On Saturday, the Biddeford Gazette sent a list of questions to Biddeford’s acting city manager regarding concerns about financial problems the city is facing.
Less than 48 hours later, we received a detailed and comprehensive reply from Brian Phinney, the acting city manager.
Below, you will find our list of questions along with the unedited answers from Phinney:
Question: According to your comments at Tuesday’s meeting, the city is nearly three years behind on its annual audit obligations, going back to FY 2023. How did we get so far behind?
Given that we have not gone through an audit, how can we possibly put together a budget of more than $40 million with any degree of confidence?
Why was this delay with conducting an audit not addressed sooner?
Can this situation adversely impact the city’s bond rating?
RESPONSE:
“The audit delay is not unique to Biddeford; many municipalities across Maine and beyond have reported delays in completing audits as far back as FY22. The Office of the State Auditor maintains a website of municipal annual audit reports at https://www.maine.gov/audit/municipal/annual-audit-reports.html. It is assumed that these municipalities faced similar challenges due to either a shortage of auditors and increasing complexity in financial reporting requirements or other factors. While I cannot speak to the specific details related to delays in completing audits for other municipalities, it is known that Biddeford’s financials records were not kept current for FY23 resulting in the need to contract with Berry Dunn for services. This has delayed completion of subsequent audits. For reference, Biddeford’s typical audit schedule for each fiscal year, which runs from July 1 through June 30, usually begins in early July. The auditor will perform a pre-audit to perform a high level review of records in preparation for the audit. The audit is then typically started in late August and may run though December resulting in delivery of the audit between December and March. The actual dates vary based on availability of the auditor. As of today the City has two audits pending – FY23 and FY24. The FY25 Audit is not due to begin until July. While it’s not an ideal situation, we are on a tight timeline and fully committed to getting the audits completed as soon as possible.
The budget process is based on real-time financial data, revenue projections, and careful oversight from the City’s finance department, City Council, and professional staff. While an audit provides a third-party verification of financials, the absence of a completed audit does not mean we lack reliable financial information. Our team has continuously monitored revenues, expenditures, and fund balances to ensure fiscal responsibility. Additionally, our budgeting practices have been consistent with prior years, and we have not faced any operational issues as a result of the delay.
The City has been working on this issue for some time, and we have been in constant communication with our auditors. That said, we recognize the importance of getting the audits back on track, and we are exploring all possible avenues—including potentially engaging additional resources—to complete them as soon as possible.
The delay in audits is something we take seriously, and we are aware that financial reporting is a key factor in maintaining a strong bond rating. However, credit rating agencies look at a variety of factors beyond just audit timelines, including our overall financial health, debt management, and economic growth. To date, we have continued to meet our financial obligations, and there has been no indication of an imminent impact on our bond rating. That said, we are prioritizing the completion of the audits to ensure we maintain our strong financial standing.”
Our team has continuously monitored revenues, expenditures,
— Brian Phinney
and fund balances to ensure fiscal responsibility.
QUESTION: You also told the city council that the city may have “a considerable exposure” of $790,000 in penalties from the IRS. You said you are “negotiating with the IRS” but the city (combined with school department) could still face a $233,000 liability. Can you provide specific details about how this happened?
RESPONSE: “The issue stems from payroll tax reporting errors that occurred several years ago. These were administrative oversights, and the City is now taking steps to address them. We have been working closely with the IRS to resolve the matter, and our goal is to minimize any financial impact on the City and taxpayers.
The initial penalty amount was $790,000. Absent report data the IRS calculated the penalty based on the total number of W-2 forms prepared rather than the actual number of 1095-C statements issued. Through proactive engagement and a detailed assessment of issue we have calculated a significant reduction in the potential liability. At this stage, the potential remaining exposure is approximately $233,000, though we are continuing our efforts to reduce or eliminate that amount entirely.
It’s important to note that while this is a serious issue, the City has taken corrective action to help ensure this does not happen again. We have additional oversight measures in our payroll and reporting processes and may consider using an outside payroll processing firm. Such a firm would be obligated to meet these IRS reporting requirements, thereby reducing or eliminating this concern going forward.”
QUESTION: HUD funding for Lead abatement: You told the council that the city may be facing a $350,000 penalty for our failure to properly “close out” the 2019 grant. What does this mean, and how did it happen?
RESPONSE:
“The issue with the 2019 HUD lead abatement grant stems from administrative requirements related to the formal “closeout” process of the grant. When a federal grant is awarded, there are specific reporting and documentation steps that must be completed to demonstrate that funds were used appropriately and that the project met all compliance standards. In this case, some of those final reporting requirements were not completed in a timely manner, leading to the possibility of the grant being rescinded.
The City has been in active discussions with HUD to resolve this issue, and we are working to provide the necessary documentation to properly close out the grant. We are optimistic this can happen.
There is no penalty, but rather, as a reimbursement grant the funds that had been expended would not be reimbursed.
It’s important to emphasize that this issue does not mean funds were misused—rather, it’s a matter of ensuring all federal reporting obligations are met. Moving forward, we are strengthening our grant management processes to prevent similar issues and ensure full compliance with federal requirements.”
QUESTION: Last year, the council approved a measure to spend up to $300,000 for an investigation and report concerning irregularities in the finance department. You said you anticipate that report later this month. How much did we end up paying for those services, which are above and beyond the annual audit, which is typically performed by Runyon, Kersteen & Ouellette?
RESPONSE:
“It’s important to clarify that BerryDunn is not conducting an investigation or preparing a report. Rather, they have been providing professional accounting services to help the City catch up on prior years’ financials. This includes tasks such as preparing journal entries, reconciling accounts, and other essential accounting cleanup work needed to get us ready for the audit.
“The Council authorized up to $300,000 for these services, and we are tracking expenses carefully to ensure we use only what is necessary. While this work is separate from the annual audit conducted by Runyon, Kersten & Ouellette, it is an essential step to ensure our financial records are in order and to facilitate the audit process. We will provide a final cost breakdown once all work is completed.
“We anticipate continuing to use BerryDunn’s services as needed until all outstanding financial issues are fully resolved. Their expertise has been critical in helping us catch up on prior years’ accounting work and prepare for the audit. Given the complexity of the work involved, we expect their support will be necessary on an ongoing basis to ensure all financial records are fully reconciled and that we remain on track moving forward, and we will need to approach the Council for additional funding for their work. We will continue to monitor costs and provide updates as this work progresses.”
QUESTION: You told the council “you all know the conditions of our books.” Can you please elaborate and provide some details about that statement?
RESPONSE:
“When I said, “you all know the conditions of our books,” I was referring to the well-documented challenges we’ve been working through in our finance department. The delays in our audits, the need for accounting cleanup work, and the backlog of reconciliations are all issues that the Council has been regularly briefed on. These challenges are precisely why we brought in BerryDunn, a highly regarded and award-winning accounting firm, to assist with financial reconciliation and why we are working diligently to bring our records fully up to date.
“It’s important to note that while there have been delays and areas that need improvement, the City is now taking every necessary step to ensure financial accuracy and transparency. Indeed, with the new Finance Director’s leadership backed up by additional outside expertise, we are making steady progress toward getting everything back on track.
QUESTION: You indicated that there are now two vacancies in the city’s finance department, saying “there’s no capacity down there, but also praised the new Finance Director for her professionalism and accomplishments in just the last few weeks.
You said that you had an applicant interested in one of the vacancies but they decided not to accept the city’s offer. Can you shed any light on why the applicant declined the offer?
RESPONSE:
“Yes, there are currently two vacancies in the finance department, which does present challenges. However, our new Finance Director has already made significant progress in just a few weeks, bringing a high level of professionalism, expertise, and fresh energy to the team. She is actively working to stabilize operations, improve internal controls, and move the City’s financial processes forward. In these roles, the level of public scrutiny can sometimes feel unfair to those simply trying to do their jobs. This is something we have to acknowledge when recruiting, as it can be a deterrent for potential hires.
We recognize that staffing shortages have added to the workload, but we are committed to filling these positions with highly qualified candidates who will contribute to the long-term strength of the department. As noted above, we may also engage outside services, such as for payroll processing, to provide additional support. Also, based on a decision of the Council, we will soon be transitioning sewer billing to Maine Water. Many surrounding municipalities (including Saco) handle sewer billing this way, which reduces errors and improves efficiency, since the sewer bill is based on the water bill, and Maine Water already does the water billing.
Despite these financial reporting challenges, the City remains on solid financial footing. We have a significant fund balance, skilled management, and improved oversight in place to ensure responsible fiscal stewardship. While we acknowledge the need to catch up on financial reporting and complete past audits, these issues do not reflect a financial crisis—rather, they are administrative hurdles that we are actively addressing. With a strong Finance Director in place, additional professional support from BerryDunn, and a commitment to transparency and best practices, we are making steady progress. The City continues to meet its financial obligations, provide essential services, and invest in our community’s future with confidence.
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THE BIDDEFORD GAZETTE 
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