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Mar 17, 2009 6:33 PMPublication: The East Hampton Press

East Hampton Town audit confirms $10 million deficit for 2007

Mar 17, 2009 6:33 PM

An independent audit of East Hampton Town’s 2007 books released Monday shows that the town’s deficit at the end of that year was $9.8 million.

The town had anticipated a roughly $10 million deficit for that year and had borrowed that amount to cover the shortfall last fall.

The report also recommends the hiring of a comptroller and an accountant. The town hired Janet Verneuille, a former executive with the Bridgehampton National Bank and the defunct start-up Georgica Bank, as comptroller in January. It is now considering hiring an in-house accountant, although the money it budgeted this year for that position has already been earmarked for Ms. Verneuille’s salary.

“I don’t see any surprises in it,” said Town Supervisor Bill McGintee of the audit, which was due last fall but was delayed several times. He added that he anticipates at least a $5 million deficit for 2008 when that year’s financial reports are ready this May.

The town had been permitted by New York State last year to borrow up to $15 million to cover its deficits, and Mr. McGintee said that he believes the town will need to borrow the entire $15 million to cover the two-year deficit.

Board member Julia Prince said that she wasn’t surprised by the findings in the audit either, although she said she was happy that it showed that the 2007 deficit was less than $10 million. She added, however, that a number of the auditors’ findings concerning the deficiencies in the town’s internal controls over financial reporting had been the same issues brought up by auditors for several years before 2007.

“It’s about setting the tone at the top as far as not spending” and keeping within budget limitations, she said.

The audit, prepared by the Melville firm Nawrocki Smith LLP, criticized the town for not preparing monthly variance reports, not reconciling its bank statements, and not reconciling its Community Preservation Fund on a monthly basis.

Mr. McGintee said that many of those problems came about after the town’s former accountant, Joe Pizzo, left his post and was not replaced in 2007. He added that the town’s goal now is to “retool the whole way they do business in bookkeeping.”

The audit also shows some indicators that the town’s fiscal health may be improving. The town’s net assets in 2007 increased by $37 million over 2006. Revenues also increased by $3.5 million over 2006, though $2 million of those revenues came from one grant for the Springs-Fireplace Road landfill.

“We are well on the way to stabilizing what needs to be stabilized here,” said Mr. McGintee.

“If you have strong internal controls, a lot of this will take care of itself,” said Ms. Verneuille, who discussed the audit at a Town Board work session on Tuesday. “It took a long time to get to this point, and it will take a long time to get back. It’s like turning around an aircraft carrier.”

Mr. McGintee said the town still faces some obstacles. He noted that even though the town had budgeted conservatively for mortgage tax revenues for 2009—anticipating about $4 million instead of the roughly $7 million that the town has received per year in recent years—the town could still fall short of that goal by as much as $250,000 for the first quarter of 2009, the result of the slowdown in the local real estate market.

“We tried to estimate on the lower end this year. My biggest concern is, I want to finish this year in the black and start up a reserve fund,” Mr. McGintee said, adding that the town may have to make some budget cuts by the end of this month in order to meet that goal.

“I do not want to lay off employees,” he added. “That would be my last choice.”

The supervisor added that he had invited the credit analysts Moody’s Investors Services to East Hampton last week for a tour of the town’s facilities. He said that after that visit Moody’s had decided to not lower the town’s bond rating. Moody’s had lowered the town’s bond rating from Aa1 to A2—a four-rung drop—last year after the town’s financial crisis came to light.

He said that the town has been unable to find an accountant on the Civil Service list. While the town is currently in negotiations with an accountant, the lack of job security for someone who is not on the Civil Service list has made filling the post difficult, he said.

“It’s very difficult to bring people on board who think there’s no job protection once the administration changes,” Mr. McGintee said. “You want to make sure when you make smart choices someone doesn’t change them.”

Though Mr. McGintee had said earlier this year that he may base his decision whether or not to seek reelection in part on what was revealed by this audit and other financial reports, he said on Monday that he still needs to discuss the possibility of running again with his family. The supervisor, whom the public has largely blamed for the town’s fiscal crisis, said that he will decide within weeks whether or not to run again.

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Criticism accepted.

Just to be clear, though, our former editor, Peter Boody, was most certainly not "canned." Pete retired, with our gratitude.

This space is open season for criticizing the newspaper and the job we do, but let's please not allow it to deteriorate into unwarranted personal attacks.
By Joseph Shaw, Executive Editor (206), Hampton Bays on Mar 19, 09 3:37 PM
Mr. Shaw, totally unrelated to the present discussion, I must comment that last week's coverage by the Prss of the community forum on immigration held in Hampton Bays was a disgrace. It should have been the lead story on the front page. It was placed in what apperared to be the "by the way" section.

With al the nonsense going on in the Town, surely, this monumental step in the right direction, warranted better coverage.
By William Rodney (561), southampton on Mar 22, 09 4:20 PM
No, nobody was paying attention Nothing in my recollection, (33 years) of following Town government , has had as much promise as this meeting. Based on the article , the reporter was only there for the first 20 minutes, a real shame. Payday, Happy Hour, whatever.
By William Rodney (561), southampton on Mar 22, 09 8:51 PM