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DERBY – Mayor Joseph DiMartino said last week that a forensic audit of city finances is back on the table.
“There will be a forensic audit. We will get that done,” the mayor said at the March 14 Derby Board of Aldermen & Alderwomen meeting.
A forensic audit is a more focused, more detailed, and more expensive examination of financial data than a routine audit. Forensic audits are often a tool to determine whether fraud has been committed, though Derby officials say there is no evidence of such activity.
DiMartino told The Valley Indy the public deserves a deeper dive into the last few budgets created under Mayor Rich Dziekan’s administration, given a budget deficit the city is dealing with. A forensic audit will accomplish that goal, DiMartino said.
The Valley Indy sent emails for comment on March 19 to former Mayor Dziekan and Walt Mayhew, his former chief of staff.
Background
Derby government has been having financial problems dating back to the 2016 – 2017 budget, when the government accidentally double counted education grants from the state. For three budget cycles the city overestimated the amount of grant money it would be receiving.
Also in the 2016 – 2017 budget, the city underestimated how much money it needed for medical benefits by $1 million.
Those mistakes ate Derby’s reserve funds and led to an “recovery plan” in 2019 that raised taxes, sold assets and restructured debt.
Mayor Dziekan’s administration, which took office at the end of 2017, blamed former Mayor Anita Dugatto’s administration for the problems.
The Derby budget problems – along with the fact the city is consistently late in submitting audited financial statements to the state – put the city in front of the Municipal Finance Advisory Council (MFAC), a state entity that tries to guide cities struggling with financial issues. Those appearances had been voluntary until August 2023, when, after questioning the validity of Derby’s financial data, the members of the commission voted to make Derby’s appearances mandatory.
Mayor DiMartino took office in December 2023.
His administration recently announced the current Derby budget – that is, the budget adopted last spring, under Mayor Dziekan – has a deficit of about $2 million.
In an interview with The Valley Indy, interim Derby Finance Director Brian Hall said the current deficit stems from under-budgeting for employee benefits by about $1 million, not budgeting for a sanitation collection increase of some $648,000, and overestimating how much in taxes would be collected.
The DiMartino administration fears that if the issues continue, the state will take over Derby’s finances.
Forensic Audit
The calls for a forensic audit in Derby go back to 2019, when Mayor Dziekan was running for a second term. The matter did not move forward.
DiMartino called for a forensic audit when he announced he was running for mayor in 2023.
The call for a forensic audit triggered a letter from then-Mayor Dziekan calling for DiMartino to apologize. Dziekan said forensic audits are only used when criminal activity is suspected, and there was no such suspicion in Derby.
In November 2023, a few days after DiMartino defeated Dziekan for the mayor’s office but prior to DiMartino taking the oath, the Derby Board of Aldermen and Alderwomen voted unanimously to look for a company to conduct a forensic audit covering December 2017 to December 2023.
A firm was not hired.
In January, Mayor DiMartino’s office issued a statement saying a decision had not been made on whether to move forward with a forensic audit.
“They are looking at the cost versus the possible benefits,” the statement read. “Currently there is no indication of any fraudulent activity or theft. Many of the city’s challenges over the last few years have more to do with poor budgeting than fraud. Forensic accountants will look for fraud and theft, not why the city has not done a better job of creating budgets.”
The Renewed Call
At the March 14 Aldermen meeting, Mayor DiMartino offered a “forensic audit clarification.”
He said Derby is in a financial mess due to “negligence and misinformation of the past six years,” and that the administration is proceeding methodically to find the “underlying cause of the fiscal crisis with which we were left.”
DiMartino said misleading information was given to the city’s tax board by the Dziekan administration while creating previous spending plans.
The mayor said a forensic audit will be conducted sometime after Derby creates a budget for the 2024 – 2025 fiscal year. That puts the start date later this spring or over the summer.
After the latest budget cycle is finished the administration will “compile their concerns and those from MFAC and other financial professionals and initiate a forensic audit to find the underlying cause of financial mismanagement and gross abuses that have taken place over the last few years.”
DiMartino both said a focused, deep dive into Derby finances of the last few years is needed. The first request for proposals was too broad and probably would have been too expensive to pull off.
In addition, Derby’s books aren’t yet in shape for a forensic audit, officials said.
DiMartino also said that the Dziekan administration improperly purchased new financial software.
The Dziekan administration, over the objection of the majority on the Board of Aldermen & Alderwomen, contracted with a new company and purchased new financial accounting software. The move has made it difficult to gather financial data from previous fiscal years, DiMartino said.
“We do not suspect criminal conduct; however, we have discovered all kinds of questionable activities,” DiMartino said in a prepared statement. “Given what we have discovered to date, we feel that a forensic audit is the only prudent course of action to take.”
The “financial mismanagement and gross abuse” alleged by Mayor DiMartino on March 14 is a reference to the way new financial software was installed even though the city’s legislative body said not to do it.
Needed?
Professor Stephen Henn teaches finance and economics at Sacred Heart University in Fairfield.
He said the DiMartino administration’s call for a forensic audit makes sense given the apparent history of financial mismanagement.
A forensic audit doesn’t necessarily mean fraud is suspected, but, depending on the scope of the audit, could give the public a clearer picture of what’s been going on in Derby.
“Given the facts and circumstances, I think it is a legitimate ask,” Henn said. “Quite frankly, the citizens and taxpayers of Derby probably deserve at some point to have assurances that these were legitimate mistakes, or were part of the uncertain nature of financial forecasting, rather than something more nefarious.”
Henn said that the typical municipal audit takes a high-level look at financial statements and makes sure the information adheres to accounting practices.
A forensic audit is more focused. It could involve collecting receipts tied to a purchase or calling a vendor to double check that bills submitted correspond to the work performed.
“A forensic audit is trying to say, ‘if there was a mistake made, why did it happen and how do we prevent it going forward?’” Henn said. “It’s not necessarily an issue of fraud, but you don’t do a forensic audit when things are going swimmingly.”
