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Episode 9 - Solvency in 2008 -2009 - Last Resort Measures
2008 to 2009 Struggle to Remain Solvent
To recover from the dire circumstances faced in 2008 and 2009 required the following extraordinary financial management efforts and luck.
The first priority for use of the remainder of the Tax Anticipation Note that was issued and largely spent by the previous council in the first week of 2008 was to meet payroll. Second priority was to pay critical operating expenses followed by paying bills from the $333,382 of accounts payable from 2007. Ridley Park had to overcome a reputation for being a very slow payer with vendors, suppliers. Even Sewer charges were not paid on time. By the end of 2008, Council established Ridley Park as a prompt payer of all bills.
After getting an extension on the cancellation closeout date for the $1,000,000 state grant, the Borough Manager and Council members worked many long hours finding, organizing and documenting the material contractually required by the state so that the state was able to award the $1,000,000 in December of 2008, one year later than the December 2007 date specified in the contract. The $1,000,000 grant money was a one time solution to revenue shortfall that is not available in future years.
Luck stepped in 2009 to satisfy the immediate requirement to transfer $221,833.73 to the Liquid Fuel Fund from the General Fund. To go back into 4 years of files, retrieve, organize and document the information required to satisfy the reporting delinquencies for the years from 2004 and 2005 and possibly 2006 and 2007 would have been at best, an enormously difficult and time consuming task. Fortunately AQUA replaced the water mains in many of the streets in Ridley Park. They compensated Ridley Park $615,000 to contract for repaving the streets after they completed their work. The $615,000 was initially entered into the General Fund and then transferred to the Liquid Fuels Fund. The state deemed that the transfer of funds and the documentation and reporting of the street repaving work satisfied the immediate requirement for documentation requirements for the $221,833.73 of delinquent reports. It also covered the potential that audits for 2006 and 2007, which also had not been reported properly, would add another obligation to transfer an additional $239,846 to the Liquid Fuels Account.
All possible measures were taken to reduce expenditures while satisfying the essential needs of the Borough: o Made hard decisions about what projects and programs needed to be postponed, scaled back or cancelled (e.g. Street Sweeper was cancelled) in order to free up cash.
o Negotiated more favorable contracts (Saved $80,000 on Insurance)
- Included adding insurance for police station and addition to the Fire House which by contact with the state should have been added beginning June of 2007. The completed and operational Police Station had not been insured for almost a year.
-Removed employees from insurance coverage who were no longer on the payroll.
-Removed coverage for buildings no longer owned by the Borough
-Removed police cars from insurance coverage that had been sold
o Tightened up on overtime.
o Implemented signature policies and controls on Invoices, Purchase Orders and Credit Cards cited as deficiencies in the Auditors’ 2007 report.
o Reviewed spending practices and exercised tremendous fiscal restraint across all departments.
o Introduced an Employee Handbook and a Sexual Harassment policy.
o Replaced the unsupportable vintage 1987 general ledger accounting software program with a modern package that provides improved productivity and a better tool for management of the municipal finances.
A summary of the deficiencies that can be found in the Auditors’ reports that were rectified by Council in 2008 and 2009 include:
SIGNIFICANT DEFICIENCIES IN INTERNAL CONTROL
2005 #05-2 Approval of Invoices 2007 #07-1 Outstanding Checks 2007 #07-4 Credit Card Policy
SIGNIFICANT DEFICIENCIES THAT CONSTITUTE MATERIAL WEAKNESSES
2005 #05-1 Deficit Fund Balances and Interfund Receivables/Payables 2005 #05-3 Preparation and Approval of Invoices 2007 #07-3 Journal Entries 2007#07-5 Liquid Fuels Reporting
OTHER IMPORTANT DEFICIENCIES
2007 #07-2 Accrued Payable and Receivables and a general comment in 2007 regarding the Outdated Accounting System.
However, this recovery came at a price. It was necessary to drain nearly all unrestricted financial cash reserves to pay the bills. It was necessary for Council members to provide more that a thousand hours of time to overcome the enormous back log of administrative work that had accumulated before January of 2008. The Borough Manager was paid as a part time employee but worked from home in late afternoon hours, evening hours and some weekends in the office. She was always available by phone during business hours when she was away from the office.
The bottom line was that on December 31, 2008:
For the first time in 8 years a surplus ($7,284) was added to the Fund Balance after $918,000 of reserve had been drained by deficit spending from 2001 to 2007
End of year Accounts Payable were reduced from a horrendous $333,382 (with hidden payables that totaled between $200,000 and $300,000 more) to a comfortable $50,750.
The $1,000,000 Police/Fire Station Grant documents were sent to the State and the grant was received in December in time to prevent an enormous fiscal disaster for 2008.
Information for 2009 will be added to this episode and all other episodes when the Auditors’ report for 2009 is made public.