WESTBROOK – Prior to the appointment of a new chief financial officer in Westbrook, municipal funds were spread out among multiple accounts, all in control of one person, the city’s finance committee was told Monday.

The details emerged as Dawn Ouellette, hired to run city and school finances in spring 2010, briefed the committee, made up of the full City Council, on a proposal for new procedures to correct what she called “inappropriate” practices that were used in the past.

“It sounds like that was no way to run a city,” said City Council President Brendan Rielly.

Signs of disarray in the city’s bookkeeping first became public in 2010, when the city rejected the 2009 audit from the South Portland accounting firm of Runyon Kersteen Ouellette Certified Public Accountants.

That firm, city officials have said, conducted annual audits of the city’s finances for years. It did not find any problems with the finances for the fiscal year 2009, but a follow-up audit, conducted by Roberts, Green and Drolet of Barnstead, N.H., found a number of what city officials have in the past referred to as “red flags.”

In particular, that firm noted a lack of checks and balances in the finance department, lack of supporting documents for balance sheets, and balance sheets that “do not present fairly” the financial position of the city as of June 30, 2010.

Details of a forensic audit to untangle just what went wrong with the handling of the city’s finances were not available. City officials declined to provide copies of the final report, saying the audit report may be involved in possible legal action.

On Monday, the committee took the new policies under advisement, promising that they would come to the attention of the City Council for approval at a later date.

When asked for examples of the “inappropriate” practices, Ouellette said in the past “an individual,” whom she declined to name, would typically keep the city’s funds in an account under that person’s name. That individual, Ouellette said, was the only person who could transfer money in and out of the account, or even know the account’s balance at any one time.

“No one else had any opportunity to see anything,” she said.

When Rielly asked how city officials could know when or if money was taken from that account, Ouellette said, “You wouldn’t necessarily.”

In fact, Ouellette said, the only way she could be sure if money had been transferred to other accounts at other banks was to actually call around to those banks to inquire about transfers of city funds.

Ouellette told the committee she did just that, and discovered several accounts at different banks, all connected to the same individual, who had apparently transferred city money there. Ouellette did not provide further details at the meeting.

Councilor Paul Emery said an updated set of written policies and procedures would help guard against improper practices from happening in the future.

“I want to know who controls, who reviews, (and) who spends, (and have it) all written down,” he said.

Sue Rossignol served the city for 32 years as finance director before being dismissed by Mayor Colleen Hilton in 2010. Rossignol is now running for city clerk against incumbent Lynda Adams, and on Wednesday questioned the timing of such a matter coming before the committee mere weeks before the election.

“I think they could have done it months ago,” she said.

Hilton, who along with other administration officials recommended placing the item on Monday’s agenda, denied that the move was timed to coincide with the election.

Hilton said the city is working on updating the finance handling procedures and policies at the recommendation of the Maine Municipal Bond Bank’s bond counsel. Hilton also said the need to get the new policies and procedures approved is connected to potential future litigation the city may be involved in. She declined to go into detail on that potential litigation.

“The timing has nothing to do with the election,” she said. “The timing has to do with the (potential) litigation that we’re involved in.”

According to information filled out to put an item on a meeting’s agenda, the city has “also made commitments to both our independent auditors and bond counsel to have these policies and procedures formally adopted this year.”

When asked about the allegations that came up at the finance committee meeting, Rossignol admitted that the city’s finances were managed by a checking account in her name, but denied that hers was the only name.

“There were two signatures on that account, myself and my deputy,” she said, referring to then-Deputy Finance Director Janet Atkinson. “If I was out, someone had to sign.”

Rossignol also acknowledged that money had been transferred from the one checking account to other accounts at other banks, but said the money was kept in investments such as certificates of deposit.

“There were other accounts, but certainly not checking accounts,” she said.

Those accounts, she said, were also in hers and Atkinson’s names. The money, she said, was earmarked for trust accounts, such as the Woodlawn Cemetery Perpetual Care Account.

The funds were spread out in different accounts at different banks, she said, because to keep the money in a single account would have gone over the $250,000 Federal Deposit Insurance Corp. limit, meaning the money would not be protected. Rossignol moved the money, she said, to “protect the taxpayers.”

When the audit report was completed earlier this year, City Adminstrator Jerre Bryant said nothing in it suggested wrongdoing – there was no money missing, for example. Bryant said the failure to comply with accepted accounting practices left the city open to misappropriation of city funds.

“This isn’t a smoking gun,” he said, explaining that the audit revealed the city needed to implement a set of checks and balances so that too much financial authority was not invested in one person.