WHEATFIELD — The state Comptroller’s Office has concluded that officials in the Town of Wheatfield failed to provide adequate oversight of town operations, leading to a deficit situation and resulting in taxpayers subsidizing cellular phone services for non-employees, including family members and friends of elected officials and workers.

In an audit released on Thursday, the comptroller’s office determined the town’s general, highway and fire protection district funds are operating at a combined deficit of $2.71 million, substantially higher than the $715,000 deficit reported by town officials at the end of 2009. The report accuses the town of using declining levels of fund balance, one-shot revenues and restricted funds that should not have been applied for operations to avoid levying property taxes in the general or highway funds from the early 1970s to 2010. As a result, the auditor concluded that the accumulated deficit will need to be repaid, “most likely by taxes.”

“By operating with continuing deficits instead of raising enough taxes to fund operations, the town has accumulated a liability that may require even higher taxes,” the auditor concluded.

Town officials dispute the $2.71 million deficit figure included in the comptroller’s report, arguing that the number includes $2 million in grant funding from the U.S. Environmental Protection Agency that town officials contend has already been repaid. As a result, town officials maintain the deficit is actually closer to $700,000.

Supervisor Bob Cliffe said tax hikes suggested in the audit are not necessarily a foregone conclusion, saying corrective action taken by the town board in recent months have already improved financial controls and town operations. One of those steps involved substantial reduction in the number of town-funded cell phones and the elimination of the “friends and family” service plan, according to Cliffe. While he did not rule out the possibility of spending cuts or tax hikes in the future, Cliffe expressed confidence that the town’s response to the auditor’s recommendations will result in continued improvements in the municipality’s financial condition moving forward.

“This audit reflects the condition of the town on January 1,” Cliffe said. “We are in a new budget year. In the new budget year, the board has taken action to stop the bleeding. We have to go beyond stopping the bleeding and we’ve been doing that the best we can.”

In April, Cliffe’s administration filed its annual financial report with the state, revealing, based on an assessment by new Budget Director Edward D. Mongold, that, as of Jan. 1, the town started off the year with a $663,908 budget deficit and the town had amassed long--term debt of $15,678,788 on money borrowed to pay for various capital projects and other expenses. The town’s private auditor, Tom Malecki of the Cheektowaga firm Drescher & Malecki, said in August that Wheatfield’s financial situation was among the worst of any municipality he’s examined in Western New York this year.

Cliffe has heaped much of the blame for the deficit situation on actions taken during the final four years of former Supervisor Timothy Demler’s 14-year administration.

Demler has consistently defended his stewardship of the town, suggesting over-spending on the part of the highway supervisor and other department heads, the failure of the board to follow his recommendations to sell cell phone towers and other assets and other factors contributed to the town debt.

On Thursday, Demler maintained the town board shared in the decision-making when it came to running the town and it was only after he was gone and Cliffe was supervisor that the board followed through on things he had been asking them to do, including the sale of the cell phone towers.

“I think we ran a great town for 14 years,” Demler said. “We had no town tax. We reduced the special district taxes and we still provided the services.”

The comptroller’s office took issue with the town board’s failure to adopt a policy governing the use of town-supported cell phone services which it said contributed to a situation in which the town purchased cell phone services for non-town employees. The auditor’s review found that from February 2008 to July 2009 the town paid $37,440 for cell phone services and that in June 2009, cell phones were assigned to a total of 89 people, including Demler, all four members of the town board, the superintendent of highways, the town clerk and town judge and 59 town employees. According to the report, cell phones were also issued to one former employee, seven family members and friends of town officials and employees and six other non-town employees. A total of eight phones were assigned to no one in particular.

“The town should not have purchased cell phone services for all of these individuals, especially the non-employees,” the report concluded. “These unnecessary purchases abused taxpayers’ moneys.”

The auditor found that Demler generally allocated each cell phone a maximum of 150 minutes of use per month, with the town’s budget director billing participants for any usage over 150 minutes and non-employees a fixed amount of either $18 or $25 monthly for service provided to them by the town. The auditor found that in certain instances the budget director did not bill non-employees at all and that there was no procedure in place to determine if all participants were billed at the correct amount and paid the amount due.

The comptroller’s office determined that Demler did not pay bills for cell phone service offered to three of his family members in a timely fashion. Although Demler was billed $858 for three family members in April 2008, the auditor found that the bill included $797 in charges from previous periods. A personal check was submitted by Demler to pay for the cell phone charges in July, more than a year later. The auditor indicated that Demler objected to the amount billed to him and withheld payment until he could challenge the amount, even though the town had already paid the vendor for the service.

In December 2008, the town began being billed for texting and data services totaling $3,554 for the first half of 2009. The auditor noted that the budget director contested those charges, but said, without a formal vendor agreement in place, it is difficult to determine if the town would be successful in challenging the debt.

“The town did not have a contract on file defining the rights and responsibilities of the town and the vendor provide the wireless service,” the report said. “As a result, the town may be responsible for paying $3,554 in disputed charges.”

Cliffe said this year the town reduced the number of available cell phones from 89 to 49, eight of which are currently being used by fire officials and a sheriff’s deputy. Cliffe said he is now personally handling all cell phones out of his office and all bills are being reviewed by him each month. He stressed that no relatives or friends of elected officials or town employees are receiving cell phone service through the town at this time.

“We do need to still formulate a policy,” he said.

Demler said he agreed with the comptroller’s findings that the town’s cell phone system was problematic and in October, while he was still in office, pulled all phones used by friends and family members from service.

“We all screw up,” Demler said. “I am not without fault, obviously. I pride myself on what we’ve done and the things we ran properly.”

Wheatfield audit

The New York state Comptroller’s Office issued the following recommendations for improving the town’s operation and financial condition:

• Appropriate only available fund balance to finance operations in succeeding years’ budgets.

• Budget to eliminate the fund balance deficits in the general, highway and fire protection district funds.

• Monitor expected revenues and expenditures to ensure that they are in line with budgeted estimates.

• Deposit funds associated with capital projects on which debt has been issued into a mandatory debt reserve and use these funds to pay the principal and interest on outstanding debt.

• Take steps to ensure that interfund advances to other town funds are made only from those funds permitted by law, and are repaid in a timely manner.

• Stop the practice of providing cell phones to non-employees.

• Recover from non-employees all amounts paid for cell phones that have not already been reimbursed.

• Conduct a needs assessment to determine who should be issued a cell phone.

• Adopt a formal cell phone use policy that clearly defines the town employees who should be issued a cell phone, what is an allowable use and how reimbursement for personal use is billed and paid to the town.

• Have on file a contract with its cell phone vendor indicating the rights and responsibilities of each party to the agreement.