Oxnard activist accountant challenges city management, auditor, CFO, on financial controls

By Lawrence Paul Stein

 

Mr. Assistant City Manager Nava:

.I am a degreed accountant with over 25 years of experience, but not a CPA. I am also a former candidate for Oxnard City Treasurer who lost the 2016 election by 400 votes (of over 40,000 votes cast) to a more qualified candidate. One of the key planks we both ran on was to improve internal controls. I have been following the city of Oxnard financial issues as a private citizen for over 15 years by submitting numerous public record requests.

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In preparing for the potential of being elected as the city’s treasurer I submitted a public record to see the city’s disbursement of funds for the last week of September 2016 and the first 2 weeks of October 2016. In the 3 week time frame, over $8,000,000 in outgoing EFTs and $8,000,000 in checks were disbursed. The city was unable or unwilling to provide the supporting documentation to the EFTS. The checks bore 2 signatures of former employees, one who had left the city 3 months prior to the check dates and the other had resigned 6 weeks earlier. None of the checks I saw had the signature of current employees. None of the disbursements bore an indication that they were reviewed by the acting city treasurer, a violation of city policy and a serious weakness of good practices and internal controls. I had reviewed several hundred checks.
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There are organizational weakness in the city’s finance department. From October 2015 through September 2016, the city had 4 CFOs. Since September 2016, the city has had 4 assistant CFOs. In the last 3 years the city has had 6 assistant city managers. 3 of those assistant city managers had the responsibility of overseeing the finance department.
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There are current concerns regarding the city’s ability to provide accurate financial information. The city’s credit rating was downgraded in September 2017. The reported General Fund monthly expenditures average less than $9,000,000 from July 2016 through May 2017. The General Fund expenditures reported for June, July and August of 2017 were $15,000,000+, $5,000,000+ and $10,000,000+ respectively. The monthly expenditure report of the General Fund for June 2017 indicated that there was over $13,000,000 unexpended for the 2016 – 2017 fiscal year, but management claims there is no money in the General Fund. I am still waiting to see the bank statements and reconciliations of June 2017 after submitting a public record request for documents on July 5.
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The CAFRs for 2014 – 2015 and 2015 – 2016 were both audited by the current CPA Firm. Both sets of CAFRs were delivered to the public after April of the following year. There were numerous findings reported by the firm regarding, among other issues, the lack of oversight by the elected treasurer of the city’s expenditures. Similar findings were reported by the previous 3 years of CAFRs. There were over 7 years of findings from three different CPA firms that expressed concerns of the treasurer’s office lack of oversight of the city’s expenditures. The newly elected treasurer is attempting to implement and enforce the internal controls recommended from over 7 years of audit findings. The City Manager’s Office, City Attorney’s Office and the Finance Department are denying the current City Treasurer’s request to see supporting documents prior to his approval of the release of funds despite the findings of over 7 years of audits of internal controls. He is currently approving numerous expenditures disclaiming his inability of not being allowed to see the supporting documents of the disbursements he is ordered to approve under the direction of the city attorney.
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At first glance there appears to be adequate internal controls in place as it pertains to cash disbursements. There is a separation of duties; one set of employees processes the vendor invoices, another set of employees review those invoices for payments and issues checks and a third set of employees verifies the payments prior to the physical disbursement of funds. With such procedures in place, city staff feels the review of the elected City Treasurer of cash disbursements adds a layer of bureaucracy that is inefficient, costly and redundant. The previous two elected City Treasurer were considered ‘team players’. Under the previous elected treasurer, it was discovered by an internal review initiated by the new city manager, that there were over 20 funds that had an accumulated negative cash balance of over $14,000,000; the report was released September 2015. These fund accounts did not include the numerous Landscape Assessment District Funds that also had negative cash balances. The current elected City Treasurer has publicly reported numerous problems as it pertains to cash disbursements including: 1) The General Fund is paying the liabilities of the former Redevelopment Agency leaving over $10,000,000 in cash un-invested. 2) The city is paying for services of expired contracts, some of the contracts had expired several years earlier. 3) The city is paying for services whose work by vendors were not verified. Private citizens other than myself have found prior problems such as nonpayment of retirement benefits (Social Security or PERS) to over 800 employees for a period of time that exceeded 15 years. The city settled with the IRS by paying those benefits for only the previous 3 years. A handful of selected officials including a previous elected treasurer, a former city attorney and a former police chief received a supplemental $300.00 monthly post-retirement benefit that was not approved by city council. Settlement has been in litigation for over 5 years. The Enterprise Funds were contributing over $7,000,000 annually in undocumented overhead costs to the General Fund. The transfers from the Enterprise Funds to the General Funds were stopped this year. My sampling of past documents found several problems. The city was paying for services that were not verified of being performed. The city was paying for items beyond the price set by the terms of contracts. The city was paying invoices with no supporting documentation. One former city CFO was rumored to have said “It is not illegal if we don’t get caught.”. These lapses in internal controls can be attributed to the lack of independency city employees have under the City Manager. These lapses in internal controls can also be attributed the lack of independence exercised by the previously 2 elected Treasurers, who were ‘team players’.
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In light of the continued weaknesses in the city’s internal controls, I was surprised to see that the city’s current auditors are recommending that the current elected city treasurer should no longer be giving access to the supporting documents of the city’s disbursementsPlease refer to the city council’s agenda item of its 10/10/2017 meeting item C1 – note enclosed the 3 page recommended action, enclosed 11 page power point presentation of the auditor’s findings, the full 42 page report can be viewed by clinking on the hyperlink C1 Staff Report within the following hyperlink:
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This link can also be found by going to the city’s web site Oxnard.Org/city-council-meetings and clicking on the appropriate agenda hyperlink.
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The current conclusion reached by the auditors was based on what is stated to be a ‘random’ sampling of 25 checks/warrants, wire transfers and EFT and ACH payments between 01/01/2017 and 05/15/2017. As stated above, my sampling of larger sample size (several hundred) over a shorter period of time (last week of September 2016 through the second week of October 2016) had the opposite results. I question the statically reliability of a sample size of 25 of a population of several thousand transactions (excluding payroll). I was also surprised that there were no exceptions in light of the numerous disclaimers issued by the current treasurer. In light of my inability to obtain public documents verifying the city’s cash balances of June 2017, I question the city’s record keeping ability. I also find it suspect that the auditor reversed its recommendations (and the recommendations of 2 other CPA firms) that the city treasurer needs to review the supporting source documents before approving the disbursement of funds. The current auditors are in the third year of their 3 year contract. This contract has been amended several times to expand the scope of the audit due in part, to the city’s weak internal controls. It is not appropriate to weaken the city’s weak internal controls. The public is entitled to have an elected treasurer review any and all source documents prior to the disbursement of funds. The public has the right to review the same source documents that the elected treasurer reviews
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Respectfully submitted  10/08/2017
Lawrence Paul Stein
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Larry Stein is an accountant and  former Oxnard Mayoral and Treasurer candidatewho has been following City of Oxnard financial issues for over 20 years.


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2 Responses to Oxnard activist accountant challenges city management, auditor, CFO, on financial controls

  1. Dotty Pringle October 10, 2017 at 8:37 am

    Same thing with the misuse of Channel Islands Harbor and that Enterprise Fund. This Harbor Enterprise Fund was to be used for upkeep of our CI Harbor but this fund also paid Dennis Heitmann’s position, who just retired with his third pension.
    Lots of Sticky Fingers in Oxnard and their friends look the other way or reap some of the spoils!

    Reply
  2. Tom October 9, 2017 at 4:50 pm

    There are still problems in the Finance Department.

    On Oct 3, 2017 the city council considered an agenda item titled “Three Year Contract for Monthly Maintenance of the Ball Fields at Riverpark CFD 5 (5/5/5)”. On the same page the contracts scope was described by “The scope of services…optimal field conditions. The contract term is 32 months.” Is it 32 months or 3 years?

    On page 35 it states, “This agreement shall begin on October 4, 2017 and end on June 30, 2020.” The time between these two dates is 32.9 months, not 32 months and not 3 years.

    No city council member questioned the contradictions in the agenda document and voted 4 to 1 to approve it.

    Reply

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