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Audit shines light on Paonia's financial woes

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The Town of Paonia is working toward a sound financial future as it deals with past years of fiscal neglect, mismanagement and thievery dating back to 2007.

At the Sept. 8 board meeting, trustees considered the 2014 budget audit report by the accounting firm of RubinBrown as a measurement of just how deep the troubles go, and how much needs to be done to balance the budget and meet legal requirements while continuing to provide operational services.

As town manager Jane Berry phrased it, the town is "on a path to sustainability and solvency ... We're in a hole and we're digging ourselves out one step at a time."

The audit report, available on the town's website, reflects cash shortages and other accounting problems due in part to past theft of more than $640,000 from its coffers.

Request for a 5-minute summary of the audit report from former trustee Bill Brunner got about the only laugh of the evening from the board, which met in a special meeting on Aug. 27 for a presentation by RubinBrown representatives.

"We are dealing with issues that have been problematic for a long time," mayor pro tem Charles Stewart told the fewer than 10 citizens in attendance. "Some of those problems have been or are being addressed."

Stewart said that the biggest concern "is a lack of unrestricted cash, which the town takes very seriously." In addition to daily operations, the town is in the midst of a $6 million state-mandated water and sewer upgrade. While the project is paid largely by grants and loans, the town must cover expenses in up-front cash, said Stewart.

Due to the severity of the town's financial picture, the town directed auditors to examine items outside of normal services. Most of what they found was not news to the town.

Fraud loss by former town finance officer Kristen Ches-nik, which totaled more than $640,000, was discovered in 2012. Auditors delved into payment of overtime in 2014 in excess of $20,000 to employees who were not eligible for overtime and other questionable benefits provided by the town.

In addition, the original proposed budget for fiscal year 2015, presented in October prior to the hiring of Berry as town manager, violated state statues requiring local governments to balance budgets.

Upon Berry's hiring in November, the town began putting corrective measures in place, including a reduction of three full-time staff positions.

One option of raising cash is selling off assets it no longer deems necessary for daily operation.

Bill Bruner, a local pilot, questioned whether the board planned to sell off its share of the North Fork Valley Airport. The town currently has a 75 percent ownership in the airport, with Delta County owning 25 percent. Under a 2009 agreement, the town is responsible for 75 percent of the cost of capital improvements.

Because the airport is not reflected as a fixed asset on financial statements and the town has ongoing financial responsibilities toward it, auditors stated that the town must resolve its position "as part of its plan for restoring financial integrity..."

"Some people live here because of airport and see a lot of value in it," said Bruner. He said it allows the area "to kind of reinvent itself as a cultural hub, like Napa Valley... Over the long haul you may find that it's a nice part of the picture" for marketing the area.

Stewart acknowledged the airport as a unique asset. "The reality that this town is dealing with is making sure that we have enough cash to pay the bills," he said. "We look at it as something that has to be addressed."

The authors of the audit said nothing about selling off airport, noted trustee Ross King. Before any decisions are made, the town will review the current contract and bring the public in on the discussion. "It is something that we as elected trustees of this town are required to address," said King.

The issue of the cost of audit services drew public criticism. In addition to the $28,000 RubinBrown originally contracted for the audit, the town is paying $18,000.

As reported in the Aug. 19 issue of the DCI, the town was negotiating with auditors for an additional $10,000 in services after they were directed to examine the budget beyond the bounds of a normal audit. The original bid was for 175 hours and auditors billed for an additional 250 hours, but at 50 percent of the normal hourly rate. "They understand the difficulties the town is experiencing," said Berry.

While a typical audit for a town with a budget of $2 million or less would cost $27,000-$35,000, "This is a very unique situation," said Berry. Rather than compare the cost to a town of similar size, "You would have to compare it to a town that has experienced the issues this town has over the last several years."

Berry added that future audits won't require the depth of examination that the 2014 audit required. "There was quite a bit of righting the ship in the 2014 audit."

"I appreciate the manner and depth in which they examined the issues," said trustee Eric Goold, who called it "the most thorough audit the town has ever had." While Goold described the situation as bleak, "This puts us in a position where we know exactly where we're at, and where we need to go."

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