Audit: Accounting made Islip finances seem worse

The Town of Islip overtaxed village residents, gave unauthorized benefits to managers and for three years overstated its projected expenses by about $14 million a year, making its financial position appear worse than it was, according to a state audit released Monday.

All three issues stemmed from long-standing accounting problems dating as far back as 20 years, State Comptroller Thomas DiNapoli said Monday.

The probe, covering January 2007 to August 2008, was requested by Islip Supervisor Phil Nolan after the town discovered a decades-old deficit of more than $3 million in its capital projects fund.

The audit, which also discovered the town clerk's office in 2007 and 2008 misplaced $12,250 in cash, refuted Town Clerk Regina Duffy's claim that she had located 80 percent of the missing money. She has recovered none of it, said deputy comptroller Steve Hancox.

DiNapoli has referred the issue of the missing $12,250 - misplaced by Duffy and her predecessor, Joan Johnson - to the Suffolk County district attorney's office, which Monday confirmed it had received the referral.

Duffy said she recently discovered $7,875 in her office's checking account, and thought it to be part of the missing funds. But it turned out to be bingo revenue that hadn't been transferred to the proper department. "We will find them, guaranteed," she said.

The audit found residents in Islip's four villages, Brightwaters, Saltaire, Ocean Beach and Islandia, in 2007 and 2008 paid $9 million in debt service that should have been shared among all town residents. As a result, the average assessed home paid an estimated $40 more than necessary in each of those years, town comptroller Joseph Ludwig said. The overpayments began in 2002, he said, and were the result of errors in the revenues and expenses assigned to the general fund and the village fund.

From 2006 to 2008, town officials designated about $14 million a year for projected expenses, or encumbrances, "that did not exist," the audit said.

Ludwig said most of that money was set aside for unforeseen spikes in health care and pension costs. The town's practice was to draw up a purchase order for the amount, rather than move the money to a designated fund, as required by state regulations.

For more than 20 years, managers received leave time and other fringe benefits not authorized by the town board, the audit said. The benefits totaled $111,000 in 2007 and 2008.

Noting Islip's low taxes and high bond rating, Nolan said the town has rectified or is in the process of addressing "every single thing discussed in this audit." As for problems during his tenure, Nolan, who took office in November 2006, said, "You can't get everything rectified the first day you're here."

Islip council members Trish Bergin and Steven Flotteron Monday called on the district attorney and the Attorney General to investigate DiNapoli's handling of the audit. They took issue with the deletion of passages in the first draft critical of the current administration, including a conclusion that the town deliberately misstated its financial position and suggestions it could have used its surplus to lower taxes or cap the Lincoln Avenue Landfill.

DiNapoli Monday said that because the current administration was following a long-standing accounting practice, it was unfair to characterize its overstatement of projected expenses as "deliberate." As for ideas on how to spend the surplus, he said, "It's not our place to direct the town board on how to spend the town's money."

Making changes to draft audits after hearing comments from town officials, he said, is common practice.

What the state comptroller found

• The town clerk's office in 2007 and 2008 misplaced $12,250 in cash. State Comptroller Thomas DiNapoli has referred the issue to the Suffolk County district attorney's office.

• Village residents in 2007 and 2008 paid $9 million in debt service that should have been shared among all town residents. As a result, the average assessed home in the town's four villages paid an estimated $40 more than necessary in each of those years.

• From 2006 to 2008, town officials designated about $14 million a year for projected expenses, or encumbrances, "that did not exist," making the town's financial position appear worse than it was.

• For more than 20 years, managers received leave time and other fringe benefits that were not authorized by the town board. The unauthorized benefits totaled $111,000 in 2007 and 2008.

• The audit confirmed the presence of a decades-old $3.3 million deficit in the town's capital projects fund.

• The audit also recommended revising the town's procurement policy to establish a competitive process for issuing professional services contracts.