LEGAL PRINCIPLES
The Second Class Township Code, beginning at Section 901 (53 P.S. §65901), governs the duty of Township auditors. The Code provides that the Board of Auditors are to audit the township’s accounts for the preceding calendar year and determine compensation for the current year for members of the Board of Supervisors who are employed by the township. Under Section 904, the audit is to be completed before March first of each year. In addition, under Section 904, the Board of Auditors is to make a report of the fmancial affairs of the township within ninety (90) days after the end of the fiscal year, signed copies of which are to be filed with the township, the Clerk of Court or the Prothonotary of the Lancaster County Court of Common Pleas and DCED.

The Code further enumerates specific matters that must be included in the township report including the names and addresses of the chairman and members of the Board of Supervisors, the township secretary and the township treasurer, a statement of the receipts of the township from all sources and of all accounts and revenue which may be due and uncollected at the close of the fiscal year, a statement of the disbursements of the township during the fiscal year, a statement of the balance in the township treasury at the beginning of the fiscal year, a statement of the resources and liabilities of the township at the end of the fiscal year, a detailed statement of the indebtedness of the township and other catch-all information.

The Code provides that the failure of the Board of Auditors to comply with the provisions of the Code constitutes a summary offense and that the failure of the secretary of the Board of Auditors to file the reports required or to publish the required financial statement also constitutes a summary offense. The Pennsylvania Crimes Code provides further ground rules involving summary offenses, including provisions which excuse conduct which is de minimis or which was based upon honest mistakes of fact. The Crimes Code also sets the maximum penalties for violations, which are a fme not to exceed $300 and imprisonment for up to 90 days. The Code further permits the township to hire a certified public accountant or a finn of certified public accountants to perform the annual audit instead of the Board of Auditors. There are several procedures to accomplish to appointment, but the typical one used is for the township to publish a notice, at least 30 days in advance of the appointment, of the township’s intent to appoint the CPA. Then the appointment is made by resolution, typically in December of a year at or about the same time as adopting the budget. The appointment is to speci1’ the audit years for which the appointment is effective and the compensation to be paid. When the CPA is appointed, the CPA then is to complete the audit and make the financial report otherwise required by the Board of Auditors, but the Board of Auditors retains its other powers, particularly those relating to setting of compensation for township supervisors who are employees and the power to seek surcharges of township supervisors who allegedly misuse their office.

BACKGROUND FACTS
Before the January 2004 meeting of the Board of Auditors, the firm which had provided auditing services for the township for twenty years or more, Beard Miller Company, LLP and its predecessors, notified the Township that it would no longer be able to perform audits of the Township given a shift of emphasis in the services Beard Miller was providing to clients. The fact that Beard Miller would not seek reappointment was known by township staff sometime in 2003 and was reported to the Board of Supervisors. Gary Kline, Township Finance Director, undertook the task of soliciting RFPs and interviewing accounting firms.

From my conversation with Gary, it is clear that he misunderstood or was unaware of the specific audit requirements included in the code, particularly the timing requirements and the relative responsibilities of the appointed CPA and the Board of Auditors. He viewed the report of township finances, which was to be filed in March, to be separate from the audit. He seemed unaware that the Board of Auditors, in the absence of an appointed CPA, would be responsible for the audit. He gave no reason for the time it took to prepare a recommendation for the appointment of the CPA other than that he interviewed representatives of at least six firms and tentatively worked out a scope of services with them before preparing an RFP. He indicated that the area was new to him since Beard Miller had been the appointed auditor for such a long time and since he was exploring different tasks which the CPA could perform. He eventually narrowed the possible list of eligible CPAs to three and had two interviews with each. As you are aware, he had ultimately made a recommendation which would have been considered for formal approval at the October 19th meeting. I mention this process because Gary made it clear to me that he didn’t recognize that the time taken to solicit and appoint the CPA finn affected the responsibilities of the Board of Auditors. As mentioned, he viewed the March report of township fmances to be separate from the CPA performed audit and, in supporting that view, noted that the CPA firm, in prior years, would complete the audit and then take the audit report and convert it to the format required for the DCED report.

A document entitled “Annual Audit and Financial Report” was prepared by Gary in order to attempt to comply with the township report requirement of the Code. This form was obtained from the Pa Department of Community and Economic Development (DCED). Gary indicated to me in our conversation that the report itself, at least as to status of the township fmances and the broad categories of expenses and revenues, is accurate and based upon the township’s financial records. He viewed the report to DCED as being relatively minor in importance and secondary to the ultimate audit which he anticipated to be prepared by the appointed CPA firm. v In an attempt to ascertain common practices, we contacted representatives of DCED who indicated that delinquent submissions of annual township reports are quite common. They also confirmed that the information included in the reports is compiled by DCED for general statistical purposes but that otherwise no review is normally made of the report. I spoke with Ronald Alarie, Brett R. Miller and W. Scott Wiglesworth. They clearly had no hint that they were expected to perform the audit. The chronology of events this year started in the same manner as other years. They had their organizational meeting in January and simply elected officers. In March, Brett Miller and Scott Wiglesworth received phone calls from Gary Kline asking for them to individually meet with Gary to sign what was described as a fmancial report for DCED. They were unaware of the exact date but knew that it was in March. Ronald Alarie did not receive a call, presumably because Gary was aware that he was out of town on business at the time. At Gary’s request, Scott Wiglesworth met with Gary at the township and signed the report. Brett Miller was unable to do so at the time requested so Gary took the report to Brett at Brett’s place of employment at Warwick High School where he had Brett sign the report. Brett indicated that he was surprised by the extent of the report and asked for some explanation of its purpose and preparation. Gary explained that the report was a financial report of the township prepared from the township records and required by DCED. A motivating factor which was express or implied at the meetings of Gary with Scott Wiglesworth and Brett Miller was that the filing of the report was critical for the continued receipt of state funding, presumably liquid fuels money. After Brett signed the report, Gary indicated that he would take care of it.

All three members of the Board of Auditors had received similar explanations of their duties when they first became members of the Board. In each case, it was explained to them that there was a CPA firm that handled the audit and reporting responsibilities and that their role essentially involved review of Supervisor expenses. Board members were aware, from the 2004 meeting ofthe Board of Auditors, that the township was involved in appointing a replacement firm for Beard Miller. They viewed that responsibility as being that of the Board of Supervisors. They had been given no indication that they had any audit responsibilities and clearly never undertook those duties. They viewed their role in 2005 in the same manner as all prior years of which any of them had a recollection. Parenthetically, Beard Miller and its predecessors had been the township appointed auditors since at least the early 1980s, well before the term of any of the current members of the Board of Auditors.

RECOMMENDED ACTIONS
Most importantly, a new auditor should be appointed and the audit described in the accompanying suggested request for proposals should be completed as soon as possible. Based on our contacts with DCED representatives, there is no reason to submit any supplemental report at this time. If the audit uncovers substantial inaccuracies, then the report should be supplemented as appropriate.

Although the recent reports of funds missing at the Four Seasons golf facility, the resignations of the two staff employees who performed financial services and the discovery that the required audit had not been completed all occurred at approximately the same time and are therefore troubling, there was nothing in any of my conversations with current township staff, Gary Kline or any of the three members of the Board of Auditors which suggest a connection. Nevertheless, the completion of the audit suggested by the accompanying RFPs is the only way to obtain ultimate assurance that there are and were no substantial financial irregularities. It is clear that the township will need to internally track the audit and filing processes better in the future. The members of the Board of Auditors themselves indicated that they individually would like to receive from township staff a status report of the process as it progresses so that what just occurred would not be repeated.

Despite the reference to failures by the Board of Auditors being considered summary offenses under the law, I do not believe their conduct or the conduct of any one of them rose to that level. They had every reason to think that the process followed in previous years was being followed again this year for the 2004 audit. Based both on past history and what they had been explicitly told, they simply did their job as they understood it to be. In fact, it seems, based upon a reading of the very few cases decided by courts dealing with the role of the auditors, that the remedy of any person who is dissatisfied by the action of the auditors would be to institute a legal action commonly known as a “mandamus” action to require them to complete and file their audit and report. Only the refusal to comply with such an order would, in my judgment, then subject them individually to prosecution for a summary offense.

Respectfully submitted,
BLAKINGER, BYLER & THOMAS, P.C.
By: Stephen M. Kraybill, Esquire