Accountants Push for CPA on Audit Committee

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By Daniel Langhorne | LB Indy

A Laguna Beach citizens committee charged with watchdogging city finances presented its report Tuesday on the 2017-18 Fiscal Year, about 19 months after the close of the accounting period.

The 32-page report published by the Citizens’ Audit Review and Measure LL Oversight Committee has sparked criticism and concerns by a group of 24 Laguna Beach residents with professional backgrounds in finance, business, accounting, and auditing who argue the panel should have at least one certified public accountant with expertise in auditing.

Considering the city’s reported revenues were more than $109 million in 2017-18, this watchdog cadre says the taxpayers would be better served with additional experienced eyes on the city’s ledger.

The city’s CPA firm, White Nelson Diehl Evans, reported Feb. 4 that there was an issue with reported cash again for the fiscal year that ended June 30, 2019. This marks the third consecutive year there was a problem with cash that required audit involvement and inclusion in the auditors’ letter, said Robin Hall, a Temple Hills resident and 37-year partner of her Newport Beach CPA firm.

“Staff states issues are different and isolated issues every year, has been corrected, and procedures are in place to keep it from recurring,” Hall wrote in an email. “A bank reconciliation is either correct or it is incorrect—that is the issue. One learns to reconcile checking accounts and properly void checks in Accounting 101.”

Gavin Curran, director of administrative services, responded to Hall’s critique of the citizen committee report’s tardiness and city finance staffers’ lack of follow-through in a prepared statement.

“One of the purposes of the audit is to help the city identify possible opportunities to improve in its internal controls over financial reporting,” Curran wrote. “This would include, for example, this year’s recommendation to improve the timeliness of recording adjustments identified during a bank reconciliation.”

A bank reconciliation statement is a summary of banking and business activity that reconciles an entity’s bank account with its financial records.

After hearing public comments last week about the citizens committee’s report and composition, the Laguna Beach City Council stopped short of requiring at least one CPA be appointed to the audit committee. City Manager John Pietig cautioned that establishing such a requirement could limit the applicant pool.

“I don’t particularly agree that it needs to be a CPA,” council member Sue Kempf said. “I think it should be the most qualified candidate, if that’s a CPA fine.”

Instead, the City Council said its preferred candidates for the citizens committee should have subject matter expertise in auditing.

Mayor Bob Whalen said Laguna Beach has financial oversight but is open to reviewing additional finance and investment that might assuage community members’ concerns.

“I think the thing to do might be to put together a summary of the current processes, procedures and oversight measures that are currently in place and then we can have a more meaningful discussion,” he said.

Although there isn’t a CPA on the committee, city leaders pointed to the fact that city-contracted auditors are present at meetings to answer members’ questions.

“We have no issue whether there’s a CPA or not,” outgoing committee chairman John Thomas said. “If we see something that we’re concerned about we’re not adrift, there is a mechanism.”

Julian Harvey, a former deputy chief of the Anaheim Police Department, will be the committee’s next chairman.

Curran also welcomed committee members and the public to schedule a meeting with him if they have a question about city finances.

There were some eyebrow-raising interactions Feb. 4 between City Council members and Kassie Radermacher, a partner with White Nelson Diehl Evans LLP. Mayor Pro Tem Steve Dicterow asked Radermacher to offer her professional opinion about whether Laguna Beach would benefit from having a CPA on its audit review committee.

“It’s up to City Council,” Radermacher said. “I’m not going to give you an opinion on that. I don’t want to take responsibility.”

Dicterow wasn’t satisfied with that answer but still believes the audit firm is the best in Orange County.

“I think they do a great job for what we hire them to do,” he said. “I think they’ve shown a great ability.”

The best practices established by the Government Finance Officers Association don’t require that a CPA be included on a city’s audit committee, according to its website.

“Ideally, all members of the audit committee should possess or obtain a basic understanding of governmental financial reporting and auditing,” the association writes. “The audit committee also should have access to the services of at least one financial expert, either a committee member or an outside party engaged by the committee for this purpose.”

MJ Abraham was among the Laguna Beach residents who encouraged the City Council to set a higher standard for its audit committee.

“Help me understand why our city would structure a finance-related committee without enlisting qualified financial experts to serve on it,” Abraham said. “It just makes no sense. As a taxpayer who relies on all of you to protect our money, it’s causing concern.”

In a statement, Curran touted that Laguna Beach has earned a GFOA Certificate of Achievement for Excellence in Financial Reporting for the past four years.

In 2007, both the cities of Bell and Pasadena were recipients of the award. Bell’s corruption issues were widely reported in 2010 and had occurred for many years including 2007. Pasadena’s embezzlement occurred from 2003 to 2014.

“I don’t put a lot of weight in the award,” said Vickie Mcintosh, a Laguna Beach resident who has worked as a CPA for 35 years.

As of this week, Laguna Beach has a hotline at 949-715-0854 for the public to report financial fraud, waste, or abuse at City Hall.

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