By Dawn De Busk

Staff Writer

NAPLES — There is no time like the present to address the past. 

Although when it comes to budgeting, it is beneficial to be up-to-date.

Naples’ financial statement audit for Fiscal Year 2020 has been completed. The presentation was given via Zoom during theNaples Board of Selectmen meeting on Feb. 7. Auditor Marc Roy, a partner with Berry Talbot and Royer in Falmouth, explained the audit. 

Roy talked about the general misconceptions that people have about the financial statement audit; how many months’ worth operating costs the town should save in its unassigned fund balance, and how to use language in a warrant article to earmark money — among other topics. 

First off, all the information is about the budget from 1-1/2 years ago. 

“This is first year that we are auditing the Town of Naples. The firstfiscal year is 2020. The idea is to clear this up and then move right into FY 2021’s audit. Hopefully that will be done by the June timeframe. Then, we can get onto a regular schedule,” Roy said. 

“I recognize that the town has had delays getting an audit in past years,” he said. 

To get a little history of the audit, Naples Town Manager John Hawley explained the background during an interview separate from last week’s meeting.

“Bids were requested for auditing firms at some point before I was hired. The select board chose the auditing firm of RonBeaulieu. I am guessing that the bid was awarded during the period when Ephrem Paraschak left and I was hired but the town did not notify Beaulieu that they has been awarded the contract,” Hawley said. 

“In the fall of 2018, I began to wonder why an audit had not been started for the year ending 2018 and I contacted Beaulieu only to find out they weren’t aware they had been retained by the town. Beaulieu, due to late notice was not able to get started on the 2018 audit and it was almost a year before it was completed. This essentially put us behind by almost a year and a half on the auditing schedule,” Hawley said. 

“We rebid the auditing in May 2020. The cost is $10,500,” he said. 

However, the newly contracted auditing firm Berry, Talbot and Royer was “unable to get started last year because Beaulieu had not completed the audit for 2019 at this point a year ago,” Hawley said. 

“Ideally, audits should begin within a few months of the closing of the previous year’s end. For us, that would be October or November,” he said. 

According to Roy’s presentation via Zoom, the financial statement “is fairly representative of actuality. It is fairly representative of reality.”

The financial statements describe the town’s statement of financial position as of June 30, 2020. The town’s net balance was $12,484,000. Of that $4.2 million was unrestricted otherwise known as the unassigned balance fund, he said. 

“The next statement is an income statement that starts with expenses, and subtracts out revenues that are directly related to those activities. We have a net expense, funded primarily by tax dollars,” he said. “It wants taxpayers to understand this is the net expenditure that has to be supported through property taxes.”

“The town had $12.7 million in total expenses. And, it had revenues of $12 million,” Roy said, adding that other sources of income include operating grants and fees from charging for services. 

At the prompting of a selectman’s question, Roy talked about ways to keep money earmarked for something specific from lapsing back into the general fund.  

“Anything that isn’t approved by townspeople at town meetingto be separated out and used for something specifically, it lapses back to the unassigned fund balance after a year. So you have to go back to the townspeople so that you aren’t using money that wasn’t given permission,” Roy said. 

“Some towns have carry-forwards,” he said.

“Lets say you had a road budget for $750,000. If you just spend $500,000, in order to access the rest to spend on roads include it in the next year’s budget or you have a separate warrant article saying shall the town carry forward the roads budget,” Roy said.  

“Maine Municipal Association (MMA) legal has advised towns it is much better every year to have a warrant article to spend money from capital reserve for this purpose. This gives you clear authority to do that every year,” he said.

The advice many towns get is to keep in it unassigned fund balance about two to three months worth of operating costs. 

Roy warned that as towns get bigger they should be cautious not to keep too much in the unassigned fund balance as it appears the town is over-collecting for taxes and then sitting on the money.   

Toward the beginning of the discussion, he talked about misconceptions.

One is that the auditor adjusts the financial statement. Instead the auditor suggested that the town adjust the numbers, and it up to the finance director and the town manager to do so.

“Sometimes, people consider a financial statement audit of a town a fraud investigation,” he said. “Financial statement audits are not designed to detect fraud and that is not the objective of a financial statement.”