Beaumont Council Denies City’s Financial Condition
“An amateur Auditor that doesn’t live in the City said that we have a $100 Million General Fund Deficit.”
The City of Beaumont has released their 2015 Audited Financial Statements with Auditors’ Report and Internal Controls Report at the February 7, 2017 Council Meeting.
The 2015 Audit is Agenda Item #24: https://beaumont.civicweb.net/document/4666/Item%2024.pdf?handle=7B3A421F6D924673AC50317411507BF8
The 2015 Internal Controls Report is Agenda Item #25: https://beaumont.civicweb.net/document/4667/Item%2025.pdf?handle=30073BB0A2A84F5BBE1FEA768242F7AB
The Audit listed five (5) reasons for issuing a Disclaimer of Opinion on the 2015 Audit:
- SEC Investigation
- Riverside D.A. and FBI Raids
- No record of General Capital Assets and General Infrastructure Assets
- Development Impact Fees Not Segregated or Restricted
- CFD Taxes Collected Not Properly Accounted, Segregated.
- General Fund Allocation Cost to CFD and Sewer Funds Forged
Although Beaumont Staff and Council pretended all the problems are in the past; TO THIS DAY the City continues to deposit all Funds into the General Fund, spends the overcharged Mello Roos Tax money, and forge Cost Allocations.
The Audit and Internal Controls Report was presented to the Beaumont Finance and Audit Committee on February 6, 2017. The Committee spend 1 1/2 hours talking without ever mentioning anything important. I didn’t transcript the conversation, but if there was any doubt that Melana Taylor is not unqualified to be a Finance Director, it was cleared up at the Audit and Finance Committee Meeting. Mike Lara had to tell Taylor how to set up Fuel Logs in the City’s vehicles.
The 2015 Audited Financial Statements was presented to Council on February 7, 2017 at 10:30pm, or 4:47:00 minute mark. Taylor mentioned ‘Consultants’ working on the Audit a dozen times.
The Beaumont City Council and Staff made excuses and negated the Liabilities. For example; the City claims to have ‘only’ a $7.9 Million Deficit in the General Fund.
First of all; page 16 shows that the City’s $7,940,233 Deficit is derived from adding the Negative $57 Million in the General Fund to the forged $49 Million Sewer Machinery and Equipment. There is no $49 Million Sewer Machinery and Equipment – former Finance Director William Aylward admitted the numbers were forged and it was proven that all the money was funneled to Urban Logic Consultants.
But the City of Beaumont’s $100 Million Deficit in the General Fund is derived from the General Fund borrowing and spending $6 – 10 Million in Development Impact Fees (Mitigation Fees) every year since 2003. The Disclaimer of Opinion clearly cited misuse of Mitigation Fees as Reason #4.
Every year the City of Beaumont collects Mitigation Fees that are recorded on the Financial Statements in the Capital Improvement Fund. The problem is that there is no Facilities built and no carryover balance from one year to the next.
But yes, the City of Beaumont does carry another $100 Million in ‘bills’ – if they don’t want to call it ‘debt’ or ‘deficit’, but the Judgements and Fines for the City’s criminal activities is in addition to the $100 Million in Mitigation Fees spend on General Fund Activities over the last 15 years.
Disclaimer of Opinion #3 – Not recording General Fund Capital Assets. The reason the City doesn’t record General Fund Capital Assets is because they have no Capital Assets to record. There are roads in the middle of the City of Beaumont that haven’t been paved since a WAPA crew paved them in the 1930’s. The ‘city hall’ is the old high school that’s close to 100 years old. The ‘police station’ is an old elementary school that should be condemned. All of the infrastructure in the Developments is paid for by the Developers, so the City has no receipts for work completed and can’t claim the infrastructure on their Financial Statements because they didn’t pay for it.
In the real world Mitigation Fees are used to build infrastructure, but in Beaumont Mitigation Fees are deposited into the General Fund and spent on General Fund Operations = no Infrastructure.
Disclaimer of Opinion #5 – Spending CFD Mitigation Fees, which should be Restricted Funds. In the past the City of Beaumont overcharged $6 Million in Mello Roos Taxes, now they overcharge $8 Million in Mello Roos CFD Property Taxes.
The amount of this ‘IOU’ from the General Fund to the CFD Restricted Funds is unknown, but is pushing $100 Million too.
And none of the above debt includes the Millions transferred directly to the City from the CFD Bond Fund Accounts to build Infrastructure.
There’s $400 Million missing from the City of Beaumont. $400 Million in Restricted Funds.
Can money paid to Lawyers and Consultants be accounted as ‘Machinery and Equipment’?
Transcript of Beaumont City Council Agenda dated February 7, 2016:
4:55:00 White: We’re hearing from an amateur Auditor that doesn’t live in the City that we have a $100 Million General Fund Deficit. When I looked at this last night I saw a General Fund Deficit and I saw an $83,000 or $83 Million dollar Government Activities. I think that was made up of Liabilities that are not due anytime soon which include WRCOG. So, if you could address what our General Fund Deficit is and when someone says that we have a General Fund Deficit of $100 Million, is that accurate to say those Liabilities that are not do soon are part of our General Fund Deficit?
4:56:00 Taylor: First, when you got to #6 it sounded to me like you said we couldn’t support our expenses for Administration and that’s not what that actually says. It’s the Overhead Allocation of Administration Cost that couldn’t be substantiated. Okay, page 18 of the Audit Report is the Statement of Net Position. This is city-wide. This is every Fund, every piece, even the General Debt. The Debt Fund is not part of General Fund, they’re accounted for separately. It’s part of the standards for reporting, so those Liabilities will show. This Statement of Net Position on page 16 and you can see them right in the middle of the page, Non-Current Liabilities, due within one year, due within more than one year; that’s where our big numbers are in those Governmental Activities, not the General Fund.
4:57:00 Taylor: The actual General Fund only is on page 19. So when you get to the General Fund, that’s just the General Fund. That does not include that long-term Debt piece. When you look at the General Fund, that column shows that we have an Unassigned Deficit in the General Fund of $7 1/2 Million Dollars and that is the General Fund Deficit, but that’s not the Liability of the whole City, that’s just the General Fund.
White: And there was a break-down of those Liabilities due in more than one year that make up the $83 Million.
4:58:00 Taylor: It’s on page 44, Footnote #6. The largest one is of course the WRCOG Judgement. Because there was a Judgement and the dollar amount can be calculated and known, you have to recognize it in your Debt Fund.
White: So WRCOG is $62.9 Million
Taylor: That’s the largest one. The next largest one is the CalPERS. That’s because of the new standards under GASB 68 tells you that you have to go through some hoops, you have to find out how much your pensions will cost in the future based on what you fund your current staff. That’s over $10 Million, but that’s not something we That’s just knowing what it’s going to cost the City in the future. Those are the big ones, then we have the State for the RDA Loan Payments that we have to make back and the Accrued Vacation.
White: If we could get Mr. Trump to write us a check for $90 Million; the $82 million plus the other $7 1/2 million, right?
Taylor: We only need the $90 because $7 is already in there. If you look on page 16 there’s an Unrestricted Deficit, the whole City and the total, total is $92.7 Million. If he gave us that…
White: If he gave us that we still would have no Reserves.
White: We still have no money for Equipment Replacement.
White: We don’t have any of the – what’s the recommended amount for Reserves?
Taylor: Two months’ operational costs in Reserves.
White: Page 89, the BFA Sales Tax. That’s Beaumont Electric?
Taylor: It’s a combination of things, but it’s all gone now. This is June of 2015. Shortly thereafter the State Controller came in, did their Audit and all the Tax issues were cleaned up immediately after.