State worried about Essex County’s budget practices

ELIZABETHTOWN – State comptroller’s auditors say Essex County’s financial condition is getting worse because the Board of Supervisors has not been adopting budgets that are structurally balanced.

An audit report released last week criticized the board for relying too much on reserves to finance the county’s operations. The county’s fund balance has declined by $12.32 million over the last three fiscal years, from $36.4 million at the start of the 2010 fiscal year to $24 million at the end of fiscal year 2012.

The audit also found that the county did not repay advances from the general fund to enterprise funds by the end of the fiscal year, leaving operating deficits and declining fund and cash balances.

It states that the county’s financial condition was likely to decline further this year because the board had adopted a budget that follows the same budgeting practices as in the past.

“Although we do not consider the County to be fiscally stressed at this time, these declining trends will result in fiscal instability if allowed to continue,” the audit report reads.

County Manager Dan Palmer wrote in a response to the audit that he agrees with the auditors’ assessment. The audit notes that Palmer’s tentative budgets since 2009 have all included a section stressing that the board can’t continue to rely as much on fund balance, but the board’s chairman and the chairman of the finance committee argued to auditors that the county’s budgeting practices “have been prudent by returning fund balance to taxpayers that the County has accumulated through conservative budgeting in prior fiscal years and by limited real property tax increases to reasonable amounts.”

The budget the county Board of Supervisors is working on for 2014 includes less spending and more revenue. It would raise property taxes by 15 percent over this year because the county doesn’t have as much fund balance to put toward lowering taxes.

Palmer and Linda Wolf, certified public accountant and purchasing agent for the county, have developed a five-year plan to get the county back on the track of not using as much fund balance. It starts with the 15 percent increase in the tax levy in the coming year, followed by gradually declining hikes over the next five years.

Palmer wrote that the audit fails to recognize that the primary reason the county has been over-relying on fund balance is because of unfunded mandates from the state and the tax cap it enacted in recent years. He writes that more than 20 percent of the county’s payroll costs are driven by state retirement contributions, which have skyrocketed in recent years. He notes that local governments are trying to keep their tax levies low despite those cost increases in order to meet the tax cap.

The audit also found that there aren’t enough internal controls over the county’s payroll to safeguard the county’s assets, there aren’t comprehensive written policies overseeing the payroll process, and officials didn’t segregate payroll duties appropriately. Because of that, auditors found that county employees were both over- and underpaid, and that their leave accrual records weren’t maintained correctly.

Auditors also wrote that there isn’t enough limit to users’ access to in the county’s payroll system, potentially opening it up to undetected abuses.

Palmer acknowledges and agrees with the payroll findings.

“Problems associated with tracking and keeping time records has been an ongoing issue,” he wrote.

He added that the county has looked at buying a payroll system that would solve the problems. The cost of it has been prohibitive so far, but the county has found a way to reduce the cost and it has been approved by the board.

A full copy of the audit report can be found on the comptroller’s website at