By: Libi Uremovic | Original Article at patch.com
A proper Audit would have revealed lack of Internal Controls, No Bid Contracts, and No Sewer Machinery and Equipment Purchased.
Auditing Firm of Moss Levy Hartzheim LLP
2400 Professional Parkway, Suite 205
Santa Maria, CA 93455
(805) 925-2579
License Number: 6998
http://www.mlhcpas.com – website no longer exists
Other Offices:
5800 Hannum Ave Suite E
Culver City, CA 90230
9107 WILSHIRE BLVD # 320
Beverly Hills, CA 90210
City of Beaumont Auditors: 1993 – 2015 without Bid Contract as required by State Law and in violation of Auditing Principals
ERMAC: Company Certified Public Accountants
PARTNERS INVOLVED WITH THE CITY OF BEAUMONT AUDITS:
Ron Levy
Craig Hartzheim
Hadley Hui
Audit Proposal submitted by Moss Levy Hartheim to the Marina Coast Water District on May 8, 2015: http://www.mcwd.org/docs/agenda_minutes/2015-06-15_board/Item%209-B%20-%…
GENERAL STANDARDS:
2: The auditor must maintain independence in mental attitude in all matters relating to the audit.
Moss Levy Hartzheim audited the City of Beaumont Financial Statements for 20 years while contracted with ERMAC.
3. The auditor must exercise due professional care in the performance of the audit and the preparation of the report.
STANDARDS OF FIELD WORK
2. The auditor must obtain a sufficient understanding of the entity and its environment, including its internal control, to assess the risk of material misstatement of the financial statements whether due to error or fraud, and to design the nature, timing, and extent of further audit procedures.
3. The auditor must obtain sufficient appropriate audit evidence by performing audit procedures to afford a reasonable basis for an opinion regarding the financial statements under audit.
If the Auditors had requested any invoices to verify the $74 Million claimed for Sewer Machinery and Equipment the Auditors would have discovered there were no invoices. None. If the Auditors had viewed the LAIF Account they would have discovered the amount submitted by the City as forged. If the Auditors had requested any documentation regarding the City’s $21 Million RDA claim the Auditors would have known there is no possibility the money will be recouped from the State.
STATEMENTS ON AUDITING STANDARDS
The auditor must state in the auditor’s report whether the financial statements are presented in accordance with generally accepted accounting principles.
2. The auditor must identify in the auditor’s report those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period.
The Auditors never reports the Conflicts of Interest, the lack of Bid Contracts, or the lack of a City Treasurer and City Clerk.
3. When the auditor determines that informative disclosures are not reasonably adequate, the auditor must so state in the auditor’s report.
From the California State Controllers’ Investigate Report dated November 3, 2015:
“We found the City of Beaumont’s administrative and internal accounting control deficiencies to be serious and pervasive; in effect, such controls are non-existent.”
“Of the 79 control elements evaluated pertaining to internal control components, we found 75 of 79 (95%) for which controls were considered to be inadequate and one control element that was considered not applicable.”
. Financial Transactions Report for FY 2013-14:
General Fund, Fund Equity, was understated by $3,096,013 ($12,049,103 was reported instead of the actual of $15,145,116).
General Fund, Cash and Investment, was overstated by $15,489,921 ($15,517,144 was reported instead of the actual of $27,223).
Total Revenues was understated by $6,370,389 ($35,530,592 was reported instead of the actual of $41,900,981).
Total Expenditures was understated by $1,525,267 ($42,074,213 was reported instead of the actual of $43,599,480).
Enterprise Fund, Waste Activity, Prior Year Adjustment, negative $341,609, was not included to restate the ending Enterprise Fund balance.
Investment in CFD bonds, totaling $216,046,830, was not included in the Agency Funds Financial Statement.
“It is not clear how the City accounted for the bond proceeds payments in its financial accounting system. We could not trace any of the requisitions tested to the City’s ledgers (official accounting records).”
“We found that City management failed to properly manage contract awards for purchase of supplies and personal property, procurement of professional services, and procurement of public works contracts. In general, we found that the City’s Municipal Code pertaining to competitive bidding requirements was not always followed for some of the contracts.”
“We noted significant control deficiencies over many of the City’s fiscal functions. These deficiencies are pervasive and were noted in many aspects of the City’s operations. In particular, we noted the following:
Bank reconciliations are not prepared, reviewed, and approved in a timely manner
Lack of segregation of duties
Lack of detailed annual budgets and expenditure control mechanism
Lack of an audit committee
The lack of an audit committee contributed to:
A lack of written administrative policies and procedures manual;
The use of the same CPA firm for the last 20 years; and
The City’s failure to monitor and resolve issues noted in the City’s CAFR (the same issues were included in the City’s CAFR from FY 2007-08 through FY 2013-14).
We found that the City’s financial reports lacked sufficient detail. Financial reports provide transparency and accountability, and are vital for making crucial management decisions. Financial reporting also provides assurance to city residents, investors, creditors, and other governmental agencies.
We noted that the City’s CAFR from FY 2007-08 through FY 2013-14 did not include the Management Discussion and Analysis (MD&A). An MD&A is required by GASB Statement No. 34. The MD&A can also serve as a beneficial and important tool that provides transparency to the City Management and City Council, especially given the City’s fiscal situation, which includes:
Deficit unrestricted net position of $34,861,337 in the City’s Governmental Activities;
Deficit unassigned fund balance of $6,354,884 within the City’s General Fund as of June 30, 2014;
Uncertainty as to whether the City will ever collect the $21,500,000 loan made to the former Redevelopment Agency; and
Possible WRCOG TUMF settlement against the City in the amount of $42,994,879, plus interest and fees.