Episode 8 - December of 2007 - Brink of the Abyss
On January 7 of 2008 the incoming Council faced a $1,855,216 deficit from prior years.
$333,382 of “Accounts Payable” was shown in the Auditors’ report for 2007. A file box was found in the Borough Manager’s office that contained about $300,000 of unpaid bills. See chart below for comparison to other years.
$1,000,000 of state grant funds were about to be cancelled. Council was notified by the state in 2008 that state grant funds were about to be cancelled. Evidence of progress and completion of the Police Station and Firehouse projects had not been submitted in 2007 as required by the grant contract with the state. Failure to submit documentation in 2007 constituted a default under the contract and was justification for termination of the grant.
$221,833.73 of liquid fuel expenditures had not been properly reported on the Liquid Fuels Report to the state based on the Liquid Fuels Tax Fund Audit Reports for 2004 and 2005. The Borough was notified by PENNDOT in February of 2009 that they wanted $221,833.70 returned to the Liquid Fuels Account. The state placed a hold on the Liquid Fuel Allocation for 2009. There were other auditor reports that indicated the borough had not submitted reports for any of the years from 2003 to 2007 (For example, see Finding 07-5 in the Auditors’ Report for 2007.) Although there is no indication of fraud, the total exposure for the borough for those years was potentially $562,002. Pennsylvania “POLICIES AND PROCEDURES FOR THE ADMINISTRATION OF THE COUNTY LIQUID FUELS TAX Publication 9”, paragraph 2.9 on page 2-9 states “Annually, each municipality must submit a set of reports showing the receipts and expenditures of all Liquid Fuels Tax Funds received from the Commonwealth on forms supplied by the Department of Transportation.” Members of council from 2003 to 2007 did not comply with the reporting requirement. They claimed they never had a problem. That was true until PENNDOT audited 2004 – 2005 records and demanded the return of $221,833.73 to the Liquid Fuels Account in 2009. See chart below of Liquid Fuels Revenues and Highway Expenditures.
$300,000 of the 2008 TAN funds had been spent by the outgoing council in the first week of January before the new council was sworn in on January 7, 2008. A Certified Public Accountant examined Ridley Park finances for January of 2008 after the disastrous $333,382 of 2007 “Accounts Payable” was discovered. He discovered the expenditure of the TAN funds described above. This left the new administration very short on funds to meet the 2008 January to March expenditures and payroll.
The expenditure of $300,000 of the 2008 TAN by the outgoing council in the first week in 2008 is puzzling. There are Generally Accepted Accounting Principles (GAAP) that include the standards and rules accountants and bookkeepers follow in recording and summarizing transactions. These rules are not legally binding. However, thay say a bill should be recorded as a payable when it is received. It is very unlikely that $300,000 of bills that needed to be paid immediately were received in the first week in 2008. It is more likely that the bills were received in 2007 but for some reason, the bills were not recorded in 2007. If those bills had been recorded in 2007, the accounts payable shown in the 2007 Audit Report would have been $633,382. In any case, it appears the taxpayers had to deal with $633,382 of unpaid bills from 2007 that had to be paid in the Fiscal year beginning January 1, 2008 and ending December 31, 2008.
“Episode 9 – Solvency in 2008-2009 – Last Resort Measures” will show how the new council dealt with this daunting situation. Although the Auditors’ reports show no indication of fraud involved in the outgoing council’s use of the 2008 TAN to pay $300,000 in bills, the auditors apparently are not expected to comment on the ethics of delaying payables to the next fiscal year or issuing and spending the TAN funds.
Councilor Murtha declared the $19,239 overdraft administrative error in January 2010 a “dire” circumstance. How does that stack up against the $1,855,216 financial hole the incoming council found on January 7, 2008?