Reasons for county's financial crisis are still being debated

While the Washington County government continues to dig itself out of its financial hole and is eyeing another potential hike in next year's budget, the cause of the problems is still being debated. The county ended up asking municipalities last winter to prepay their 2026 county tax so it would be able to pay its 2025 tax-anticipation note (TAN), totalling $6.996 million in principal and interest, to Machias Savings Bank last February.

At the August 13 meeting of the Washington County commissioners, the county's new finance director, Jennifer Windsor, presented her analysis of the problems, titled "The Truth Behind the $6.9 Million County Ask: A Transparent Look at the 2023 Audit and Prior Years Deficit." In the report she states that the county's request for prepayment of $6.9 million from the towns on their 2026 county taxes was "driven by six consecutive years of structural deficits, including four years in which the county knowingly budgeted for losses." She outlined that from 2019 through 2022 the county budgeted for losses totalling $2.2 million, noting the amounts for each year.

In her report, Windsor stated, "The county is still operating in cash-flow survival mode, but the TAN drawdown indicates the county is not yet at the worst-case liquidity threshold."

Windsor wrote: "The county entered 2023 already financially unstable, and the 2023 audit confirmed the extent of the county's financial crisis. With the 2024 and 2025 audits still incomplete, the county must make a conservative, multi-year correction." She added, "This was not a one-year correction -- it is a six-year stabilization plan."

Former commissioner responds

Blame for the financial crisis has mostly focused on the previous treasurer, who has resigned, a budgeting policy change made in 2020 and the lack of recent audits for the past several years. The current county commissioners also have pointed to the previous commissioners as not having provided proper oversight of the county's budgeting, beginning in 2019.

Chris Gardner, the former chair of the county commissioners, maintains that was not the case and disagrees that the county budgeted for losses during 2019 through 2022, as the finance director stated in her report. For instance, in 2019 "the audit clearly shows the final budget to be $8,347,099," he says. With actual expenditures of $7,715,850, the budget was underspent by $631,249. With some less revenue than expected, the return to the undesignated fund balance was approximately $538,000 for that year. The 2019 audit also shows that approximately $500,000 from the 2018 budget was returned to the fund balance.

"Commissioners would regularly make transfers from these funds at the behest of the budget committee when we were comfortable that they were audited figures and advised by the finance department," says Gardner. However, in 2019 that changed, when the audited fund balance was over $2.3 million. A new policy was put in place starting in 2020, as the budget committee wanted "to run the budget as tight as possible," and carry most all underspent lines as reserve accounts, Gardner says. "They did not want to raise any more money than the minimum that might be needed." He maintains that the commissioners resisted making that change but that the budget committee persisted and the commissioners yielded to the committee's "statutory authority" as the final say on setting the county budget.

Gardner says that change appears to be when problems arose, as the newly created reserve accounts, which totalled as much as $1.5 million in some years, were attributed as cash on hand to offset taxation in subsequent budgets. That double-counting of reserve accounts as revenue caused most of the county's budget woes, as the county then ended up "undertaxing by more than $6 million over four years."

"As much as the new commissioners talk about how the former commissioners were not providing proper oversight, the record clearly shows that on budget sets and spending we were more than hitting our marks."

Of the financial problems that were then uncovered in 2025, Gardner says, "We missed it, everyone missed. If you look at the audits from 2019 on, the auditors themselves are still correcting previous audits." As for criticisms levied at him and the other commissioners at the time for not finding the mistakes being made, Gardner says, "If it should have been so glaring to us as part‑time public overseers, shouldn't it have been more so to the full‑time professional staff in [the finance] office?" Also, the county was several years behind on its audits, partly because of the shortage of auditors in the state and because of the pandemic.

Of the shortfall in the county budget, Gardner says, "We found it first, albeit too late. We knew the hole was approximately $6 million, and our estimates we still believe will bear to be true. Never by overspending, always by failing to tax the proper amount, due to error-filled information from the finance department."

Latest audit outlines corrective measures needed

As for corrective steps needed to prevent such a financial debacle from happening again, the financial audit for 2023, conducted by the accounting firm Wipfli LLP of South Portland, points to several measures. The completion of the audit was announced at the August 13 commissioners' meeting.

The audit report found that the county's available cash balances were insufficient to cover financial obligations, with a shortfall of $461,000 and a fund balance deficit of $653,479 at the end of 2023. To correct this problem, in January 2026 the county commissioners repealed the carryover policy established in 2019 -- the policy that Gardner referenced as causing the problems -- and the finance department is developing a plan to rebuild cash reserves. The department also is implementing tighter expenditure monitoring with greater oversight of departmental budget performance.

The auditors determined that the county expended $75,000 more than the adopted budget for 2023. In 2026, county management did adopt a policy requiring a line-by-line budget review, with each department head receiving monthly budget-to-actual reports.

Among the audit's findings were that the county does not maintain separate funds within its accounting software, which increases the risk that revenues, expenditures and fund balances may be improperly classified or omitted from the appropriate funds; did not perform adequate reconciliations of balance sheet accounts; failed to perform cash reconciliations in a timely manner, which increases the risk that errors or unauthorized transactions may not be detected and corrected promptly; and was unable to provide adequate supporting documentation for certain transfers between bank account to demonstrate that the transfers were properly authorized. In its response, county management agrees with the auditor's recommendations and is taking steps to correct the deficiencies. For instance, in October 2025 the finance department established a formal procedure that required each bank transfer to include adequate supporting documentation.

Also, the audit report found that the county has not developed and implemented a comprehensive accounting policies and procedures manual and does not have adequate control over the functions of processing and recording financial transactions due to the inadequate segregation of duties because of the limited number of staff. The audit report does note that the county was able to hire a full-time finance director in June 2026, which will further strengthen financial management and oversight capabilities.

Another issue that was identified is that the county did not utilize its financial software to separately track ARPA grant activity or maintain fund-level records sufficient to monitor the availability and use of grant resources. The county is now developing a comprehensive grant policy to formalize administration of grant funds.

In addition, the report found that the county had not fully implemented Governmental Accounting Standards Board (GASB) requirements for recording of capital assets and does not have a formal process requiring independent review and approval of journal entries. The finance department is establishing these procedures now.

A number of these issues were identified by the auditors as having been ongoing during previous years.