Audit Report Critical of Financial Staff

By Jim Reardon 

In what is perhaps the most detailed insight into why our water bills are so high, the independent audit report by Ralph Anderson & Associates reveals a debt-ridden, mismanaged water enterprise that has been operating inefficiently and in the red for many years.

The report is especially critical of financial staff led by CFO Cindy Russell, stating;

- "It appears that cash balances of the fund were not completely disclosed to the governing body in such a manner that they would understand that there was a deficit of over $5 million [estimated at $8 million] at the end of FY 2010" 

- "The city should determine if the existing staff has the time and/or the ability to accurately forecast operating results of the water utility and if not, bring in outside competencies." 

- "The issuance of debt (bonds) appears to have occurred without consideration of the impact of increased expenses of these (bond) issues." 

The audit report also addresses the “papering over” of debt, stating,
"The city should not rely on 'one-time' resources including the CHEVRON settlement to 'paper over' the underlying financial issues faced by the utility." Our City has a long-standing practice of “papering over” debt with borrowed money. As has been stated to the Council at numerous meetings, this is like paying a credit card with a credit card and has no doubt contributed to the more than $150 million City debt we now have. To read the entire report, click on this link:  http://tinyurl.com/7dw4rvq .

The report goes on to state: 

"The water utility has not been operating efficiently from a financial perspective as it continues to have substantial losses and has not met operating expenses with operating revenues… This has also resulted in substantial amounts of property taxes and developer fees being used to provide operating capital instead of providing a source of revenue for ongoing infrastructure projects." 
- Audit Report by Ralph Anderson & Co.


The 60 page report is full of financial tables and graphs showing the water enterprise has continually lost money since 1997. The losses accelerated in 2002 with the construction of the Ground Water Recovery Plant (GWRP), leading to an $8 million deficit in 2010.

Unfortunately, in what appears to be “business as usual”, the City Council, City Manager and City Attorney seemed in a hurry to rush the report through the review process and “file” it (City-speak for “sweep it under the rug”?) without allowing the Utilities Commission or the Ad Hoc Audit Committee to review the findings and forward recommendations to the City Council for further action.

CCS has long expressed concerns to the City Council about CFO Russell’s incomprehensible and ever-changing numbers which appeared were designed to “hide-the-pea”. The audit report supports our concern that CFO Russell is not equipped to handle the job. The report goes so far as to suggest that one remedy might be to bring in “outside competencies” to fix the on-going financial problems.

The report’s findings demand a response from the City Council and the City Manager. These are serious findings that must be addressed to end the history of misleading and incorrect financial reporting and restore public trust.

The City Council has assigned responsibility for development of a long range plan to correct the financial deficiencies to the City Manager. This plan must also correct the deficiencies of the financial staff; most notably CFO Russell, so that we won’t continue to cover-up problems instead of fixing them. The CCS would like to know:

1. Who specifically will develop the long range plan?

2. Will staff; particularly CFO Cindy Russell, be held accountable for accounting deficiencies and failure to notify the City Council of impending financial problems? If not, why not?

3. Will the public have any input in the long range plan development?

4. When will the plan be available for public review?

The entire Management and Operations Audit Report is posted on our website at: www.ccsense.com . CCS readers are urged to review the contents and impact of this report for themselves. As always, we encourage our readers to contact us with any questions at: eboard@ccsense.com .

1 comment:

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