The deciphering of the city's books is progressing on pace — with those from fiscal 2007 now done, not long after 2006's were closed.
But Mayor Carolyn Kirk says what she's reading is not pleasing, although its not surprising.
In the year that ended June 30, 2007, the city government spent $1,034,482 more than it had, according to the external audit by Giusti, Hingston and Co. that was delivered to the mayor Aug. 12.
In a cover letter to City Council, the mayor said the imbalance was actually worse.
"The deficit would have been as high as $2.5 million except that approximately $1 million in one-time money was used to close the gap and expenditures came in about $500,000 below budget."
The audit also reported a mysterious finding: the sewer enterprise fund was $1.7 million in the red for fiscal 2007 while the water enterprise fund was more than $2 million in the black.
Until the eruption of news in late May about pregnant teenagers, the Kirk administration was focused on the chaos of unsettled books as far back as fiscal 2006, mandates for capital spending on water and sewer infrastructure and demands by state revenue officials that the city clean up its act.
Kirk dedicated her 100th day in office to a lengthy report and lecture on the state of the city, with the kicker, "The good news is I don't think it can get any worse."
Richard Hingston's report indicates there was much room for improvement. It cited "material weaknesses" in the bookkeeping system including "internal control, accounts receivable, cash, capital projects, (the water and sewer) enterprise funds and financial reporting."
In the accounting industry, "a material weakness" is understood to mean something akin to chaos; Hingston explained it as a "significant" problem that results in "more than a remote likelihood that 'material misstatements' will occur and not be 'prevented or detected.'"
Much of the disability of the city was traced to troubles encountered trying to convert a clumsy old financial software system to a new system acquired in 2004 that had never been used in a city as large as Gloucester. Basically, the revenue program did not speak the same language as the expenditure program.
As the roll-in was progressing, an exodus of key financial officials got underway. Left behind was little to help guide the next generation of fiscal officials, who are just beginning to arrive.
Kirk singled out for praise auditor Marcia McInnis.
"From where we started in Jan. 1, 2008, to today," Kirk wrote to the council Tuesday, "we have two fiscal years down and one more (2008) to go. Then, the city will be completely caught up in its financial reporting to the state Department of Revenue."
Kirk also wrote that the strange combination of a big surplus in the water enterprise fund and a big deficit in the sewer enterprise fund — both supported by ratepayers — might be explained by charging water expenses to the sewer fund, as well as other accounting mistakes.
She said the "financials (for fiscal 2007) show what I have suspected all along — large and looming deficits."
"However," she continued, "with aggressive action on expense control (which has resulted in cuts to services, most notably the closure of the Magnolia fire station), and production of financial statements for use in decision-making, Gloucester is on its way to being stable and strong again."
The city must complete the reconciliation of the '08 books — the fiscal year which ended June 30 — by October to ensure that next year's tax rate is approved by the state.
