South Bethany auditors praise Town for financial stability | South Bethany #NewsUnitedStates

At the South Bethany Town Council meeting on Friday, Oct. 11, council members received a good report card for financial stability and fiscal reporting from the Town’s auditors. The Finance Committee and Town Treasurer Randy Bartholomew then moved to make the Town’s reserves of more than $5.7 million earmarked for their intended purposes — about half of which is for ongoing operations, and the other half for pending infrastructure needs and stormwater management.

The Town had more than $55,000 in gains from its various investment portfolios with Vanguard investments and Fidelity investments. The $2.3 million set-aside now available for infrastructure and protection from sea-level rise, or Assawoman Bay and canal flooding, is just a small downpayment. Town engineering consultants have estimated a budget of some $14 million to $15 million — just to handle current York Road flooding by raising that main arterial road in the town.

“Summarizing all these reserve funds, the balance of all non-allocated money now is $2.3 million, which will be allocated to the infrastructure and stormwater expenses and requirement,” said Bartholomew. “Yes, we have $5.7 million in reserve, and people think that is all the money we need to fix all the problems in our town. We know the infrastructure needs are significant, and it’s not enough.”

At an earlier capital-needs workshop, hosted by Bartholomew and Mayor Pro-Tem Chris Keefe, Bartholomew had said that the York Road flood mitigation project — which did receive a FEMA Hazard Mitigation Grant and is now in the design phase — will be costly.

“The cost estimate for all of this work is now at $14 million. And where is that money going to come from, as the Town does not have that excess money in its operating budget for any type of capital item?” Bartholomew asked last summer.

“We must have a model and a roadmap of what we need, what is required to use from the Town, and where the fund balances actually stand,” he said last Friday. “We need to know what is in the infrastructure funds as we identify these projects,” he said, separate from operating monies. “We know what we need for all the other categories, including the operating reserve, the ARM, and this is the unallocated balance which we want to have available now.”

Cindy Van Horn, who served on the Budget & Finance Committee before being selected as the newest council member, said, “The operational reserve is a given, the ARM is a given, so the infrastructure money is what is leftover. It is what we will have available” for York Road.

Keefe said, “We want to connect the dots and know what’s left.”

Councilman Bob Shields said, “Simply stated, we only have about half of the $5.7 million for these stormwater and streets flooding problems.”

The board concurred, and Keefe said, “That is a good way to state it.”

Town gets a clean audit report

Ashley Stern and Lindsey Keen presented the town audit from the auditing firm PKS & Co.

Auditors’ communications include the auditor’s letter grading the fiscal health of the Town, which was said to be sound. They also provided a slideshow presentation to council members on the finances.

“This is where we provide our opinion,” said Keen. “For 2024, we gave the highest level of assurance we can give as auditors that there are no misstatements. There are no modified opinions, and that is something to be proud of because these audit opinions are not as common as they have been in the past.”

“Two technical areas related to the preparation of financial statements and the banking reconciliation are called to your attention. This is common for smaller towns that don’t have a full finance staff,” said Keen. “It just suggests that you outsource your financial statements, rather than try to prepare them internally. Also, you used a very complex accounting software with Edmunds.”

“No cash is missing for 2024,” Keen declared, with Mayor Edie Dondero raising her fist in the air in triumph. “Because manual adjustments are made within the software, that sometimes means there is an incorrect balance versus what the bank is showing, but we have to correct as we go,” Keen said.

Revenues decreased $381,000 from grants and capital improvement expenses increases, she said.

“They are recognized when the money is spent. That is just higher because of the town hall renovations, and we spent the money last year for those improvement.”

“License and permits fee revenue decreased by $44,000, but your investment revenue went up $55,000,” which is based on the high balances the Town has kept in investment accounts.

“Public works makes up 33 percent of the total expense, and public safety is 30 percent of your budget. The focus is on these areas and providing services,” said Keen.

“Transfer of money and closing your CDs and investment accounts back to the general fund means there is a reduction in the yearly financial position,” said the auditor. “You should have two months of operating expenses in the bank, just because if there is a dip in the revenue for some reason, you could continue providing the Town functions.”

Accounting software glitches found

Dondero said, “The Edmunds financial software was set up originally and had errors when it was installed. It is not an issue of the town management or finance director, and we have [Edmunds] representatives coming to make sure those installation errors are updated or corrected so that balances match.”

Another council member clarified that Town of South Bethany is using the latest version of the software.

Edmunds Gov Tech software is a widely used municipal software and has a starting price of $5,000 for a site license. It’s a local government suite of integration modules for finance, personnel management, tax administration and is a government software that works on Windows operating systems. The company is more than 50 years old and is based in New Jersey.

The accounting firm is asking other coastal towns if they can share some of their accounting templates, with recommendations that could provide more detail to the financial planning.

“Our town is small, and we don’t have many reserve assets. And so you plunk that infrastructure money in one account and keep it separate,” said Keefe. “Other funds we have on reserve are for operating reserves, and we may want to access them within a one-year policy. The capital needs funding may be needed anywhere from one year to 10 years. We have had them lumped together.”

“With capital projects looming, and our operating funds have become over-funded,” she said. “We have $1 million in our checking account, and we get no interest.”

“Maybe we need a separate policy and funds for short-term investment for the operating, and longer range for the capital expense funding that may come soon or be needed later.”

“We should review our policy statement,” said Keefe. “Right now, we have both the operating and the capital reserves together, and that was wise for the times. But now we have other needs.”

The accountants suggested the Town can adopt several financial policy statements which allow the council and treasurer to determine if the Town wants to access a CD or money market account to delineate funds.

“You may want some safe vehicles for short-term and when you get to a certain amount you can transfer and take advantage of the market upsides,” said Stern.

Keefe noted, “I don’t want to load up our finance director — and, again, we are a small town — but we do want to have this flexibility. Sometimes things can get overwhelming and could be lost,” as to which funds should be earmarked, she said.

“Our policy is not broken,” Bartholomew said. “All we can do is enhance it. We have added investment to Vanguard, and we have maintained those longer-term funds in Fidelity. Yes, we can provide a little more direction to Renee Dorman,” he said of the finance director.

“We can look at what that operating reserve can be,” he said. “We felt the best answer for that reserve, and how we do the math for it is the definition for the operation budget: That will be total expenses, excluding grants, for the year.

“We feel the grants are based on what is available and they move up and down all the time,” he added, so those are not calculated as reserves. “We want to keep our [reserves] at four twelfths of the [annual] budget, which is in the bylaws. The source will be from operating surpluses or available reserves to keep it at that level. This is a Town funding policy to clarify the definition of how we are funding our reserves.”

Dondero wondered why the grants, such as those for SBPD, are not calculated.

“Can we meet the police budget if we are not allowing the grants for policing to count?”

“We have four months of the total expenses for one year,” Bartholomew said. “Most of the police grants vary from $10,000 to hundreds of thousands. But the normal operating budget needs to be there [in reserve] for the police department in case of emergency, like a hurricane.”

“We are using those grants for one-time purchases, for training. But we have to keep the four months of runway to operate our police force, whether those grants come in or not. We need funds for general operating expenses,” said the treasurer.

Police Chief Jason Lovins said that none of the grants can fund salaries.

“However, one of the grants does allow for overtime pay,” he said.

Lovins seemed to agree that the reserve operating money should be able to fund ongoing police work.

“For example, our operating budget is $3 million, so we want to keep funding of $1 million in reserves to keep the Town going for those four months or so,” Bartholomew said.

The council reviewed the reallocation of the reserves so that they go to the intended expense or need. The main reserve has $2.1 million. The council agreed to the new allocation formula by unanimous consent.

The street maintenance and repair budget has $105,000 in operating funding. Estimates from the engineering firm George, Miles & Buhr (GMB Engineering) are at $15 million for initial repair and York infrastructure.

SBPD adds new officer

Lovins introduced a new recruit for the police department, Chase Morris, who is being sponsored to attend the Dover-based Delaware State Police academy.

Lovins told the council, “It’s always exciting when you are able to hire a new police officer and sponsor them into the police academy. It brings us back to our own youthful days in early police work, and we remember how it was to pass those physical tests and go to the academy to learn. It’s been re-invigorating for the department as a whole to bring Chase Morris aboard.”

Morris is from Milton and will be attending the academy with an eye toward joining the SBPD.

“It is my second week on the job here, and everyone is very welcoming,” said Morris. “I am just excited to get started with my training.”

Lovins said Morris had passed all of the physical exams and aptitude tests, including mental health assessments, to become a sworn officer.

“He passed with flying colors,” said Lovins. “He served as a seasonal officer in Dewey Beach and received high praise from the chief.”

“He is fit for duty,” said Lovins. “Pretty soon, he will be getting the full haircut!”