Fiscal problems facing the Borough of Greenville began years before council passed a deficit-plagued budget for this year, according to the most recent audit of borough finances.

About $500,000 of a $3.5 million bond floated by the borough to support its multi-million-dollar recreation and revitalization project went instead to keep the town afloat financially in 2000, the audit said.

"Some of the bond funds, approximately $500,000, were placed in the general fund," Sharon accounting firm Black, Bashor & Porsch reported in its 2000 audit.

"Legal counsel indicated those transfers would be unauthorized advances," the audit said.

Borough officials, however, told auditors that "unauthorized advances would be proper reimbursements to the general fund or reimbursed prior to project completion," the audit said.

"We were not aware as a council that this was happening," Greenville Council President Richard Houpt said this morning.

"We didn't get copies of the audit until (late last year). It wasn't the auditor's fault. The audit was somehow put in a place that we did not have access to, and they were not passed out, even after several requests were made," Houpt said.

"We are working toward resolving the issue and we have notified various authorities," Houpt said.

"We can't place blame until we are sure who was responsible," he said.

On New Year's Eve, council passed the 2002 spending plan that calls for a 4.6-percent hike in property taxes and still is about $90,000 in the red.

Council reopened the $3 million-plus budget Monday and said it would make cuts needed to balance the plan by Feb. 15.

The 2000 audit shows the borough ended 1998 $217,863 in the hole. While council trimmed its deficit to $160,466 by the end of 1999, the bottom fell out in 2000.

During 2000 -- the year taxpayers started paying for the bond issue, which was earmarked for the local share of the $5.5 million project -- spending outpaced revenues by $453,788 and the deficit ballooned to $614,254, the audit said.

According to a two-page summary of the 2000 general fund contained in the 127-page audit report, council passed a balanced $2.4 million spending plan with an 18-percent tax increase for 2000. But over the course of the year, revenue totaled only $2.1 million while spending was nearly $2.6 million, the audit says.

Twenty of 25 major budget line items showed a loss by the end of that year, according to the audit. Eight of nine revenue-producing line items generated less money than expected, and 12 of 16 spending lines exceeded the budgeted amount.

The borough carried the $614,254 deficit over to the beginning of last year. Council passed a $2.9 million budget with a 15-percent tax increase for 2001. That tax hike, auditors said, would eat away $110,000 of the deficit.

"In addition," the 2000 audit said, "with recent legislation, the ability to increase real estate taxes is substantial."

A month after the audit was completed, county commissioners passed a resolution changing the tax-assessment ratio from one-third of 1970 market values to 100 percent. The commissioners' action limited municipalities from raising taxes by more than 5 percent in 2002.

The copy of the audit provided by the borough did not include a "management letter," addressing the auditor's concerns and/or recommendations.

An accountant at Black Bashor & Porsch said a management letter regarding 2000 finances was sent separately to the borough. The Herald asked Wednesday for a copy of that letter.

The audit report of the borough's 2001 finances should be ready in mid-to-late-February.