Harvard’s fiscal 2017 free cash—the amount of money left unspent when the town closed its books on June 30, 2016—will likely be closer to $1.2 million than the $1.7 million certified by the state earlier this year. The final number will be known sometime next week, but the determination comes too late for this year’s Annual Town Meeting, and one error may require the town to draw money from its Reserve Fund to pay a lingering $166,000 invoice.
In an interview last week, Finance Director David Nalchajian told the Press he had found three errors in the town’s original report to the state Department of Revenue and had submitted a new number for the undesignated dollars left in the general fund at the close of fiscal 2016. Once the state certifies that amount, he said, the unspent money—some of which he said is in dispute—will become free cash that could have been used this year. But because the warrant for the April 1 Annual Town Meeting has already been posted, it is too late to add articles to appropriate some or all of that money.
“The only way we can use free cash is if the town votes to use it,” said Nalchajian. And to further complicate matters, once fiscal 2017 ends on June 30 this summer, fiscal 2017 free cash will return once again to the town’s general fund as unspent money, still there but no longer as free cash, a Cinderella-like designation that disappears at the stroke of midnight.
So far, town officials, with a balanced budget in hand, have shown no inclination to hold a Special Town Meeting before June 30 to use this year’s free cash. The good news, said Nalchajian, is that the leftover funds become the basis for fiscal 2018 free cash, which if certified in time, can be tapped at a fall 2017 Special Town Meeting. “As we move forward,” he said, “we’ll keep better track of what our expectations of free cash are for the coming year.” His goal, he said, would be to have fiscal 2018 free cash certified by October this year.
At last week’s selectmen’s meeting, Acting Town Administrator Marie Sobalvarro characterized the errors in the fiscal 2016 balance sheet as errors of “timing.” In his interview with the Press, Nalchajian provided additional details:
Although 2016 Annual Town Meeting voted to withdraw $320,000 from the town’s Capital Stabilization and Investment Fund to pay for fiscal 2017 capital projects, a bookkeeping error left the amount in the general fund, inflating the undesignated funds used to calculate free cash.
$166,000 for an unpaid fiscal 2016 health insurance invoice was left unencumbered, falsely inflating the amount of unspent money.
The state failed to deduct—as it should—$188,000 in uncollected taxes from town revenues, although, according to Nalchajian, the amount had been properly reported when the town submitted its balance sheet.
According to Nalchajian, the new balance sheet is still being negotiated. The Department of Revenue will let Harvard correct the $320,000 error, but not the unencumbered $166,000 for the health insurance invoice. Because the amount is baked into the free cash total, the town will have to come up with money to pay it, possibly using the Reserve Fund to cover it as an “unforeseen expense.” As for the $188,000 revenue discrepancy, that number is still in dispute, Nalchajian said. If the state doesn’t allow it to be corrected, the town will be looking for that money in its fiscal 2017 budget.
Nalchajian said that in a normal year the errors would have been spotted before the balance sheet was sent to the state. But with the June retirement of Harvard’s longtime finance director, Lorraine Leonard, there was no one with the experience to review the numbers. It was Town Administrator Tim Bragan who suspected that the free cash number was too high and asked for a closer look.
“Lorraine would have picked up on it before it went to DOR and said, ‘That figure is way too high,’” said Nalchajian. “She would have already had in her mind … what the figure should have been. But her retirement being … right where it was [in June 2016 when the books were being closed] … she wouldn’t have been on top of it.”
“You really shouldn’t have just one person responsible for it,” he added. “That’s why we have … the accounting officer and … myself working collaboratively to make sure we have addressed all the issues.”
Asked what might have been done differently, Nalchajian said his recommendation would have been to “bring someone in from the outside to do an unbiased look at everything,” an independent auditing firm, not the one currently on retainer to the town, which he said would have been a conflict of interest. “That’s what I would have done,” he said. “That time of year can be really difficult.”