Purpose of Audit

The purpose of our audit was to examine the Town’s financial condition and internal controls over selected financial operations for the period January 1, 2011 through July 31, 2012.

Background

The Town of Babylon is located in western Suffolk County. The Town is governed by the Town Board, which comprises five elected members: the Town Supervisor and four Board members. The Town’s major operating funds’ expenditures were approximately $145 million in 2012.

Key Findings

• From 2008 through 2011, the general fund’s results of operations aggregated to net operating deficits of $8.9 million, mainly due to over-estimation of certain revenues in adopted budgets. Although the general fund reported an operating surplus of almost $1.5 million in 2011, this surplus resulted from $4.5 million of questionable inter-fund revenues. Had the Town not recognized this revenue, the general fund would have reported an operating deficit of $3 million for 2011. From 2008 through 2011, the general fund’s unexpended surplus fund balance decreased from a surplus of $6.1 million to a deficit of $10.5 million.
• Between 2008 and 2011, the residential garbage district fund made 17 cash advances to the general fund, totaling almost $28 million, to purchase property. None of the 17 cash advances were authorized by the Board, the advances were not paid by the end of each fiscal year, and no interest was paid on these temporary loans as required by law.
• The Town paid $203,848 in health insurance premiums to nine officials and employees and $30,751 to four other employees and officials who opted out of the health insurance plan during the audit period, who were not eligible, or otherwise authorized by the Board, to receive such benefits.

Key Recommendations

• Develop a long-term financial plan to mitigate the negative impact of its recurring operating deficits and to eliminate deficit fund balances. Adopt budgets that are structurally balanced.
• Authorize all temporary advances in the same manner that it authorizes budget transfers. Ensure that all temporary advances are repaid by the end of each fiscal year and with interest, when required.
• Ensure that payments in lieu of health insurance are calculated and paid based on provisions of the employees’ respective bargaining agreements or Board-approved policy.