The 2019 audit of Kennett Township painted a clearer picture of the financial mess that supervisors and township staff found themselves in following the early 2019 discovery of suspicious financial transactions and the dismissal and subsequent criminal investigation of the former township manager. It also showed just how far township staff have come in fixing issues that were discovered.
Christopher Herr, a CPA with Maillie LLP, presented the audit at a recent supervisors’ meeting. The report identified material weaknesses, including the investigation of former township Manager Lisa Moore, interfund balance transfers that didn’t reconcile, fund balances that didn’t match from year to year, issues with cash disbursements, and a lack of accounting of individual escrows, among other things.
The audit was separate from a forensic audit conducted by the Philadelphia-based accounting firm of Marcum LLP that resulted in criminal charges being brought against Moore for allegedly embezzling more than $3.2 million over six years.
“In a way we’re kind of coming in after the storm has been cleaned up,” Herr said. “To some degree, our audit has already had the benefit that Marcum had already come in, looked at the first four months of 2019, and identified fraudulent activity.”
The township hired Maillie in November 2019 to perform the regular audits.
The $458,034 financial losses during the first months of 2019 are identified in the municipal annual audit and financial report under a line for judgments and losses.
Township Finance Director Amy Heinrich said that most of what is listed in Maillie’s audit are items that township staff and supervisors have already identified and fixed since then.
“We’ve identified most of those items,” Heinrich said. “The things that are remaining are ongoing, like the new online (accounting) system … that take longer to put in place.”
The audit is based on a cash basis of accounting, which Kennett Township had been using until this year when a new accounting system allowed township staff to switch to a modified accrual basis. The modified accrual accounting combines cash and accrual methods of tracking income, expenditures, liabilities, and more.
Maillie issued three documents as part of the audit: the financial statements for the Pennsylvania Department of Economic Development; the Statement on Auditing Standards 114 letter; and the Statement on Auditing Standards 115 letter. Herr described the 114-letter as a “communication to government. We do this for every audit.”
The 115-letter lists the material weaknesses that were found, as well as recommendations. With regard to the alleged embezzlement by the former manager, Herr said that the Marcum audit “as it relates to the 2019 audit is critical reading material in connection with these audits.”
Another material weakness was a lack of reconciliation with the interfund balances. “Those things should reconcile,” Herr said, pointing out as an example that if there was a transfer, it should be recorded as such and not reported as revenue. “It’s just sort of a general issue to make sure those things balance.”
Another material weakness was the fund balance, which Herr described as the difference between assets and liabilities. He said there was a difference in the fund balance from the close of one year to the start of the next.
“Every year your revenue and expenses will close the fund balance,” he said. “When you go into the next year, the fund balance really shouldn’t be changed until the next year’s revenue’s been closed out. It’s just sort of a reminder to make sure that amount is rolled over and not adjusted in any way.”
One recommendation from the Maillie audit was that township staff utilize purchase orders more like an “effective system of review for purchases,” Herr said.
“It’s a good control to make sure there’s no wasteful spending,” he said, “just to make sure that even if something is budgeted, that there be a check and balance there to make sure you really need the things you spend the money on.”
Heinrich explained that the township used manual purchase orders for big purchases last year. “Now with the new system, it’s all integrated and electronic.”
The Maillie audit can be found on the township website at Kennett.pa.us in the document center.
About Monica Fragale
Monica Thompson Fragale is a freelance reporter who spent her life dreaming of being in the newspaper business. That dream came true after college when she started working at The Kennett Paper and, years later The Reporter newspaper in Lansdale and other dailies. She turned to non-profit work after her first daughter was born and spent the next 13 years in that field. But while you can take the girl out of journalism, you can’t take journalism out of the girl. Offers to freelance sparked the writing bug again started her fingers happily tapping away on the keyboard. Monica lives with her husband and two children in Kennett Square.
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