MARBLEHEAD — Marblehead’s finances remain stable, and its coveted AAA bond rating is secure. Still, auditors warned the Select Board that the Town must modernize its financial systems and tighten internal controls to avoid potential risks in the years ahead.
The Select Board heard the results of the Town’s annual financial audit, presented for the first time by Roselli, Clark & Associates. Partners Tony Roselli and Paul Gargano reviewed Marblehead’s operations, financial statements, and compliance with federal requirements.
The news was mostly positive. Roselli praised the Town’s consistency in reserves, reporting that balances have ranged between $18 million and $21 million for the past decade. Those reserves, a combination of free cash, stabilization funds, and assigned balances, equal about 20% of annual expenses.
“That puts you into that AAA, top-tier bucket,” Roselli said. “The bond rating folks love consistency. You’ll have no problem going out and funding a new project based on your finances.”
Ratings agencies, such as Standard & Poor’s and Moody’s, view steady reserves as critical when evaluating long-term borrowing. Roselli noted that Marblehead’s AAA bond rating places it among the top 10% of communities in Massachusetts.
Auditors also highlighted the Town’s improved investment earnings. With interest rates rising, Marblehead earned $3.2 million in investment income last year, double the previous year and triple the year before that.
“To me, it’s free money,” Roselli said. “When you’re investing your own money, you should invest at the market rate. Marblehead is doing that now.”
The Town has also managed long-term pension obligations relatively well. Its system is about 70% funded, with an unfunded liability of $54 million. That level is stronger than many municipalities. The bigger concern is retiree health care, known as OPEB, which carries a liability of $151 million but is only about 3-4% funded.
“That’s an area you might want to target for additional funding if resources become available,” Roselli told the Board.
Still, not all of the findings were positive. Gargano outlined material weaknesses in the Town’s cash reconciliation and receivable reconciliation processes. Those issues delayed financial statements and free cash certification, causing what he called a “last-minute fire drill.”
“The cash reconciliation process has to be the prime focus right now to make sure your FY25 financials are issued on time,” Gargano said. He added that rating agencies have begun scrutinizing late financials more closely, with some municipalities penalized for not meeting deadlines.
Problems included bank accounts carried after being closed, outdated outstanding check lists, and misclassified entries. Gargano said turnover and a lack of process contributed to the issues.
“There were some deficiencies where Town employees weren’t in a position to detect misstatements during the normal course of their jobs,” he said.
Federal compliance reviews also flagged concerns. The Town reported American Rescue Plan Act projects as “obligated” once approved by the Board, but the federal definition requires a contract or purchase order. In addition, Marblehead had not been checking whether vendors paid more than $25,000 were suspended or debarred from receiving federal funds.
Town leaders said changes are underway. A new Munis cash platform is being implemented to replace the patchwork of QuickBooks, spreadsheets, and other software. A full-time chief procurement officer and grant coordinator have also been hired to ensure compliance.
“We had a perfect storm during the COVID period with retirements and antiquated systems,” Select Board member Moses Grader said. “Now we have an opportunity with new technology and staffing to build continuity and avoid gaps.”
Chief Financial Officer Aleesha Benjamin said the Town is also committed to employee training, cross-department collaboration, and cybersecurity awareness.
“We’re creating one system, not three different reconciliations,” Benjamin said. “That efficiency will make sure the process is sustainable moving forward.”
Grader praised the audit as both candid and constructive.
“I’m more optimistic than ever about the fiscal status of the Town and our capacity to respond,” he said. “We’ve got a great resource management plan in place and a strong team to move us forward.”
Despite the weaknesses, auditors issued Marblehead a clean opinion on its financial statements and federal compliance audit. Roselli encouraged the Board to continue annual presentations to maintain transparency and accountability.
“Even if it’s just popping on the screen, you should do it once a year,” Roselli said. “It’s important.”
Select Board members agreed, noting the value of hearing directly from auditors.
“It’s a very useful report,” Grader said. “It helps ensure we keep our bond rating, keep our financial house in order, and keep Marblehead fiscally sound.”
