Mallozzi on Audit: 'Change Was Sorely Needed at Town Hall'

New Canaan in the fiscal year that started July 1, 2011, failed by millions of dollars to budget and then accurately account for how much money was coming into and going out of the town, according to a newly released audit report.

The town’s financial statements for fiscal year 2012 had undervalued net assets by about $10 million, according to the report from Wethersfield-based O'Connor Davies LLP—for three main reasons: a reimbursement grant for excess special education costs wrongly had been reported as unearned; the town had incorrectly reported some of its profits; and the town had misallocated some of its debt.

First Selectman Rob Mallozzi, who was elected in November 2011, said that in light of his replacing the town’s CFO, law firm, auditors and actuaries on taking office, “It should be clear that institutional change was sorely needed at Town Hall.”

Saying he’d wait for the firm’s management letter to comment in detail on the audit itself, Mallozzi added that he is pleased to have prevailed in the election so that he could course-correct from past mismanagement.

“In 2011, I ran without the support of a very strong and vocal group of elected officials who took every opportunity to remind the public that my brand of leadership and change was not welcome,” said Mallozzi, who recently announced his re-election bid this year with Selectman Nick Williams. “I am glad I stuck it out and prevailed because this community deserved better management of its finance and governance.”

Three town bodies mainly are responsible for shaping New Canaan’s budget each year: Board of Selectmen, Board of Finance and Town Council. The single highest allocation of taxpayer money by far goes to the schools—about two-thirds of all spending. Process-wise, the Board of Selectmen first make recommendations to department heads on spending for the following year, including the Board of Education. Those departments then take their spending plans to the Board of Finance and final approval sits with the Town Council. 

The first selectman at the time the FY12 budget came together was Jeb Walker, who could not be reached for comment. Town Council Chairman Mark DeWaele could not be reached for comment.

The O'Connor Davies audit report was published April 11 and is available on the town website’s finance department tab (it is also attached as a PDF to this article and can be downloaded directly from this page—click above).

In it, the auditing firm says that in fiscal year 2012 the town’s revenues exceeded what was budgeted by about $3.4 million—mostly due to higher-than-budgeted tax collections. At the same time, the town spent nearly $1.7 million less than had been budgeted that year.

A summary toward the end of the report described severe shortcomings in the town’s internal financial controls at the time. “A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis,” the report says.

“A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis,” it continued.

Saying only that it was not part of the audit’s objective, the firm stopped short of saying the town had broken the law or failed to comply with contract and grant agreements.

“Providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly we do not express such an opinion,” the firm said.