By: David Danelski | Original Article at pe.com
Beaumont’s finances have been so mismanaged that “strong controls are badly needed” to “deter and detect errors, fraud and theft,” and the city may not have been paying its fair share of sales taxes, a financial review commissioned by the city has found.
The review by MGO Advisory Services accounting firm calls for Beaumont to take immediate actions to control its cash-flow procedures that the firm said were “fraught with risks of all types.”
The report comes after recent FBI raids involving City Hall and the announcement of a state probe into city finances.
Problems identified in the latest report include:
• Payments made to vendors without invoices detailing what goods or services were provided.
• Purchases made without documentation of required bidding procedures.
• Expenditures made without verification of the availability of budgeted funds.
• Payments “of all types” made without the approvals of required parties.
• Inadequate controls over use of petty cash.
• Use of a convoluted process to purchase goods from out-of-town vendors that may have inappropriately allowed the city to avoid sales tax obligations.
“This is not great news, but these findings are welcome,” Beaumont Treasurer Nancy Carroll said. “You can’t right the ship unless you know it is off course.”
Carroll said many of the problems already have been addressed.
For example, no city purchases can be made without the invoices, receipts and other documents needed for future audits, she said.
Carroll, who was elected treasurer last fall, said the report showed several problems that had been going on for years, which she observed after she took office in December.
The report, which is still in draft form, was received by the city about two weeks ago, and will be reviewed by a committee looking at city finances, she said.
In May, the same accounting firm found that the city has been deficit spending since 2009 and had repeatedly advanced money to its general fund from a community facilities capital projects fund to make up for revenue shortfalls.
By June of last year, the capital fund was owed more than $10 million, and it must be paid back, the report said.
These financial disclosures follow FBI and Riverside County District Attorney’s Office raids done in April at Beaumont City Hall and the home of City Manager Alan Kapanicas, who is now on leave. The investigators also searched the offices of Urban Logic Consultants, which for years provided several city workers — including the public works and economic development directors — as contract employees.
No charges have been filed. The investigation is ongoing.
Meanwhile, the state controller’s office is probing the city government. Controller’s office officials said they were prompted to investigate by multimillion-dollar discrepancies between city budget reports and auditor findings.
The turmoil since April has included the abrupt exodus of several of the city’s top managers, including Kapanicas, who is on leave, and William Aylward, who served as the city finance director, assistant city manager, and in other city positions for more than 20 years.
The most recent report also questions the city’s purchasing procedures that allowed Beaumont to retain a portion of sales taxes even when the city bought things from out-of-town businesses.
In California, a 7.5 percent sales tax is charged on purchases, with .75 percent going to the city or county where the buy occurred, and rest going to state and transportation funds.
When buying something out of town, Beaumont would have its financing authority make the buy without paying sales taxes by having the authority obtain a certificate saying the item would be resold at a later date.
Beaumont would later pay the sales taxes by filing a return. And in doing so, the .75 percent would go to Beaumont instead of the cities where the vendors are located, the report said.
If this process is found to be inappropriate by the state Board of Equalization, “the city could be subject to repayment of the tax revenue (it) received,” the report said.
Carroll, the city treasurer, said the sales tax issue has been referred to the city attorney for review.
“The newly elected city officials want to make sure everything is done correctly,“ she said.