Does a Material Weakness in New Canaan Financials Mean Problems for Muni Bond Investors?

New Canaan’s town council received an external audit management letter that warned of possible material miss-statements in the town’s financials. The management letter, sent to town council and obtained by this reporter, talks about police overtime booked as receivables instead of an expense, a finance director for the Board of Ed having unchecked spending on his town credit card, double postings of tax collections, and inaccurate accounting records on bank accounts for years that the auditor said was impossible to reconcile. For a town with $129 million of public debt issued this is worrisome since it could affect their bond rating ,which would increase New Canaan’s borrowing cost. There also could be issues with compliance of State mandated regulations designed to protect the rights of bond investors.

In the audit world when a material weakness is issued in a report it’s their way of saying something doesn’t smell right. A ‘material weakness’ is more severe than a ‘significant deficiency’, which in turn is more severe than a ‘deficiency’ in internal controls.

Roy Abramowitz, C.P.A., and former treasure of the New Canaan Republican Town Committee said, “Material Weakness in my experience usually is a result of purposeful neglect of duties, incompetence , cover-up or out-right fraud.”

My favorite part was the auditor’s warning that the town ethics policy needed to be reviewed. Especially the ‘Ethics Policy for Disclosure of Interest in Transactions’ on page 18 of the Management Letter. You know the kind of thing where former First Selectman Jeb Walker could have given town contracts to organizations or people he might have had a financial connection to.

Abramowitz warned the Town Council and the Board of Finance that there could be internal control issues when Jeb Walker was in charge of New Canaan. When a Certified Public Accountant, with over two decades of experience, offers his professional opinion you’d think our elected officials would pay heed to the warning; but instead Roy’s own Republican Town Committee ostracized him. Then when Rob Mallozzi took over in 2010, the First Selectman still wouldn’t put Abramowitz on the Board of Finance because Roy thinks Mallozzi was concerned about political backlash from the RTC. Abramowitz says he was worried about federal regulators seeing the town’s loosey-goosey accounting standards as a possible securities violation because New Canaan has sold its debt to the public investing market.

And don’t think the S.E.C. isn’t going to start coming after towns that abuse their financial statements to get bonds sold. Today the securities regulator sued the Southern California town of Victorville for fraud in a muni bond deal where airport assets were overvalued. The also nabbed the broker/dealer who sold the bonds and it’s founder, Jeffery Kinsell, for his role in sucking up fees on inflated assets in the bond deals.

But it’s not just investors in New Canaan’s muni bonds that have cause for alarm; there is also concern residents were overcharged for their real estate taxes. Abramowitz wrote in a letter to a Town Council member this week, “This audit shows The Board of Finance, Town Council, and Board of Selectman utilized inaccurate financial data to formulate the town budget and compute the “mill rate” most likely resulting in an inflated “mill rate” and New Canaanites over-paying real estate taxes leading up to and during the worst economic debacle since the great depression.”

Apparently in New Canaan we can’t just elect officials to manage our finances and trust they’ll get the job legally and ethically done. It looks like we’ve also go to inspect their work and pay an expensive outside auditor to tell us cronyism is alive and flourishing in the Next Station to Heaven.

Update 4-30-13: The New Canaan Advertiser has now also posted the auditor’s Management Letter online and stated it shows the town had material noncompliance with laws and regulations . The Town Council now plans to have the Auditor explain what they found to the town at 6:30pm (Tuesday) at the New Canaan Nature Center. It will be interesting to see if the Auditor has been coached to down play the serious problems it found.

Auditor Management Letter for New Canaan, CT June 2012


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  1. I would like to see an Independent Auditors’ Report conducted for every municipality, county, state, and federal bureaucracy! These accounting shenanigans are getting out of hand. Police overtime and Board of Education bureaucrat expenditures aren’t even that obscure. You would think that these crooks would at least be a little more careful about covering up their crimes. They have no respect for the law or the general public at all. 🙁

  2. thanks for your write-up and knowledge

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