Oxnard accounting meltdown starting to solidify, covered at Fiscal Policy meeting (video included)

By George Miller

At the 3-9-16 Fiscal Policy Task Force meeting, we received the current audit status and internal audit plan status and were treated to a lively discussion.

Audit Status Summary

  • Audit still not complete, potentially inviting more state action, Controller’s audit, breaking bond covenants, affecting credit rating
  • Several outside firms engaged to help with researching acctg/audit data, catching up.
  • Auditors had previously departed and are now returning
  • Discrepancies have been narrowed down but still exist. Some documentation hasn’t been located
  • Although there were huge asset discrepancies, the actual revenues/expenses and cash part is no longer that far off. It is possible to do day-to-day business and even develop at least some semblance of a budget.
  • Target date for audit is mid-April, but auditor can’t guarantee that due to continuing unknowns with accounting data. They didn’t seem very confident of this.
  • Target date for final CAFR (Comprehensive Annual Financial Report) is no later than 5-30-16, but this is depend on the audit.

It’s been known for quite a while that there are major problems with Oxnard’s bookkeeping. Not only did an inability to complete last year’s audi emphasize that, but Oxnard has not been able to properly close last year’s (July 1, 2014- June 230, 2015) books. An operational audit revealed 128 significant systemic problems, many in the Finance Dept. The former Director retired, a new one was hired. Now he, too has left and there have been multiple Interim CFO’s. Currently Asst. City Manager Maria Hurtado has been assigned that uneviable task. While she seems a capable executive who shows great initiative, she is not a financial professional. Her background is in social work.

An audit was underway. The year end deadline is long past. The State Controller is breathing down Oxnard’s neck, demanding answers to long lists of questions. Auditors were very frustrated in not being able to get the information they needed to complete the audit, since it was missing or wrong, They actually left because there was nothing left for them to do until they got usable information. Now, they are coming back, to join three other companies already here- MuniServices, The PUN Group/Urban Futures, Inc. and MV Cheng and Associates-  hired by the city to help clean up the mess. The audit is to re-commence on March 21.

An audit schedule gantt chart was presented which showed 61 activities, with only 18 completed. Auditors and staff did not tell us what the critical path is.

Auditor Eden Casareno told us that internal controls were basically nonexistent, construction projects were kept on the books years after completion, variances not written off and that capital assets have been the biggest problem. She estimates that two weeks of field work are required, followed by 3-4 weeks of analysis and testing and that they will start writing the audit report in April on the findings, internal controls, the State Controller’s 79 points (which is a separate exercise). It will include the golf course, Riverpark, etc. Also mentioned were a review of attorney letters and claims against the city. George Miller asked what is the total of all lawsuits, claims and potential claims, via legal channels and claims to the city for employees outside firms, etc. No answer was forthcoming, yet. No new projections on the Mandalay Bay seawall repairs and cost sharing either, which could run $60+ million (city and homeowners required).

Prior year error corrections will change starting balances. Records are being dragged out of the archives for review. The old accounting software does not have the ability to create “as of” date reports, so they must be laboriously reconstructed.

After announcing at the last meeting that policies were written, but not being well-adhered to (I’m sure of this because this was asked and answered twice), we are now told “accounting policies not always documented (i.e. allowance policy, capitalization).” This was also mentioned at a council meeting in mid-February.

Maria Hurtado, City Manager Greg Nyhoff, Eden Casareno and an outside vendor all complimented Controller Christine Williams for taking on a huge workload as audit liaison and also holding down the fort with day to day activities.

Phil Molina said that bank reconciliations should be done by the Treasure, per state law, asking if this was true,when he already knew the answer was probably no. The answer was that accounting does it and she oversees it and is the signatory. Phil Molina asked how many bank accounts there were. It sounded like 10-11, including the general account, successor agency and 8-9 smaller accounts. This probably does not include enterprise funds (utilities, etc) which are treated as separate entities.


Here’s the meeting agenda

Here’s the auditor’s presentation material 3-9-16

Here are the Audit Schedule Gantt Charts 3-9-16

Here’s the meeting video by our photographer Dan Pinedo:

Oxnard’s Interest rate swaps
What is an “interest rate swap?” It’s a contract to hedge against interest rate fluctuations. A “derivative,” which has become a curse word in some quarters. Oxnard got themselves into several of these deals, sold by the same kind of confidence men that brought you the Wall Street crash.
They are designed to be very expensive and to be very expensive to get out of, or “unwind,” as they say in the bankster business. It would cost $9,916,913 to get out of these deals, which insure risk on 3 variable rate bonds, for the parking garage, civic center and wastewater projects. If Oxnard or wastewater fund were downgraded below a BBB  rating, the deals could be terminated, triggering these disastrous expenses.
At Council’s request, Finance was told to look into how to get out of these deals. Financial Services Manager Michael More looked into it and concluded that it really isn’t feasible.
More info on these:
Wall Street Greed – Counterpunch http://www.counterpunch.org/2014/04/24/wall-street-greed/Apr 24, 2014 The biggest victims of interestrate swaps have been local governments, … on LIBOR, deals in which they are trapped due to prohibitive termination fees. … Los Angeles, Menlo Park, Oakland, Oxnard, Pittsburgh, Richmond, …
Internal Audit  Program Status
Way back in July, the Council approved moving ahead to develop a detailed internal audit plan and find an outside internal auditor. We know that sounds strange, but it simply makes more sense to outsource it. Sn RFP was published  for CPA firms, but not until January 26. The response deadline was February 22. Eight responses were received.  It looks like a committee consisting of Asst. City Manager Maria Hurtado, City Attorney Stephen Fischer, Special Advisor Dave Millican and at least one of the Council Members on the Task Force, probably Brian MacDonald, will review the proposals and make a recommendation. Someone suggested that some local CPA firms look at them too, pro bono. We didn’t hear any deadline committed to.
From Phil Molina:
Mayor, Council and City Manager:
The most effective internal audit leaders, according to the PwC report, consistently exhibit five traits:
1 .Create and follow through on a vision. The most effective internal audit leaders have a vision that aligns with the organization’s strategic direction and informs their strategic plans, investing in capabilities to support that vision.
2. Source and retain the right talent. Mentorship, talent development, and the ability to source the right talent are keys for effective internal audit leaders. Almost three-quarters (73%) of very effective internal audit leaders include co-sourcing as one of their talent strategies.
3. Empower the internal audit function. Almost four out of five very effective internal audit leaders are vice presidents or hold senior positions in their organizations. Stakeholders acknowledged in the survey that they have a responsibility to empower the chief audit executive by creating a culture that supports a strong control environment.
4. Demonstrate executive presence. The most effective internal audit leaders bring bold perspectives and think broadly about the company.
5. Partner with the business in meaningful ways. To be effective leaders, internal auditors must develop relationships built on trust, build partnerships across the lines of defense to coordinate risk management across functions, and use those connections to develop an integrated assurance strategy across the organization. – See more at: http://www.journalofaccountancy.com/news/2016/mar/internal-audit-leaders-201614011.html?utm_source=mnl:cpald&utm_medium=email&utm_campaign=09Mar2016#sthash.8izsR5kj.dpuf

Next proposed Fiscal Policy Task Force meeting for April 13, 2016 at 9 a.m

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cassette shimano 105 11v 11-32

My family members all the time say that I am wasting my time here at net,
however I know I am getting knowledge everyday by reading such nice articles.

Cyndi Hookstra

I worked in the city’s finance department for 17 years. Back in the day…We had an accountant for fixed assests, a budget manager and accounting technician to oversee capital projects…and a management accountant for each utility, along with the needed supporting staff. All those position were held vacant to save money over time and eventually cut. That work was then spread to existing staff thus creating an on going situation of overwhelming existing staff and the mess you have today.

When this current audit firm comes back with their report, they need to be clear about what is an audit finding and what is an implemented change in accounting procedure. We need specifics and facts; not the sky is falling rhetoric.

If the city is the least bit concerned about its bond rating, then it should put an end to the “sky is falling” public grandstanding and stick to only the known facts.