11/10/2011 11:48 EST | Updated 01/23/2014 06:58 EST

Nova Scotia pays $350,000 for town audit, nearly three times what was budgeted

HALIFAX - A financial audit of a Nova Scotia town plagued with fiscal problems cost the public $350,000 — nearly three times what was budgeted, the province's municipal relations minister said Thursday.

But John MacDonell defended the expenditure and said the government expects to recover $200,000 of that cost.

A report by Grant Thornton released Wednesday found that $113,195 was misappropriated from Bridgetown, a town of about 1,000 people in the Annapolis Valley. But $33,756 was subsequently deposited to Bridgetown's bank accounts, leaving the town $79,519 in the hole.

"We didn't know it would be $79,000. That's why we did the audit," MacDonell said Thursday.

"We had to find the depth of the problem and it was money well spent."

MacDonell said it was prudent to enlist the help of an external auditing firm because the Municipal Relations department didn't have the expertise to investigate Bridgetown's financial woes.

When it launched the audit in June, the government estimated it would cost $125,000 and take about three months to complete. But MacDonell said the costs mounted as the audit became more complex.

"As they found things they had to pursue them, so the work required more diligence and that's the bill," he said.

A department official later said that Bridgetown agreed to repay the province for the audit through insurance that all municipalities carry to guard against fraud. Under the policy, they are allowed to claim for such matters as forensic audits to a maximum of $200,000.

The town's mayor and council resigned in May in the face of mounting financial pressures and the RCMP launched an investigation into possible theft. The province then replaced the council with an interim three-member council that will remain in place until municipal elections next October.

Conservative Leader Jamie Baillie said while the government has a responsibility to track down fraud and mismanagement, it also has a responsibility to manage its own resources wisely.

"When they can't manage the audit process within budget ... then I have a problem with that and perhaps they should turn an auditor on themselves," Baillie said.

Opposition Liberal Leader Stephen McNeil said he was "extremely surprised" by the audit's cost.

McNeil said while there's no doubt something had to be done about Bridgetown's money troubles, an earlier intervention by the province may have saved taxpayers money.

"We won't know until we get ... a final indication of how much the entire thing is going to cost in terms of not only the audit, the appointed council and whether or not they can recover any funds," said McNeil.

The audit of Bridgetown concluded that its financial problems may have started as early as May of 2006 and continued to earlier this year.

The audit said a town employee was involved in the misappropriation of funds, but the employee's identity was not revealed in the report. A copy of the audit has been handed over to the RCMP, who are investigating.

The province also announced Friday the creation of a municipal auditor general's office, which is estimated to cost $300,000.

The government said its intent is to help municipal councils achieve value for money in operations and boost accountability.

Municipalities will now be required to have a value-for-money audit done by a private sector firm every four years to cover issues raised by the municipal auditor general.