Struggling to weigh public confidence against administrative risk, the South Pasadena Finance Commission on Thursday voted to recommend the City Council delay adoption of its proposed $45 million 2020-2021 budget pending receipt of its overdue annual audit. The budget is on the City’s June 24 agenda, when it will also formally receive the Commission’s recommendation.
By a vote of 4 to 1, with Commissioner Ellen Wood dissenting, the citizen board said the city should instead adopt a “continuing appropriation” extending current spending levels for the month or two it will take to receive the completed audit and use it to ensure use of budget reserve balances untainted by years of inappropriate accounting practices that the city first disclosed last week and which the Finance Department is still trying to clean up.
Despite the lopsided vote, most commissioners were torn over how to proceed. Awaiting the audit means complicating Covid-19-inspired cost-of-living-adjustment negotiations with the City’s labor unions and generating extra work for the already overworked Finance Department, almost certainly further delaying the audit. But approving the proposed budget means a third year of unreliable reserve balances and risking further mistrust from the growing numbers of citizens wary of the city’s fiscal management.
A crescendo of public support came for the continuing appropriation first proposed by former South Pasadena Finance Director Josh Betta in his harsh June 3 analysis of the city’s budget and finance practices. Betta’s report tapped into a rising wave of public dissatisfaction and distrust of city management. That was reflected in nearly a dozen public comments the Commission received in support of the continuing appropriation, including one from Women Involved in South Pasadena Political Action.
The Betta report also served indirectly as the predicate for the city’s release this week of a previously confidential Aug. 2018 report by Citygate Associates, which was contracted to review the Finance Department’s operations after the March 2018 departure of the late former Finance Director David Batt.
The report identified “some potentially major internal control issues” due to understaffing, inadequate leadership and training, poorly documented policies and procedures, and poor adherence to rules. These resulted in “a large backlog of unprocessed checks, consistently delayed bank reconciliations, and delayed journal vouchers to reflect wires and other direct deposits.”
Some of the weaknesses were included in external audit letters but Batt “chose not to share” these with the City Manager, City Council or Finance Commission — an oversight Citygate said should have been called out by the city’s former auditing firm, Moss Levy & Hartzheim.
Better to await the audit and begin with a new budget that is more reliable than the one the city has proposed, said Commissioner Ed Elsner, who made the motion for the continuing appropriation. He was among the commissioners questioning the 155 undisclosed line item changes made to the budget after the Commission initially approved it May 26 and were red flagged by residents Sheila and Stephen Rossi. Even today, Elsner said there remain “ambiguous line item titles” that render the budget “inherently nontransparent.”
“I’m not sure I can clear up the confusion,” city Treasurer Gary Pia told the commission. “But the number one priority is the confidence of the residents.”
Finance Director Karen Aceves, who said the changes were driven by late updates from internal and external sources and included to ensure the accuracy of the document, sought to answer all the commissioner’s questions. She was willing to proceed as the commissioner deemed best but continued to recommend approving the budget and amending it as needed pursuant to quarterly reviews. This process is advisable especially because of the uncertain economic times. “We believe it is important to have as accurate numbers as possible” and that the City should “move forward in the cleanest way possible.”