The board of supervisors in rural Franconia Township revealed Monday that for five years, the town improperly used restricted funds to cover up an unbalanced budget.
The Montgomery County township will have to pay back - with interest - more than $1.3 million worth of bond issues, open-space funds, and other money misused for operating expenses from 2009 to 2013.
Supervisors Chairman Grey Godshall said the budgets were prepared and executed by the former township manager, who resigned in May.
The reason for his departure has not been disclosed, but he received six months' severance from the township, according to records published by the Souderton Independent.
Godshall said the five-member board in those years was aware that money was being transferred between funds, but did not know that some of those transfers were improper.
"It was represented to us that it was acceptable," he said.
Edward Furman, an independent auditor hired to review the books from 2009 to 2013, said no money was missing.
But if the funds had not been shifted from other accounts, he said, it would have become obvious that the township was running large deficits - $640,000 in 2010, $471,000 in 2012, $114,000 in 2013, and a projected $403,000 for 2014.
The financial mess was discovered in September, when the new township manager, Jon Hammer, began working on the budget.
Officials prepared a $5.25 million proposed budget, including a 19 percent tax increase and some service cuts. The largest came in October, with the elimination of six police officers and four other staff members.
The supervisors unanimously approved that proposed budget at their meeting Monday night, despite numerous requests from some of the 60 residents in attendance to find more revenue to avoid or reduce the police cuts.
Mary Scolfani was among those residents. "I went through the budget - lots of people went through the budget," she said. "We don't agree with it. When you have to have cuts, you have cuts across the board. Not just the police department."
Gerald Thiel, a longtime resident, asked that the board "rework the budget, show us a plan we could all live with."
Furman said the 2015 budget is balanced to bring in slightly more revenue than expenses. However, he said, "it's going to be 2016, 2017, before you have the surplus to start" paying back the $1.3 million.
The township also has about $7 million in outstanding debt for open space, which has a dedicated revenue stream from a 0.25 percent income tax.