WINTHROP — An auditor said Monday that he would give a D to Winthrop’s finances, and others would likely grade the town even lower.

Auditor Ron Smith said the problems include a low fund balance, a lack of key policies and poor accounting of town accounts that are outside government officials’ control.

Presenting a special audit report to Town Council on Monday, Smith said his firm found 22 bank accounts in the town’s name that are used to spend hundreds of thousands of dollars without Town Council or school board approval.

The accounts are associated with nearly every town department, including Winthrop Public Schools, and are marked by questionable accounting practices, such as missing receipts and account custodians with only tenuous connections to town government, including former employees.

The school-related accounts handle $200,000 to $225,000 per year, with about 15 people authorized to write checks. The accounts related to the other town departments, such as the fire and police departments, handle $50,000 to $100,000 per year and also have about 15 total authorized signers.

“That’s 30 additional people, some with no relationship whatsoever to do with the town of Winthrop, Maine, controlling your money,” Smith said at the Town Council meeting.

The problem developed over a period of years, Smith said, because neither the people who opened the accounts nor the banks and credit unions where the accounts are held understood who should control town accounts, according to the town charter and state law.

Smith said according to Winthrop’s charter, the treasurer — Town Manager Jeff Woolston — should be the custodian of all town accounts. He recommended, however, that some accounts also have other authorized signers, such as the principal and secretary at each school building.

Smith said he was not asserting that money was misappropriated, but the accounting practices left opportunities for abuse. For example, when an account for Winthrop High School’s class of 2012 was closed last year, a check was written to an individual, but Smith said he couldn’t tell how the money was spent.

Smith’s firm, RHR Smith & Co., started examining the Winthrop’s accounts and practices last fall when it assumed the role of town auditor. In June, Smith recommended that the town hold off on approving a school budget, given the lack of clarity about the school department’s finances and all the outside accounts.

The Winthrop Public Schools board approved a budget, but the Town Council rejected it and hired RHR Smith & Co. to perform a special audit.

Smith presented the findings of the audit on Monday. He had not provided the report to anyone before the meeting, including councilors and school officials, so that everyone would hear his findings and recommendations at the same time.

More than 70 people, many of them school employees, attended the meeting on Monday. Smith’s presentation and questions from audience members and councilors took more than three hours.

Smith previously spoke with town and school officials about improving their practices, and said some problems have already been fixed. The school department, for example, has ended the practice of using money from student activity accounts to buy Sam’s Club memberships for teachers and their family members.

Most of the accounts should be taken out of the town’s name, Smith said, such as employee association accounts for law enforcement and ambulance employees.

Smith said, however, that each school building should have a student activities account, for money from student fundraisers and gate receipts from athletic events, for example.

Other recommendations included canceling all debit cards associated with the outside accounts, putting all expenditures on warrants for the Town Council and school board to review, and creating a closer connection between the school finances and those for the rest of the town.

“We’re going to encourage a lot of talking and a lot of communication because I think the time for that is now,” Smith said. “The lack of communication has put you in some dire straits that you’re in.”

Smith said he doesn’t know much about the school board’s proposed budget for 2013-14, and he’d want to know more before making a recommendation on whether to send it to voters.

School Superintendent Gary Rosenthal said the school department is chipping away at problems the current leadership inherited, such as the questionable accounting practices and deficits in food service and summer salaries.

Rosenthal said he did not hear much in Smith’s report that was new, given conversations between Smith and school officials.

“I don’t think anything rose to the level of illegality,” Rosenthal said. “It think it comes down to common practice, best practice and improvement (of) your practice.”

Town Council Chairman Kevin Cookson said the audit report provides more clarity about the town’s financial situation, including the school department, but he believes the school board will still need to cut employee health insurance before Town Council will approve a school budget.

Cookson was receptive to Smith’s suggestion of a central finance office to handle school and municipal business.

“It’s all one pot of money, it’s all town funds, so having one person responsible I think would be much easier,” Cookson said.

Susan McMillan — 621-5645
[email protected]