Braver principal Civetti finds flaws in 2012 School Department audit

Braver principal Civetti finds flaws in 2012 School Department audit

Tells Town Council encumbrances overstated by $187,000

'I think the whole town is taken aback by the course this year's budget took. Having to file access to public records requests... one side and the other side butting heads like billy goats. 'Town Council member Paul Zwolenski

NORTH SMITHFIELD - After digging into financial reports, a principal from the auditing firm that works for the town believes he has found errors in the School Department's 2012 audit, and is raising questions about whether or not the district has been following proper procedures.

Principal Robert Civetti of Braver PC presented his findings from a brief investigation to the Town Council last Thursday, explaining why he believes the School Department's "encumbrances," or outstanding liabilities at the close of the fiscal year, were overstated by some $187,000 in 2012. Civetti shared a letter sent to Town Administrator Paulette Hamilton on June 17.

"It is my opinion that governmental entities should report encumbrances only for purchase orders that were issued prior to the end of the fiscal year," Civetti explained.

The principal was asked to look into the matter by the Budget Committee after members had difficulties obtaining records in order to examine the problem on their own.

"Some numbers in the audit didn't make sense to us," said Committee Chair Michael Clifford. "The numbers didn't jive for the encumbrances and the closing fund balance."

Clifford submitted an Access to Public Records Request for the encumbrances, and related purchase orders and vendor invoices supporting the $349,735 noted in the School Department's audited financial statements.

In a letter dated May 21, Supt. Stephen Lindberg responded that the records would cost Clifford $721.50 including $630 for 42 hours of staff time at $15 per hour and $91.50 for 610 copies at 15 cents a page.

"I've asked two other accounting firms to give me an estimate on what we should have been charged and they both said it wouldn't have been 42 man hours. It would have been a simple task of four to six man hours to provide this," Clifford said. "That's why Mr. Civetti pursued this."

Civetti received a list of the encumbrances from school auditor Jeffrey Wadovick and said he choose 26 of the orders to review at random.

The first issue that he noted was that the purchase orders were all dated July 1, 2012. The principal met with Wadovick and Business Manager Lisa Marcotte to discuss it. According to Civetti, Wadovick and Marcotte said the department's computer system automatically generates new purchase orders when the debts are rolled over to a new fiscal year.

"I asked to see the original purchase order but was told that it is not maintained and cannot be reproduced within the system," he said. Civetti recommended that they adopt a procedure for maintaining the original order "so that there is sufficient audit evidence to support the claim that the purchase order was executed prior to the end of the fiscal year."

Wadovick, meanwhile, informed Civetti that he had discovered errors during his own review process and that the department's accounts payables were understated by approximately $83,500. That error, Civetti said, would not have impacted the budget.

Civetti's next discovery, however, could have changed how the district was funded in 2013.

Of the orders he had selected for testing, several turned out to be for purchases made after the end of the fiscal year. These included one from Dell Supply Department for $31,891 for merchandise not purchased until July 25 and another for legal services of around $5,000 provided in July and August.

"I question the rational for including these as budgetary expenditures for fiscal 2012," Civetti said.

Civetti was told another $70,000 of the "encumbrances" from 2012 were still open and unused.

"In hindsight, this $70,000 represents an overstatement of the budgetary basis expenditures in fiscal 2012," he said.

Civetti said that based in total on his limited analysis, the encumbrances had been overstated in by $187,000. Since the payables were understated by $83,500, as noted by Wadovick, the department had claimed expenses existed for $104,000 erroneously.

The error was the second noted in the audit since the Budget Committee began examining School Department finances last January. In a previous report, Civetti noted that Wadovick had listed Medicaid as a "budgeted" revenue, but the reimbursement had not been listed in the budget proposal to the town.

The issue led budget board members to request that the town and school use a single auditing firm for 2013 and beyond, but the School Committee voted to postpone the change until 2014. North Smithfield is the only town in the state that currently uses separate auditors for school and municipal finances.

Clifford said that in light of the new information the council should consider taking further action.

"It seems to be we're minimizing the error that was in that audit report," he said. "One purpose of the audit report is to know what number is available at the end of the year and that number was reflected incorrectly. In our opinions, that's a major error in an audit report. Why was that error made and how was that error made? To us it's significant."

The reaction from the Council was mixed.

Councilor Edward Yazbak interrupted the budget chair during an explanation of the results of his APRA request.

"We're straying off the agenda as far as I can see. The agenda item is to discuss Braver's report, not a litany of what the Budget Committee has experienced," said Yazbak. "We really have a lot of work to do tonight and I don't want to get into a 40 minute dissertation on what happened."

The explanation continued for several more minutes before Yazbak made a motion to table the matter "without discussion." But only Councilor Thomas McGee voted in agreement, and Yazbak was overruled 3 to 2.

"We really can't afford to spend an hour on this," Yazbak said. The meeting, which was primarily focused on the town's 2014 budget (see story on page 1,) would ultimately last until after midnight.

Clifford went on to state that the Budget Committee did not believe the audit had gone out for bid the way it was supposed to, or that it had been approved by the state Auditor General's office.

"After getting this report, we have even greater concerns," he said, going on to state that the council should discuss the need for a single audit.

Yazbak again objected.

"I'm calling on the president and I'm calling on the solicitor to please keep to the agenda or I will file a formal complaint," he said.

"Mr. Yazbak, I am happy to bring this agenda item to a close and to move on to item 'B' which is discussion by council vote or other action on fiscal 2013 town and school department audits," replied Council President John Flaherty.

Councilor Paul Zwolenski asked if it was normal to see $349,735 in encumbrances.

"That's unusually high," Civetti said of the figure.

He also said the districts he works with normally maintain their original purchase orders.

"It's not common from my experience," he said.

Wadovick did not respond to The Breeze's request for comment on Civetti's report.

"I think the whole town is taken aback by the course this year's budget took," said Zwolenski. "Having to file access to public records requests... one side and the other side butting heads like billy goats. I would like to make a motion to have one audit for the school and the town for 2014."

Hamilton, however, said that the state auditor general would not approve bid specificiations for such an action when the School Department had not approved it, and was in the final year of a three-year contract. The council ultimately agreed that the matter would have to be taken up again in 2014.