Fiscal Year 2023 for Bangor, Maine ended on June 30, 2023. It took 13 months for the audit to be completed, revealing issues that raise significant questions. In this article, I’d like to discuss the material weakness found in the city’s financial practices.
Material Weakness in Account Reconciliations and Deposits
The Fiscal Year 2023 Management Letter from Runyon Kersteen Ouellette highlighted a critical issue:
Cash Account Reconciliations and Deposits
Criteria: To ensure cash balances are correctly reported and to deter errors or fraud, the City should deposit funds in a timely manner and perform monthly bank reconciliations.
Condition: During the audit, we determined that many deposits were made weeks after the funds were received. These included two deposits over $400K that cleared nineteen and forty-five days after they were received, respectively, and three deposits over $100K that cleared the bank between seventeen and twenty days after they were received. In addition, the bank reconciliations for the pooled cash accounts were not completed for several months after fiscal year-end.
Cause: The City experienced turnover in staff that has created a backlog in processing cash receipts. In addition, the School Department had difficulties reconciling its own bank account.
Effect: Due to the large number of deposits in transit and outstanding checks, the complexity of reconciling the bank accounts increased. In addition, the City did not complete the June 2023 bank reconciliation until March 2024.Recommendation: The City should make deposits and perform monthly bank reconciliations in a timely manner to reduce the risk of fraud or errors going undetected.
Management’s Response/Corrective Action Plan: The impacts of the pandemic created an unprecedented staffing shortage for multiple departments which has lasted several years. While staffing was impacted the level of service provided to the public was not reduced resulting in fewer staff taking on more duties. As such, some areas fell behind. One such area was the receipting and depositing of mailed payments. Mailed payments were secondary to servicing live walking customers. Cash-ups and reconciliations were subsequently impacted as the primary focus was maintaining service to the public. Even as staffing levels returned to normal, processing remained delayed as new staff were being trained. During the City’s Fiscal Year 2024, most Departments were back to adequate staffing levels and became current on the processing and depositing of payments.The City School Department operates on a separate financial system than the City and during FY23 the City and School modified how School transactions are posted to the City system. This created unexpected issues with reconciliations. Both City and School staff understand the need for timely reconciliations and are addressing and modifying procedures to ensure such issues do not occur in the future.
A Disturbing Lapse in Basic Accounting Practices
In finance, reconciling accounts is as fundamental as balancing a checkbook. It’s not just good practice—it’s essential for detecting errors, preventing fraud, and maintaining financial health. The audit’s revelations raise alarming questions about our local government’s financial management.
A Recurring Problem Ignored
What’s particularly troubling is that this isn’t a new issue. In FY 2023’s letter, the management responded that staff understands “the need for timely reconciliations”. However, the FY 2021 audit had already flagged concerns about timely reconciliations. Here we are again, facing the same problem—only worse. Clearly the management’s understanding of the importance didn’t translate to making it a priority.
The Risks Are Real
The auditor’s findings for Fiscal Year 2023 paint a disturbing picture:
- Deposits were made weeks after funds were received, including some over $400,000 that weren’t deposited for up to 45 days.
- The June 2023 bank reconciliation wasn’t completed until March 2024—a nine-month delay.
These aren’t just administrative oversights; they’re gaping holes in our financial security. Consider this scenario: if someone were to take cash from the deposit drawer before it’s finally banked, weeks could pass before anyone noticed the discrepancy. By then, tracing the theft would be incredibly difficult, if not impossible.
While the city cites pandemic-related staffing shortages as a primary cause, this explanation falls short. Reconciliation is not an optional task that can be indefinitely postponed, regardless of staffing challenges. It’s a critical function that should be prioritized to ensure the integrity of our city’s finances.
Demanding Accountability
It’s time for our City Council to take this matter seriously. We need:
- A thorough explanation from the Finance Director about these lapses and why they weren’t disclosed to the City Council when they questioned the reasoning for the audit’s delay.
- A concrete, time-bound plan to implement the auditor’s recommendations.
- Regular, public updates on the progress of financial management improvements.
- Consideration of an independent review of our city’s financial practices.
A Call to Action
This is one of the many reasons I’m running for Bangor City Council in 2024. Financial management may not be the most exciting topic, but it’s the backbone of effective local governance. When basic practices like timely deposits and account reconciliations fall by the wayside, it puts our entire city at risk.
If elected, you can count on me to ask the necessary questions and work with my fellow Councilors to provide the oversight that the City Charter tasks our City Council with. You can learn more about my campaign by clicking here.
