Winsted has been caught shortchanged

Let me share the story of the Emperor’s new clothes. In this 1837 tale by Hans Christian Andersen, the Emperor’s subjects willingly displayed a collective ignorance to the fact that the Emperor’s new clothes were, in fact, no clothes at all. For several years now, the fact of Winsted’s financial situation has been collectively ignored.The issue is systemic. Repeated statements in recent successive audits related to the lack of internal controls in the Finance Department have been ignored by the town. Previous efforts to modernize hardware, upgrade software and add staff in the Finance Department were routinely purged from proposed budgets. The mantra of Winsted is “No new revenue!” Critical facets of proper financial management, as highlighted by auditors, were ignored for political expediency.The internal controls recommended by the auditors were to counter the overwhelming control exerted by the longstanding finance director. Repeated efforts by others in the Finance Department to learn and understand the town’s accounting system were constantly rebuffed; efforts by banks to transition to newer software and processes were thwarted again and again. Due to the tenure of the finance director, no one ever questioned the foundation of the town’s finances.The town does have a cash issue, but it has had a cash issue for years, but it appears everyone has missed it. On the surface, the cash issue is conveniently related to the tax-collection cycle. With taxes due in January and July, the months of June and December typically see a shortfall in cash, which, in most communities, is easily covered by reserve funds. Again, the cry for “No new revenue” and increasing costs has historically left Winsted with a very narrow margin.What has come to light recently, though, are two other issues that have had an impact on cash.First, the actions of the finance director, which, in part, have led to his being placed administrative leave. The Board of Selectmen has been made aware of the general circumstances. In fact, the town attorney recently informed several members of the Board of Selectmen that according to the auditor, money is missing. The town attorney has repeatedly told the Board of Selectmen to let the auditors complete their review, and, once received, the Board of Selectmen can determine the appropriate course of action. Ongoing demands by some to force the auditor to render a report (or preliminary findings) only serve to detract from the auditors’ efforts to complete their review. Again, as the town attorney has stated over and over, when the report is completed, it will be presented to the board.Second, the financial activities of the Water and Sewer Commission have been scrutinized, for perhaps the first time in decades. I found it somewhat odd that some of the most critical infrastructure and financial obligations of the town, the water and sewer systems, were completely out of the realm of town control. Apparently, for whatever reason decades ago, the town leaders and electors found it acceptable to transfer control of these systems to a completely unregulated commission. On several occasions, when I made inquiries or sought information, I was chastised by members of the commission: I was told point blank that as the town manager, I had no role with the Water and Sewer Commission. Odd, but this is Winsted.So, with the finance director on administrative leave, the town treasurer subsequently came to me with a question about a transaction made by the finance director in October: Why was $100,000 transferred (unauthorized by selectmen or voters) from an account associated with the Soldiers Monument Commission to pay for debt service on a water bond? You see, water and sewer funds are considered to be, in accounting terms, proprietary funds. That is, those funds are supposed to operate as a stand-alone business, with operations distinctive from traditional town revenues and expenses associated with property taxes and state or federal funding. Debt service costs, as well as other costs related to operations and capital, should be inherent in the rates charged for services. The need to transfer unassociated funds to make a bond payment was a significant issue.It appears that the issue was not necessarily a new issue. A review of the most recent audit (2009-2010) indicates that the water and sewer funds owe the town’s general fund approximately $2 million due to previous transfers of cash. I’m not sure who was on the Board of Selectmen/Board of Finance in 2009-2010, but apparently that was not considered an issue. In fact, that same audit states that water and sewer operations had unrestricted net assets (typically cash) of negative $869,000, a decline of $661,000 from the previous year (which meant that the previous year was a negative $200,000)! Furthermore, combined water and sewer operations generated net operating losses of over $1.4 million! Why didn’t the 2009-2010 Board of Finance (and previous boards since it was not a new issue that year) question this staggering statement? So, if the water and sewer systems are bleeding that much cash, where is the money coming from to sustain water and sewer operations?It’s coming from town cash, or revenues generated by property taxes. Funds raised to support town and education operations was instead being used to support water and sewer operations, including debt service. In all of the conversations that several selectmen had with the finance director over the past years, how often was this issue discussed? Why wasn’t it an issue for the past several, Democrat and Republican-led, Board of Selectmen? I find it sadly ironic that after being told repeatedly to keep away from the Water and Sewer Commission, that same commission recently asked me to develop a plan to address their shortcomings. The proposed plan is this: once the review of the water and sewer finances is completed, I expect that rates will have to be significantly adjusted to repay the town the $2 million owed to it (and on a very accelerated schedule). Apparently, no formal rate study has been completed for decades. Nope — we’re more concerned with experience, legacies and politics than financial management. Because no one knew, and it has only recently been fully examined. When the audit report, and the additional review of the water and sewer finances discussed at Monday evening’s meeting, are completed, the full extent of the cash issue will be known. Until then, we manage as best we can.Payroll is the first priority, for the Board of Education and town staff. The staff of the Finance Department, including interim Finance Director Jane Wall, Purchasing Director Mark Douglass and Assistant Finance Director Colleen Garrity, struggle to apply the limited cash resources to other vendors. I have full faith and confidence in those officials to manage the cash flow. If the town has only “X” amount of cash, how can we pay “X+Y” amount of invoices? All invoices and vendors will be honored. If the Board of Selectmen/Board of Finance wishes to reprioritize payment of the outstanding invoices, I will gladly present to the board the list of invoices and the amount of cash on hand and ask that the money be allocated at its direction.The financial challenges facing the town are not to be underestimated. I expect that it will take years for the town to recover. A preliminary report on the current organization and efforts of the Finance Department will be presented to the Board of Selectmen at its next regular meeting (Tuesday, Jan. 22). When the reports of the auditors are completed, we will have a new starting point from which to move forward. I will continue my efforts to introduce and implement good government, rather than politics, as the guiding principal at Town Hall.Dale Martin is the town manager of Winchester.

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