A draft audit of Wareham's fiscal year 2010 financial statements indicates that more than $900,000 is unaccounted for.

"You live and breathe by cash. ... The most important control is the reconciliation of cash between the accountant's ledgers and the treasurer's ledgers," auditor James Powers, of Wakefield accounting firm Powers & Sullivan, told the Board of Selectmen and Finance Committee during a joint meeting of the two boards on Wednesday. "When everything shook out as of June 30, 2010 [the end of the fiscal year], we had a variance of roughly $919,000."

Powers said what happened to the $919,000 is currently unclear. The variance could be due to accounting errors from past years or the "misappropriation of funds" by an employee, he said.

Town Accountant Elizabeth Zaleski noted that there is evidence that suggests that roughly $300,000 could be accounted for in fiscal year 2010, but until the audit is complete, that cannot be confirmed.

Finance Committee member Dick Paulsen asked whether that meant that the remaining $600,000 could be found in the current fiscal year.

"That is a logical assumption. However, I don't know what the $300,000 is from this point in time," Powers responded. "I'm not ruling out the fact that the $600,000 or the $900,000 could have happened in fiscal year 2010."

Powers and Zaleski said they are still combing through the numbers and reconciling cash to determine the cause of the variance.

"I saw bad systems. I saw bad journal entries. ... Those are indications that things could be being done to cover deficits ... or could just be an indication of bad internal controls and some sloppy bookkeeping," Powers said. However, he noted: "I haven't found anything that leads me down the 'bad' path" of an employee trying to cover up deficits.

Whatever money is not found will need to be deducted from "free cash," the funds left over from previous years' budgets and thus available to be spent in the future. How much the town has in free cash could not be immediately confirmed.

"I would not hold up a lot of hope for the whole $919,000 to be found," Powers said.

Powers indicated that the Massachusetts Department of Revenue reduced Wareham's free cash by $700,000 at the end of last year because it "wasn't sure if cash balances were correct."

The preliminary results of the audit are not entirely a surprise, town officials said. Powers & Sullivan completed an audit of fiscal year 2009 last year, which showed the town needed to tighten its policies and procedures. By the time that audit was completed, fiscal year 2010 was well underway.

Town employees have been working to institute new procedures, so the results of a fiscal year 2011 audit, which ends in June, will likely show some improvement, Powers said. But he recommended that more work to be done to make sure cash is properly accounted for.

"This is describing what was wrong at the end of last June," Board of Selectmen Chair Jane Donahue said. "It's not necessarily describing what is wrong now except for a few [policies and procedures] that we're trying to work on."

Among other recommendations for the town, Powers indicated that cash should be reconciled on a monthly basis.

"Once you design procedure, it's catching up [on] the problem," he said.

Members of the Finance Committee stressed that the procedures be created and put into action.

"We want to make sure that the Board of Selectmen is going to make sure that these policies are adhered to," said Finance Committee Chair and Selectmen candidate Donna Bronk. "Somebody's got to make sure that the top banana over here [Town Administrator Mark Andrews] is doing his job."

The Selectmen pointed out that much of the responsibility would fall on Andrews, as they cannot get into the day-to-day operations of the town, according to the Town Charter.

Andrews said his department heads would begin working on Powers' suggestions immediately.

"We are taking this very seriously," Andrews said. "The processes that Mr. Powers outlined ... are at the top of the priorities list. Everything else gets behind it. It starts at 9:00 tomorrow morning."

The town used a different auditor in years prior to fiscal year 2009. Zaleski has worked for the town less than two years.

Powers will report back to the town in mid-May or the beginning of June with a final report for fiscal year 2010, including how much of the $919,000 could be accounted for at that time.