Township Works to Improve Financial Records Following Negative Audit

The financial department of Lacey Township has been working to improve records following negative feedback on their 2009 year-end audit.

Hutchins, Farrell, Meyer, & Allison, P.A., the Certified Public Accountants and Business and Financial Advisors used for the audit expressed an adverse opinion on the township’s financial statements because of the poor maintenance of records.

“There were some problems with the finance officer there and when that came to light the mayor and administrator acting accordingly retained the services of another CFO. After that exercise was done, we came back in,” Gene Farrell, the Registered Municipal Accountant said.

The township did not keep financial statements in conformity with accounting principles generally accepted in the United States, Farrell reported in the audit.

The reason for the negative feedback started when former Chief Financial Officer (CFO) John Adams retired. According to Mayor Gary Quinn, by a two to three vote, the township then appointed an employee to the position who did not have the qualifications or the certifications.

“During the time that she was in the office, there were a tremendous amount of mistakes made. And this all came to light last year during the budget meetings, during the township meetings, we found out about it throughout the year,” Quinn said. “The individual should have never been put into that position. But it’s something that happened.”

The Division of Local Government Services has a list of qualifications for a municipal CFO including a degree from a four-year course of study in business administration, accounting or an equivalent subject at a college or university or four years of full-time experience in a variety of financial positions.

“If the CFO position becomes vacant, the municipality can appoint a non-certified Temporary CFO for one year from the date of the vacancy and for a second one-year appointment with permission of the Director of the Division,” Lisa Ryan, Public Information Officer of the New Jersey Department of Community Affairs said. “This should be the only circumstance where a municipality would not have a certified CFO in charge of the finances.”

Deputy Mayor Mark Dykoff said the individual was hired because she was financially inexpensive, he thought she would be able to do the job, and he wanted to give her the opportunity.

“We learned a lesson,” Dykoff said.

Typically an audit is done in May. The 2009 audit was not completed until August of 2010 and was not available to the public until September. The Township was unable to adopt their budget until October of 2010, Quinn said.

Millions of dollars worth of mistakes had been made, Quinn said. Money was not missing but it was misappropriated, he added.

Once the issue came to light, the individual was immediately removed from the position, Quinn said. The township then hired the current CFO, Adrian Fanning, who was the former CFO for Island Heights and West Windsor.

“Mr. Fanning has literally been working since last year trying to get things back in order the way they should be. No doubt about it, there was a serious problem. We had Hutchens and Farrell who wrote that report involved all the way through, monitoring the process for us, making sure that their input is involved in the process so we could get back to where we should be,” Quinn said.

Fanning has been playing catch up, updating records, and said he will not know where the town stands for another three to four weeks.

“I’ve had to go through what I found and make some slight adjustments to what I found and I am continuing to do that as I’m researching and going through the various books and records and I will continue to do that until I have it to a stage where I am completely satisfied with where we’re at,” Fanning said.

When Fanning arrived, some of the records were not up to date and he along with the finance department staff have been working to bring them up to date as best as they can, he said.

“It’s an ongoing process. It’s not something that’s 100 percent complete but we’re continuing to work on it,” Fanning said. “We will look at any of the items raised in the audit but the purpose of what we ‘re doing now is to make sure that sort of thing doesn’t happen again.”

Farrell recently reached out to Fanning to see if he could provide records and schedule the 2010 audit, he said. The audit has not been scheduled yet.

Lanoka Harbor resident, Tom Pelcheski, who was a Financial Operational and Compliance Auditor for over 25 years, was concerned about the situation, even after Quinn provided an explanation.

“An adverse opinion, I looked up the definition. It’s a professional opinion made by an auditor indicating that a companies financial statements are misrepresented, misstated and do not accurately reflect its financial performance,” Pelcheski said. “That’s very negative and it’s very serious. In other words, they don’t know where the money is. The professionals could not attest to whether the financial statements are correct or reasonable.”

Pelcheski added that a CFO is not a job in which can afford on the job training.

“You lost control of your processes because the normal, every day accounting was not there. It really hurt the township and our community because there was no reliance on our financial statements,” Pelcheski said.

According to Township Administrator Veronica Laureigh, the CFO is responsible for keeping and maintaining books and records of all financial transactions of the municipality. The CFO also has custody of all public moneys of the municipality and is to provide monthly reports to the governing body including receipts, expenditures, commitments, and unencumbered appropriation balances. They also assist in the preparation of the annual budget.

Below is a data table of the material weaknesses listed in the 2009 audit and the improvements that are to be made.