(3/10) Independent auditors identified problems in internal controls, noting material weaknesses and significant deficiencies.

The first finding was the lack of internal controls over grant billings and reconciliations. Grant income entries recorded in the Capital Projects Fund of $127,070, the Water Fund of $36,379, and in the Sewer Fund of $40,640 were removed because the money had not actually been received by the Town. The funds had grant expenditures recorded with no offsetting revenue as the funds were yet to be requested from the grantor.

The Town is responsible for ensuring grant revenues are recognized and received in a timely and accurate manner. According to the auditors, "it appears the Town needs a better reconciliation process amongst the individuals responsible for processing and billing the grant awards and the Town Accountant to ensure grants are recorded in the accounting system as expected."

The second finding was a lack of internal controls concerning financial reporting. Adjustments were made to record $173,436 of capital infrastructure costs and the related payable at year-end in the Sewer Fund; decreased lessor receivable by $71,604 for the Sewer Fund and $27,856 for the General Fund; increased revenue by $13,124 for the Sewer Fund; and decreased revenue by $320 for the General Fund.

The effect is a potential risk that the internal financial statements of the Town are not fairly stated when entries are missed during the month & year-end close, according to the auditor. The auditors recommended the Town review its financial close and reporting process and make changes as determined applicable to ensure the Town’s transactions are properly recorded to ensure that financial statements be fairly stated.

For FY 2023, the General Fund had revenues of $2.3 million and expenditures of $1.8 million, with an ending balance of $500K. The remaining funds were transferred to the Capital Projects budget. The General Fund is used to pay day-to-day costs of the Town, including salaries and Town staff benefits.

The Capital Projects budget for FY 2023 was $953,517, with expenditures totaling $1,124,505, leaving a negative balance of $170,988. The income for the Capital Projects budget is generated through grants and funds transferred from the General Fund and is used to pay for Town projects like streetlights and parking meters.

The Water Fund showed revenue/charges for services of $504,785. Personnel costs were $252,496 and operating costs $238,467, leaving a balance of $13,822 in FY 2023. The Sewer Fund showed revenue/charges for services of $945,426. Personnel costs were $403,883 and operating costs $340,347, with an ending balance of $201,196. The principal source of income for the Water and Sewer Funds are quarterly resident payments based on water consumption. Residents are expecting another 36% increase in water rates and 3% increase in sewer rates in July.

At the end of FY 2023, the total, including grants in the Water Enterprise Fund, was $3,158,583 and the Sewer Enterprise Fund was $5,134,313.

Following the audit presentation, Mayor Frank Davis suggested combining the Water Fund and the Sewer Fund into a single Enterprise Fund. Davis told the Council that during a recent meeting of local Mayors of similar-sized municipalities, he learned that only Emmitsburg kept separate the Water Fund and the Sewer Fund. Davis suggested that combining the Funds may be a way for the Town to keep the books more organized.

Addressing Davis’s proposal, the auditor said that Emmitsburg’s separate Water and Sewer Fund is "the best practice" as it is easier to maintain. "The intent of an Enterprise Fund is to be able to track and account for related expenditures that are funded by user fees so that you have an idea as to whether or not you’re making a profit or a loss," Auditor Mills said.

While the auditor may not have by high on Davis’s recommendation, from the number of head nods on the Council and citizens in audience, Davis stuck a cord. "I got to give it to Frank," one resident said, "at least he is trying to make sense of the town’s books. I just hope the system doesn’t beat him down."