Support New Audit Group, With Caveats

    The creation, at the state comptroller’s recommendation, of an East Hampton Town audit committee to oversee the town’s financial reporting and controls has the endorsement of the town’s budget and finance advisory committee, although not in the form in which it has been proposed.

    Town Supervisor Bill Wilkinson and Councilwoman Theresa Quigley were the only two board members who supported a resolution offered by the supervisor last month naming themselves, both Republicans, along with two town residents, Stanley Arkin, and Carole Campolo, the secretary of the East Hampton Republican Committee, to the group. Len Bernard, the town budget officer, who was appointed by Mr. Wilkinson, Charlene Kagel, the town’s chief auditor, and Patrick Gunn, an assistant town attorney, were to be named as ex officio committee members. The resolution failed at a June 7 meeting.

    In subsequent discussions at town board meetings, the other three members of the board, Dominick Stanzione, Peter Van Scoyoc, and Sylvia Overby,  questioned the makeup of the committee, suggesting a more bipartisan group. Ms. Quigley offered to vacate her spot to allow a Democrat to be named, but the participation of Mr. Wilkinson — who, as supervisor, is the chief financial officer of the town — was also questioned. The proposal has not been reconsidered in public by the board.

    Discussion has apparently continued behind the scenes, however, and the budget and finance advisory committee weighed in recently in a letter to the board.

    The committee’s members include, the letter said, people with “financial expertise, accounting backgrounds,” and people who have served on public company audit committees.

    The creation of an independent audit committee, the letter said, would “help cement” the advances made by the Republican-majority board over the last two years in bringing the town’s financial affairs under control. Besides complying with the recommendation of the state comptroller, an audit committee would improve the town’s standing with credit rating agencies and “increase the confidence of town residents in the propriety of its financial management.”

    But the members of the group “unanimously recommend” that the audit committee include only independent, qualified town residents and not town board members or town employees.

    “The purpose of the [audit committee] should be to encourage candid discussion of possible improvements to the town’s financial controls and to give the town residents comfort that the town’s financial management has operated solely in their best interests,” the committee stated.

    The audit committee’s role, the advisory group said, should be to make recommendations on improving financial management and internal controls as well as on how to correct problems pinpointed by outside auditors in their annual audits of the town’s various funds.

     However, the budget and finance committee suggested, the town board could assign additional tasks, such as evaluating the qualifications of the town’s financial area personnel or providing a venue for town residents or employees to report financial irregularities “with the expectation of not opening themselves to retaliation.”

    “Often instances of financial misfeasance slip through controls but could be brought to light by a whistleblower system,” the advisory committee’s letter to the board said, suggesting that a dedicated telephone number could be set up and accessed only by the independent audit committee members.

    After researching the audit committees set up by other municipalities or public companies, the budget and finance committee recommended that the group have five to seven members who should all be “able to read and understand financial statements,” with at least one having a more extensive professional finance or accounting background.

    At public companies, according to the letter, audit committees do not include anyone who is part of management or doing significant business with the company. “Some governmental audit committees include no elected officials or employees. Others include one or more,” the committee’s letter said.

    However, the group noted, both Mr. Bernard and Ms. Kagel “generally favor” having board members on the audit committee. Mr. Bernard explained at a recent board meeting that that practice is followed by other entities, such as nearby municipalities and school boards, and is based on the fact that the board members are ultimately responsible for their entity’s financial affairs.

    In a response to the advisory group’s recommendations, Ms. Kagel said that “in order to provide the necessary oversight, the committee must also possess the authority to direct town personnel and contract vendors to provide the information needed by both the external and internal auditors to perform their work. This would have to come from the town board, which provides a valid argument to have their representation on the audit committee.”

    Should the audit committee contain board members, the budget and finance advisory group suggested an equal balance between Republicans and Democrats.

    The Group for Good Government, an independent local residents group that has sponsored educational efforts on various matters of public interest, also recently weighed in on the town audit committee idea.

    It called the recent proposal “a good initiative that needs refinements.” The biggest concerns about the proposed membership of the group, it said, were that “town officials who had prepared the financial statements and instituted the financial controls would now control the ‘independent’ audit committee to review them” and that the committee, as proposed, would include no Democrats, and that one of the two “outside independent members was an active Republican and secretary of the local party.”

    Ms. Campolo has said she would resign from her Republican Committee post if appointed to the audit group.

    The advisory group said that it believes both Ms. Campolo, as a former deputy executive director of the New York City Campaign Finance Board, and Mr. Arkin, who has a background in investment banking, venture capital, and money management, “have the background and expertise to . . . contribute to the work of the audit committee.”

    “I just wanted the committee to have balance,” Councilman Stanzione said this week. “I didn’t want a rubber stamp.”