Finance Director 4th Taylor Includes Engineering as Machinery & Equipment. City Manager 3rd Warne Denies Receiving Documents.
Beaumont City Council Transcript 07/07/2016
25:40 Mayor Lara: Item 3.C. Beaumont Utility Authority Financial Report.
26:00 Melana Taylor: I was able to put together a Financial Report, based on information that’s available, just for the Sewer Funds so we can see where it stands. What I wanted to do first is just show you what it is that’s in this Report and we’ll discuss it, tell you what it means, and what the important facets are before we talk about any particulars or special Items that we need to probably look at. First; I took information from the existing Accounting System and I placed it in a ‘report format’ for June of 2011, 2012, 2013, 2014, and 2015 as it stands right now and as it was at the year-to-date for the current year. So we have five full years and a partial, almost full year for this year.
27:00 Melana Taylor: The first Statement, page 1, is the Statement of Net Position; that’s government terminology for a ‘Balance Sheet’. The Balance Sheet has our actual cash balances that has been allocated to this particular fund. It includes pulled cash, some investment cash, and then there is also a small investment because there was a Bond for the Wastewater Fund.
27:30 Melana Taylor: Then there are the Capital Assets; those are the fixed assets or the building, the land, the improvements, any of the machinery, equipment, engineering, anything else that may have been considered a capital asset, not something that would be considered maintenance or repair, which would be expensed. Then we have a short section at the bottom for other assets.
37:00 Melana Taylor: So the things to look at; first is to verify the fixed assets that have been recorded. As I said; that’s going to be a time-consuming process and it will take a while to figure that out. We do need to verify the assets that are held there to determine if they’re still of value or if we need to remove some of them or be replace. We know the wastewater treatment plant needs to have some things done and I’m guessing it probably needs to go hand-in-hand. We don’t want to over-record the books for things that have no value to the sewer at this point.
42:50 Councilman White: I’d like Mr. [City Manger] Warne to address Ms. Bingham’s comments about forged documents, what this document is representing here.
43:00 City Manager Warne: There are no forged documents. No one is intentionally trying to misrepresent, current staff isn’t trying to mis-represent anything. Some things happened in the past and the city’s process of reconciling the various accounts and funds, and that process is ongoing and we uncover things that should have been handled differently. We’re doing it and I think a good example of that is the report that is given by our interim finance director where we determined that $5,069,000 was swept out of the CFD funds and sent to the water fund to make the bond payments. Our investigation showed that could not be justified, there’s no nexus for that, so one of the things that – on our own – Melana has gone ahead and reversed that.
44:00 City Manager Warne: So in 2016 that we’re moving the money back out of the water enterprise fund and back into the CFDs where they belong. As we continue our audits, as we continue to find things, we’re going to make appropriate adjustments. There is no effort to try to hide anything, mask anything, or cover up any particular wrong doing. We can’t speak for some of the things that happened in 2011 or 2012, but if we do uncover anything as far as our audits go; we are making adjustments. We’re currently in the process of auditing the 2014/2015 books and there have been a number of adjustments that have been made by the Auditors to make corrections; so that process is ongoing. If anyone knows about anything that is inappropriate then please come talk Melana and I and we’ll make any adjustments that have to be made.
44:00 Judy Bingham: I’ve given you the information.
Councilman White: Have you seen anything from Ms. Bingham since you’ve taken office? [May 17, 2016]
Warne: Not seen it.
Judy Bingham: I gave it to you the first night you were here. Remember; I handed you a packet about the audit. I gave it to you.
Warne: I don’t recall anything that she has and we’ll do appropriate investigations.
46:30 White: Is there an audit of the sewer fund ongoing?
Warne: Yes, we’re doing the 2014/2015 audit right now, then right after that we’re going to move and do 2015/2016.
53:40 White: You have five years of history here. There’s information, as Ms. Bingham brought up, for machinery, buildings, You said that you dug into accounting details. Where do you get those numbers; 2011, 2012, 2013?
54:00 Taylor: The acquisition of fixed assets; that’s going to be simply the way that’s it’s been journalized in the system, so I can see fixed assets went up $100,000; $50,000 of that was in machinery, and $20,000 of that was in automobiles. But I haven’t gone back and said ‘okay, I have now these journal entries; now go back from there; what ties to the journal entry. Usually I can’t find anything, but I get lucky sometimes and I can find an invoice or I can find notes then I can dig back further to find what was it, what was it actually. As the fixed asset capitalized on the books; one of the things that happens is that we keep a deprecation schedule and there IS one for the City of Beaumont for the wastewater fund. So there’s a list of what was considered assets each year. Unfortunately; it’s a very very generalized description and it doesn’t help me know exactly what was it exactly.
55:00 Taylor: From what I can tell they’re mostly maybe a redefining of what they considered engineering cost for the wastewater treatment plant that they then capitalized as part of the ongoing facility, but I haven’t gotten into that detail to verify what was that cost. What was it, can I find something to support it. I haven’t gone that far.
55:15 White: Okay, and lets say that you are either never able to find documents to support it or you have no confidence in those numbers. What does an Accountant do at that point? Do you just erase all the previous years and start with zero?
Taylor: Well, you can’t do that. If we go to the wastewater treatment plant; it exists. There’s things there and one of the things we need to look at for the city, and we can look at all the wastewater treatment plant, is we need to someone who specializes in determining asset values. Not what it can be sold for, that’s not how it’s done. It’s more what you showed you paid for.
56:00 Taylor: Let’s look at this and see how it matches up. What you have here is 20 years old, it should probably have a remaining book value of; and they figure all of these things and we would have to adjust to some kind of consultant report and go on from there.
White: And your deprecation are based on prior deprecation?
Taylor: It’s on the schedule, right. Most assets will have a 10-15 year life. The buildings usually 20-30. I’d have to go back and see, but I think it was set up with a 20 year, I can’t recall.
57:00 White: Mr. Warne, this is not an audit, right?
Warne: These are not an audited.
White: This is a financial report.
Warne: That is Correct. We’re in the process of finishing the 2014/2015 Audit in process now and the 2013/2014 audit, as I’ve been told, is only in draft form because there was no confidence because of the people that had done the audit. Prior to that you do have audit reports by the prior administration and who they choose.
White: So if we receive and file this, we receive and file it, do we send this Report to someone, put our signature on it and say ‘here’s what we know’..
Warne: No.
White: ..this is confident?
Warne: No.
1:03:30 Mayor Lara: I’ll make a Motion to Accept and File
White: I’ll Second that.
Roll Call:
Orozco: Aye
Knight: Yes
Condon: Yes
White: Yes
Lara: Yes
26 U.S. Code 1221 – Capital Asset Defined: (a) In general For purposes of this subtitle, the term “capital asset” means property held by the taxpayer (whether or not connected with his trade or business), but does not include—
(1) stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business;
(2) property, used in his trade or business, of a character which is subject to the allowance for depreciation provided in section 167, or real property used in his trade or business;
(3) a copyright, a literary, musical, or artistic composition, a letter or memorandum, or similar property, held by—
(A) a taxpayer whose personal efforts created such property,
(B) in the case of a letter, memorandum, or similar property, a taxpayer for whom such property was prepared or produced, or
(C) a taxpayer in whose hands the basis of such property is determined, for purposes of determining gain from a sale or exchange, in whole or part by reference to the basis of such property in the hands of a taxpayer described in subparagraph (A) or (B);
(4) accounts or notes receivable acquired in the ordinary course of trade or business for services rendered or from the sale of property described in paragraph (1);
(5) a publication of the United States Government (including the Congressional Record) which is received from the United States Government or any agency thereof, other than by purchase at the price at which it is offered for sale to the public, and which is held by—