City auditors find improved records as council votes to consolidate small accounts; finance task force warns of timing-driven shortfalls

Consultant Chip Stearns and City Treasurer Jim Johnson told the Newport City Council on Aug. 4 that the city’s audit is moving toward a September draft and recommended closing a group of small, seldom-used cash accounts to simplify accounting. The recommendation led the council to authorize Treasurer Jim Johnson to consolidate several accounts into the general fund checking account; the motion excluded a restricted Stone Garden savings account that holds proceeds from federal grant-related asset sales. Stearns, who reviewed detailed balance-sheet reports included in the public packet, told the council the auditors had reported the city “may be carrying a surplus instead of a deficit” for fiscal 2025 based on council activity but that the city remains short of cash. He said the audit team had worked with staff on grant documentation and that “it is my belief that all of the follow-up that they had sought from the city has been provided to them.” Stearns walked the council through a Friday snapshot of the balance sheet and budget status, emphasizing that numbers change daily. He said the ledger showed $1,388,004.35 owed to the general fund by other funds (a “due from other funds” figure) and that the city had drawn an additional $200,000 on its line of credit in the two business days since the spreadsheet was prepared. Stearns added that the tax-anticipation note amount and other short-term borrowings were being actively managed. On cash-management steps, council approved a motion to close and consolidate named small accounts (excluding the Stone Garden account) for a prior-to-closing total of $45,001.43. Stearns also explained an immaterial $17 residual balance in an old project fund that auditors recommended clearing; the council authorized an accounting transfer to move that $17 into the general fund as miscellaneous income. Stearns and Treasurer Johnson told the council the single-audit threshold — audits required when federal expenditures exceed $750,000 in a year — was not met for fiscal 2025, a result Stearns called “helpful both in cost and in the scrutiny” that a single audit would impose. Stearns cautioned that several operating funds routinely run negative cash positions at the start of the fiscal year because major revenue (property taxes, quarterly utilities billings) arrives later in the year. He told the council that, on the general fund, “our primary source of revenue, which is taxation, won’t be seen until two months from now or more,” and that the current-year fund balance was “almost a quarter million dollars” negative in the snapshot shown. On enterprise funds, Stearns highlighted that the sewer and water funds carry significant receivables — Friday’s snapshot showed about $974,995.93 in sewer receivables — and that a water-treatment obligation (the “arsenic payment”) produced a large early-year cash demand. He described that one of the city’s near-term financing steps is to convert a bridge line of credit to a long-term bond through the Vermont Bond Bank; the council has an article pending that would renew bonding authority to replace a short-term line. Council members and Chip agreed to continue the financial deep dive. The council directed staff and the new financial reporting task force to produce department-level transaction reports and to reconcile historical spreadsheet budgeting practices against the city’s accounting system; Chip said the goal is to avoid relying on external spreadsheets and to use the city’s accounting system as the authoritative record. What comes next: the council and staff will use preliminary audit information and the task force’s departmental reviews over the next several weeks to prepare for budget adjustments and to support any voter articles or bond actions on the August 12 ballot and subsequent financing steps.