RUGBY

During the Nov 2009 election season, I volunteered for a local candidate (who lost) and have recently become more interested in the administration of our municipal government.

Briefly, I submitted an OPRA (Open Public Records Access) request to obtain general ledger journal entries and/or year-end sub-ledger reports containing the balances for 'appropriation reserves' and 'encumbrance payables' related to an unsettled police contract. I was informed by the town's treasurer that these accounts are not sub-ledgered or segregated - - - these are fungible balances for all encumbrances and a balance cannot be provided for a specific reserving action. In my case, I was asking for the the reserves established for retroactive pay on an unsettled police contract for 2007, 2008 & 2009 - - - I have heard it estimated to be ~$350k.

My background is in the private sector working for a large money-center bank. I have come to realize that municipal finance/accounting has a number of significant differences to private sector. I am familiar with FAS No.5-Accounting for Contingencies and was attempting to apply some of the guidance to the township's specific situation. The township will have a probable loss (retroactive payments) and they can be reasonably estimated. I would expect the township to test the validity of the reserves annually and adjust future reserving actions accordingly. Lastly, I would have expected the reserve to be established in such a manner that the balance could be readily identified and applied at the appropriate time.

I would not ask you to opine on this specific situation as you don't have all the facts. However, can you make a general comment on requirements to maintain segregated appropriation reserves and encumbrance payables for each potential liability.

I have reviewed NJAC 5:30-5 and believe 5:30-5.4(a)1 "...Said certification shall designate specifically the line item appropriation(s) of the official budget to which the contract will be properly charged, ensuring that the same funds shall not be certified as available for more than one pending contract..." supports my view that a segregated balance is required.

Any references would be appreciated as I plan on pushing this issue with our local government and being fact based always help.

Regards,
Michael

magician

A few comments / questions:

1. Are you to blame for the candidate having lost?

2. I don't know the specifics about announting for municipalities, so what follows is nothing more than an opinion given in ignorance.

3. Your interpretation of NJAC 5:30-5.4(a)1 sounds correct.

4. When I read ". . . test the validity of the reserves on an annual basis . . . ." I cringed; I edited the offending phrase to read, "annually".

5. You might want to post a thread in Off-Topic as you'll get a wider audience and may be more likely to find someone familiar with muni accounting; just link that one to this one.

6. Good for you! I hope that you can get them to follow their own rules.

RUGBY

Magician,

Thanks for your comments.

Thankfully, I was not to blame for the loss. The township I live in has been a one-party town for many years with the previous mayor holding office for approximately 27 years. The newly elected mayor was a councilwomen for 28 years. The current treasurer has held the office 30+ years. It was an uphill battle but we have established a foothold.

I did quite a bit of research for the election and the reserve related to the unsettled police contract was a significant campaign issue. I identified other 'inconsistencies' which I will be reviewing as time permits. The major issue I face is a lack of knowledge on muni accounting. I was burned a few times with incorrect interpretations of data and I don't want to go off half-cocked on this one.

Thanks again.

nb: I didn't think 'on an annual basis' warranted a cringe. Perhaps an eye-roll, but not a cringe.

vader1

I doubt that you will find that the township keeps a separate reserve for different liabilities. They probably have one "slush fund" for rainy days.

I don't have that much experience except for back in the day when I was with our state auditor and reviewed some local books, but in Minnesota when you say "town" or Township" you are talking about the bottom rung of local governments. They are not super sophisticated and don't have the money to be. They keep their books with some off the shelf software, and many times the guy keeping the books is not too far out of school and takes the first step up to a bigger city govt accounting job the first chance he gets so the books can be a mess.

As long as you can figure out the books and see that no one is misappropriating or stealing money, your state auditor is not going to give a small unit of govt to much grief about accounting for separate reserves. They look to see that expenses were legitimate, books are accurate, and control and separation of duties is such that the treasurer can't easily write himself checks.

Instead of ledger entries why don't you show up at a board meeting or make a request to find out what the cost of the back pay is? It's public information, they should be required to give it to you. If you keep asking for the right accounting entries they will just tell you "we don't have what you are asking for" without offering the information of what to precisely ask for. If they give you the run around about the request for info on the cost of back pay, call your state AG or Auditor and ask for help.

If the one political party in the town is the same as the one in the AG and Auditor, don't expect too much help.

magician

My pleasure, though I think vader1's are more useful.

The phrase ". . . on a <fill in your favorite adjective> basis . . . ." is one I find particularly irritating. (In other words, it's me, not you.) It's used so often you'd think that people have forgotten that adverbs exist. When I teach linear algebra I tell my students that unless they use the term "basis" to mean "a linearly independent set of vectors that span a vector space", they're not to use it at all.

I was Level III curriculum manager for Stalla for 18 months and tried my best to eradicate it from all of their materials (Study Guides, Lecture Notes, Flash Cards, and so on), but since my departure I find that many of my best efforts have been thwarted. However, whenever I come across this abominable construction in the Lecture Notes in a class I'm presenting, I cross it out (during class, whilst it's projected on the screen) and insert the appropriate adverb. Perhaps, at least, it will help the candidates remember it.

Good luck! I hope that vader1's ideas prove successful!

RUGBY

Vader1, thanks for your comments.

I am not a CPA but my interpretation, as well as practical application of FAS 5 is that no "reserves for general contingencies" are allowed, at least in the private sector. A contingency must exist (unsettled police contract) and it can be reasonably estimated (% based on like contracts). Reserves for rainy days are inappropriate.

I am not concerned with stealing or misappropriation. I am more concerned with the total lack of transparency into their process. This may eventually result in a misappropriation, as they may utilize the excess reserve funds for an unpopular capital improvement project (turfing of an athletic field), rather than returning to the current accounts and reducing our tax liability.

This is currently unknown. The police have been without a contract for 3+ years. An arbitrator is scheduled to rule in the coming weeks. The treasurer has stated she does not know the balance of the reserve related to the unsettled contract. I'm assuming they have reserved for a 3.5% to 5% annual increase.

I've called and written NJ's Division of Local Gov't Services for an opinion. I've yet to hear back.

flyingelbowz

Follow the money. Sounds like this town needs a full audit, particularly over receivables and payables. One party control and incumbents in for 20 plus years....sounds like prime candidates for embezzlement and/or cronyism.