WINTHROP — School and municipal officials are starting the work of fixing financial management problems that were apparently years in the making.

A special audit report recently delivered to Winthrop officials identified several problems in the town’s finances, including deficits in school spending, infrequent account reconciliations, checks not appearing on Town Council warrants and 22 third-party bank accounts with the town’s tax identification number on them.

Auditor Ron Smith said lax accounting practices, especially in the outside accounts, have created opportunities for abuse.

No allegations of wrongdoing have emerged from Smith’s special audit, but there was a case of misappropriated money in Winthrop two years ago. After a town investigation into $12,000 in missing town money, Deputy Clerk Terri Williams resigned in December 2011.

Smith said some of the town’s fiscal control practices continued unchanged after that, but he said he could not comment further about Williams or the town’s actions after her resignation.

Town Council Chairman Kevin Cookson said before 2011, the clerks in the town office shared a cash register, making it difficult to track each person’s transactions. The town has since bought three cash registers, so each person has their own, and they’re checked at the end of the day, Cookson said.

Smith said if Winthrop officials follow his firm’s recommendations, it would make a similar situation less likely in the future.

“I think with some of these practices we’re trying to encourage, you’re going to see a lot more understanding and a lot more transparency,” Smith said.

Cookson said the problems identified with fiscal control practices and outside accounts were not in the scope of previous annual audits, which were intended to check the accuracy of the town’s books and validate the amount of money available to the town.

Following the special audit, RHR Smith & Co. recommended that all expenditures be placed on warrants for the school board or Town Council to review, that all capital improvements be included in the school or municipal budget and that school and municipal officials work more closely to set financial policies and practices and monitor Winthrop’s financial standing.

Many other recommendations deal with the 22 outside bank accounts, which Smith said are the most he’s encountered in any municipality or school district he’s audited. It’s not uncommon, he said, for there to be one or a few off-the-books account in a government entity’s name.

In Winthrop’s case, the accounts have handled hundreds of thousands of dollars outside the control of town officials. Smith’s firm found accounts for various graduating classes at Winthrop High School, ones for police and fire department employees, three accounts for the Charles M. Bailey Public Library, plus more related to other organizations.

The auditors recommended closing all of the outside bank accounts except for three that would be used for money raised from and for student activities at each of Winthrop’s schools. They also said that tax money should not be transferred to those accounts and that Winthrop officials should set rules for who can have authority over accounts in the town’s name.

The town’s tax identification number has already been removed from most if not all of the outside accounts and the accounts transferred to the organizations that opened them.

Donald Chase Jr., a member of the Winthrop Veterans Memorial Committee, said the committee opened the committee’s account in 2010 to raise money for the installation and maintenance of the memorial at Norcross Point, which was dedicated in 2011.

Chase said the group wanted donations to the memorial to be tax-exempt, but the local American Legion post — the Alfred W. Maxwell Jr. Post 40 — is not, so a Legion member suggested using Winthrop’s tax identification number. Chase said Cornell Knight, the town manager at the time, signed off on it.

The account was closed a few months ago, and about $3,000 was transferred to the American Legion.

Without the tax exemption, Chase said they had to raise the price of engraving a veteran’s name on a paving block at the memorial.

Chase said he’s conferring with Maine Revenue Service and hoping that the committee won’t have to pay back taxes.

“I don’t think it was malfeasance involved, for any of these groups,” he said. “It was a mistake, a harmless mistake. Having talked to the town manager, I understand the concern.”

Last week, the Town Council authorized Town Manager Jeff Woolston to start working on Smith’s recommendations, doing things like closing remaining outside accounts, canceling the associated debit cards and drafting policies, Cookson said.

A new committee made up of members of the finance subcommittee from both the Town Council and the school board will begin meeting regularly, probably once a month, to talk about town finances.

School Superintendent Gary Rosenthal said school officials have already fixed the problems that were within their control, such as creating a new method for processing course registration fees for the adult education program, or created plans to fix problems, such as erasing the deficit for summer payroll.

Rosenthal said the school department will transfer $40,000 to $50,000 in tax money back to municipal coffers, but he wants to ensure that it will be earmarked for the school budget.

“We’re hopeful that things are going to move forward,” he said. “We’ve changed some of our practices to what we hope are better practices, and I think we’re comfortable with where we are now.”

The school board and councilors still have to come to agreement on a school budget for this year. The dispute is based not on accounting but on health insurance for school employees.

Susan McMillan — 621-5645
smcmillan@centralmaine.com