Oxnard turf battle over internal financial controls continues at council meeting

By George Miller

City Council, staff, the Treasurer and external auditor fought it out on whether Treasury has the right and responsibility to vet City disbursements of funds.

Ref: 10-10-17 Oxnard City Council meeting agenda item C:

C. APPOINTMENT ITEMS (5:00 PM)
  Finance Department
1. SUBJECT: Independent Accountant’s Report on Applying Agreed-Upon Procedures (10/10/20)
RECOMMENDATION: That the City Council receive and file the Independent Accountant’s Report on Applying Agreed-Upon Procedures, presented to the Fiscal Policy Task Force on September 13, 2017.
Legislative Body: CC Contact: Jesus Nava Phone: 385-7497
Document: C1 Staff Repor

This innocuous-looking agenda item was the marker for a major battle. Since this was just a report, there was no vote.

Oxnard Treasurer Phil Molina has pushed increased transparency and internal controls very hard since taking office in December, 2016.

Background

As we’ve been telling our readers, Oxnard Treasurer Phil Molina has waged a year long battle  to establish his department as a reviewer of disbursements. Shocking irregularities were uncovered, or publicized when City Manager Greg Nyhoff initiated various external audits after coming on board three years ago. Many of these had already been exposed by longtime city critics,  such as Molina, Larry Stein, Jim Lavery, Martin Jones, Councilman Bert Perello and others. However, the official status of the audits greatly increased visibility and demand for action.

Phil Molina and Larry Stein both campaigned on a platform of increased transparency, reforms and improved internal controls. Molina edged out Stein in the election, probably because his resume was a better fit. Both are known to be passionate and combative. Molina is very well-qualified for the position. Either one would have made big waves and been unpopular with staff. It was very well known via confidential informal sources that City Hall definitely did not want either one of them as Treasurer.

But, fast forward nearly a year: Molina and his staff have uncovered, addressed, or helped to address numerous issues, for the betterment of the city. However Treasury has also encountered major resistance, not only to getting control over major wire transfers, but also obtaining supporting documentation for many checks/warrants.  Opponents have claimed that his demands would violate confidentiality, city ordinances and create redundant activities. He has answered all of these criticisms with what many believe are satisfactory responses. Molina became frustrated with all this and responded with a regular barrage of emails to City officials and dozens of interested parties. Some staff have not responded well to this harsh glare of unwanted transparency and conflict.

 

Meeting discussion

Oxnard’s external auditor partner Don Ecker of Eadie + Payne delivers his report at 10-10-17 City Council meeting

CFO Jim Throop said they are making good progress on completing audit findings responses then introduced Don Ecker of Eadie + Payne to make the presentation of what they called a “special procedures report.” He said the materials were in the Council packet, but Councilman Bert Perello said some materials were not there.  The chart below summarizes which procedures were looked at and that a compliance review vs. City ordinances and CA govt. code and audit findings was performed. It did not address best practices specifically.

Summary reproduced verbatim from auditor’s report:
Auditor’s Findings

Based on their review of the agreed upon procedures, the auditor’s found:
– The new policies and procedures sufficiently address Findings 2015-032 and 2015-033.
– Certain policies and procedures of the Treasurer’s Office duplicated the procedures already being performed by the Finance department, including review of source documents, determination of budget appropriations and classification of accounts.
– These functions, for the review, audit and oversight of the City expenses, have been delegated to the Finance Director (CFO) in compliance with the California Government Code, City of Oxnard Ordinance and City Resolution, and are no longer necessary functions of the Treasurer’s Office.

Even Don Ecker, Oxnard’s external auditor Eadie + Payne Partner, was brought in to testify. He told us that Oxnard’s procedures call for Finance to do the work Molina wants to do, making the latter’s efforts redundant. E&P had been steadfastly resisting getting involved in this battle. Under questioning by Councilman Bert Perello, Ecker conceded that he might have come to  a different conclusion if procedures were different. He did not comment on the additional assurance that separation of powers can provide nor on “best practices.” In answer to Perello’s questions he answered “no” when asked if Finance, City Management, staff or Treasury ever pressured him to do anything wrong.

 

Treasurer

Treasurer Phil Molina explained his position (he was only given 5 minutes): Treasury expenditure review improves checks and balances and  internal control via separation of powers; It takes very little time compared to potential and actual benefits, some of which he rattled off at the meeting, including payments requested for nonexistent or long-terminated contracts, prevented overpayments, etc. Molina brought a letter from his attorney, Norman Dowler, stating that Molina had a right, even a responsibility to do what he is demanding (see link to text below).

Presentation material used by Molina: MolinaPayments101017

He said that his attorney found that Molina has both the right and duty to independently review demands for payment and all backup.

Read Molina’s attorney’s explanation: NormanDowler101017

Except for Councilman Perello, the Council Members were somewhere between hostile and neutral on Molina’s initiative. Mayor Tim Flynn most hostile, seemingly angry and upset about the whole thing. He maintaine that Council ordinance says that Finance should do these tasks, and in fact is doing the tasks, that Molina claims are his bailiwick. He said that Molina cannot change council policy and only the Council can and as far as he was concerned, the matter was closed. He allowed that discussion on this can be taken up in the future.

Councilman Bryan MacDonald continued in that vein, even subtly threatening Molina’s position with comments about initiating a discussion on eliminating Treasurer as an elected office and making it appointed.

While this may sound subjective, the amount of seeming animus, time and energy expended by staff to fight all this seems out of proportion to what is involved.

 

Public Speakers

Neighborhood Council activist Mike Gleason concluded that we are attempting to restore public confidence in the city and that extra steps over and beyond past practices, such as controls, should be extended, He cited his own experience in exposing and pushing resolution on millions of dollars in LMD money which was “siphoned” off inappropriately and much misappropriated.  He said this could have been caught by independent review and that employees who questioned what happened were discouraged and even threatened. He said best practices are needed.,

Oxnard self-appointed watchdog Larry Stein (was Treasurer candidate: Larry wrote  a long evaluation of the session (below). He pointed out and praised Molina’s qualifications. He pointed out that there were hundreds of employees who did not receive Social Security payments to IRS. He challenged what he said was the auditor’s inadequate sampling plan of transactions and that lots of internal control problems were discovered. He advocates doing what Molina wants to do for disbursements authorization.  In the Public Comments section, Stein also noted that the City Treasurer responsibilities disappeared from the City web site about a month ago.

George Miller (yes, author of this article) was impressed with Molina’s qualifications. There are  some problems in how he conducted himself, more than offset by what he brings to the job. Given City’s awful record of managing its finances, it’s not a stretch to put in additional checks and balances, internal controls. Auditor’s reaction is mystifying. Given everything that’s happened, we need a “belt and suspenders.” Doesn’t believe what Molina is doing is totally redundant, provides  a bulwark against fraud, not that much extra time to do. Treasury has detected significant discrepancies.

Martin Jones: Interesting that supplemental benefits were mentioned and that  Treasurer was one of the beneficiaries. City Manager, Atty., Council, all knew it was illegal and that Council hadn’t approved it. It is Council’s  duty to make sure Molina can do his review, regardless of Molina’s behavior, which he said he had always found gentlemanly. To do otherwise is like signing a contract without reading the fine print. Can’t Molina be allowed to do his job as under the law and best practices?  City Treasurer directly responsible to the electorate of of Oxnard.

 

Council input

Councilman Madrigal asked about sampling plan. (25 from entire population, selected via random number generator).

Mayor ProTem Ramirez enquired about best practices and auditor role, asked if anyone tried to hinder their work (no and we would report it, said E+P partner Ecker). When she asked if Molina did, Ecker said that he has bombarded them with memos and that “we don’t work for him.”

Councilman MacDonald- Already 5 sets of eyes on invoices- we don’t need Molina for this- already have a good system. Referred to Molina email that mentioned exposure of 144,000,000 Equifax accounts breached, but MacDonald pointed out that only 209,000 were USA.. He failed to tell us why his comment on this was relevant, except maybe to throw shade on Molina’s credibility in general. Also accused Molina of misquoting him. Accused Molina of improperly saying some properties in Harbor weren’t in Oxnard. Doesn’t have comfort that things are being clear and transparent (not clear what but sounded like he was referring to Molina).

Bert Perello took issue with some council statements, especially MacDonald’s. Said Molina reviews 80% of dollar value in sampling. He can be obnoxious in looking into public interest. Pointed out that MacDonald didn’t want to go after “found losses.” Asked  Ecker some questions: Pointed out that separation of duties is good practice but noted that E+P did not recommend a joint collaborative review process, but instead would eliminate separation of powers. Ecker replied that current policies are being met, but if procedures were different, he might have had a different answer. He did not address separation of powers  and did not mention that one of his own audit findings pointed out that treasury was NOT reviewing transactions (although it was in report detail). By addressing this finding, Molina has run into massive opposition.

He asked Asst City Mgr. Nava if he vetted E+P’s findings. P13, that due diligence review, audit and oversight delegated to Finance Director is no longer necessary for Treasury to perform?  Nava pointed out that auditor is responsible to verify, not internal auditor. So internal auditor did NOT vet.

Oxnard City Government Performance Pyramid

Asked City Manager Gregg Nyhoff if getting to the top of Oxnard’s performance pyramid (above) is better accomplished without the reviews. Nyhoff replied that focus should be on eliminating audit finding problems. No one questions state code about fulfilling state code for supporting Treasurer. He wants best practices. City ran with “worst practices. Not such a rift. Wants task team to sit down at table monthly to review, prioritize issues, publicly post results. Wants to implement this in November. No one trying to do anything unethical. Volume of work dictates prioritizing it, Hope all, including Molina, will join this issue review team.

Perello also said that he only learned of financial discrepancies after Molina was elected. This is incorrect since Perello helped draw out much more during his tenure on the Fiscal Policy Task Force, which he was late removed from by Flynn and he had access to multiple very comprehensive audits before then.

Mayor Tim Flynn pointed out County Treasurer/Tax Collector’s mission: We Collect, Bank, Invest. He said Molina does that plus cuts checks. He said Molina can’t unilaterally change procedures simply because they are best practices. Only the Council can do that. Flynn didn’t point out  that audit findings specifically addressed that, yet the Council hasn’t responded with an ordinance change to bring procedures into line with best practices and state law.

Flynn also claimed that he talked to CA Municipal Treasurer’s Association. He explained to them that Oxnard Treasurer also wants to be an auditor by doing payment reviews (If that is true, then the CFO would also be an auditor). Molina told us afterward that he also talked to CA MTA and that he has a letter from them saying that what he is doing is appropriate.  We have asked for a copy of the letter from Molina but haven’t received it. Flynn said that this issue is SETTLED and he will work with  Molina, who is highly competent, but we need to get on with the work of the city, without disruption. He said that we could agendize roles and responsibilities of the Treasurer in the future and even whether it should be an elected position. It is clear that some Council Members are uncomfortable with the independence and power base of an elected Treasurer.

 

Items of Interest

See the relevant 10-10-17 agenda item:  C1 Staff Report

Read Molina’s explanation of review process: MolinaPayments101017

Larry Stein’s impressions of 10-10-17 Item C discussion

 

Oxnard Treasury, Finance fight over turf: Internal Controls responsibility

Oxnard Treasury, Finance fight over turf: Internal Controls responsibility

By George Miller- Oxnard Treasurer Phil Molina has fought a year-long battle, mostly with CFO Jim Throop, over whether Treasury will be allowed to implement some principal campaign promises Molina made concerning verification and approval of expenditures. Throop and his boss, Asst. City Mgr. Jesus Nava, have seemingly moved heaven and earth to prevent Molina […]


George Miller is Publisher/Co-Founder of CitizensJournal.us and a “retired” operations management consultant residing in Oxnard.


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Eileen Tracy

If it was up to me, I’d choose an elected official to have authority to verify expenditures. Supporting documents are a necessity to complete this verification.

Why would Finance fight so hard to avoid oversight? That alone makes me be suspicious of staff’s objections. Just the knowledge of prior council’s and staff’s carelessness justifies additional oversight (especially by an elected official).

Thank you Citizen’s Journal for this report.

And yes, I am no longer an Oxnard resident.

Dennis Ralph

How is it that he was given 5 minutes for his presentation? We need to Recal this suspect council! Oh wait we’re doing that!

Laura Driskell

Because the Treasurer is an elected position, the Treasurer works for the citizens of Oxnard, not for the City Council. In fact, the City Council, consisting of elected officials, ALL work for the citizens of Oxnard.

The City Manager, being hired by the City Council, works for the Council.

If the City Council decides that the Treasurer can not do his best to protect the citizens and provide transparency, then I would be extremely suspicious of the Council’s motives, and would advocate impeachment of all members. The City has run in the dark for too long. It’s time to shine light on the processes and expenditures.