Imagine the management of IBM or General Electric or any public company
issuing financial statements that receive a "qualified" opinion because they
cannot reconcile their cash account. That would never happen because the
discrepancy would be resolved before the audited statements ever appeared.
Contrast that with the most recent audit (Year ending June 30, 2001) of the
City of Newport whose cash account is out of balance by $245,770.

The auditor's opinion reads" Because of the inadequacies in the City of
Newport, Rhode Island's accounting records, we were unable to form an
opinion regarding the carrying value of cash in the accompanying combined
balance sheet. The reconciled book balance and the carrying value of cash
differ by $245,770".

Bear in mind we have paid more than $170,000 for accounting consultants
(CPAs) in addition to the cost of the audit ($30,000) to prepare those year
late statements. The previous year the audit was in part delayed because the
city couldn't locate $800,000 which was later determined by another outside
accounting firm to have been a bank error in the city's favor.

How is this out-of -balance situation going to be resolved in the FY 2002
which is also overdue? That audit presumably began while the books were
being closed on FY 2001. Taxpayers may have to accept the fact that the
money just disappeared.

Inexplicably this audit has received virtually no publicity for what is an
absolutely ludicrous situation. It was quietly submitted to the Council
January 22 with no public comment. The stewardship of the city's money has
been unbelievably negligent for years.

Once again the auditors demonstrate how farcical the city's annual budgeting
process has been, expenditures exceeded appropriations by $1,509,738 of
which the School Department accounted for $772,396. Those were unapproved
and therefore illegal (Read Page 17 - Budget and Budgetary Accounting and
Page 23) expenditures above budget. (Page 23) What good is Newport's budget
process which for years has been no more than a charade?

Using the city's amended local taxes budget of $43,919,277 there is a favorable
balance of $2,287,553. That likely means either the city's tax levy for FY 2001
was
set incorrectly and/or there were some very large tax collections received
from previously uncollected taxes (i.e. delinquent taxpayers).

The audit further states that, as with the previous year's audit, internal
controls have been virtually non-existent. All of the city's assets and
liabilities have been "materially over or understated" during all months of
the year (Page 80). Once again, nearly half the city's accounting entries
had to be readjusted by the auditors. In accounting parlance you could not
ask for a more damning statement nor a better environment for potential
theft.

Other than the fact that we have our growing "surprise" surplus which is
$7.6 million in FY 2001 and will be $10 million with the FY 2002 audit we
could hardly have a worse report card from the auditors. Virtually all of
the same criticisms the auditors (different auditors) have had for the last
several years reappear again.

Consider also that the auditors have once again rated Newport as "not a low
risk auditee". That means we are effectively a "high" risk auditee. How can
the city seek a HOPE VI grant when it cannot even demonstrate that its
finances are secure through good internal controls? (Item 9, Page 79 of the
audit).

The lesson here for taxpayers, however, is to be skeptical and vigilant.
Several councils have demonstrated their lack of oversight. Council members
don't even know what questions to ask of the Finance Department so how can
they be expected to protect the taxpayers. The taxpayer pays the price in
artificially high taxes to compensate for negligence, stupidity and
inefficiency.

Fred Faerber