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Borough of Duncannon
Early Intervention
Program Report
December 29, 2016
Funded in part by the Commonwealth of Pennsylvania
Department of Community
And
Economic Development Early Intervention Program December 29, 2016
Borough Council
Borough of Duncannon
428. High Street
Duncannon, PA 17020
Dear Borough Council:
‘Attached is the report on the Financial Management Plan for the Borough of Duncannon
(“Borough”). As always, a look into the future must take into account many variables
and outcomes. Inevitably, circumstances change and the Borough necds to be prepared
to adjust to the changes. We will be providing the Borough with the tools to continue to
adjust this plan as time passes and the variables become known facts. It is important to
note that this report is only the beginning and planning for the future is an ongoing
process,
The estimates in this report were developed from analyzing past results and current
conditions as well as attempting to predict the future. During the course of our
engagement, we encountered many ideas and plans for the future, We attempted to
evaluate the ideas and plans to determine which had the potential to occur and those
which may never happen. We would like to reiterate that this report is only a plan and is
based on facts and other information gathered during the course of our review of the
Borough operations, It is an attempt to foresee the future and should not be taken as facts
to come. Also, the information in this report should be utilized to analyze the current and
future fiscal condition of the Borough and appropriate changes instituted if the future
fiscal condition anticipated in this report is not deemed acceptable.
Once again, thank you for your time during this process, as well as your commitment to
the process. If you have questions, please do not hesitate to contact us.
Sincerely,
Mark L. Morgan
‘Susquehanna Accounting and Consulting Solutions, Inc. Section 1
Introduction Borough of Duncannon
Barly Intervention Program Introduction
December 2016
Introduction
In late 2004, the Pennsylvania Department of Community and Economic Development
(DCED) initiated the Early Intervention Program (EIP) under the Governor's Center for
Local Government Services. This program, which typically funds 50% (75% and 100%
in the case of the Borough of Duncannon) of the eligible costs, is designed to assist
municipalities in addressing long-term financial, operational and economic development
issues.
The Borough of Duncannon, applied for funding for participation in the EIP and was
approved and awarded funding in July 2016, and awarded the professional services
agreement to Susquehanna Accounting and Consulting Solutions, Inc., (SACS).
The EIP for Duncannon has nine major elements:
Step 1: Financial Condition Assessment — A multi-year trend analysis of
historic financial data and an assessment of current budget
performance will be performed as a means to establish a realistic
baseline of a local government's historic and current financial
condition.
Step 2: Financial Trend Analysis and Forecasting — Performed over a
multi-year period, this analysis will project future revenue,
expenditure, economic and demographic trends so that the local
government can understand its future financial position and take
immediate steps to counteract any negative trends.
Step 3: Emergency Plan for Current Fiscal Year - The Multi-Year
Financial Management Plan should allow the local government to
pursue both short and long-term strategies on parallel tracks, If the
above analysis has identified a critical cash flow situation that may
impact on the health, safety and welfare of residents, an
Emergency Plan should be included to address actions to be taken
during a 6 to 12 month time frame to avoid a fiscal emergency.
The Emergency Plan, if applicable, should set forth a strategy
regarding i) whether the current fiscal year’s budget can and
should be reopened, amended or modified; ii) whether operational
and/or personnel reductions should occur, iii) whether short term
borrowing including possible unfunded debt borrowing is
necessary; and iv) whether other types of administrative
reorganization or short term actions should be effectuated in order
for the local government to remain solvent in the current fiscal Step 4:
Step 5:
Step 6:
Step 7:
Step 8:
Step 9:
year. An emergency Plan was developed for Duncannon Borough.
and has been included as part of this report. (See Attachment A).
Fiscal Plan/Budget Development - This process will include
development of a 2017 budget for consideration by Council and a
set of fiscal options for the Borough to consider in adopting its
2017 budget.
Management Audit - A management audit of all major departments and
operations should be performed. The andit will include narrative
summaries of each department compromised of budget and personnel
information, as well as other relevant data. This data will be supported by
interviews with each department manager and staff in order to facilitate
the most comprehensive view of the local government's most critical
operational needs.
Multi-year Plan Development — The multi-year plan will include a set of
recommendations to be considered by the Borough. These
recommendation will be targeted at improving the operation and fiscal
effectiveness and efficiencies of the Borough as well as to provide
recommendations to strengthen and improve the financial condition of the
Borough.
Multi-Year Plan Adoption — A schedule for public input into the Plan and
for Plan adoption shall be provided. The Plan shall include an
identification of the local government's top thee to five priorities,
Additional prioritization should be conducted at the departmental level
and should be detailed in the Plan, Each objective should contain a
detailed action plan which describes: 1) what is to be achieved; 2) the
budgetary impact; 3) the timing and deadlines for each action step and 4)
which employee or agency has the primary responsibility for the objective.
Multi-Year Plan Implementation — The Early Intervention Program is an
ongoing process and an adopted plan must be evaluated, adjusted and
adopted anew each year. A master implementation schedule should be
adopted that specifies the key deadlines for each objective set forth in the
Plan. Key to the ultimate implementation of the Plan, this schedule will
serve to monitor whether or not individual department objectives are being
met, thus providing a means by which the local government can measure
its overall progress in implementing the Plan.
Audit Preparation and Financial Document Reconstruction — As part of the
preliminary financial condition assessment, it was discovered the Borough
had received an adverse audit opinion on its 2014 financial statements. Further review revealed significant deficiencies in the fiscal operation and
accounting system and records of the Borough:
© Bank reconciliations of Borough cash accounts had not been performed
since December 2013;
© Interfund activity between funds of the Borough did not agree and the
accounts were not reconciled since December 2013;
© Certain accounting transactions were incorrectly recorded on both an
accrual and cash basis of accounting;
* The Borough did not have sufficient finds in the general fund operating
account to pay its current obligations;
* Review of the 2016 budget revealed budgeted expenditures exceeded
budgeted revenue in almost every fund.
Asa result of the above and other issues identified, Borough council decided to request
emergeney assistance from DCED to clean up the financial records of the Borough in order to
obtain accurate financial information upon which to base current and future fiscal decisions.
(Note: A copy of the Preliminary Condition Assessment Report submitted to DCED is included
as Attachment A to this report).
DCED approved the Borough’s request and amended the EIP contract to include funding at 100%
to reconstruct the financial records of the Borough for 2014 and 2015 and provide for audit
preparation services.
The recommendations presented in this report are based on the professional judgments of
representatives of SACS who have advised counties, cities, townships and boroughs
throughout the Commonwealth. As outside observers, SACS provides the advantage
ofa third party view informed by best practices in the Commonwealth. At the same time,
while there have becn numerous public and private discussions about conditions
in the Borough and recommendations for improvements, itis the decisions of the
Mayor and Borough Council that will determine how many of these
recommendations are enacted and implemented,
We strongly recommend that this document be utilized and updated on an annual
basis to provide for long-term direction for improving the operations of the
Borough and addressing financial, operational and economic development issues
in Duncannon. Borough of Duncannon
Early Intervention Program Final Report Introduction
December 2016
ACKNOWLEDGMENTS
We respectfully acknowledge the cooperation and insight of the elected and appointed officials
of the Borough, without which the Early Intervention Plan could not have been completed.
Finally, we benefitted greatly from the support and direction offered by the Commonwealth of
Pennsylvania’s Department of Community and Economic Development and the Borough
‘Manager, Fiscal Department, and Department heads of the Borough. Section 2
Background Background
Duncannon Borough (“Borough”) operations are segmented by fund and consist of the following major
operating activities:
1. General Fund ~ General Government Operations
Administration
Finance
Codes
Tax Collection
Police
Volunteer Fire
Volunteer EMS
Planning/Zoning
Public Works
Recreation
‘Water Fund
Sewer/Wastewater Fund
Electric Fund
Refuse Fund
Timber Fund
Prior Borough Councils and Management have adopted budgets and policies that resulted
in the spending down of fund balance in many of the funds of the Borough (particularly
the General Fund and Sewer Fund). In addition, budgets adopted from 2013 through
2015, particularly as it related to the General Fund, contained structural deficits, (A
structural deficit exists when expected general fund sources of revenue are insufficient to
pay for planned or budgeted expenses).
In addition, the 2016 budget contained not only a structural deficit in the general fund,
but also contained a structural in most of the utility funds.
‘The Borough has also relied heavily on Timber sales (revenue) to provide funds when
needed for capital needs as well as operating needs. In addition, the general fund has
relied on loans from the utility and Timber funds for cash flow and operating needs.
‘The budgeting model utilized in the past is unsustainable and needs to be revised to
climinate the structural deficits in the general fund and the utility funds. This needs to be
accomplished by either increasing revenues, reducing expenses or a combination thereof.
With respect to the general fund, typically general government operations are funded
with general government revenues which include property taxes, earned income taxes, municipal services taxes, cable franchise fees, fines and forfeits, permit fees, etc. General
fimnd revenues have been insufficient to support the general government services provided
by the Borough. Given the fact the Borough already has one of the highest municipal tax
rate levies in Perry County, itis incumbent on Borough Council to review the expenses
and services provided by the general fund and ensure the services historically provided
are still necessary and required, or are required et the current level being provided.
With respect to the utility funds, a review of the historical fiscal information for the
utilities owned and operated by the Borough revealed the Borough has provided for some
capital maintenance of the systems over the past 10 years, however, the level of capital
maintenance performed was insufficient to maintain the condition of the system. The fact
current user charges of the utilities, with the exception of the refuse fund, are only
adequate (and in some cases are inadequate) to cover the costs of operating the utilities,
insufficient user rate structures exist to provide for needed capital improvements and
have resulted in significamt deferred maintenance with respect to the Borough's utility
systems.
Further review of historical financial information with respect to the Borough's utility
operations revealed that operating cost of the utility systems are at or below those of
other municipalities. Therefore, itis not the expense side of the equation that is out of
balance with respect to the Borough’ utility operations; i is the user rates charged which
are insufficient to pay for the costs of operation and necessary capital improvements.
User rates, in general, are below market levels and have not kept pace with inflation,
Prior Borough Council’s appear to have operated under a policy to keep taxes and user
rates as low as possible and still provide the services mandated by the Borough residents.
However, if all the prior services being provided are still being provided at the same level
and inflation has caused expenses to rise while user rates have not been increased to keep
pace with expense increases, the first thing to suffer is either the quality of the service or
the condition of the systems and equipment.
Given the fact much of the Borough lies in a flood plain and the fact the Borough has
limited or no space to develop (i.e.: the Borough is what would be considered fully built-
out or developed), there is no reasonable expectation the Borough could grow or develop
its way out of its current fiscal situations, Given the demographic make-up of the
Borough, which will be discussed in more detail later in this report, it will be difficult for
the Borough to raise sufficient taxes or user rates from the current resident and customer
base, to continue to operate the Borough as a stand-alone entity or its utilities solely for
the benefit of Duncannon Borough customers.
10 Section 3
Financial Conditional Assessment Financial Condition Assessment
The initial task performed in the Barly Intervention Program (EIP) was to review prior
year’s financial data and analyze the 2016 budget projections. See attachments B, C, D
and E. This information provides a historical financial perspective on where the Borough
has been and is essential to determine the effectiveness of the revenue sources in keeping
pace with and funding general government operations. This analysis also provides a
financial picture of expenditure efficiency, staffing and employee benefits, and creates a
basis for estimating future year’s revenues and expenditures. It also allows Borough
officials to see the financial summary and fiscal health of the Borough so that Borough
Council can determine what activities should be viewed as significant or essential to fund
and at what level based on available resources (i.e.: general government revenues).
In addition to examining financial documentation, it is essential to understand the various
factors that have driven both revenues and expenditures. These other factors include:
Demographic make-up of the Borough
Economic Factors
Flood Plain
Economic Development in the Borough
Tax Revenues
Utility User Rates
Infrastructure and Capital Maintenance
Borough Timber Sales
Demographics of the Borough
The population of the Borough has remained relatively static or decreased slightly with
the 2010 U.S. Census population projected at 1522 and the 2014 population of the
Borough estimated at 1493. Due to the small geographic size of the Borough at .42
square miles, most of the Borough consists of fully developed parcels with older housing
units. This is supported with the fact the median value of housing units in the Borough is
$112,059 compared to the Pennsylvania Average of $164,200.
Lower average housing prices results in lower assessed values which has a negative
effect on real estate tax revenue, the largest revenue source of the Borough to fund
general government operations.
In addition, the Borough consists of 725 housing units with 652 units estimated to be
occupied. Of the 652 occupied units, 315 of those units or 48.3% represent rental units
Rental units tend to have a lower assessed valuation for real estate tax purposes and the
residents in those units tend to have lower incomes. The large percentage of rental units
in the Borough tends to lower assessed property values thus lowering real estate taxes.
12 Furthermore, lower resident income levels of residents who are renters also results in
lower earned income tax collections.
The Borough contains limited businesses and therefore limited employment opportunities
within the Borough. ‘The vast majority of Borough residents are employed outside the
Borough. ‘The median household income within Duncannon Borough is $44,853
compared to the state average of $52,007
Home ownership rates in the Borough are 51.7% compared to 69.6% state wide.
Finally, the geographic size and limited developable land provides significant financial
challenges for economic development within the Borough. Furthermore, the flood plain
restrictions affecting a major portion of the Borough also provide significant
redevelopment challenges.
Economic Conditions:
The general economic downturn in the United States has affected Duncannon Borough
like most other communities. Weak economic conditions have decreased property
values, have stagnated resident wages and cared income tax revenue, have decreased
property sales and thus real estate transfer taxes, have resulted in higher unemployment
and thus lower occupational and per capita tax revenue, have suppressed interest rates
resulting in lower interest earnings, decreased economic development and new housing
starts resulting in lower license and permit fees, and have reduced federal and state
subsidies to the Borough as well as grant dollars which may be applied for.
From 2006 to 2014 levels, revenues to fund general government operation declined from
$481,457 to $409,498 to fund general government operations. General fund revenues,
even with the tax increases enacted by Borough Council in December 2016, are estimated
to be $401,383 for 2017. This decrease represents a 17% decrease in available resources
from 2006 to 2017 to fund the general government operations of the Borough.
Flood Plaii
A significant portion of the Borough is located within the Susquehanna River and the
Susquehanna River Basin Flood plain. This provides significant challenges to
development and redevelopment with the Borough.
Economic Development in the Boroug!
Due to the limited size of the Borough, 0.42 square miles, and the fact most of the
Borough has been developed, there is limited economic development which has been
occurring in the Borough
13 ‘The economic development opportunities that exist in the Borough appear to be isolated
to redevelopment and revitalization of downtown and redevelopment or re-use economic
development related to the limited commercial and industrial base of the Borough.
Tax Revenues:
‘The major source of funding available to municipal govemments, like Duncannon
Borough, to fund general government operations are tax revenues. Tax revenues consist
of real estate tax, eamed income taxes, real estate transfer taxes, per capita taxes,
occupational taxes and local municipal services taxes.
Real estate taxes within the Borough have been steadily deciining from a high of
$203,000 in 2007 to a low of $178,000 in 2014. This has been a function of the general
economic downtum in the U.S. suppressing housing values. As housing units tum over
in a suppressed economy, sales prices which affected assessed valuations, have been
decreasing resulting in lower real estate tax collections. In addition, the Borough has not
raised real estate tax millage in some time, and certainly has not raised real estate tax
rates to offset the effects of the general economic downtum or the effects of inflation on
operating costs of the Borough.
The second major source of tax revenue is eamed income taxes. Eamed income tax
revenue collected by the Borough peaked in 2008 at a high of $161,000 and decreased to
a low of $95,000 in 2014. This trend again was the result of the general economic
downtum in the U.S, coupled with the related high unemployment rates and suppressed
wages. The downward trend of eared income tax collections in the Borough is also a
result of a lager segment of the Borough resident population matriculating to a fixed
income phase in their lives.
Employment:
According to the 2010 to 2014 American Communities Survey (5 year estimates), the
Borough population in the labor force totaled 924 with 813 actually employed and 111 or
12% being unemployed. Furthermore, of the 712 household within the Borough, 212 or
30% represent household on some form of fixed income with another 129 or 18% of
households receiving some form of public assistance (cash assistance or food stamps).
Utility User Rates:
The Borough operates its own water collection and distribution system, wastewater
collection and treatment system, electric distribution system and refuse collection. The
user rates being charged in 2016 were sufficient to cover the operating costs of the water
collection and distribution system and the electric distribution system. However, the user
rates for these two systems provided only minimal surplus (cash basis) to be utilized to
fund needed capital improvements.
14 The wastewater collection and treatment system rates, which had been reduced by the
prior council, resulted in a budgeted net operating loss for the system, Similarly, the
refuse collection rates were decreased by the prior council and resulted in a budgeted net
operating loss for 2016.
In general, the water, sewer and refuse rates are below market levels and are insufficient
to provide the necessary capital to maintain and improve the three utility systems.
The electric rates are at or slightly below market levels. Electric rates are regulated by
the PUC due to the fact the Borough serves customers outside the Borough, Any changes
in electric rates require PUC approval.
Infrastructure and Capital Maintenance:
A review of the historical capital expenditures of the Borough revealed that while some
capital projects have been undertaken by the Borough over the past 10 years, there is
significant deferred maintenance related to the water, sewer and electric systems of the
Borough. Preliminary estimates indicate there are upgrades to the existing sewer plant of
approximately $3 million; no estimates have been obtained for the needed capital
improvements to aging underground infrastructure of the sewer system. ‘The needed
‘water system improvements were estimated to be in excess of $17 million, No study has
been performed on the necessary electric distribution system maintenance required but
the basic electric utility pole replacement program of the Borough was discontinued due
toa lack of adequate resources.
Borough Timber Sal
‘The Borough owns a parcel of land which it began timbering in 2005. Timbering has
occurred on certain segments of the parcel in 2005, 2007, 2009, 2011, 2013 and 2015
The revenue generated from the Timber sales has historically been utilized for needed
capital improvements and to subsidize general government operations.
While the available land yet to be timbered is not totally exhausted, limited additional
timber cuts are available, and therefore, the revenue stream from Timber sales will
significantly diminish moving forward.
In the case of Duncannon Borough, the Borough has recognized Timber activities as part
of general fund operations. This fact has masked the structural deficit which existed in
the general fund. If Timber sales revenues were eliminated from general fund revenues, a
general fund structural deficit has existed in the general fund in every year since 2006.
While there is no written policy which would prohibit the use of Timber sales revenue for
general government operations, e prudent approach would be to utilized non-annually
recurring and non-sustainable sources of revenue for one-time expenses such as capital
improvements. Utilizing Timber sales revenue for general government operations only
15 serves to magnify the structured deficit in the general fund when Timber sales are
exhausted. This is exactly the situation the Borough finds itself in today.
Structural Deficit:
A structural deficit exists if the general fund of the Borough does not have sufficient
revenues from general fund sources to pay for general fund expenditures (general
‘government operations).
16 Section 4
Historical Trend Analysis Susquehanna Accounting & Consulting Solutions, Inc. (SACS) has completed an analysis of the
results of the financial operations of the Borough of Duncannon (“Borough”) for the period 2006
through 2015. See the historical fiscal information in Attachment C.
Please note the following matters when reviewing these historical results:
1. We received audited financial statements and general ledger reports for all years from the
Borough’s system and relied upon the amounts in those reports. We did not reconstruct
or audit the figures in those reports.
‘The Financial Condition and past operating results for the period from January 1, 2006 through
December 31, 2015 were reviewed. In addition, the current activity for the 2016 calendar year
‘was monitored with preliminary estimations of actual operating revenue and expenditures
calculated through year end.
Some of the important matters to be noted in this trend analysis are:
1, The Borough reports its’ financial activity on a cash basis. Therefore, revenue is only
recognized when the cash is received, and expenditures/expenses are only recorded
when the cash is physically paid.
2, Real Estate Tax Revenue in the general fund has declined from a high of $203,000 in
2007 to $182,000 in 2015.
3. Eamed income tax revenue in the general fund has declined from a high of $161,000
in 2008 to $124,000 in 2015.
4, Real Estate transfer taxes have declined from a high of $19,319 in 2006 to $11,116 in
2015.
5. DJ fines revenue has declined from a high of $12,521 in 2006 to $5620 in 2015,
6, All major recurring sources of general fund revenue show a declining trend from
2006 through 2015.
7. A bright noted in the finances of the Borough is the fact the Defined Benefit Pension
Plan for non-uniform Borough employees is significantly overfunded resulting in low
annual required contributions by the Borough. The annual minimom municipal
obligation (MMO) to the pension plan required to be funded by the Borough has been
fully covered by the municipal pension state-aid received from the Commonwealth of
PA.
8, The Borough, unlike many municipalities, has no other post-employment benefit
(OPEB) obligations.
18 10.
M1
12.
13
14.
16.
17.
18.
Borough employees are not covered by collective bargaining,
‘Tax millage rates have not increased,
‘The cost of providing police services has risen from $137,354 annually in 2006 to
$175,788 in 2014. The 2015 expense for police services reported in Attachment C
represents on 3 quarters of the year; if annualized, the 2015 expenses would have
been $169,424,
The highway department costs (department 430) have risen from $53,601 in 2006 to
$123,774 in 2015,
‘The cost funded by the Borough related to fire protection (Department 411) have
increased from $24,418 in 2006 to $39,950 in 2015.
In summary, general fund revenues have been dropping while general fund expenses
have been increasing.
‘Water Fund user fee revenue has remained constant from 2006 through 2015. This is
expected as user fees have not changed, the demographic make-up of the Borough has
not changed, population levels have remained relatively constant, and there has been
minimal development or redevelopment in the Borough from 2006 to 2015.
‘The Water Fund, in 2008 and 2009 recognized a combined revenue of over $152,000
from Timber. Without those cash infusions, the Timber fund would be sitting in a
negative operating cash position today.
Electric Fund user rate revenue has increased from $858,384 in 2006 to $1,196,613 in
2015. This is primarily due to the fact user rates are tied to the cost of the Borough’s
cost to purchase electric to distribute. ‘The purchase power cost adjustment factor
approved by the PUC and utilized to charge monthly users is designed to allow the
Borough to recoup the cost of purchasing and distributing electric to its residents and
customers. Therefore, as expected, electric utility rates have been sufficient to cover
the cost of operations, excluding capital needs, from 2006 through 2015.
‘The Borough's cost to purchase electric power has increased from a low of $659,971
in 2007 to a high of $1,042,332 in 2014. The cost of electric purchased is dependent
on 2 primary factors. ‘The first is the amount of electric consumed by Borough
residents and customers. The second factor is the contract and related rates the
Borough pays under its contract to purchase wholesale electric to distribute. The
Borough is locked into a contract with its current electric supplier for the next 6
years; purchase costs are expected to continue to increase under the terms of the
Borough’s contract.
‘The Borough is currently paying approximately $79 MWH; this price is locked in and
will increase over the next 6 years. Due to the major natural gas finds in the
Marcellus shale regions, electric generators are converting facilities previously
19 generating electric using coal to facilities using natural gas. The large natural gas
reserves discovered combined with the switches occurring to producing electric
generation with natural gas has resulted in declining purchase costs of wholesale
electric, We know of contracts entered in the $35 MWH range, however, the
Borough is locked into its contract and will not be able to take advantage of the
declining prices for the next 6 years.
19. Sewer Revenue from user rates remained constant as rates were not changed by
Council from 2006 to 2013 inclusively. However, in 2014, prior Borough Council
decreased user rates by $10 per month per customer resulting in approximately
$85,000 to $100,000 reduction in revenue annually for 2014 and 2015.
20, Cost to provide sewer operations have remained relatively constant with costs
totaling $606,000 in 2006 and $594,000 in 2015.
21. The Borough runs and operates its own refuse collection system. Cost to provide the
refuse services have remained constant from 2006 through 2015 with the exception of
Jandfill/ncinerator disposal fees which have increased slightly due to increased
tipping fees.
22, Because the Borough utilizes the cash basis method of accounting, care needs to be
exercised when reading and interpreting the Borough's financial information. First,
revenue and expense needs to be looked at over a multiple year period to eliminate
swings in recognized revenues and expenses due strictly to when the cash was
received or the payment made. Second, itis important to understand that under the
cash basis method of accounting, the cost of carry or ownership of capital items is not
recognized except in the year the capital purchase is made. No depreciation on
capital assets is recognized to reflect an annual cost of ownership under the cash basis,
method of accounting,
‘The historical trend analysis that is included in the attached spreadsheets as Attachment C and
the Borough’s 2017 Budget (Attachment D) utilized to assist in the development of projected
financial operating results for the period 2018 through 2022.
20 Section 5
Management Audit Susquehanna Accounting & Consulting Solutions, Inc. (SACS) performed a management
review of all major departments and functions within the Borough. The following
includes narrative summaries of each department including personnel information and
other relevant data. This review was performed to understand each department's
functions and to assist in identifying the most critical operational needs and core services
needed by Borough residents,
Administration Department:
The administration department of the Borough consists of 1 full-time and 1 part-time
employee:
Full-time Borough Manager
Part-time Borough Secretary
This department effectively oversees all operations of the Borough, with the exception of
the police department which reports to and is under the direction and supervision of the
Mayor per the Borough Code.
The Borough has experienced almost complete tumover of its administrative and fiscal
personnel at least once, and some positions twice, with the past two years, with the
exception of the part-time Borough Secretary. The current Borough manager has been
with the Borough less than one year.
‘The Borough Manager effectively oversees all operations except for police, but also
serves as the right-to-know officer, the public works director, oversees the codes officer
and until recently oversaw the finance department,
The part-time Borough Secretary is responsible for official records management of the
Borough, functions as the billing clerk, the back-up cash receipts clerk, clerically
supports the Borough Manager and the Borough Council, attends Council meetings and
takes and produces official minutes of meetings, as well as functions as the Borough
signatory per the Borough Code with respect to official Council actions.
Future Staffing: There are no additional administrative positions deemed necessary in the
foreseeable future,
Recommendations: There are no staffing changes recommended for this department.
22 inance Department
The Finance department consists of one full-time and one part-time person.
Full-time Fiscal Accountant and more recently Fiscal Director
Part-time billing/cash receipts clerk.
‘The finance department is responsible for all accounting funetions of the Borough
including general ledger maintenance, payroll, accounts payable and cash disbursements,
billing, cash receipts and collection, budgeting, financial reporting (internal and external)
including preparing for the external financial audit of the Borough. The department
currently utilizes the Microfund System for maintaining the accounting system and
financial records of the Borough and interfaces with the Flexbill System for billing, cash.
receipts and revenue recognition. The version of the current systems utilized was
acquired in 2004 and does not appear to have been updated since. The functionality of
the system performs the functions for accounting required by the Borough, but is slow
and cumbersome to use for a Borough the size of Duncannon. In addition, the system,
‘when set up, was not optimally configured for the way in which the Borough operates,
and as a result, creates the need for extensive inter fund transactions, transfers, checks
and journal entries to be processed increasing the risk of human error.
In addition, it appears a year-end close of the system for each accounting year has never
been performed resulting in large volumes of data being active and queried each time a
report is run,
Furthermore, due to the extensive tumover in fiscal personnel over the past 2 % years, the
current fiscal personnel were never adequately trained on the operation or functionality of
the system,
‘The department also maintains a cash receipts window for receipt of utility bill payments.
Methods of payment accepted are cash, money order, check or credit card.
‘The billing and cash receipt window used to be open during normal Borough business
hours (8:00 am ~ 4:30 pm). However, due to the fiscal issues within the Borough, the
hours of operation of the billing and collections window have been scaled back (now
10:00 am —2:00 pm) in an attempt to reduce costs.
All current staff appear to be qualified for their positions.
We believe no additional personnel changes are necessary in the finance department with
the recent hire of a new part-time billing clerk and a full-time Finance Director. The
recent hiring, by council, of an experienced Finance Director should significantly
improve the fiscal operations including the accursey of financial information and fiscal
23 reporting as well as strengthen the functioning of fiscal controls including the budgeting
process.
We do, however, believe certain changes in fiscal operations would strengthen controls
and free up manpower to perform other fiscal duties:
© Discontinue accepting cash as a form of payment. The continued acceptance of
cash payments increases the risk of human error as well as the likelihood for
misappropriation of funds;
Consider setting up a process to accept on-line credit card payments;
With the two steps above implemented, the Borough could completely
discontinue the cash receipts window and have customer’ mai] payments or place
payments in the Borough provided drop box. This would minimize disruptions in
the fiscal office and would allow the cash receipts clerk to more efficiently
process payments. This would free up time for the cash receipts clerk to possibly
enter accounts payable.
Code Enforcement Department:
‘The Borough Manager primarily performs the functions of the Code Enforcement
Officer. The codes department also has a part-time (approximately 10 hours per week)
codes officer who primarily focuses on property maintenance and visible code violations.
There are no recommended changes to the codes department staffing.
Information Technology (IT):
The IT services of the Borough are currently contracted out to an external vendor as they
have been for the last several years. The contracting out of these services appears to be
the most cost effective way to provide the broad array of services and skill sets necessary
to provide IT services required by the Borough. Hiring a staff of employees to provide
these services, particularly given the current compensation and benefits structure of the
Borough would be difficult and more costly than contracting out for these services.
Based on our review and discussions with the external IT vendor, there are several
pressing needs related to the IT infrastructure of the Borough:
1. Business continuity and disaster recovery
2. Updating the Borough's technology to improve efficiency
3. Network access and security
With respect to business continuity and disaster recovery, the Borough does not have a
formal written disaster recovery and business continuity plan in the event of a natural
disaster, fire, power outage, etc.
24 Currently, the borough does have a data back-up system, but not in a format that allows
for easy or quick data recovery. In addition, in the event of a system crash there is
virtually no plan or system in place to allow the borough to recover and resume normal
operations in a reasonable period of time. The borough does have IT infrastructure
battery back-up in place, but it is insufficient to allow for normal system (network) shut-
down without the potential of substantial damage to the network and possible corruption
of data
With respect to IT infrastructure, particularly equipment, the prior administrations appear
to have placed little emphasis on updating and keeping IT infrastructure current. The
system was maintained with minimal resources expended to improve the system or
update the hardware to improve efficiency and functionality of the system.
‘The Borough needs to annually set an IT capital budget, with the input from its external
vendor, department heads, and the Finance Director and Borough manager, to ensure IT
infrastructure and software are updated on a periodic basis to ensure efficient operations
of the Borough,
Police Departmen:
Several years ago, the Borough of Duncannon dis-banned its local police force and
contracted with neighboring Penn Township to provide police services in the Borough, A
review of annual reports filed with DCED revealed Duncannon spent $175,672 on police
services in 2014 while Penn Township reported spending $152,634 in 2014. Utilizing the
2014 DCED information for both municipalities as well as population data from the U.S.
‘Census Bureau and the American Communities Survey revealed:
%of Penn % of
Duncannon Total Twp. Total Total
Estimated 2014 Population 1493 25.7% 4324 143% S817
2014 Cost of Police Services $175,672 53.6% $152,364 46.4% $328,036
Cost per capita-Police Services $117.66 $35.24 $56.39
From the above analysis, it can be concluded Duncannon residents were paying over
there times the cost for police service than Penn Township residents on a per capita basis,
This would seem to indicate the contract entered by Duncannon Borough with Penn
Township to provide police services favored Penn Township at the expense of
Duncannon Borough residents.
As part of the 2017 budget process, Duncannon Borough voted in November 201
discontinue its contract with Penn Township for Police services and turn over polici
the Borough to the PA State Police, Public Works:
The Public Works department of the Borough currently consists of three full-time
employees and two part-time employees:
1 Full-time Crew Foreman
2 Full-time Maintenance Workers
2 Part-time Maintenance Workers
‘The Public Works department's main responsibilities include:
Snow removal
Leaf collection
‘Tree trimming collection
Street cleaning
Highway maintenance (with the exception of major paving projects which are
contracted out)
‘Summer maintenance and lawn mowing of Borough properties
Building maintenance
Equipment and vehicle maintenance
Park maintenance
Street sign maintenance and installation
Storm sewer and culvert replacement, installation, or maintenance and repair
Refuse (trash) collection and disposal
‘Water system maintenance and repair (with the exception of major projects which
are contracted out)
‘* Electrical distribution system maintenance and repair with the support of outside
contractors
(NOTE: The water and sewer systems are operated by a licensed contracted operator; the
public works department supports the licensed contracted operator in performing
maintenance and making repairs on the system.)
‘The Borough is very fortunate to have public works employees with the knowledge and
skills to support the wide array of duties, responsibilities, and systems maintained by
such a small crew, There are no recommended changes to the public works staffing.
26 Duncannon Borough Authority:
‘The Duncannon Borough Authority (“Authority”) owns the wastewater collection and
‘treatment system within Duncannon Borough. The Authority has leased the sewer
system to the Borough which runs and operates the system, ‘The Authority primarily
ffanctions as a finaneing authority
In the fall of 2016, the Borough Council was asked by the Authority to make it an
operating Authority to operate the sewer system. Borough Council voted to have the
Authority become an operating Authority. The Borough and the Authority are presently
exploring options to make this happen.
27 Section 6
Multi-Year Plan Mul
-Year Plan:
‘As part of the multi-year plan, SACS developed a draft 2017 budget and options for the
2017 budget adoption. Council adopted the 2017 budget included in this report as
Attachment D which included the following recommendations and changes:
1, Reduction in the times the finance cash receipt window is open; this allowed
reduction in general fund personnel expenses;
2. The hiring of a Finance Director to improve the technical capabilities of the
finance department;
3. Council terminated its contract with Penn Township for local police services
and turned police services over to the PA State Police; this reduced operating
costs in the general fund and thus reduced the need for a larger property tax
increase;
4. Council approved and adopted a fire tax millage rate; this dedicated millage
will fund the Borough contributions to the local volunteer fire protection
services;
5. Council approved and adopted a general tax millage increase sufficient to
eliminate the operating structural deficit in the general fund;
6. In October 2016, Council approved raising sewer user rates back to previous
levels in place prior to the reductions by prior council; this eliminated the
operating structural deficit in the sewer fund;
7. Council, as part of the 2017 budget process, agreed to raise monthly refuse
collection rates from $18 per month to $19.25 per month; this increase
eliminated the budgeted structural deficit in the refuse funds
With the approval and adoption of the steps identified above, Council has taken the steps
necessary to deal with the emergency fiscal situations in the Borough. The 2017 budget
has eliminated the operating structural deficits in the general fund, sewer fund, and refuse
fund,
However, the 2017 adopted budget provides for only minimal debt service related to
water and sewer operations to address the violations identified by the Commonwealth of
PA Department of Environmental Protection (DEP), There is debt service payments
related to $100,000 of water system borrowings and $250,000 of sewer system
borrowings included in the 2017 budget.
29 8. In late 2016, Council hired a Financial Director with extensive governmental
accounting and budgeting experience. This will significantly improve the
accuracy and reliability of the Borough’s accounting records and financial
information, including financial reporting.
‘The 2017 budget adopted, while providing for sufficient funds for operating needs, does
not address the significant deferred maintenance that exists with respect to the
infrastructure and capital assets of the Borough,
At the present trend, and with no personnel changes or further implementation of
recommendations which follow, the next 5 year picture of the Borough would be as
follows:
2018 2019 2020
General Fund Revenue $404,753 $408,053 $411,434
General Fund Expense $396,559 $405,618 $415,013
Surplus ! Seiad | 82.435 $<3.570>
Sewer Fund Revenue $495,900 $495,900 $496,900
Sewer Fund Expense $583,082 _$594,347 _$605,678
Surplus / $<98.447> $<109.978> S<121.7A4> $<133,875>
Electric Fund Revenue $1,140,201 $1,163,252 $1,191,353 $1,205,404 $1,219,454
Electric Fund Expense $1.199,698 $1,155,665 $1,183,788 $1,200.026 $1,216,409
‘Surplus / 82.805 $7,587 $7565 ._$5,378 __$3,045
Water Fund Revenue $201,150 $291,160 $219,150 $291,150 $291,180
Water Fund Expenses 9231219 $236,339 $241,618 $247,062 §262.679
‘Surplus / 959.931 $54,811 _$49522 $44,088 $38,471
Refuse Fund Revenue $197,113 $197,113 $197,113 $197,113 $197,113
Refuse Fund Expenses $201,909 $206,865 $211,993 _s2i7,209 _$222794
Surplus / Ss4.296> $<9.759> $<14.880> $<20.186> $<25,681>
‘Asan be seen from the above 5 year projections, the Borough is going to have to
increase taxes and user rates annually to keep pace with increasing cost structures to
avoid budget deficits. In addition, an 18% increase in 2018 is projected to be required for
sewer rates to avoid a deficit in the sewer fund with annual inflationary adjustments to
sewer rates required in 2019-2022.
30 The above S year analysis does not take into account the significant deferred maintenance
which exists with respect to the water and sewer systems, and to a lesser extent the
electric distribution system,
When looking at the estimated $20 million dollars in needed improvements to the water
and sewer systems, the annual debt service with respect to $20 million in debt financed at
4.5% for 20 years would approximate $1.5 -1.6 million annually or $31.2 million over 20
years. Broken down on a per household basis, the needed rate increases to finance the
related debt would approximate $2,207 annually or $43,034 per houschold over 20 years.
Given the demographic and economic make-up of the Borough population and
households discussed previously in this report, itis not feasible to assume residents of the
Borough could afford to finance the necessary capital improvements to the water and
sewer systems,
Given the above projections, lack of available space for development, the flood plain and
challenges with economic development and the significant deferred maintenance in the
utility systems, we believe the most prudent course of action for the Borough would
include the following recommendations:
1. Because of the small population and number of households comprising the
Borough, it would make fiscal sense for the Borough to merge with or become
part of a large entity (possibly a village of Penn Township), Since the
Borough and Penn Township are already linked by virtue of the Borough’s
sewer treatment facility and geographically bordering each other, it would
make sense to become part of the Township to combine general government
services, and to combine the separate water and sewer systems operated by
each respective municipality. This will allow for economies of scale, reduced
capital requirements, and spread needed capital cost over a larger taxpayer and
user-rate (ie, customer) base as it relates to utility operations.
2. If itis not possible to combine with Penn Township or if the residents do not,
approve such a combination, the Borough needs to consider monetizing some
or even all of its utility assets. This would allow for the privatization of the
utility systems and would allow for the necessary improvements to be made to
the systems while spreading the costs of such improvements over a much
larger customer base.
3. One of the options to monetize the sewer and/or water system assets may be to
offer the system for sale to the Penn Township Municipal Authority (PTMA)
and enter a municipal agreement with Penn Township to provide sewer and/or
water service to Duncannon Borough residents,
4. Until such time either recommendation 1), 2), or 3) above is adopted, the
Borough will need to make inflationary increases to tax and utility rates.
31 5. Similar to item4), the Borough will need to increase sewer rates by
approximately 18% in 2018.
6. The Borough should discontinue providing refuse collection services utilizing
its own manpower and equipment. The extensive capital outlay for a trash
‘ruck and the fact it is utilized only 20% of the time makes the capital cost
‘component of collecting the Borough’s refuse too expensive, This service
should be bid out and contracted with a refuse collection company. ‘The
Borough should still continue to bill residents for this service as 20% of the
Boroughs general and administrative functions are fancied by refuse fees,
(The Borough is currently in the process of issuing an RFP for refuse
collection services)
7. While the criticality of adopting the above recommendations has been
eliminated with the Council actions taken while adopting the 2017 budget, the
above actions are still required to be addressed. Lack of moving forward with
the above recommendations will only serve to delay the inevitable and will
Jeopardize putting the Borough back in the same position it was in during
2016.
SACS has made a series of other recommendations throughout this report. In order to
enhance revenue and control costs, we also offer the following recommendation:
1. Cost Sharing Agreements:
If Borough Council decides the Borough will continue to operate as a Borough,
consideration should be given to entering shared services and equipment agreements with
surrounding municipalities particularly for seasonal related items such as snow removal,
leaf collection, yard and tree trimming, debris collection, ete;
. Fee Schedules:
General fund revenue fee schedules should be reviewed and updated to ensure fees cover
the costs of providing the service;
3. Capital Projects:
The prior administration's desire to fund capital projects utilizing operating finds versus
debit issuances has contributed to the escalating utility rates. Although this practice may
sound good in that it reduces interest costs from debt borrowings, the wrong individuals
end up paying for the costs of the capital improvements.
In order to generate sufficient excess funds to pay for capital projects, prior and current
users of the service are charged a higher fee to accumulate capital to fund projects.
However, current capital projects will benefit current and future users, not prior users
who have been forced to fund the project. Therefore, while nobody likes incurring or
32 paying for debt, the funding of capital projects with debt issuances allows for the correct
user groups to pay for the projects. As long as the debt is issued and the repayment costs
planned to be funded over the usefial life of the capital project, those current and future
users who will benefit from the capital project will be paying for and funding the cost.
4, Pooled Cash:
‘The Borough currently utilizes the general fund checking account as a clearing fund for
‘cash receipts including utility receipts. This process requires the general fund to track
and subsequently transfer or cut checks to the utility funds for utility cash receipts
deposited in the general fund and owed to the respective utility funds.
Similarly, the general fund checking account pays joint expenses related partly to the
general fund and partly to the utility funds. This process requires the general fund to
tack and subsequently seek and receive reimbursement from the utility funds,
By setting up a pooled cash account, activity would be debited or credited to the
respective funds cash (i.e. claim on pooled cash) and would therefore eliminate the need
to track and make subsequent transfers. This process will significantly reduce
disbursements, journal entries, due to/from inter fund activity and will streamline the
accounting for the Borough;
5. Recording Fiscal Activities:
Presently, only the activity for the general fund and the four utility funds (water, sewer,
electric and refuse) are recorded in the accounting system and general ledger of the
Borough. We recommend all fiscal activity for all funds of the Borough be captured in
the accounting system and general ledger. ‘This would include the Timber fund, payroll
fund, credit card fund, liquid fuels (Highway State-aid) fund as well as all agency and
trust funds.
6, Refuse Fund:
Once the refuse collection services are contracted to a private hauler, we recommend the
refuse fund be collapsed and accounted for as a department within the general fund.
7. Discontinue Receiving Cash Payments:
The Borough should consider not accepting cash for utility payments. The handling of
cash increases the risk of human error as Well as the risk for misappropriation of finds.
In addition, the elimination of accepting cash at the cash receipt window will reduce the
necessary traffic at the cash receipts window and therefore, will reduce interruptions and
will improve efficiency in the finance office. If cash is no longer accepted, utility
customers would only need to mail payments or drop them in the Borough's drop box
and would not need to physically be present to pay bills.
33 8. Accrual Basis of Accounting:
‘The Borough currently utilizes the cash basis method of accounting. Under this method,
revenue is only recognized when cash is received, not when eamed, and expenses are
recognized when paid, not when incurred (goods or services received). Under this
method of accounting, the Borough does not get a true picture of where the finances of
the Borough really stand, and accrual items such as accounts/customers/taxes receivable
and accounts payable are not accounted for. ‘The cash basis method of accounting also
provides for the ability of management fo manipulate or alter the financial picture of the
Borough by altering the timing of a cash receipt or making a cash disbursement.
‘Therefore, as soon as practical, we recommend the Borough move from the cash to
accrual basis method of accounting.
9. Utility Customer Receivables:
Until such time as the Borough moves to the accrual basis of accounting and utility
customer accounts receivables are tracked and recorded, we recommend the Borough
develop some form of system to track and roll-forward utility customer balance from
month to month utilizing billings and cash collections. This is even more imperative
given the fact the Borough’s utility billing software is not fully integrated with the
Borough’s general ledger.
10, Inflationary Tax & Rate Increases:
‘The Borough Council, as part of the annual budget process, needs to consider adjusting
annually, both tax millage and utility rates to keep pace with inflation. This will ensure
structural deficits do not reoccur, and revenues are sufficient for the operating activities
of the Borough and its utilities.
11. User Fee Rates:
‘The Borough Manager, in conjunction with the finance department, should review both
services and user fee rates charged by the Borough. First, Borough services should be
reviewed to ensure user-fees are being charged where allowed and where appropriate
Second, user fee rates charged should be reviewed to determine if rates are sufficient to
cover the costs of providing the service, and if rates are determined to be inadequate they
should be adjusted accordingly. (Note: user fees have not been updated in several
years).
12, Exeess Property and Equipment:
Upon completion of the Borough’s physical inventory of fixed assets, the Borough
should review the listing to determine whether all assets, particularly land, buildings,
vehicles, and equipment are required to carry out operations of the Borough and its,
34 utilities. Any excess fixed assets, if not needed currently or for future Borough
operations, should be sold.
In addition, we recommend the Borough review each Borough department operations and
determine the optimal and least costly level of capital assets required to carry out the
functions of each department. This would include the number and type of capital assets
as well as optimum replacement cycles for each major asset. Optimum replacement
points will identify when it is cheaper to replace the asset versus maintain (maintenance
costs exceed replacement cost) the asset.
13. Timber Funds:
‘Once the finances of the Borough stabilize, a plan for the use of Timber funds on hand as
well as future Timber sale revenue should be established by ordinance. The policy
should restrict the use of Timber funds to capital and non-recurring expenses as they
themselves are not an annually occurring source of revenue.
14, Grant Funding:
The Borough has not, with limited exceptions, historically pursued grant funding. We
recommend the Borough consider investigating and maximizing available county, State,
and Federal funding for meeting the Borough’s needs, particularly the deferred
maintenance on its water and sewer systems as well as assist the fire company in
investigating and obtaining grant funding for its building, equipment and apparatus
needs.
In addition, due to the fiscal issues facing the Borough, we recommend the Borough
apply for additional phases of the EIP to be funded by DCED to implement
recommendations contained in this report.
15. Electric Contracting:
Presently, the Borough is locked into a contract to purchase wholesale electric for the
next several years. The current contract appears to be an extension of.a previous contract
without bidding out the service.
Given the recent trends in the wholesale electric market whereby prices are falling, we
recommend that the Borough bid, through a Request for Proposal (RFP), subsequent
wholesale electric purchase contracts. In addition, we recommend that if the Borough
does not have the needed expertise to prepare an REP and evaluate the bids, the Borough
consider contracting with appropriate experts in electric purchasing to maximize potential
savings of the bid process,
35 16. Liens Receivable:
The Borough bills and collects water/sewer, electric, refuse, property maintenance levies,
etc. to residents and customers. If residents or customers do not pay these bills by the
due dates and respective grace period for each type of revenue, the Borough should be
filing a lien against the property owner to ensure the Borough collects the revenue it is
due upon any transfer or sale of the property.
‘The Borough, in the past, had utilized the services of an attorney to file these liens, For
unknown reasons, the former Borough manager discontinued the practice of utilizing an
attorney to file liens. Therefore, for approximately the past two years, the Borough has
not filed liens to perfect its interest to collect past due revenues of the Borough.
We recommend the Borough work with its solicitor to develop a lien process and packet
that can be filed by the finance department, The finance department should then, ensure
liens are filed on a timely basis.
17. Capital (Fixed) Assets:
‘The Borough purchases or constructs various assets including but not limited to
buildings, land, waste water treatment plants and systems, water systems, electric
distribution systems, utility poles, water/sewer lines, vehicles, equipment, computers,
furniture, and fixtures etc. If the Borough purchases an asset with a useful life over 1
year, the asset is considered a fixed or capital assets. Capital assets should be recorded
and tracked in a fixed asset (inventory) system. This system will provide control over
fixed assets for security and safeguarding of assets, will provide data necessary for
insurance purposes, and will calculate depreciation expense for recording in the
accounting system.
We recommend the Borough conduct a physical inventory of all Borough assets and
determine when they were acquired and at what cost, If this is not feasible, the Borough
could contract with a valuation firm to conduct the physical inventory and estimate the
historical cost of the asset utilizing reverse indexing of current replacement cost. No
matter how the asset detail is obtained, the Borough should establish a system to input the
values and maintain its own fixed asset and depreciation records.
18. Written Policies and Procedures:
Presently, the Borough has employee policy and procedures manuals. These policies and
procedures, in general, were approved by Borough council. However, there have also
been interpretations and subsequent revisions and / or additional policies and procedures
put in place by former Borough managers without Council approval.
Itis the responsibility of council to set policy and the Borough manager to carry out those
policies. Therefore, we recommend Council review all policies and procedures,
36 including those issued by prior Borough managers and determine whether they are in
accordance with current Council direction and current practices.
19. General Fund Budget:
In light of the fiscal issues in the Borough, the 2018 general fund budget needs to
consider:
* Which general fund services are required to be provided and at what level of
service;
© Staffing levels required to provide nevessary services;
‘* Reductions in capital costs and equipment necessary to provide the required
services;
‘The general fund budget also needs to consider the ability of its citizens to pay for these
services without causing a flight from the Borough. This means the citizens and
taxpayers, who fund the general goverment operations of the Borough, and their ability
or financial means to pay for the services need to be considered. In addition,
consideration has to be given to the average household income and the demographics of
the taxpayer community.
20, Electrie Operations:
The function of the Duncannon Borough electric department has been to purchase electric
generation and transmission services and then to distribute that electric to customers with
the Borough.
‘The major benefit of having its own electric distribution system is that Borough residents
and customers receive lower electric costs and related bills. In light of the current
contract the Borough entered to purchase wholesale electtic, and the downward trend in
current electric rates outside the Borough but not in the Borough, the benefits to the
Borough residents of the Borough owning and operating its own electric distribution
system are eroding and appear to have disappeared entirely.
Therefore, we recommend the Borough and Council review and determine exactly why
the Borough wants to be in the electric distribution business and evaluate the benefits and
detriments to residents. After having done so, Couneil should decide whether or not it
continues to want to be in the electric distribution business and whether or not it makes
fiscal sense to continue operating its own electric department.
21, Data Back-up and Disaster Recovery & Securit
As discussed in the Management Audit section, (Section 5) of this plan, we recommend
the Borough consider:
37 © Developing a business continuity and disaster recovery plan
* Utilizing an offsite vendor to automatically backup the Borough’s network on @
aily basis;
* Utilize the Borough's generator to back up the computer network in the event of
a power failure; the current UPS battery backup provides for inadequate backup
power supply in the event of an electric outage.
22. Grant Writer:
Currently the Borough applies for and receives minimal grant funding.
‘The Borough should, on a contracted basis, consider utilizing the services of a contract,
based grant writer to access additional grant funding available.
23. General Ledger and Accounting Software:
‘The Borough purchased and implemented its current MicroFund accounting software in
the mid 2000's. The system has not been changed or upgraded since then. In addition,
the general ledger, to the best of our knowledge, has never had a year-end close
processed. Therefore, revenue and expense accounts have not been closed to fund
balance/equity and balance sheet balances do not roll from year to year.
As soon as practical, the Borough should consider upgrading or changing its accounting
software. Ata minimum, if the Borough decides to stay with the current software, an
updated version of the software should be acquired and a new company within the
software established. This will allow for changes in software set up as well as
management of historical transaction databases. The Borough should ensure, unlike the
current system that the utility billing module is part of the integrated accounting software.
‘The cleanup and reconfiguration of the current system to ensure proper set-up will, in all
likelihood, be more time-consuming and costly than implementing a new accounting
software package.
In addition, once the new version of the existing software or a new software is
appropriately configured, set-up, implemented and in use, appropriate year-end close
processes should be performed annually with balances reconciled to audited financial
statements.
24, IT Equipment:
‘The Borough has expended minimal resources on keeping the Borough’s information
technology and applications current. Most of the Borough’s IT equipment and software
applications are older than 5 years and are approaching or have exceeded their useful life.
38 ‘We recommend the Borough upgrade its information technology equipment and software
applications to improve efficiency and productivity.
25. Capital Budget & Improvement Plan:
Presently, the Borough does not have a documented or written capital plan or budget.
Fiscal planning for the Borough of Duncannon, particularly in light of the significant
deferred maintenance, should include a long term varitten fiscal plan and budget to
address the capital needs of the Borough.
The plan should include replacement life cycles, project priorities, year of planned project
undertaking, estimated project costs, and an annual capital needs budget, at a minimum.
‘We recommend the Borough develop a long-term capital plan and budget.
26. Sinking Funds:
‘The Borough has established reserve funds (sinking funds) in each of the major funds
(general, water, sewer, electric, refuse) to save for future capital projects. While this is
certainly acceptable and we commend the Borough for doing so, the Borough took
operating funds, on a periodic basis and placed them in certificates of deposits earmarked
for certain projects.
However, this practice only makes sense when the respective fund hed positive cash flow
cor an operating surplus in the year in which contributions to sinking funds were made, In
years in which the respective fund had an operating deficit, the contribution was made
from prior year’s reserves and was therefore, contributing to reducing working capital
and tightening cash flow to the point inter fund borrowings or timber seles revenue had to
be utilized to fumd current year operations
Therefore, until such time the Borough finances stabilize and funds have operating
surpluses large enough to create sufficient working capital for the respective fund, further
contributions to sinking funds should be suspended.
If capital needs arise, while current on hand sinking funds are internally restricted and
designated for specific future capital needs, we recommend the Borough consider
removing the intemal restrictions and utilize the current on hand sinking funds for current
capital needs.
27. Couneil Reports:
‘The finance director should provide budget status reports at least quarterly to the
Borough manager. The Borough manager should then report any budget issues to
Council so that council can take any actions necessary to control costs. This
recommendation was implemented approximately five months ago. 28. Utility Rates:
Presently, the Borough measures the sufficiency of the user rates (water, sewer, electric,
refuse), based on cash basis operating costs and budgets. Utilizing cash basis financial
information ignores the cost of capital required to run the systems and provide the service
(ic. depreciation expense).
‘Therefore, if the Borough converts to the accrual basis of accounting, the Borough should
review the sufficiency of user rates utilizing accrual basis financial information. This
‘would require some form of new or revised rate studies utilizing accrual basis financial
‘information.
29, Budgeting:
Presently, the Borough budgets revenue and expense on a cash basis. If and when the
Borough converts its accounting method to the accrual basis, the Borough will have the
necessary fiscal information to prepare its budget on an accrual basis. Converting to the
accrual basis for budgeting will provide a more accurate picture annually of true costs of
operating the Borough. Attachment A
Preliminary Condition Assessment
Report submitted to the Commonwealth of
Pennsylvania Department of Community and
Economic Development
Governor’s Center for Local
Government Services PRELIMINARY CONDTION
ASSESSMENT
FOR
‘THE BOROUGH OF DUNCANNON
JUNE 30, 2016
REPORT SUBMITTED TO:
Commonwealth of Pennsylvania
Department of Community and Economic Development
Governor's Center for Local Government Services
REPORT SUMBITTED BY:
‘Susquehanna Accounting & Consulting Solutions, Inc.
‘830 Sir Thomas Court, Suite 150
Harrisburg, PA 17109 Background:
In late May 2016, Susquehanna Accounting & Consulting Solutions, Inc. (SACS) was engaged
‘through an RFP process to perform an Early Intervention Plan {EIP) 5 year strategic financial plan for
the Borough of Duncannon.
SACS began field work on this project on June 10, 2016 and met again with Borough fiscal personne! and
the Borough Manager on June 17, 2016. As part of the financial condition assessment of the Borough,
SACS obtained the 2013 and 2014 external audit reports of the Borough as well as historical year’s trial
balance,
Initial Condition Assessment:
Through review of the 2013 and 2014 external audit reports, SACS identified the Borough had
received an adverse opinion on its financial statements for 2014. The auditor's basis for the adverse
opinion disclosed in the auditor's opinion in part states: “Due to inadequate accounting records, .
SACS followed up and discussed with the external auditors the details comprising their
conclusions to issue an adverse opinion. Their reasons were as follows:
* The Borough had not prepared bank reconciliations; the Borough prepares its financial
statements on a cash basis and cash/bank reconciliations are such an integral part of cash basis
financial statements;
* The Borough pays a significant portion of its bills from the general fund; portions of each
payment are related to funds other than the general fund (i.e. Water, Sewer, Electric, Refuse,
etc.) The Borough would normally track the portions of the payments due from other funds to
the general fund on spreadsheets and would then reimburse the general fund, based on these
spreadsheets, from the other funds. This process was not kept up to date in 2014 and
therefore, accounting records as they related to expenditures, were deemed incomplete and
un-auditable,
‘© The Borough bills customers for Water, Sewer, Electric and Refuse on a single bill. When
customers pay their bill, the entire cash receipt is deposited in the general fund even though
portions of the payments received are due to the Water, Sewer, Electric and Refuse funds, The
Borough normally tracked cash receipts by fund daily on a spreadsheet and would
reimburse/transfer funds from the general fund to the correct fund periodically based on these
spreadsheets. However, for 2014 and subsequent periods, this spreadsheet reconciliation
process had not been adequately maintained and therefore, there was no assurance cash was in
the correct fund. ‘There was a complete turnover of the fiscal office staff in early 2014. The Borough hired a new
fiscal person, however, the fiscal person never received training on the Borough's fiscal
accounting system.
Bank accounts have not been reconciled since December 31, 2013.
The Borough council receives limited fiscal reports for its meetings and therefore, has limited
fiscal oversight over the financial affairs of the Borough. The Borough Council does, however,
ratify/approve expenditures at its meetings.
‘Cash balances by fund recorded on the general ledger for 2014 and subsequent periods are not
accurate.
‘The Borough’s current full ime fiscal employee is out on maternity leave; the Borough has hired
a part-time fiscal person and a college intern to assist with billing and collection.
The Borough does not have sufficient funds in the general fund to pay its current obligations
even though the Borough should have received its real estate tax collections for the year. The
current bank balance in the general fund was less than $10K in June 2016.
‘The Borough has some limit reserve funds in a timber fund (approximately $200k).
‘SACS has been unable to obtain the basis upon which the 2016 budget has been prepared.
Given the lack of accurate financial data for 2014 and 2015, there is concern about the accuracy
and reasonableness of the 2016 budget. Management of the Borough has identified errors in
the 2016 budget.
Review of the 2016 budget that was prepared noted that budgeted expenditures exceeded
budgeted revenue in almost every fund. This would indicate the plan was to spend down
available fund balance in lieu of tax or utility rate increases. This is clearly an unsustainable
model and makes it more imperative the Borough have accurate financial information for 2014,
2015, and 2016 to be utilized as a basis for 2017 budget preparation and decision making,
‘Therefore, itis critical the accounting records be cleaned up prior to the preparation of the 2017
budget.
Conclusion/Recommendations:
Due to the poor condition of the Borough's fiscal records for the past two and one-half years,
the Borough needs fiscal support and assistance to assess exactly where the Borough's financial
condition is at this time.
Due to the Borough's fiscal person being out on maternity leave and the Borough's needs to
hold the position open for her return, a full time hiring solution is not a viable option.
‘Therefore, a short term plan to deal with the Borough's current fiscal crisis is as follows: The Borough needs to make funds available, from its Timber/Reserve fund, to the
general fund in the form of loans. This is temporary internal financing will allow the
Borough approximately 2 months of operating cash fiow to allow the Borough to correct
its accounting deficiencies to assess its current financial condition to determine the next
steps.
Work with the DCED to obtain additional funding to provide for technical support of
current fiscal operations;
Work with DCED to obtain additional funding to provide available resources to properly
account for the period Jan. 2014 through June 2016. This would include reconciliation
of cash, properly accounting for revenue, expenditures and due to/from accounts by
fund. This will facilitate preparation of accurate financial statements for the period Jan.
2014 through June 2026. These audit preparation and assistance services are necessary
to allow the Borough to assess where it is at fiscally and what next steps may be
required based on that assessment.
Develop a fiscal reporting package (monthly) for Borough Council.
Upon getting the financial records up to date the Borough should:
© Contract to have the 2014 audit redone.
Complete the 2015 audit.
‘* Upon return of the Borough's fiscal person from maternity leave, assess the
technical capabilities of the fiscal person. Based on that assessment, reorganize
‘or make fiscal department staffing decisions as necessary.
‘© Assess the current accounting system and technical capabilities of staff to
properly use and utilize the system. Consider the need to replace the system, or
ifthe system is deemed adequate, obtain system training for fiscal personnel.
* Move from a cash basis of accounting to an accrual basis of accounting,
* Consider setting up a pooled cash system to eliminate the need for inter-fund
transfers and checks. Attachment B
2016 Duncannon Borough Budget 2016 Tentative Budget
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