The shortage of auditing firms in Maine has created a backlog that's affecting many municipalities, school districts and county governments throughout the state, including a town in Washington County that has not been receiving state school subsidies because its recent audits have not been released and the county government itself, which is looking at a significant tax hike this year but is not certain how much money it has in reserves.
      In Cutler, the audits for the town for 2021 and 2022 have been completed but are not being provided by the auditor until a forensic audit that the town requested from another auditing firm is released. Cynthia Rowden, one of the three members of the Cutler Select Board, says that the town's not having the completed audits is holding up the release of school subsidy payments to the town by the Maine Department of Education. According to Rowden, the department did release $500,000 earlier this year but more than $500,000 is still being held back. "We're using funds from our general fund" to cover the school costs until the monies are forwarded to the town.
      Scott Porter, superintendent of AOS 96, which includes Cutler, says that the state is currently withholding $635,608 in subsidy funds from 2023-24 and two months of 2024-25 until the audits are released. "Right now, they have enough to function," he says of the school system. Having the Cutler school budget heavily dependent on local taxpayer funding helps in dealing with the shortfall in state subsidy money. He notes that towns often upfront monies for schools until funds come in either from the state or federal governments. "Usually, towns do help schools with cash flow," either because they're behind on audits or they are waiting for federal COVID relief monies.
      Rowden says the select board has voted to hire a new firm as its auditor, with that company currently considering taking on the town. Porter hopes that with a new auditor that the town "will be back on the road to recovery soon." He adds, "It will be great when the money is put back in Cutler."
      The town of Cutler decided to have a forensic audit performed on the recommendation of the town's attorney because of changes in town administration staffing and bookkeeping a few years ago. "There was not a good system of checks and balances," says Rowden, who doesn't know if there might have been any misappropriation of funds. The forensic audit, which is being conducted by The CPA Solution, based in Bangor, will first go to the town's attorney, then the Washington County Sheriff's Office, which will conduct an investigation, and then to the district attorney's office, which will determine whether any charges are warranted. The forensic audit covers the four years from 2020 through 2023.
      However, the town's regular auditor, RHR Smith & Company in Buxton, is not releasing the audits for 2021 and 2022 until the forensic audit is completed. "He should have released our audits. They're done and paid for," Rowden says.
      But Ron Smith of RHR Smith states that the results of the forensic audit "may impact our audit opinion. When we see the results of the forensic audit we will releases these two audits." James Wadman, a certified public accountant in Ellsworth who also conducts audits, agrees with Smith's decision not to release the audits until the forensic audit is completed.
      Without those audits in the hands of town officials, Cutler's residents at their 2023 town meeting, held in October, raised "just enough to pay our bills," with the mill rate dropping from 18 to 13. Rowden is hoping that this year's town meeting can be held in November and would like to have the completed audits before then. "We want to make sure we have all the answers for the taxpayers," she says, adding, "We wouldn't do anything to hurt the taxpayers."
      "Too many towns in the state can't get their audits done," Rowden says, noting that the state is currently not enforcing the law that requires that a town's audit for the last fiscal year must be completed before a town meeting is held. Along with audits being done for towns, Porter observes that, with 12 school systems and the central office in AOS 96 needing their accounts to be audited, it's been difficult to schedule that many separate audits, with the shortage of auditing firms.

County eyes budget hike
      Chris Gardner, chair of the Washington County commissioners, says the county had been three years behind in having its audits completed but has now switched auditors and is currently two years behind. "Usually it trails a year," he says, of when the books for one year are completed until the audit is finished. But he says the county "needs to have it done before the next budget cycle." That's particularly true for this year, as the county government "is not 100% sure" of the amount in the undesignated fund balance. "It affects our ability to apply leftover money to the following year's budget," he says, noting that as a result either too much or not enough money may end up being raised through taxation for the new budget.
      Gardner notes that the county budget committee previously decided to change the county's accounting practices so that funds were assigned to reserve account lines for particular needs, rather than being placed in the undesignated fund, as it would be a better way of tracking funds until audits were completed. However, it appears that those funds "were counted as cash on hand," even though they were earmarked as a reserve line. "That's why audits matter. You could be double-counting your money here," he says. "The county is looking at a potential tax increase because we depleted our reserve accounts and used the money for other things."
      While the county previously held "millions beyond the allowed amount" in its fund balance, when he was first a commissioner 20 years ago, this year the county will need to be careful in its use of undesignated funds.
      At this point the county budget proposal calls for more than a 30% increase, but there are other reasons in addition to the depleted fund balance for such a hike, including for funding for an IT department and additional county dispatchers. Gardner notes that there are always "wants and requests that the budget committee will pare down" over the next couple of months before the committee presents the budget to the commissioners for adoption. "But a chunk is to replenish the reserves that we may have been spending down when we didn't have it. Audits show what's actually there."

Reasons for shortage of auditors
      Concerning the significant shortage of auditors in the state, James Wadman says he was told by the Department of Education that 10 years ago there were about 65 firms conducting audits in Maine. Now there are only 19 firms, and some towns are having their audits done by companies located as far away as California.
      According to Wadman, among the reasons for the decrease are a number of retirements during the pandemic; the elimination of high school accounting courses, so fewer students go on to study accounting in college; and a difficult peer review process, which is required of firms every three years. "It's not worth it if they're only doing a few audits," says Wadman. "You have to be in it in a big way or not do it at all."
      Wadman says the delay in schools receiving their audits is in part caused by the delay in superintendent's offices in getting their books closed to be audited. He says the books should be closed within 90 to 120 days of the end of the fiscal year, but now, in some cases, it's nearly a year before they're ready to be audited. That delay by the superintendent's offices is caused, in part, by more responsibility being placed on them by the Maine Department of Education, Wadman says. Also, they are dealing with federal COVID relief funds and the requirements for how those funds can be used, and they are also facing the same "lack of accounting talent" that is hurting the accounting firms. Wadman says, "It's more of a problem for towns with school departments, as the central offices are holding things up."
      Ron Smith says that reasons for delays in getting audits completed can range from bank accounts not being reconciled, "books not in balance, turnover in fiscal management, turnover in auditors." In a March article in Maine Town & City, a magazine published by the Maine Municipal Association, Smith is quoted as saying that he was reviewing "potential poor choices" in almost a dozen audit cases. He also has about a dozen cases in which he is investigating fraud in local government.
      Also in that article, state auditor Matthew Dunlap provided a definition of an audit: "The budget is what you agree to spend; the audit is how you spent it." He noted that some towns in the state have not had audits done for 10 years, sometimes because they can't find accounting firms to do the work. "Accounting firms are increasingly getting out of the business," he said. "It is a lot of work to do municipal audits."
      There are some efforts to get more people into the accounting field to do audits. Chris Morrill, executive director of the Government Finance Officers Association of the United States and Canada, states, in an article published in February 2023, that the top challenge "I hear about when I speak to members is attracting and retaining talent. I've even heard it described as a crisis for government finance. While the solutions to the talent problem are multi-faceted, we believe that education and professional development are critical."
      Although the University of Maine suspended its master of public administration program over a decade ago because of low enrollment, the University of Maine at Augusta does still offer an undergraduate public administration program. Also, some accounting firms are setting up internship programs in order to help train more auditors in the state.