City Council Preview: June 24 | Finance Staff Requests Budget Delay, $80,000 to Clean Books Before End of Fiscal Year

The recommendation for a “continuing appropriation” extending current year spending levels is a change of heart for the Finance Department

FILE PHOTO: Eric Fabbro | SouthPasadenan.com News | South Pasadena City Council during a February 5, 2020 meeting

South Pasadena city staff want the City Council to hold off adopting the new $45 million 2020-2021 budget for two months or “until the community is confident in the budget numbers.” Saying its five-member staff is overburdened with existing demands, staff also wants the Council to allocate $80,000 in what it acknowledges to be “scarce funding” to speed resolution of the recently-disclosed “accounting deficiencies” that are helping to undermine public confidence, many of which go back as far as 10 years.

The Finance Department needs $60,000 to cover the cost of one full-time accountant for six months and $20,000 to pay for a software upgrade.

City Council is set to consider both requests at its meeting Wednesday night. The current fiscal year ends June 30.

The recommendation for a “continuing appropriation” extending current year spending levels is a change of heart for the Finance Department which, like the City Council, has been targeting Wednesday as the day to adopt the new budget — which itself is an expeditiously redrafted version of the one that was taking shape before the fiscal impacts of the coronavirus pandemic forced $3.5 million in cuts.

But citizens recoiled after persons outside City Hall identified a series of concerns about the city’s fiscal practices, overdue audits and millions of dollars in variances between the budget figures unanimously approved last month by the Finance Commission and those presented for Council review a week later.

The City Council has been wary of delaying the budget, in part because it may affect efforts to secure a deal with labor unions to save $400,000 by renegotiating their July 1 cost-of-living adjustments. If no deal is made, the cuts will have to come from elsewhere. Delay also means budget cuts won’t begin immediately, further complicating efforts to save. “It’s easier to make cuts over 12 months than nine months,” City Manager Stephanie DeWolfe told the South Pasadenan. Adopting the budget as originally planned would also save staff time and help control expenditures during an uncertain economic time.   

Delay “is not something we can’t do,” added Finance Director Karen Aceves. “But we might need to make more tradeoffs than we would have initially.”

The citizen uproar also led the Council to release a previously confidential Aug. 2018 study documenting the city’s long and spotty fiscal record. It asked the Finance Commission to take another look at the budget. After a nearly three-hour meeting June 18, commissioners voted 4-1 in support of the public push to delay budget adoption pending completion of the delinquent 2018-19 audit.

But the resolution on tonight’s agenda (item No.1 in the linked agenda) does not specifically call for finalization of the audit before budget adoption; rather it authorizes current spending levels through Aug. 28, 2020, which is beyond the date Finance staff expects to receive the audit from Rogers, Anderson, Malody & Scott LLP (RAMS), its San Bernardino-based CPA firm.

The city hasn’t seen a draft of the full audit but has confirmed the financials, Aceves said last week. To date, there are no indications the audit won’t be clean, but will have at least two “findings.” That’s a reduction from previous years such as 2015, when the audit included five findings and ten deficiencies such as incomplete bank reconciliations, lack of control of cash receipts and failure to segregate duties over payroll and at the golf course.

Finance staff said the deficiencies “have been largely rectified [but] unreconciled accounting errors” remain due to the “time-consuming task of researching, documenting and correcting years of accounting.” It said other priorities have slowed the work, including the outsourcing of business licensing and other projects undertaken as part of the Department’s 2018 reorganization, coping with the bankruptcy of the city’s water billing contractor and the very complex Oct., 2019 transition from a manual to an automated payroll system which the department candidly admits did not go smoothly.

In addition, the Citygate report laid out 43 recommendations that it said the city should complete within one year. Of the 37 the city has elected to implement, only one is listed as “completed” while 16 are “completed/on-going”; 12 “in process” and 3 remain “open.”

Fixing the backlog of deficiencies “Is just taking too long,” DeWolfe said. “We don’t have enough bodies to do all this work.” She said the prudent response is to bring on extra resources “so that we can get all of those clean up items done as expeditiously as possible.”

One of the problems the City discovered, DeWolfe said, was “a number of deficiencies that had been listed in our audits for five or ten years had not been corrected” or even brought to the attention of city leaders, an oversight for which she said the city’s former auditor, Moss Levy & Hartzheim, has a “shared responsibility.” Almost all the deficiencies have now been taken care of, she added.

Many of the problems were documented by Andrew Green, a senior consultant at Citygate Associates of Folsom CA, in his 95-page Aug. 2018 review of the Finance Department. Until last week, the city maintained the $69,420 Citygate report was confidential because it was associated with a personnel matter. But according to authorization documents and the report itself, the Citygate contract provided for the creation of a separate confidential personnel report that was given to the City Manager and Human Resources Director.

The City has not released the separate personnel report.

At about the same time, the city commissioned a “forensic study” by the Claro Group of Los Angeles. Last week, DeWolfe and Aceves said that report was also commissioned in connection with a personnel matter and is composed of a lot of spreadsheets with a considerable amount of “proprietary” information, account numbers and dollar figures culled from the City’s internal database. They said the City will release that report in a few weeks, after its author can be re-engaged to put the findings into the form of a “narrative.”

The City let at least one other contract in connection with the “inappropriate accounting practices”—a $25,000, Aug. 27, 2018 contract with Vavrinek Trine Day that was later increased to $75,000 to help with “year-end closing services in preparation of audit.” (VTD is now known as EideBailly.)

The principal trigger to the events leading to tonight’s vote was the publication of a lengthy set of 27 “observations” and recommendations about city’s fiscal practices by former South Pasadena Finance Director Josh Betta. The City’s response to the report was a press release explaining some of the background to the “inappropriate accounting practices” the city documented in the Citygate report.

Last week, DeWolfe declined an opportunity to respond to Betta point by point but did offer a direct response. “Josh Betta got a number of things wrong. There were also some things he did get right, but they were things we were already well aware of and working on.”

One of Betta’s points had to do with the Certificate of Achievement for Excellence in Financial Reporting awarded by the Government Finance Officers Association (GFOA). The award is given for presentation and timeliness of city audits. South Pasadena won the award for 31 consecutive years. Citing the City’s recent delays in producing its annual audits, Betta said “it appears the City will lose this distinction” for fiscal years 2017-18 and 2018-19.

But the City won the award for FY 2017-18—its the 32nd year in a row. It received permission to file its application past the normal deadline for 2017 and 2018, GFOA told the South Pasadenan. In both cases, the reason the City gave for its late application was “staff turnover.”

The City also applied for a deadline extension for the 2019 award, citing a “computer system conversion” namely, the automated payroll conversion. GFOA said it granted the extension through June 30, 2020.

“As long as the 2019 report reflects that the report was transmitted [to the City Council] by June 30, 2020, they would be eligible to submit” an application for the award, wrote Diane Griffin, GFOA Assistant Director, Awards Program in an email.

“The only circumstances where an extension would be considered beyond” the extended deadline, she added, “would be a natural disaster or similar unusual event outside of the government’s control.”

 

Ben Tansey is a journalist and author. He grew up in the South Bay and is a graduate of Evergreen State College. He worked in Washington State as a reporter in a rural timber community and for many years as an editor for a Western electric energy policy publication based in Seattle. He and his wife Karin, an arts administrator from El Sereno, live in South Pasadena.