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Ignoring the Need for Audit Oversight

By Michèle Monda

A year ago, January 2019, the city audit firm sent their findings on the June 30, 2018 Comprehensive Annual Financial Report (CAFR). This covers the time frame from July 1, 2017 through June 30, 2018. Please note the dates. As far as I know, the city and the Audit Oversight committee are still reviewing it. Another fiscal year ended six months ago, and the City Council still has not dealt with the prior year’s issues as stated in the auditor’s report. It seems neither the city nor the Council feel urgency or concern over the findings. But they should. This lack of oversight is a serious fiduciary breach of the responsibilities of the City Council.

According to the auditor’s letters and report, the city is seriously deficient in a number of areas. Most disturbing is that issues such as the failure to properly review and adjust deposit balances, the lack of a capital asset policy, and internal controls and operational matters have not been remedied from the last audit. The city is continuing to make the same mistakes and has not fixed the problem. The beginning balances for fiscal year 2018 were not in agreement with the June 30, 2017 audited CAFR—it’s been financially incorrect all year.

Additionally, the auditors found that the bulk of the city’s assets (cash and fixed assets) do not have good oversight nor are following generally accepted accounting procedures. Staff needs to prepare accurate financial records monthly, not wait until year end or until the auditors find the mistakes.

Is the city finance department adequately staffed with seven employees but not one CPA? Their combined compensation and benefits are roughly $1,026,000 million. The top two finance employees account for $573,000, or 56 percent of the total. And yet, neither is a CPA. Are we really getting a good return on our investment in employees? The only CPA involved with the city is Treasurer Laura Parisi. Is she consulted on city finances? I doubt it.

The current Audit Oversight committee is the LL Oversight committee. This City Council-selected committee was vetted to audit the $2 million LL budget—not the $100 million city budget. As the LL Oversight committee, their sole responsibility is to affirm that the city did in fact spend the money the way they said they were going to spend it. On this committee there is a deputy chief of police, a public policy advisor/writer, a real estate broker/consultant, a bank CEO, private equity investor, bookkeeper/small business owner and a business owner. There are no CPAs and no auditors. They were asked by the City Manager and approved by the City Council to take over the extra responsibility of city audit oversight. These responsibilities include: a voice in selecting the auditors, reviewing audit results, reviewing internal control weaknesses and legal compliance, and making recommendations based on the annual financial audit. I am not disparaging them, far from it for all the volunteer time they put in, but wouldn’t it make sense to have CPAs and/or auditors on this committee, especially given that they have gone from oversight of a $2 million budget to input on a $100 million budget?

City Council needs to remedy this now. They have been approached individually about this, yet nothing has happened to ensure that the city is handling our money properly. My auditor friends tell me that the shortfalls in the auditor’s letters are red flags to gross misconducts. There are probably so many more “little” things that are big to residents. Is this how we want our tax dollars managed? No $100 million business could allow this to happen and keep their doors open.

We need a professionally staffed citizen’s Audit Oversight committee with CPAs and auditors to ensure that the city is handling our tax money properly. It is City Council’s job to make this happen. With so many qualified candidates in Laguna, surely the Council can give us that. We do not want to end up like the City of Bell, do we?

Michèle Monda has lived in Laguna Beach for 15 years with her husband, Emil, and three sons. She is secretary of Laguna Beach Republicans and treasurer of Laguna Beach Sister Cities.

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2 COMMENTS

  1. Michele, Thank you for bringing this serious financial issue to residents attention! I completely agree; it’s one thing to enlist community volunteers “to verify if funds were spent in accordance with the guidelines of a designated revenue stream such as Measure LL annual $2 million”, but it is NOT acceptable to allow these same volunteers with limited or no finance expertise or qualifications to oversee our City’s $100 million dollar budget. I suggest everyone see the documentary film “All the Queen’s Horses” about a small town’s experience of having $53 million dollars in public funds stolen by the town controller/treasurer. It was shocking. The film illuminates an embezzlement case and exposes the negligence of staff, auditors, bankers and city officials. The City of Laguna Beach must have a closely monitored finance department and tracking system in place for managing our City budget and oversight by qualified CPA auditors. Nothing less should be acceptable to residents. Let your city officials know you are concerned about how we are operating and that you want a higher level of qualified oversight when it comes to our City budget.

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