South Pasadena City Manager Stephanie DeWolfe on Aug. 5 vowed to comply with the City Council’s direction not to resume work on the city’s postponed 2020-2021 budget until after staff completes the long overdue 2018-19 financial audit. DeWolfe also agreed to have the city’s certified public accounting firm, San Bernardino-based Rogers, Anderson, Malody & Scott LLP (RAMS), come in and explain to the Council why the audit still isn’t done.
DeWolfe, responding to a raft of public comments read during the teleconferenced meeting, told the Council that while RAMS has completed its “field work” with city staff, a final document is still at least five weeks away. That means there won’t be an approved budget until after the Aug. 31 deadline by which the city is required to submit a copy of its budget to the county auditor. Under state code, the city will instead be required to file a list of its anticipated revenue and expenses for the current fiscal year. DeWolfe said the list will be presented at the Council’s Aug. 19 meeting.
“But it is important that you know that [the audit] is in the hands of the auditor at this point and we will of course follow up on the request to bring the auditor at the next meeting.” DeWolfe was responding to a request by Councilmember Michael Cacciotti and seconded by Mayor Robert Joe to have a RAMS representative come to the Council to report on the status of the audit “and why it’s not finished.”
Pat Shea, the RAMS partner who handles his firm’s $135,600, three-year engagement with South Pasadena, did not respond to several requests for comment.
After the audit is in, DeWolfe said city staff would consult with the Finance Commission and the Council about the extent, scope, and timing of the budget outreach it will undertake to prepare a new 2020-2021 budget. She said that’s because of changing budget projections due to the city’s failure to negotiate concessions from its employee unions — the city had hoped to save $400,000 — and demands by some in town to defund the police department. There is a wide range of opinion about how extensive the outreach should be, she said.
Cities must do an audit if they spend at least $750,000 in federal money. Although there is no mandatory due date for the audit (also referred to as the Comprehensive Annual Financial Report, or “CAFR”), state law requires cities to report all financial transactions — along with audited statements — within seven months after the close of the fiscal year. Under that standard, the city’s audit is more than 18 months overdue. It has been over two-and-a-half years since the city has published audited financial results.
The city’s Finance Commission has not met since June 18 and is not scheduled to meet again until Aug. 27. Before the city manager spoke Wednesday, the city had not provided any new information about the audit or the city’s finances since June 24, when the Council was pressured by dozens of citizens to postpone adoption of the budget in response to critical analyses developed by citizens Sheila and Steven Rossi and by former city finance director Josh Betta. The Finance Commission also voted 4-1 to delay the budget.
The ongoing lack of reporting has fueled growing distrust among the city’s critics, along with multiple calls for an “independent” audit and implementation of a permanent schedule of monthly or quarterly financial reporting — one of the many recommendations in the Betta report.
“Failure to perform these functions is a sign of gross incompetence and must be addressed,” Sheila Rossi wrote.
“We need transparency,” added Richard Cheney, “There is clearly information that some interests very badly want to hide in this year’s budget.”
“It has been 43 days and the public has learned absolutely nothing,” observed Delaine Shane. “Why hasn’t Finance Director Karen Aceves presented status reports to the Council at its meetings in July?” Why was no update placed on the Aug. 5 agenda, she also wanted to know.
Shane and Janet Marshall said absent better reporting, they would withhold their support of the November ballot initiative to make permanent the city’s Utility User’s Tax, on which the city relies for $3.4 million in annual revenue.
“The unwillingness of this Council to ensure transparency is breathtaking,” wrote Anne Bagasao.
“Our City government is in a state of utter chaos,” added Mary Urquahart.
Betta himself stressed the notion that until the audit is complete, the city is making decisions and promoting taxes without knowing its true financial position. Less than three months before the election, he wrote, “nobody possesses certified data on the city’s cash reserves — or its costly pension and other post-employment benefits.”
Betta also claimed Finance Director Karen Aceves and Finance Commissioner Ellen Wood had, without proof, accused RAMS and the city’s previous two auditing firms — Moss Levy & Hartzheim and Lance Soll & Lunghard — of making material misstatements in the last seven annual audits. Betta has prepared a list of questions for RAMS. He’s also circulating a proposed resolution to the Finance Commission recommending a slate of reform policies on reserves, audits, financial reporting, budgeting, appropriating and over a dozen other finance topics.
Meantime the city is still at risk for breaking its 32-year consecutive record of receiving the Government Finance Officers Association’s Certificate of Achievement for Excellence in Financial Reporting every year since 1987. The award is given in part for a city’s timely completion of the Comprehensive Annual Financial Report (CAFR), which is basically the same as the audit.
For 2017 and 2018, the city filed its award application late, citing staff turnover. For 2019, the city also missed the June 30 application deadline, but sought and received an extension citing a computer system conversion.
On June 24, Finance Director Aceves said the city had again sought an extension, but the director of the program, GFOA’s Diane Griffin, told the South Pasadenan News June 29 that GFOA had not received another extension request from the city.
Griffin said that the only exception it makes for missing the deadline is “a natural disaster or similar unusual event outside of the government’s control,” including the current pandemic.
“COVID has changed many things so it is possible that we would consider a late request,” she explained in an e-mail, but the entity must request the extension. “The longer the delay in submitting a request, the less strong the case may be.” Griffin said as of Aug 11, South Pasadena had still had not requested another extension.
Although cities pride themselves on receiving the CAFR award, it is given only for meeting a set of standards, not for being exceptionally meritorious. GFOA awards nearly 5,000 CAFR certificates each year to cities, school districts and others. Only two percent of those who apply fail to receive it.