Town Finance Department Faces Scrutiny by Outside Auditor
In December of 2021, Clifton Larsen Allen (CLA) concluded a financial and technology audit and review for the Town of Marblehead. CLA is a national firm specializing in tax, audit, outsourcing, and consulting services to different types of organizations and institutions. The scope of this audit included: “performing a Finance Department Assessment, analyzing the Finance Department organizational structure, policies, and procedures, and interviewing staff, reviewing year-end close processes, examining finance system utilization and capabilities, and evaluating accounting technology and controls.” A copy of the full report can be seen here. Marblehead Beacon sent several emails and made a phone call to Town Administrator Thatcher Kezer inquiring as to who procured this report and how it was intended to be used. As of this publication there has been no response.
The report highlights areas in need of improvement in three categories of priority including high (10 items), medium (6 items), and low (7 items). At the top of the high priority list is town-wide policies and procedures, with the report noting that few departments in town have formal written policies and recommending that “departments produce formal written procedure documents that can be accessed on the Town’s server, particularly for processes such as the accounts payable and payroll warrant process.”
The report goes on to address the structure of the Finance Department, noting that it is minimally staffed to meet its responsibilities for finance, payroll, human resources, and IT services. CLA recommends additional staffing to help mitigate the potential risks outlined in the report and suggests the creation of an organizational chart, which does not currently exist. Lacking such a structure “can create internal confusion about roles and responsibilities, which can lead to tasks going uncompleted for long periods of time.”
Internal control issues involve several areas of risk including the lack of Purchase Orders, which can lead to items purchased without approval or charged to an incorrect account. Grants and contracts are only tracked manually or in Excel, the report notes. While the School Department does use Purchase Orders, they are not tracked electronically and therefore do not provide an audit trail. In addition, the town has not been performing reconciliation of cash, accounts receivables, payroll, withholdings, and revenues. CLA recommends immediately instituting an official purchase order process as well as monthly or quarterly reconciliations.
With regard to the Marblehead town bank accounts, over 150 different accounts currently reside at a single bank that does not appear to have the procedures in place to facilitate secure and timely financial management. Most concerning is the fact that the town does not use Positive Pay, an automated cash-management system designed to deter fraud, and that there is no internal control mechanism in place to limit bank account access to only authorized users. CLA recommends both consolidating the number of bank accounts and implementing Positive Pay, either at the current bank or by utilizing another bank if necessary. Again, a call and repeated emails to Kezer to clarify which bank(s) the Town utilizes and the details of the bidding process for banking services went unanswered.
Problems noted in the payroll department include understaffing and inconsistency with regard to maintaining employee files, with lack of appropriate communication between the town and the schools. Recommendations include, at a minimum, adding additional staff and restructuring the department to more effectively define responsibilities for payroll and human resources within various town departments.
The report devotes significant time to addressing issues with the town’s information technology (IT) infrastructure and associated security liabilities, issues that were the subject of an earlier Beacon article which can be seen here. Issues with lack of staff training and with the town’s implementation of its financial management software round out the top ten high priority concerns noted by CLA.
Areas of medium priority include problems with record retention, hiring, onboarding and separation procedures, student activity funds accounting, software and IT contracts, and the lack of a whistleblower hotline. Lower priority risk areas included managing vendor tax reporting, payroll scheduling, tracking of fixed assets, and accounting of wage garnishments.
Calls to the Interim Finance Director Michael Carritte went unanswered, but Town Administrator Thatcher Kezer previously spoke to Marblehead Beacon and confirmed that Carritte will be addressing some of the issues in the audit. He said that the appropriate people in town finance will get together “around the table” and “review the list of items,” validate the issues and, if determined that an item is really a problem, then they will deal with it “going forward.” He reiterated the need to “itemize, validate, and identify how to fix” the issues in this report. He stressed his goal to “keep the Select Board informed” as he and his staff work through it and offered that progress has been made in some areas, including the recent Select Board approval to contract with EPlus to improve network security for the Town. Some items are being addressed now while some fixes will need to wait for a permanent Finance Director to be hired. Kezer said that the search is under way and Carritte could be considered a candidate for the permanent position. As noted earlier, Marblehead Beacon contacted Kezer to follow up with questions confirming which bank(s) the Town utilizes, banking procedures, and other time-sensitive concerns, but has not yet received a reply.
In a review of Select Board agendas since this report was issued, no reference was found that the Select Board has reviewed or discussed the findings of this audit in a public meeting. An email to Select Board Chair Moses Grader inquiring as to whether the Select Board has discussed the content of the audit went unanswered.
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