Financial Records

(from Maine Townsman, January 2008)
By
Lee Burnett, Freelance Writer

       Many Maine cities and towns are well into the digital age when it comes to financial management and recordkeeping.

       It’s become fairly commonplace for municipal officials to deposit employee paychecks electronically into their bank accounts and to pay vendors and invest funds with electronic transfers.  Even online payment of certain fees and minor purchases with credit or debit cards is starting to show up in Maine municipal government.  And, everything from annual audit reports to individual property records is available on several municipal websites. With the new age of electronic communications and recordkeeping, nobody much misses those multi-part paper invoices.

       But there are limits to how far cities and towns are willing to push into the digital world when it comes to municipal finance. Two facts of financial life haven’t changed much: municipalities still handle large amounts of cash and still generate large volumes of paper.

       “I’m amazed anyone says they’re using less paper because we use tons of paper,” said David Holt, town manager in Norway (population 4,600). That’s a sentiment shared by nearly every treasurer, auditor, and finance director interviewed for this story.

More Accountability

       Holt says Norway’s digital drive is continuing in spite of a recent setback. The town rejected a plan for online payment of certain bills because the plan involved putting property tax card information online, which was unpopular, according to Holt.  “They showed some resistance to having property tax cards on line,” he said. “Norway is not leading the way on automation.”

       Even so, Norway continues its digital drive by having the public works department log citizen complaints about road conditions “so they don’t get forgotten,” and by cataloging warnings about “disorderly housing.” The town plans to introduce an online payment system, although this time it won’t include posting property tax card information. Holt said that customer service and accountability are the driving factors behind automation.

        “I don’t think it’s money saving. I think its accountability – more and better recordkeeping,” said Holt.

       Others agree that cost savings are not the driving force behind computerization of records and financial information. 

       “Sad to say the primary reason small towns do it, is because fraud does happen,” said Ryan Pelletier, town manager in Saint Agatha. He points out that St. Agatha (population 1,200) had not been burned by fraud, but took a “pretty progressive” stance toward automation as a added accountability measure.

       Three years ago, the town took a big step, for a small town, by investing $15,000 in TRIO computer software that enabled the town to extend computerization to “front counter” operations. “That was a huge change,” Pelletier explained. Before that, only the town’s “back office” functions were computerized, which was still an improvement over having to tabulate monthly trial balances by hand, a process that took days, according to Pelletier.

       The new system allows immediate entry of data for hunting and fishing licenses, birth and death certificates and motor vehicle registrations, generating an automatic receipt and electronic paper trail. “Before, there was nothing that forced a clerk to give a receipt unless asked for it. They’d do it if someone wanted one,” he said.  “I feel a lot better giving a receipt.”

       Starting in February, the town will start accepting credit card payments for license fees and accepting certain other payments online.

       As a result of computerization, the town recently reduced staff in that office from two to one and a part-time person. “We’ll see the savings in this year’s budget,” said Pelletier.

Paper Backup

       Like many, Pelletier feels more secure knowing there is a piece of paper backing up financial transactions.

        “We don’t rely solely on information stored in computers,” said Pelletier. “We do daily back up on CD ROM and print out everything and file it alphabetically. With the exception of motor vehicle records, we never need to show hard copies to auditors.” Perhaps not surprisingly, “99 percent of the time,” records filed are never retrieved. “There’s never a reason to go get it,” said Pelletier. On rare occasions, re-registration under one name generates a “no record found” that is usually corrected by checking hard copies and discovering a misspelled name or incorrect date of birth. “That might happen a dozen times a year,” he said. “Having the paper copy allows us to rectify that.”

       Even the City of Portland (population 64,000) relies heavily on paper, said City Treasurer Richard Lagarde. “We’re using more paper,” he said. Paradoxically, the city’s file cabinets are more available for paper storage than disk drives are available for storage of digital information, Lagarde said. “We have large drives, but it still represents a finite amount of space. If we printed our daily cash receipts to digital PDF files, that would take up disk capacity, and that capacity just doesn’t exist,” he said.

       One way larger municipalities are limiting their use of paper is through purchasing cards, which are set up with vendors and allow town employees to make non-cash purchases. Use of the cards involves a training session and limits are set on the kinds of allowable purchases. The vendor bills monthly and the town remits an electronic payment once a month.  “It’s had a pretty positive effect [on paper reduction],” said Greg Chabot, a certified public accountant at Runyon Kersteen  & Ouellette.

Electronic Fund Transfers

       The state now sends all municipal subsidies, grants and reimbursements via electronic payments, though there have been some “growing pains,” said Chabot. The payments sometimes arrived in different offices than where they were used to receiving the payments or without identifying information, he says.

       “Whether it was Title I, Tree Growth or Revenue Sharing, I just remember some of our clients complaining,” he said. Chabot recommends better communication among department heads, particularly those applying for grant money. “It’s always important for them to communicate with the finance office,” he said.

       Larger communities like Lewiston are using both purchasing cards and Electronic Fund Transfers to pay their vendors. Deputy Finance Director Heather Hunter estimates that 20-30 percent of vendors are now receiving payments via EFT.  “[Between EFT and purchasing cards] we’ve cut accounts payable checks by 60-75 percent,” said Hunter.

       For a remote community like Carrabassett Valley (population 400) online banking makes sense. That gives the municipality’s bank the authority to make scheduled payments on behalf of the town. “It’s the way to go,” said Nancy Ricker, former town treasurer and now assistant to the assessor in Carrabassett Valley.

       Carrabassett Valley also considered adding to its online banking by setting up something similar to EFT called Automated Clearing House, but scrapped it because of legal concerns about spending authorization, said Ricker. The traditional spending process, which Carrabassett Valley follows, calls for a spending warrant and checks, keyed to the warrant by check number, to be generated at the same time. Once the selectmen sign the warrant, the checks are mailed.  Under the ACH process, the warrant does not identify by check number the payments to be made, an accountability weakness that concerned selectmen, she said. “With ACH, you can’t have checks drawn up with check numbers ahead of time,” she said. “[The selectmen] had reservations about a bigger increase in the possibility of fraud.”  It is possible to relay back to the town the identifying information once the payment is released, but that was viewed as spending money before it is fully authorized, she said. It is possible the town’s software could be modified to mesh better with the ACH, but for now the town is sticking with paying bills the old fashioned way, according to Ricker.

Online Payment

       Most municipal officials say they still handle large volumes of cash. “We still handle a significant amount of cash,” said Lagarde of Portland. “It comes in twice a year. We can do a $12 million day and the majority of that is cash and checks. Those are the realities here in Portland.” In St. Agatha, it’s not unusual for residents to bring U.S. currency to town offices to pay a thousand dollar-plus tax bill. “ It happens every year,” said Pelletier.

       These large cash transactions are likely to continue because there’s a limit to how far municipalities are willing to go in accepting online payments. Many towns are now connected to the state’s InforME (also know as Maine.gov) system that allows credit and debit card payments to register a motor vehicle or to buy a hunting or fishing license. And many towns also accept credit and debit card payment for birth certificates and other minor local fees.

       But, it appears that no community in Maine is accepting credit cards for property tax payments. That’s because the two-percent transaction fee for processing the credit card payment amounts to a significant sum for such large payments as property tax bills.  Portland once accepted credit card payment of property taxes, but quickly abandoned the practice, a move that served as a wake-up call to other communities, said Hunter in Lewiston.

       “I haven’t seen anybody doing it,” said Hunter, who comes in contact with municipal officials statewide as instructor of basic governmentaccounting classes for the Maine Municipal Tax Collectors & Treasurers Association (MMTCTA). Hunter doubts credit card payment of property taxes will ever become common because property taxes typically represent the largest revenue source for a municipal treasury. Municipal officials won’t want to lose two percent of such a large stream of revenue and most taxpayers won’t want to pay a transaction fee on top of what many feel is an onerous tax payment. “That would go over really well,” Hunter said mockingly.

       Biddeford and Standish found a way to avoid paying the transaction fees themselves, by setting up a third-party payment system through Official Payments Corp, explained Lagarde, who set those systems up while treasurer in those communities. Official Payments Corp bills the customer for the transaction fee, which is disclosed in advance and usually proves to be a deterrent to most people, Lagarde said.

       “We were finding it was not a service that was utilized a great deal, maybe half of one percent,” he said.
Email Communications

       An emerging issue for all municipal officials and employees, including those in finance, is the adequacy of systems to preserve and retrieve email correspondence. That became an issue last year when the media asked for internal emails as part of its effort to find out about a $2 million deficit in the Portland School Committee budget. There was no question that email correspondence concerning budget matters was a matter of public record, but retrieving the pertinent email became an expensive process involving lawyers and the courts.

       “How people archive email has become a real issue,” said auditor Tyson. “A lot of small towns don’t even realize the ramifications, that email is part of their (public) records and they have to somehow maintain it.” Some towns are moving to include policies on email in their record retention policies, she said.

       Tyson’s auditing colleague Chabot finds there is “a lot more communication back and forth,” usually by email, surrounding auditors’ draft management letters. Produced at the conclusion of an audit, these letters point out auditing deficiencies and make recommendations for improvement. These letters often become fodder for critics of the powers that be and Chabot points out that all related email correspondence between town or city staff and auditors is subject to the state’s open records law.

       Infrequently, town or city staff will seek to avoid giving critics traction by limiting written interactions with auditors, he said.

       “I’ve had clients tell me ‘don’t send me any drafts, just come by,’” he said.

       It is well worth the time and effort to ensure email correspondence is archived and easily retrievable, explained Michael Webber, an Augusta-based computer forensics expert and a consultant on preserving electronic evidence.

       “Records production has to be backed up in case the system crashes. In today’s back-up, you also need to know what’s being backed and protected in event of litigation,” Webber said. “The biggest advice that I could give is that they need to know what data is stored, where it resides, what’s the best way to access it, and is it searchable.”

       If the email correspondence is not easily retrievable and segregated from confidential emails protected from the state’s right-to-know law, then “it can be very costly” to recover it, he said.

       Care must also be taken in the routine purging of information and in the rotating of backup tapes, fairly common practices typically done as cost saving measures. Deleted information could hurt a community’s legal position if it is later recovered through a forensics search and shown to have been pertinent to a pending legal matter.

       “It’s hard to overcome the appearance it may be intentional,” Webber said.  The same jeopardy arises when individual computer users are allowed to defrag their own PC to speed up processing, which may overwrite data that may someday become pertinent.

       “It may have been done totally without any intent . . . but it can lead to adverse inferences, monetary sanction,” Webber said.