Montpelier Officials Happy Insurance Covers City’s 2004 Accounting Error

By | December 15, 2009

Two months after revelations about a $462,000 overpayment to a contractor thrust Vermont’s tiny capital into a round of finger-pointing and soul-searching over accounting and accountability, the mayor and city manager said last week there’s nothing to worry about — insurance will cover it.

“As city officials, we are delighted that our residents will not bear any financial burden for this error,” Mayor Mary Hooper said at a news conference.

City officials went public in October with the fact that they had been quietly but unsuccessfully trying to recoup the money since a 2006 audit discovered that in 2004, the city had paid Scott Construction Co. Inc. of Newport $548,110 for a water line project the company had billed at $85,775.

Hooper, City Manager William Fraser and other officials said they had decided against publicizing the error earlier because they hoped to avoid a run on the company’s assets by other creditors.

The accounting error, later blamed on a former city employee, coupled with the delay in making it public prompted much anger and debate among residents of the nation’s smallest state capital, population about 8,000. An overflow crowd of about 100 packed the City Council chambers Oct. 14, with residents demanding answers.

Hooper and Fraser said they got they answer they wanted about insurance coverage from the Vermont League of Cities and Towns Property & Casualty Insurance Fund, which has agreed to pay the city $397,079 to cover its outstanding costs.

Fraser said the insurer had denied the city’s first claim in 2007, saying Montpelier still had a chance to recoup the money from Scott. Fraser said the construction company’s deteriorating financial condition and a court finding this year that the company was in default to the city helped make a second bid for insurance coverage successful.

The city already had collected $114,688 from Scott Construction and its president, Daniel Scott, meaning the city will recoup $511,767 — more than its initial loss. Fraser said the balance would go toward legal fees and other costs.

A number listed for a Dan Scott in Newport was no longer in service.

Also in October, Vermont Attorney General William Sorrell announced that his office and the Vermont State Police had launched a criminal investigation, saying there was precedent in Vermont for a grand larceny charge when someone takes more than is owed in a commercial transaction.

Sorrell said that he expected the probe will take another four to six weeks. He declined to comment on its progress.

State Auditor of Accounts Thomas Salmon said that a committee he had appointed to review the city’s accounting practices was due to issue a final report next month.

Hooper said city officials had learned from the experience and had “instituted important procedures for improving our financial management systems and assuring easier access to city information and transparency.”

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