Editor’s note: This op-ed is by Don Keelan, a certified public accountant and resident of Arlington. The piece first appeared in the Bennington Banner.
If the current session of the Vermont Legislature is anything like past sessions, the members have a full agenda. Among the hundreds of bills that will eventually get introduced, there is one that they might wish to pay close attention to.
The Office of the State Auditor may well be putting forth a bill that will enable the auditor’s office to work more closely with cities, towns, school and fire districts on the issue of internal controls over various entities’ safe-keeping of their cash funds.
It probably would be helpful to define why this is necessary and what is meant by the phrase, “working more closely.” Recently, there has been extensive reporting in Vermont newspapers of the stealing (embezzling) of municipal funds by longtime trusted municipal employees. The dollars that have been reported to have been misappropriated are in the millions. A recently convicted municipal embezzler told this writer that the embezzlements that have not yet been discovered could be even greater.
The state auditor’s office has created an internal control questionnaire checklist for municipal treasurers. The two-page questionnaire, which would take a town treasurer about 20 minutes to complete, is basically a self-reporting device on the effectiveness of a municipality’s procedures in the area of cash management. For many small towns and districts it will also act as a training aid.
The auditor’s office would review the completed questionnaire and if further work is warranted would be in contact with the town to assist in strengthening the entity’s cash controls — an audit might be required, if significant weaknesses were disclosed.
The second part of what the auditor’s office might be asking for in the proposed legislation is to mandate that all municipal, school and fire district board members obtain, on an annual basis, three hours of continuing professional education in financial matters, with an emphasis on internal controls over cash. In New York state, a six-hour requirement is currently in place for school board members.
Based upon my observation, government officials in Vermont, for various reasons, don’t really believe that embezzlement at the municipal, nonprofit or business level is a serious issue (crime).
The reasons can be summarized as follows:•No one has been physically injured by the crime.
•The financial loss can in many instances be recovered from insurance proceeds (fidelity insurance coverage).
•Many entities that were embezzled do not have adequate accounting systems to truly verify the loss.
•Many entities are embarrassed to report a loss due to embezzlement and, further, do not cooperate with the legal authorities.
•Many of those who have been charged with embezzlement were under pressure to do so — feeding an addiction from alcohol, drugs or gambling. Others, were dealing with an unforeseen crisis with their personal finances.
The total cost of embezzlement far exceeds the outright cash taken. There is the added cost of having to do an audit to prove the loss. To this add the legal fees that an embezzled municipality is sure to incur. To some extent, most of these costs are covered by insurance but there is a cost that insurance will never cover.
Pablo Eisenberg, a senior fellow at Georgetown University’s Center for Public & Nonprofit Leadership, once said, “The major ingredient nonprofits have going for them is the public trust.” (U.S. News and World Report, 12/8/03).
The rash of embezzlements that have occurred involving municipal officials warrants serious attention by the Vermont Legislature and the administration. The state auditor’s office has developed ways in which to maintain the public’s trust in our municipal officials who have been entrusted with our tax dollars. Our state’s legislators and our governor must not allow that trust to be eroded.
