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  • Mamaroneck Observer

Mamaroneck Public Library: How $45K became a $1.4 million problem

By Kathy Savolt -

 

The forensic audit of the Mamaroneck Public Library is complete, and the auditors have released a final statement See HERE, as did the Library Board of Trustees.  See HERE.  Mary Soto, the former Business Manager, has been arrested and arraigned on charges of grand larceny for the theft of $44,769 in credit and debit card misuse over seven years (2016-2023).  The Library has instituted new, stricter financial controls.  While it appears time to move on, can we?

 

Background

In April 2023, the Library Board discovered that they did not have the funds to cover their current budget nor the funds for the following fiscal year.  (The Library’s fiscal year is June 1 – May 31st and the budget is finalized the prior December with a public vote.)  In March 2023, Ellen Freeman, then-President of the Board, requested a $1.4 million loan from the Village of Mamaroneck.  The Library does not have borrowing authority and therefore, the Village must borrow on their behalf.

 

Immediately after the Library’s public statement about the financial problem, Soto and the Board’s Treasurer, Clayton Otto, resigned.

 

In addition to securing the loan from the Village ($1,411,210 of Tax Anticipation Notes (TAN) were issued in April 2023), the Library Board brought in a forensic auditor and welcomed a new member, Ellen Hauptman, who has a strong financial background, including operations and control.  Hauptman, working with the Library’s auditors and the forensic auditors immediately began a review of the existing financial controls.  The Board has also added a volunteer with financial expertise, Richard Aks from Larchmont, to the team as a non-voting member of the Board.  The changes they made have been well documented and are summarized in the Library statement linked above.  They are also posted on the Library’s website along with audits dating back to 2018.  This is all in an effort to be more transparent to the public.

 

Open Question

But the question remained:  How did a theft of $44,769 translate to a need to borrow $1.4 million? 

 

From the beginning, statements from the Library Board, including the latest one, included language that their finances had been “built on misinformation” and that the Board had been told they had “a lot more money in the accounts than they actually had.”

 

Everyone hoped the forensic audit report would provide the answer.  Instead, the public got a two paragraph statement with little detail, but it did confirm what the Library Board has been saying since March – “the Business Manager’s interim financial reporting to the Board was inaccurate and overstated the actual funds available to the Library.”

 

The Analysis

Since March, this reporter has had several conversations with Ellen Freeman, former President of the Library Board and current Board member, and Ellen Hauptman, current President and former Treasurer (for eight months).  While both were forthcoming and provided valuable information for the many articles in The Mamaroneck Observer, neither would go on the record with all the details.  We reported what we were told – that the final reports would be released when the Westchester County District Attorney finished the investigation. 

 

With no final report available, the Observer turned to the financial audits posted on the Library website.  See HERE.


Internal Financial Reports

The Library Board has repeated the statement that they relied on the internal reports of the Business Manager for financial information.  The Observer does not have copies of these reports at this time.  However, crucial information is contained in the posted audits and conclusions and assumptions can be made.

 

It should also be noted that the auditors, as standard practice, refer to these internal reports as “interim” which they are until the annual audit is complete and the final financial statements are released.  Normal procedures are to make any adjustments to the internal system to conform with the audited financial statements.

 

Correcting Journal Entries

The forensic auditors indicate that the theft went back to 2016.  The posted audits begin with 2018 but that report includes critical information going back to 2016.   The 2018 audit clearly delineates Control Deficiencies beginning with the posting of prior years’ journal entries for 2016 and 2017 that were not posted (recorded in the Library books and records) and resulted “in opening account balances not agreeing with the closing audited balances.”  Every year, the auditors added the prior year to that statement – 2018, 2019, 2020, 2021 and repeated the recommendation to correct the errors in their final audit report.

 

What exactly is a journal entry and opening and closing balance?  Simply put, everyone starts the year with a beginning balance in their checkbook (opening balance).  Throughout the year, deposits are made, checks written, funds withdrawn, and the year-end amount is the closing balance.  The Library is no different except their records were incorrect.  The auditors found errors EVERY year and gave a list of the errors to the Library staff and NO ONE corrected them or ensured they were corrected.  By the 2022 audit, the sum of six years of correcting entries totaled an astonishing $20,811,160.  It is important to know that this figure does not represent actual cash.  It reflects accounting transactions recorded incorrectly.

 

Correct Opening and Closing Balances

Every audit report contains the corrected opening and closing balances.  The actual cash balances in reserve funds were:

            2017    $1.4 million

            2018    $1.4 million

            2019    $1.2 million

            2020    $1.2 million

            2021    $1.0 million

            2022    $0.8 million

 

Reserve funds can be compared to money in a savings account.

 

In addition, every budget in every audit shows a deficit.  To balance the budget, the Library relied on reserve funds and increased that reliance during the pandemic.  The 2022 budget had a budgeted deficit of over $550,000 which would have essentially wiped out the actual cash reserve.  The planned use of reserves to balance the 2023 budget was even larger at over $866,000 but these reserve funds did not exist.

 

Without the internal financial reports, presumably developed using the wrong data, we cannot say for certain that the blatant disregard of the audit recommendations accounts for the remainder of the Library’s financial problem.  However, we can conclude what the Library Board has told the public is reasonable.

 

When asked again at the January 10th Library Board meeting, Hauptman explained that the $1.4 million was the sum of the budgeted use of the non-existent reserve funds for 2022 and 2023.  Since the reserve the Board relied on did not actually exist, funds were urgently needed to keep the library open resulting in the borrowing by the Village.

 

Who is at Fault?

Everyone.  Simply put, this was an example of an institutional failure at every level.

 

The lack of simple, ordinary financial controls left Mary Soto, former Business Manager, in complete control of the finances.  Apparently, no one even looked at a bank statement to verify the information she provided.  The problems resulting from the lack of controls were mentioned in every audit we reviewed, including the fact that the bank reconciliation did not reconcile to the general ledger (official accounting statement).

 

Chain of Command

The Business Manager reports to the Executive Director.  Both the former Director, Susan Riley, and the current Director, Jennifer O’Neill who came in 2020, signed the audit Management Letters acknowledging at the very least they had seen the audit.  Neither ensured that recommendations were implemented.

 

The Executive Director reports to the Library Board of Directors who are the trustees of the Library defined by the New York State Board of Regents as “a person to whom property is legally committed in trust.  A library trustee’s commitment is to both the physical property and resources of the library and the services it provides.  The library board has the final responsibility to see that its library provides the best possible service to the community.”

 

The responsibilities of individual Board members and the Board as a whole are clearly explained in the Handbook for Library Trustees of New York State, a copy of which is readily available on the internet.  See HERE. The Observer was told that every library trustee receives a copy.

 

By relying on and trusting the Business Manager, the Executive Director, and the former Treasurer of the Board who had financial experience, the Board must be added to the list of faulty actors.  There is no record of the auditors presenting their findings to the Board, which is standard procedure. 

 

The Board has acknowledged some level of responsibility.  In remarks to the Village Board of Trustees in May, then-President Ellen Freman admitted that the Library Board could have done a better job with oversight of the Library’s finances.  She also conceded that the Board relied too heavily on the Business Manager, and they had trusted her.  This “mea culpa” as Freeman calls it, was originally reported in the May 23, 2023 edition of The Mamaroneck Observer.  See HERE.

 

Summary

This is what we know:

 

·      In March 2023, as they neared the end of the 2022 fiscal year, the Library Board realized the cash to cover expenses was not there.  They had approved a budget that used over $550,000 of their reserve.


·      The Board immediately requested a loan from the Village and hired a forensic auditor to “find the missing money.”


·      Since the 2023 budget also relied on using over $866,000 from the reserve, the total shortfall for the next fifteen months was $1.4 million.


·      While looking for the “missing money,” the forensic auditors uncovered illegal activity by the Business Manager in the form of misusing the Library’s credit and debit cards.  The Manager has been arrested for grand larceny for the theft of just under $45,000.


·      The Library has cut expenses and instituted much needed financial controls.  They have also begun to fundraise to augment the loan and tax revenues.


·      Seven years of uncorrected erroneous journal entries have been corrected.


·      The “missing money” was never there.


·      The Library Board has apologized to the Mamaroneck community and thanked them for their support.

 

The Library is vital to this community.  The Library Board has demonstrated extraordinary efforts to identify and correct all the financial problems to return to full financial health by 2026.   This reporter thinks it is time to move on.

 

Editor’s Note: Two members of The Mamaroneck Observer’s Advisory Board are also elected volunteer members of the Mamaroneck Public Library board.  Neither of them was consulted or participated in the preparation of this article.


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