Impact Fee Audit Finds Many Failures, Omissions

A forensic audit of Londonderry’s impact fee program is now complete, although local officials have yet to weigh in on the results. The audit is the result of a Rockingham Superior Court decision dated Dec. 31, 2012, in which the court found that the impact fee program in place in Londonderry since 1994 has at times been illegal and that refunds were due to parties who paid the illegal fees. The findings also stated, “The court sees that a full accounting of the impact fee program to be the only solution to the town’s widespread misfeasance.”

The court then ruled that the town employ an independent auditor to audit the town’s impact fee collections and expenditures since the program’s creation in 1994. In January 2013, the auditing firm of Melanson Heath and Company, PC of Nashua was chosen to conduct the impact fee audit. Melanson Heath is the same firm that conducts the annual Londonderry town audit, but a different section of the firm conducted the impact fee audit.

Police Chief William Hart, during his tenure as acting town manager, said Londonderry had not been compliant with state law and its own ordinances. In March 2013, town attorney Michael Ramsdell recommended to the planning board that all impact fees be suspended until the completion of the audit. That was done.

The audit report was announced at the Town Council meeting of Aug. 19, as reported in the Londonderry Times. Later that week, the report was posted on the Town website at londonderrynh.org.
Town Council Chairman John Farrell said Monday that the audit, at 264 pages, was being reviewed by the councilors and they had not had a chance to have a meeting regarding the report.

Asked what might happen now, Hart, who is no longer acting town manager since the hiring of Kevin Smith to the permanent post, said the matter would fall to Smith for response.
Among the audit’s findings under Impact Fee Assessment and Collections:
• Missing Records – The Town retained multiple versions of the schedules. The early years combined the original fee with accumulated interest and dropped fees once they had costs applied against them.
• The auditors were unable to locate schedules for Dec. 31, 1997 to July 1, 1998 and January 2000 through September 2000.
• The schedules starting in September 2000 included balances brought forward (including interest).
• The new schedules after September 2000 dropped fees from the schedule after costs had been applied. A lengthy process restored dropped fees to the schedule by going through the old schedules month by month.
• In accordance with RSA Chapter 33–A Section 3–a, the Town was not required to and did not retain bank deposit slips and bank statements for more than six years.
• The Town was able to locate some of the older bank information in its archives. The auditors were also able to obtain some bank information directly from the bank. Where the bank was able to provide copies of monthly statements, the auditors proved activity per the schedules to specific deposits in the bank statements.
• Missing bank statements and deposit records include: All records prior to July 1995; July 1997 through June 1998; and July 2000 through June 2002.
• Not all records pertaining to impact fee calculations were retained by the Town.
• Copies of the impact fee calculation forms, with the exception of the last page, were not retained in the Building Department files.
• The finance office did not retain the impact fee calculation form in its files for most of the periods reviewed.
• The auditors were only able to locate the impact fee calculation forms for fiscal 2006 and fiscal 2012 forward. Thus some of the impact fees contained in the schedules could not be verified as having been received and deposited.
• In many cases they were forced to identify or verify the various categories based on the standard fees charged during certain periods of time and in certain neighborhoods.
Incomplete and
Inaccurate Information in Impact Fee Schedules
• The data entered on the schedules accounting for impact fees was often incomplete or in error.
• The information sent from the Building Department did not always include map and lot information nor did it always include category breakdowns.
• There were times where the map and lot information entered in the schedule was incomplete or contained transpositions resulting in map and lots that were either incorrect or invalid.
• Large developments often had numerous buildings on the same map and lot. The schedules often did not identify which buildings fees were being collected for.
• Multiple parcels were sometimes paid by one check and all parcels were not all identified separately on the schedule.
• The schedule contained headings for each of the categories but there were times when the fee was entered into the wrong category.
• The auditors found that the remitter on the check copy was not always the same name as recorded on the schedules.
• The schedules were not updated for current owner information as required by Town ordinance.
• In the auditor’s opinion, the data entered onto the schedules was not reviewed for accuracy.
Impact Fees Not Assessed
• The auditors found instances where the records indicate that an impact fee should have been assessed but they were unable to find evidence that a fee was assessed.
• Instances occurred where impact fees were assessed for certain categories but not for others that appeared applicable.
Impact Fees
Not Collected
• Impact fees were assessed but there is no evidence in the file that the fees were collected.
• In some cases no certificate of occupancy was issued but the building was occupied.
• In some cases a certificate of occupancy was issued but collection of the fee could not be verified.
Impact Fees Collected But Not Turned Over
• The auditors found five cases where impact fees had been collected but the original check was still in the Building Department file and had never been turned over to Finance for deposit.
• Auditors found checks too old to deposit at this time. There were no targeted refunds made on these undeposited payments.
• A copy of the check was found in the Building Department file but the auditors were not able to find evidence of deposit.
No Evidence of Impact Fee in Building File
• The auditors found evidence of an impact fee being deposited but could not find evidence of the fee being assessed or collected in the Building Department files.
Payment Plans
• The Town negotiated payment plans with property owners in accordance with the RSAs and Town Ordinance. However, there was no system in place to monitor the payments and several of the properties under agreement did not make all of the payments called for under the agreement.
• The payments were not allocated by category in the various schedules accounting for the impact fees and most partial payments were allocated to the School category.
Exactions and Escrows
• Amounts were deposited into the impact fee account that were exactions or should have been deposited into escrow accounts.
Expirations
• The Town did not sufficiently monitor the expiration of fees under the six-year rule under Town Ordinance Section 1.2.10.1.1 pertaining to encumbering impact fees and Section 1.2.10.1.2 pertaining to appropriating the Town share of the project.
Missing Records
• New schedules started in September 2000 included balances brought forward but auditors were unable
to verify activity during the missing period.
Impact Fees Disbursed Without Proper
Council Order
•Invoices exceeded the amount of the Council Order either individually or in the aggregate.
• Some amounts were expended or transferred to capital project accounts based on Warrant Articles, not on Council Orders.
• Some impact fees were transferred to school, police, recreation, or library revenue accounts based on their respective budgets, not based on Council Orders.
• Some impact fees were transferred to the School District in 1997 based on the fund balance at a certain point in time, not on a School budget or Council order.
• Three impact fees (one each from three categories) were transferred to the Public Works Small Escrows account to reimburse it for impact fee-related expenses. Auditors were unable to determine what the expense was for and found no Council Order for the transfer.
• Fees were expended based on management directive without Council Order or other legislative authorization.
• Certain disbursements were made pre-1994. Those transactions were not audited as they were made prior to the ordinance and the period cited in the court order. Where pre-1994 balances were carried forward into the impact fee bank account and later expended after the 1994 ordinance, the auditors included the fee carried forward and costs applied against it in the scope of the audit.
Incomplete and Inaccurate Information in Impact Fee Schedules
• Some impact fee disbursements or transfers created a deficit for that category of impact fee.
• An invoice indicated it should be charged to a certain category but it referenced a Council Order from a different category.
• A Council Order was issued but no invoices were applied against it.
Impact Fee Expenditures in Question
• An instance occurred of impact fees paying a legal settlement related to the cost of road improvements made by the developer in lieu of impact fees.
• A large impact fee, which in the auditor’s opinion was an exaction fee, was assessed to a large retail store for improvements to the shopping plaza in which it would be located. This fee was tracked as an impact fee on the category schedule and Council Orders were issued to deduct the improvement costs against it. The
exaction was overspent and applied to other impact fees.
Inaccurate Refunds in Impact Fee Schedules
• For the period through September 2000, the amount upon which the impact fee refund was calculated included accrued interest on the original impact fee paid. As a result, interest was calculated upon accrued interest for receipts received prior to September 2000.
• The Town calculated refunds for expired impact fees and the portion of impact fees based on State road links. After the Town targeted refunds for link exclusions on State roads, the State declared that Towns could keep and spend the impact fees on the State links if they had previously collected it. The Town has decided to retain the link exclusion refunds that had been targeted for refund but not yet refunded.
• Some impact fees were not recorded on the correct category schedule and so were not included in the expired calculation.
• The Town used impact fees to pay for design and engineering costs but did not use Town funds within the six-year expiration period. According to the Town ordinance, impact fees are considered expired if the Town does not also appropriate its share within that six-year period.
The officials who were in office during the timeframe of the audit are:
Town Manager: Richard M. Plant, 1994-2001, and David Caron, 2001-2012.
Town Planning and Economic Development: Peter C. Lowitt, 1994-1998 and Andre Garron, 1998- 2012.
Town Finance Director: Peter Curro, 1994-2000 and Susan Hickey, 2000 tp present.
Town Building Inspector: Jim Smith, 1994-2007, and Richard Canuel, 2007 to present.
School District Finance Director: Craig Young, 1994-1998; Josh Arnold, 1989-2000; and Peter Curro, 2000 to present.
School District Superintendent: Richard Lates, 1994-2000 and Nathan Greenberg 2000 to present.

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