomplete documentation and withholding some (or all) of the “hold back” or even demanding money back from the Town.

So, what’s all the fuss about missing documentation? Well, during the BHS project, the furniture, furnishings, and equipment budget (FFE) was increased at least twice, the last increase going from about $878,000 budgeted to about $1,231,000 spent. This was possible because other costs came in lower than expected (good on us!), and the money was shifted to FFE.

The problem is that State rules say budget transfers and increases had to be approved by the SDE—and documentation of both the increased FFE budget and SDE’s approval of that increase seems to be lacking (we do have documentation of an earlier increase, requested in 2010). The SDE has indicated they never approved the increase.

The current administration disputes this but has not been able to verify approval of the increase by producing a document in which the SDE actually gives such approval to the Town.

If adequate documentation cannot be produced or if the State does not accept the Town’s version of events, approximately $350,000 in FFE costs could be ineligible for reimbursement. At the estimated reimbursement percentage of 50–60%, that would mean Bolton could lose out on up to $210,000.

Additional money is at risk due a construction change order on the project.

The SDE has stated it never received or approved this change order. Approval for such orders is obtained by filing a specific form (a “CO42”), and the Town has not been able to produce a copy of the form, show that SDE received it, or verify SDE approval.

At the March 2017 BOS meeting, the First Selectman put the total costs for which reimbursement was at risk at about $400,000. But rejection of this change order could make that figure significantly higher. We just don’t know for sure, because the administration has not been forthcoming about the matter.

Who was responsible for creating and keeping documentation of budget changes, properly filing construction change orders, and for making sure they got approved? That task was delegated to the Town Administrator by the First Selectman, who is not running for reelection for that position but is running for a seat on the BOS on a platform of “leadership” that will keep Bolton “fiscally sound.”

So far, the response of the administration to this issue has consisted of vague statements that the State’s records are missing (but where are our copies?), or that important State approvals were “perceived to have occurred,” or that our State Representative has been asked to assist. We hear assurances that our money is not at risk, but only the audit will tell in the end.

You be the judge—has the existing “leadership” been effective even at minimally informing you of these events? Has it followed best management and accounting practices to keep Bolton “fiscally sound”? Is rearranging the personnel but keeping the same group of people in control the answer?

Or are you ready for a new approach that is #BetterForBolton?

Adam J. Teller
Vice Chair

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One Response to Straight Talk about Audits; or, Why Our Tax Dollars Might Be at Risk

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