Taylor Claims City has $5 Million in Unreserved Sewer Funds, but Document reports $48 Million Deficit in Unreserved Sewer Funds
Below is the written response to questions asked by Dr. Ball regarding the $5 Million transfer. Melana Taylor slips and slides and claims there is $5 Million available to transfer to the General Fund, but Appendix A Sewer Unreserved Fund Balance is NEGATIVE $48,893,503.21.
Exhibit B Staff Report from Finance Director, Melana Taylor: http://www.ci.beaumont.ca.us/D…
1. Does proper documentation exist in the wastewater enterprise accounting system via accounting journal entries, physical money transfers, etc. detailing the transaction and transfer of $5+ million dollars in 2014 from the city to the fund?
Could these entries have been added at a later date to give the appearance that it was transferred or does the city’s accounting software track when the journal entries were added out of context as a safety measure? These type of questions need to be considered given the past performance of Beaumont’s Staff and their inability to be trusted.
RESPONSE:
The trail balance and accounting journal entries properly detail the transaction, and the transactions were recorded in the accounting system partially during the period when oversight was provided by prior management and partially during the period when oversight was provided by Melana Taylor. The actual, physical cash activity was performed entirely by prior management. The journal entries have been recorded to detail the activity in accordance with generally accepted accounting principals.
2. What is the current balance of the restricted funds in the wastewater enterprise fund? This report should include a year by year accrual of restricted funds and not just a lump sum total that may or may not have been created out of thin air. A spreadsheet detailing the account year by year since 2006 would be in order. Documentation is critical as council will need this information in the near future anyway as it determines how it will fund the future wastewater treatment project.
RESPONSE:
Any monies received by the wastewater enterprise must be used for wastewater enterprise related activities. The $5,069,508.87 was received by the wastewater fund as an advance from other funds (specifically, the BFA residual funds). The $5,069,508.87 was not received through regular business activities of the wastewater enterprise.
INCORRECT: Yes, all funds collected through sewer fees, taxes, and mitigation fees must be spent on sewer needs, but that’s not the question. The question was the balance of the Restricted Funds collected from the 2006 and the 2013 Sewer Fee Increases. The $5,069,508.87 proposed to be transferred to the General Fund are restricted funds that can only be used to for the sewer upgrade and can not be used to pay bond debt or to pay an IOU to the CFD funds. Appendix B shows that ‘Sewer Service Fees’ are not separated into fees for general use and restricted fees, but lumped together which is a violation of of GAAP.
3. Will restricted funds be used in the $5 million dollar staff proposed transfer from the wastewater to general fund? Your September 6 staff report stated this transfer from City to Wastewater fund occurred in late 2014. Please review the September 6, 2016 agenda time and then read November 18, 2014 agenda item 6a.16 about the $5 million transfer and finally read the approve minutes for November 18 found in the December 2, 2014. It appears council did not approve the transfer based on the minutes of the meeting. That would mean that the transfer actually never occurred? If that is the case the why is staff now asking council to transfer $5 million of the wastewater to City general fund (other than it looks good on the city’s balance sheet). It appears this might be a money grab promoted by consultants and staff to shore up the City’s General Fund at the expense of the sewer rate payers i.e. the citizens and businesses in Beaumont. Staff is now asking Council to endorse the action when it appears council never approved the original action, and yet in a few months council will require citizens to double or triple their sewer rate depending on the wastewater project chosen.
RESPONSE:
From the documents enumerated above, it appears that the original transfer and wastewater bond payoff were not approved when presented to the City Council on November 18, 2014. However, the funds were transferred and the bond debt was paid off. The Council cannot take back the payoff simply because it was not approved. The Bonds have been paid in full and cancelled as indicated in November, 2014. In order for the Wastewater fund to have enough money to make the payment, Beaumont Financing Authority liquidated $5,069,508.87 from various residual accounts and deposited them into the pooled cash account. When the debt payment transfer was made from the pooled cash account to the Trustee, the wastewater fund bank balance would have been negative without the advance. Staff believes the prudent action is to repay the advance as soon as sufficient funds are available in order to restore the residual accounts. The Wastewater Fund has sufficient cash at this time to repay the advance in full.
INCORRECT: The November 18th transaction was Approved on the Consent Calendar, but Council’s ‘trusted staff’, most likely either Shelby Hanvey-Aylward or Rebecca Deming, forged the Minutes. The 2001 Bond was not paid off using available sewer funds as stated on the Staff Report, it was paid by transferring the money out of the CFD Bond Fund Accounts. Repaying the CFD Bond Fund Accounts would be the ‘prudent action’. Using the old 2001 bond payoff to funnel $5 million to the General Fund is not ‘prudent action’, it is an ‘illegal action’.
CLARIFICATION:
The Wastewater Fund received an advance of funds from the Beaumont Financing Authority in the amount of $5,069,508.87 in November 2014 in order to pay off the wastewater bonds. The staff report in November 2014 indicates that “There will be no impact to the general fund. Available sewer funds and developer impact fees will be used.” There was no impact to the general fund for this transaction. There were available sewer funds only through an advance.
During the examination of documents related to the actions taken by management in November 2014, it was identified that the Beaumont Financing Authority residual funds are generally available for any lawful purpose of the Authority assuming that that related Bonds are fully serviced. Based on this discovery of information, once the funds are repaid to the Authority by the Wastewater Fund, the funds are available again for any lawful purpose of the Authority assuming that the related Bonds are fully serviced. Consultation with legal counsel has led to the subsequent transfer of those funds from the Authority to the General Fund. Use of these funds in the general operations of the City is deemed a lawful purpose of the Authority.
FISCAL IMPACT:
Wastewater Fund will have sufficient funds as of September 30, 2016, to repay the advance in full to the Authority residual funds.
The Authority will then have residual funds available for the use of working capital in the General Fund, which will decrease the deficit by $5,069,508.87.