The Carlisle Mosquito Online

Friday, November 30, 2007


Town audit analyzes trends, points to risks

On Tuesday, the Audit Committee, consisting of Simon Platt, Nina Ostrom and Deb Belanger, presented the final FY07 audit report for approval by the Board of Selectmen. The Audit Committee works with the town auditors in ensuring a smooth process in the annual financial review. "There are no areas of concern," said Platt. "We do have a clean audit report." He then noted a few issues that may require attention if the town is to retain its high bond rating into the future.

Carlisle's bond rating of Aa2 allows the town to borrow at a favorable interest rate, and is determined by agencies such as Moody's Investor Services that look at a variety of financial parameters. One of these is cash reserves as a percentage of revenues. For five years ending in FY06, Carlisle's number had risen from 8.8% to 11.7%, a trend Platt called "very encouraging." However, in FY07 the percentage dropped to 9.8%. Platt noted that 10% is considered a minimum level, and "many towns push for 15%." He said the reason for the one-year decrease was that the amount of cash applied to the operating budget grew by over $100,000 from FY06 to FY07. "What this tells me is we are increasingly drawing on our savings account to fund operations."

Areas of risk for FY08 were also raised in the report, including the volatility of state aid, the unfavorable change in the assessment ratio at the high school as Carlisle attendance grows faster than Concord's, and a drop in new growth expectations. In addition, the report suggested the town needs to adopt policies for risk management in the areas of investment loss and interest rates. A disaster recovery plan is also needed, particularly for computer data.

Selectman Tim Hult noted there was "nothing in this that isn't regularly being raised" and questioned the concern over reserves, noting one year does not indicate a trend. The 2007 Town Meeting approved a free cash transfer to fund a communications console for emergency services that cost $125,000 but will not recur. Belanger pointed to the wisdom of staying within rule-of-thumb parameters to avoid endangering a favorable bond rating at a time the town may soon be borrowing for large projects.

Selectman Doug Stevenson asked where Community Preservation Act funds came into the picture, and Platt said they are not considered reserves because they are pre-designated and not available for emergency operational expenses. However, Finance Director Larry Barton noted that bonding agencies do know the CPA funds are there, saying "Their review of town finances is comprehensive."

Barton confirmed the town is undertaking an actuarial study to comply with new state regulations that require present value of post-employment benefits be reflected in the books as liabilities. Hult noted there might be some value in the analysis to "plan so we don't onerously encumber future budgets." But Platt said that in the private sector the effect of the accounting change has been for companies to end post-retirement benefits in favor of employee-managed accounts.

Previous Carlisle audits had uncovered irregularities in the timeliness and control of cash deposits. The Transfer Station sticker and school lunch programs were re-examined this year and the auditors found that most concerns "were largely addressed with some work still to be done," according to Platt.

Platt congratulated the town accountants, noting that whereas in the past much of the audit time would have been devoted to "just getting the books closed," now the auditors are able to "advise us on statistics and trends." He pointed to the management letter as "good observations . . . on financial policies and procedures" that will help the town improve its controls.

Selectman John Williams suggested a look into the town's money market investments, noting that the trend toward derivatives has made it difficult to find out where money is invested. Tim Hult also observed that he is starting to hear concern about bond markets, extending even to municipal bonds. If interest rates rise across the board, Carlisle may have no control over its ability to borrow at a low cost.

Thanking the Audit Committee for their work, the Selectmen voted to accept the report. A copy will be available to the public on the town web site

2007 The Carlisle Mosquito