Newburgh auditor: Financial warnings unheeded

Posted Oct. 01, 2010, at 9:37 p.m.

NEWBURGH, Maine — Blunt warnings that something was amiss in this Penobscot County town’s finances trace as far back as February 2008, when a municipal auditor raised red flags, though town officials from that time insist they never heard those warnings.

Ron Smith, owner of RHR Smith & Co., which has conducted annual audits for the town of Newburgh for the past seven years, said former Deputy Town Clerk and Treasurer Cindy Dunton and former Town Manager Nancy Hatch were told for at least three years running that the town needed to strengthen its financial processes, including comparing monthly bank statements to internal spending records.

Taking that step, according to Smith, would have revealed long ago that money was being stolen from the town.

“There’s no excuse for not paying attention,” he said.

Meanwhile, State Auditor Neria Douglass said Thursday that her office would supplement an embezzlement probe that is already going on in Newburgh to determine whether the investigation’s scope is too narrow.

In March, selectmen said Dunton had admitted to embezzling nearly $200,000 between 2006 and 2009 through a variety of methods, including writing checks for as much as $21,500 to herself and her husband, Alan. In June, the Duntons signed a promissory note with the town, admitting that Cindy Dunton stole $199,536.54 from the town and pledging to pay that plus $52,000 in legal and forensic auditor’s fees.

“The parties agree that the preliminary total of $199,536.64 is subject to change as a result of the town’s ongoing audit but that Cindy Dunton owes at least this sum,” a portion of the promissory note reads.

Smith, whose firm conducts routine annual audits for nearly 150 municipalities in Maine — but did not conduct the forensic audit done by another firm this year after the thefts in Newburgh were discovered — said his firm presented its concerns to Hatch and Dunton both personally and in writing, including at least 40 copies sent to Newburgh in 2009.

“Management clearly needed to start paying attention to details,” Smith said. “That was clearly conveyed to both Cindy Dunton and Nancy Hatch.”

Hatch, who resigned as town manager in March in the wake of the embezzlement discovery, said Thursday that she has never seen a management report from RHR Smith.

“Those recommendations were never made when I was there,” said Hatch, who worked for the town for seven years and is now a selectwoman in Clifton. “Whether they didn’t send it or whether it got waylaid before it got to me, I never received any management report.”

Vernice Evasius, the RHR Smith auditor who worked directly with Newburgh, said Hatch’s statement that she never received the recommendations is “not true.”

“At all of our field audits, we do a verbal management report,” Evasius said. “We write our comments and review them in person with management. Nancy and Cindy were very aware of these issues.”

Asked for proof that his firm had briefed town officials about the problems it found, Smith provided a document to the Bangor Daily News that he said was filled out by Dunton or Hatch during the oral review. The document, dated Feb. 6, 2009, states that Dunton and Hatch both were present for the oral management report. It goes on to outline all of the concerns listed in a corresponding written management report, which also was provided to the Bangor Daily News on the authority of Douglass, the state auditor. For each item, a course of action to be taken by the town was hand-written on the form. There are no signatures on the form and no apparent place where they would go.

First Selectman Leonard Belcher said Thursday that in his 10 years as selectman, he has seen “some but not all” of the auditor’s reports. He also acknowledged that details from the reports have not appeared in the annual Newburgh Town Report in recent years, even though that is required by law.

“It’s pretty much Cindy [Dunton] who held them out,” said Belcher. “What selectmen were told was that when the audit was received, the town report had already gone out to be printed. Cindy manipulated us to a certainty. When people want to get away with things, it’s amazing what they can do.”

Douglass said her office received Smith’s management reports as they were generated. The state’s Department of Audit at one time had 60 auditors who examined municipal finances, but most of those auditors were cut by the Legislature in the 1990s. Today, the department’s primary job is auditing state agencies.

However, Douglass said Thursday that she intends to intervene in Newburgh in response to three complaints from residents.

“Some of the townspeople have indicated that they feel there is more criminal involvement here than just one person,” said Douglass. “I’m going to look at what [the residents] provide me and see what questions need to be answered.” Douglass would not say who other than Dunton would be the focus of her probe.

In three management reports — dated Feb. 16, 2008, Feb. 6, 2009, and Feb. 11, 2010 — Smith outlined several problems:

• In 2007, overall totals for tax receivables did not reconcile with itemized ledgers; internal spending figures were not being consistently compared to monthly bank statements; and many of the town’s budget items were being overspent.

• For the year 2008, the firm repeated its warnings about the bank statements and overspending budget lines and added that the town was too slow at times in depositing cash collected.

• For 2009, the firm identified the same issues in regard to bank statements and overspending budget lines.

Aside from those warnings, the RHR Smith audits did not uncover direct evidence that the embezzlement was occurring. According to Smith, the audit process relies on information provided by town employees — in this case Dunton and Hatch — which then is tested by examining a small sample of transactions. The audit did not find any of the checks Dunton allegedly wrote to herself.

“The warrants that we saw were made out to someone else,” Smith said. “It’s not the auditor’s job to look at every transaction, and there’s no way we could give that kind of resources to any client. We audit a system that truly is based on trust, and in this case, the information that was given to us had been manipulated.”

A forensic audit conducted this year by Robert N. Brown — who, according to Belcher, was hired on the advice of town attorney Dean Beaupain — stated that Dunton forged documents that were presented to selectmen, including spending warrants that they sign before checks are issued.

Dale Thistle, an attorney representing Dunton, did not return a call seeking comment. A detective with the Maine State Police who has been investigating the case, according to Penobscot County District Attorney R. Christopher Almy, could not be reached. No one has been charged in connection with the alleged embezzlement.

Douglass praised residents of Newburgh — some of whom meet regularly with an itemized agenda — for digging into their town’s finances.

“The citizens of a town have a right to know what’s going on financially in their town,” said Douglass. “The selectmen have a duty to keep them informed. I hope that’s what’s happening in Newburgh.”

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