$3 Million Missing - the Unknown Unknown

Why the BIG surprise?

By Stephen Hoff 

The Budget Commission (BC) met last Friday to begin preparing Charlestown’s budget for FY 2023.   Surprisingly, the Town’s auditors had been summarily summoned to the Commission meeting to provide answers as to why their recent audit produced an Unassigned Fund Balance number (UFB) $3 million less than the BC was expecting. The meeting at times seemed like an inquisition.   

What I didn’t understand at the time and what I still don’t understand now is why the Budget Commission was so shocked and appalled that the auditors didn’t report a surplus of $8.8 million instead of $5.8 million.  

Two years ago this month in January 2020, the auditors had provided the Budget Commission with their most recent audited financial report showing an UFB of $9.1 million.  

The Commission then proceeded to recommend to the Town Council that they use $3 million of Unassigned Fund Balance in their next FY 2021 budget.  The following year the Budget Commission again recommended to the Council that they use another $3 million of UFB in their FY 2022 budget.  

Pictured: Pennsylvania Lt. Governor John Fetterman

Now let’s do some simple math. $9 million of Unassigned Fund Balance less $3 million for FY 2021, less $3 million for FY 2022, leaves us with an expectation of $3 million remaining in Unassigned Fund Balance when the FY 2021 audit is provided in January 2022. 

Taking into account that the Budget Commission had been accumulating $1 million dollars a year of surplus, which they are aware of, for 3 fiscal years, one should expect an ending Unassigned Fund Balance of approximately $6 million.  This expectation is very close to the actual $5.8 million that the auditors determined it to be this month. 

So, why the shock and awe now?  The FY 2019 audit was correct for Unassigned Fund Balance of $9.1 million.  The FY 2021 audit was correct for UFB of $5.8 million.  Why the outrage with the auditors for their accurate UFB of $5.8 million? 

The reason lies in the auditor’s revelation at the Budget Commission meeting that their audited Unassigned Fund Balance for FY 2020 was $3 million too high.  

I also share in the Commission’s outrage at the auditor’s error.  Not a good thing, but that is an entirely different issue from being “surprised” that it was $3 million less than they had expected.  

Had the Budget Commission kept their eye on the ball as demonstrated by the math above, they would have realized in January 2021 that the auditors’ numbers just didn’t add up.  

For the Commission to blame others for their own failure to keep track of Unassigned Fund Balance using basic math skills is to ignore the responsibility given to them in the Town Charter.  The Town Charter very carefully assigns responsibility for preparation and oversight of the budget to the Commission. See Sections C-77 et. seq. of the Charter.

However, just because the Budget Commission has ultimate responsibility for their own actions, it doesn’t mean that the Town’s auditor, Office of the Treasurer, and Town Administrator don’t deserve considerable public scrutiny over their individual roles in this debacle. See Sections C-84 and 85 of the Charter.

The Town Council is also part of the chain of command. In fact, they are at the top of the chain. See Sections C-81 to 83 of the Charter.

After all, this has been a very public embarrassment that has shaken our trust in these institutions and will ultimately result in significant additional taxation if the Budget Commission’s Fund Balance Plan is approved without significant modification at the February Town Council meeting.