By: Craig Shultz | Original Article at pe.com
Auditing firm hired by city to probe internal practices presents final report on spending and accounting to City Council.
A lack of leadership in management at City Hall appears to be to blame for many of the problems with internal controls found in an audit of Beaumont’s spending and accounting practices, the City Council was informed this week.
Acting and interim city management has already undertaken a number of internal changes — procedural and systemic — to rectify some of the past problems, officials said Tuesday, Aug. 3.
The City Council on Tuesday was presented with the final version of a report on internal controls by MGO Certified Public Accountants. The firm was hired to conduct internal audits in the wake of several investigations by outside agencies into the city’s financial practices and relationship with consulting firm Urban Logic Inc. The State Controller’s and the Riverside County district attorney’s offices have separate probes underway.
City Manager Alan Kapanicas is on paid administrative leave while the investigations advance. Also, many of his former top executives in the city are no longer on staff. They comprised much of the management being referred to in the context of the report.
The findings include a lack of emphasis by elected officials and finance staff to improve processes over the years, and poor financial reporting in some cases. There is incomplete documentation for purchases and problems with the methods the city has used to pay sales and use taxes on purchases, the document said. Other issues included controls on petty cash and how vendor purchases were managed.
On the bright side, the council and current city management was lauded by MGO official Byron Matson for Beaumont’s commitment to getting the problems fixed.
“Most important in internal controls is to create a strong control environment,” Matson said. “I think this council has shown they are serious about this and are exhibiting a good tone from the top.”
He added that an ad hoc committee dedicated to internal controls and presided over by council members, the city treasurer and a handful of others is key in that effort.
Matson was of the opinion that leadership at the top tiers of management was the problem. For example, he said, the finance director had too many duties with no mid-management in between staff.
“It’s probably too much for one person,” he said.
To that end, Matson said front desk staff is competent and “know what they’re doing.”
Emphasis in the discussion was placed on what staff members have done so far to turn around some of the reported problems. The city’s new interim finance director, Onyx Jones, who was seven days into the job by Tuesday, gave the council and public a rundown on ongoing efforts and changes.
Among the points Jones touched on were creating a checklist and work flowchart for city staff to label responsibilities and to avoid an imbalance in responsibility. Jones said management also made sure more than one set of eyes were on important financial entries.
A complete list of policies that need to be visited by the City Council is being prepared by Jones and Acting City Manager Elizabeth Gibbs-Urtiaga. It is expected to be brought before the council in September for approval. No specifics were given Tuesday.
To better track budgets and daily, monthly, quarterly and annual financial reporting, Jones said hardware and software upgrades at a considerable cost to the city are required. A package with proposed costs will come to the council Aug. 18, before the budget draft is revealed.
Jones said the upgrades have to occur because the city is not paying to maintain the current system and is several versions behind.
“The benefit far outweighs the cost to the budget,” she added.
On the sales tax issue, Jones said the city got clarity on the correct procedures. Gibbs-Urtiaga communicated that with staff, while Jones talked with vendors.
Following Matson’s presentation, councilman Lloyd White thanked MGO for its “frankness and openness” and for not holding back on criticisms.
The reporting thus far, White said, “has given us the credibility that we need to make the decisions we need to make.”