Incorrect entries into the town's accounting system and lack of accounting procedures caused a $919,000 discrepancy in the town's fiscal year 2010 books, and though auditors found that cash is not missing, they will never find all of the errors that amount to the variance.

Independent auditor Powers and Sullivan presented what accountants called a “clean audit” of the town's fiscal year 2011 books to the Board of Selectmen and Finance Committee on December 14, but noted that the town must implement accounting policies to continue in the right direction. mi

A “clean audit” means that the auditors are confident that there are no misstatements in the town's finances. James Powers of Powers and Sullivan said the auditors were able to reconcile all cash and receivables for the 2011 ledger.

It is the first time in two years that Powers and Sullivan has issued a “clean audit” to the town, which Powers noted is the “best opinion you could get.”

In a December 15 press statement, Town Administrator Mark Andrews said the audit "lays a solid financial foundation to move Wareham forward."

However, Powers said, the town has “material weaknesses” that it needs to work on to get its financial house in order. He continually cited the town's lack of a set procedure for reconciling accounts as its biggest “material weakness."

“Cash reconciliations between the Treasurer's records and the general ledger did not occur within fiscal year 2010 and the end result was a $919,000 unresolved variance,” auditors wrote in their report.

After completing the fiscal year 2011 audit and essentially giving the town a clean bill of health, the case of the “missing” $919,000 would appear to be solved.

“The $919,000 is the result of hundreds of hundreds of [accounting] entries going every which way,” James Powers of Powers and Sullivan explained.

The problem was caused when, in an attempt to reconcile balances of various grant funding accounts, former Town Accountant Elizabeth Zaleski mistakenly worked within the wrong year, Powers said.

“The previous town accountant ran a report in October or November of last year on all the grant balances using the school's [ledger] system. What she did wrong was she used the 2011 numbers as opposed to 2010,” Powers explained. “She made an entry that changed cash and changed revenue ... so that when we came in [to audit] it would appear balanced. ... That's when it all really blew up in our audit."

Though the issue was discovered and Andrews was notified last fall, the reason for the problem was not known until months later, Powers said. The firm first made a public presentation about the audit's findings in March of this year and was not entirely certain of the cause of the problem at that time.

Zaleski was fired in April after the public announcement. After appealing the dismissal and reaching a $42,500 settlement agreement, Zaleski was reinstated but agreed to immediately resign her post.

“The way we resolved it is we went back to the foundation of the treasurer's records and said, 'We have confidence in the treasurer's ability to ... control [and] safeguard the assets of the town,'” said Powers.

Treasurer/Collector John Foster and his department were praised in the audit report – and by town officials – for continually reconciling in a timely fashion.

To find exactly where all the errors occurred would require accountants to nearly rebuild the town's general ledger “and I couldn't guarantee that we'd get to the bottom line,” Powers said.

“The evidence didn't point to missing cash, it pointed to that [grants] account,” he added.

Thus, after crunching the numbers, the auditors did not continue to look for the variances.

It is unclear how much of the $919,000 was eventually accounted for. In an October 21 letter from Powers and Sullivan to Andrews, Powers wrote that the $919,000 variance had been reduced by $180,000, but that auditors were still working.

“I would have loved to have found [the $919,000],” Powers said. “But that wasn't the case and I just don't see spending money going after that when you're at a point where you have a clean audit opinion.”

The Board of Selectmen and Finance Committee agreed that interim town accountant Justin Cole, along with the treasurer/collector's office and town department heads would have to agree upon accounting policies and procedures, which the Board of Selectmen, as the policy-making board in town, would approve.

Several committee members cautioned that the policies, after implemented, would then need to be enforced by management and properly executed by employees.

"We as Selectmen depend on our department heads," Board of Selectmen Chair Walter Cruz said. "You can write all the policies you want. … All the policies in the world are as good as the person implementing them."

Another issue the auditors reported in the reconciliation process was that management "was not able to provide an accurate reconciliation between the authorized town meeting votes, the tax recap, budget transfers, and the budget recorded within the general ledger," auditors wrote.

Addressing the issue on Wednesday, Powers said that the process is the town accountant's responsibility, and Cole has been getting that documentation under control.

"You can put a procedure in there, but you know it has to be done, and it just wasn't done," Powers said, noting that part of the reason that process was not completed in 2011 was because there was no town accountant in the office.

Powers stressed that the town can't go such long periods of time without a town accountant. He called 2011 a "turbulent year" in the town accountant's office, due to both the lack of an accountant and software updating that needed to be done.

"The things that the town accountant normally would do, you didn't have that position in place," Powers said.

Powers added that "one of the good things" is that even without a town accountant "you were still able to pay bills. Everybody still got their payrolls. … You were still able to operate." But, he noted: "Your ledger was sitting in a black hole, waiting for someone to go through."

The town hired current accountant Cole of accounting firm Baystate Municipal Accounting Group in late October and contracted the firm until the end of this year. Officials said then that the town will continue to look for an individual or a firm to begin work on January 1, 2012.

Powers also addressed concerns about a report in the audit that appears to indicate that there is a $2 million deficit in the town's budget. The report does not show the funds that he says are not considered "real revenue," such as free cash. A more detailed report, which he offered to provide, would "get you down to zero," he told the committees.

In the press statement, Andrews said he was "gratified, but not surprised" by the "clean" audit.

"It came about because we have been working hard to shape up how Wareham has managed its finances. It certainly hasn't been an easy task, [and was] one complicated by critics who were quick to mistake the process of cleaning out problems with a lack of direction," Andrews said, adding: "...we aren't going to rest on our laurels."

In addition to addressing the weaknesses that auditors outlined, the next step for the town is to get necessary audit information to the state Department of Revenue, as it is used when the DOR sets the town's tax rate for next year.

Click the links below to view the audit documents.