By: Libi Uremovic | Original Article at patch.com
The City has released what they are calling ‘Management Report and Auditor’s Communication Letter’, but is actually the Internal Controls Report: http://www.ci.beaumont.ca.us/DocumentCenter/View/24046
First of all: Adding a cover sheet that says ‘managements report’ does not a management report make and it in fact alters the Financial Statements, which is a violation of State and Federal Laws.
Page two of the Internal Auditors’ Report clearly states: “Management has omitted the Management’s Discussion and Analysis that accounting principals generally accepted in the United States require to be presented to supplement the basic financial statements.”
Highlights of Internal Control Report
Material Weakness:
2014-1 Deficit Unassigned Fund Balance in General Fund $6,623,679
The City is using Mello Roos property taxes to fund the City.
Effects:
“A material deficit amount in unassigned fund balance is an indication that the City has had significant deficit spending in its general operations. The general fund is the operating fund of the City with potential RDA advances that cannot be collected. The City will not have working capital to operate if it continues to have operating deficits.”
Management’s Response:
“The City is aware of the deficit unassigned fund balance and has implemented a hiring freeze over the last three years along with analyzing all expenditures with department heads and reviewing possible new revenue sources. Staff is working with the State of California Finance Department on the repayment of loans made to the former Redevelopment Agency of the City of Beaumont.”
“potential RDA advances that cannot be collected”
“Staff is working with the State of California Finance Department on the repayment of loans made to the former Redevelopment Agency of the City of Beaumont.”
These are both referencing the $21.5 Million the City is claiming they advanced to the RDA. When the City attempted to submit the $21.5 the State penalized the City. The City is currently paying on a 10-year payment plan to the State Controller.
The $6.5 Million in unallowable assets was a transfer FROM Redevelopment TO the City.
Significant Deficiencies
2014-2 Deficit Cash Balance in General Fund:
“During the review of the trial balance, we noted that the general fund had a deficit cash balance, which the City reduced by legally borrowing cash from the Community Facilities Capital Project Fund at June 30, 2014.
‘Legally’ is the optimum word and the State Controllers Office says no, it’s not legal.
Effect:
Funds with deficit cash balances are borrowing cash from capital project funds. In the event that the City does not obtain cash flows to support operations, the City could become insolvent.
Management’s Response:
“The City acknowledges that it has a deficit cash balance in the general fund and is temporarily borrowing from the Community Facilities Capital Project Fund and it paying interest on the temporary borrowing.”
“temporarily borrowing from the Community Facilities Capital Project Fund and it paying interest on the temporary borrowing.”
Continued and repeated borrowing is not ‘temporarily borrowing’ and the City can’t claim that the they are paying interest to the RDA at the same time they are telling the State Controller that the RDA is paying $6 million/year interest to the City.
Let’s Review:
2014-1 $6,623,679 Deficit Unassigned Fund Balance in General Fund at June 30, 2014
2013-1 $6,866,481 Deficit Unassigned Fund Balance in General Fund at June 30, 2013
2012-1 $4,162,063 Deficit Unassigned Fund Balance in General Fund at June 30, 2012
2011-1 $10,871,054 Deficit Unassigned Fund Balance in General Fund at June 30, 2011
In the last 4 years the City of Beaumont has ‘borrowed’ $28.5 Million from Community Facilities Capital Project Fund to pay general expenses.
Beaumont citizens need not sit up at night wondering why their infrastructure was never built.