CLAREMONT — A discussion about the significant difference between a “forensic audit” and a “financial audit” consumed nearly the first hour of Wednesday’s Claremont City Council meeting, after a request for an audit discussion at a previous council meeting invoked the wrong terminology.
In a statement to the council and the public, Finance Director Mary Walter expressed criticism and concern about Councilor Jon Stone’s request near the end of the city council meeting on Aug. 7 for a “forensic audit” of the city’s financial records. Because Stone had not provided a reason for his request, nor had any council members asked for one at the time, the only word that had stood out to city staff was “forensic,” which in the world of finances is a very serious matter.
“Councilor Stone has publicly implied, by the request for a forensic audit, that someone there is suspected of a criminal act,” Walter said. “And there is no way to walk back this implication and the detriment of this burden.”
According to Robert Vachon, whose firm currently provides audit services for the city, a forensic audit is specifically purposed to find a specific example of employee fraud, vendor fraud or embezzlement. Unlike a financial audit, which the city receives every year, Vachon said that forensic audits are so costly that the city could never afford to conduct a forensic audit of all of its financial records.
“You need to define what you want the auditor to look for,” Vachon said.
Vachon said that even a narrowly-defined forensic audit will likely cost a minimum of $100,000 to $200,000. In a years-old example found in state records, Vachon said that the Town of Newbury was charged $100,000 for a forensic audit to find a $100 transaction that the town already knew about.
Annual financial audits do not examine a municipality’s entirety of financial transactions, Vachon said. Rather, the auditor reviews a randomly-selected percentage (around 45%, for example) of transactions within each field by verifying them with controls that tell the auditor what data to expect if accurate.
If Vachon finds one error, he said he has to increase the sample size or else say the data is unreliable, which could then be cause for deeper inspection.
Notably, financial audits of Claremont’s records over the last 18 years, conducted by three different firms, found no discrepancy to indicate wrongdoing.
After the presentation, Stone said that he did not mean to suggest a specific concern or suspicion of anyone handling city finances. Instead he wanted to discuss conducting an audit of a larger sample size of transactions, expressing concern about incidents last fiscal year in the school district, which resulted in tens of thousands of dollars in lost or uncollected revenue and a sizable penalty by the Internal Revenue Service.
Interim City Manager John MacLean pointed out that those mistakes were not from misreported records but from the school district’s missing filing deadlines for grant applications and reports.
Some council members expressed their regret for not asking clarifying questions last week, and said that no one asked Stone for his reason, which might have at least changed the reaction of city staff.
Several councilors said that they did not know until this presentation what a forensic audit implied. Only Assistant Mayor Allen Damren and Councilor Nicholas Koloski said they were familiar with a forensic audit’s purpose.
Damren said that hearing “forensic audit” caught him by surprise at the time and he expressed regret for not bringing up the discussion at the time.
Koloski attributed the lack of discussion to its occurrence so late at night, when the meeting is wrapping up and councilors have less energy and focus to discuss something like an add-on request. Moreover, he does not think councilors should deny the requests of their colleagues to have future discussions.
MacLean told the council that he thought the gravity of the term’s implication warranted a public presentation.
“I understand things are said with the best intentions, but talking about a forensic audit at the end of a meeting is important to address,” MacLean said. “As soon as the word came into discussion, it had to be addressed in some fashion.”