To Be or Not to Be...Squeaky Clean...

by Ian Smith

Editor's note:
Since this article was written, the City Council approved the recommendation from the "Ad Hoc Audit Committee" that an independent auditor, separate from the "general auditor", be hired to conduct an in-depth forensic audit of the Water Enterprise and the Redevelopment Agency. The ad hoc audit committee will develop the Scope of Work and select the auditor(s).

For the many of our readers who know our publication from past months I am proud to proclaim another success for the benefit of our city residents. On the agenda of the March 1 City Council meeting was a topic close to the focus of our recent writings. Not only had we written considerably about transparency in our city governance but had expressed loud and clear, numerous times, the need for a full financial audit of the books. This was more specifically for the Redevelopment Agency (RDA) and the Water Division. They denied us more than once with pitiful excuses. We are grateful that the council voted 5-0 to the motion to form an Audit Committee which would be comprised of two council members, Mayor Allevato and Derek Reeve.
These two would be required to select members of the public to join then in the formation of this committee. Shortly afterwards Derek Reeve selected our contributors John Perry and James Reardon and the Mayor selected John Harper and Ray Miller. On Friday March 25 this committee chose Harper to Chair the group and Vice Chair Perry.

There were three items listed on this agenda: 1) The consideration of the selection of Independent financial Auditors 2) Consideration of the scope of work for special Auditing Services 3) Consideration of the next meeting date. The result of this meeting was not entirely productive but at least they selected an auditor for the regular annual city audit was approved unanimously 6-0. There are issues still unresolved for the committee to determine at the following meeting which is now scheduled for Friday April 15.

The auditor selected to perform the regular audit will be Rogers, Anderson, Malody and Scott (RMPS) of San Bernardino. This gives us cause for concern. Why? a) This was the only firm (out of three) who made anything like a professional presentation as the two other candidates interviewed were apparently informed as to who was likely to be selected prior to the meeting! One of our own staffers, yes and he is a CPA, had worked for RMPS prior to joining the staff of SJC and had been part of the city search for an auditor. b) The next best proposal was made by the auditor from the City of Bell, need any more be said! Why would our so called professional staff believe we would even consider a proposal from this firm of accountants after the debacle in Bell? c) The third candidate had been told in advance that his firm’s candidacy was already the third selection so the representative had come alone and was apparently unprepared to make a full presentation. The Committee had sadly only one choice from the three candidates and that from the beginning is an unacceptable solution.

Our CFO, Ms. Cindy Russell had explained that twenty- three candidates had been sent requests for proposal however apparently only three had shown interest in bidding for our audit! Why did they not cast the net further to find qualified candidates? Would they call the others to find out why they were not interested in bidding for our audit? In this writer's opinion the process was totally compromised as no explanation was offered as to why the city staff pre-selected and prioritized the firms before the meeting even started. There surely is a conflict of interest in having a city staffer involved in a candidate’s selection of a firm he had previously worked for! Time was running out and the committee voted to postpone the No. 2 item for a later meeting.

Item No. 3 to determine the date of the next meeting was agreed to be April 15. The meeting then concluded. Just before breaking up Mayor Allevato issued his own opinion (nothing new) that the committee was now comprised of six members and that it would be appropriate if a seventh member be appointed to avoid any potential tie votes. He personally proposed that Richard Hartl a member of the Utilities Commission be added. There was no vote taken however and there was no voice in opposition. It seems by all accounts this was then agreed.

What are the issues of concern to Capistrano Common Sense? It is very apparent that the auditor selected to perform the general audit is not now qualified to perform an in depth and totally independent specific audit due to the conflicts previously explained. We should have no concern about a competent general audit being to be performed. The independent audit on the other hand must include a Certified Fraud Examination of the RDA and the Water Division. We ask and require that another auditor selected by this committee and only by this committee be appointed. To clear all suspicion of doubt the staff must be excluded from the process of the appointment and the setting of the scope of work.

We need a thorough review of the water billing issues and the method used to raise the water rates in 2010. This issue greatly concerns city residents. We need to see a full investigation into the expenses for the Ground Water Recovery Plant (GWRP). This investigation should include all major expenses over the last seven years. Were they properly bid and was the work performed in accordance with the accepted and specific proposals? What is the correct current debt for the Redevelopment Agency and was the purchase of the Kinoshita Farm performed in accordance with the covenant of the bond accepted by the city voters in 1991? The CITY made the purchase from the Kinoshita family in 1992 and then sold it to the RDA who then sold a portion of the land to CUSD and made a profit and so on and on…Was the renegotiation of this bond interest rate in 1998 performed within the limits and or laws allowed and with the consent of the City council?

I am sure there are many other issues that others will say need to be investigated and the sooner they are all put to be bed to the satisfaction of all, the better for everyone. We are about to have a new City Manager appointed and that person will need to inherit a SQUEAKY CLEAN financial position. We have all these questions looming and high levels of debt with cash levels that are much too low. We want our new City Manager to start on the effectiveness and the cost efficiency of our government and not be so heavily burdened by our finances.

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