On Aug. 16, the Indy ran an article titled “If You Don’t Get Finances Right, Nothing Else Matters.” This begs the question, is the city getting its finances right? With failing audit reports dating back to 2017 citing the same types of problems, it’s a fair question. As are the following.
Is a functioning audit committee a council priority? When faced with the reality that the public wanted a resident-led independent audit committee, Bob Whalen suggested merging audit responsibilities with the Measure LL committee. When the measure was disbanded, the seven-member combined committee was reduced to a three-member stand-alone audit committee for a short time, until the council added investment advisory responsibilities to create a new combined five-member committee. During its five-month life, the stand-alone audit committee never met, and as a result, to this day, no audit committee has ever reviewed the 2021 year-end financial statements or reported results to the council.
Is the lack of audit expertise on the audit committee an oversight?
The city “audit” committee has never had anyone with credentialed accounting and auditing expertise. When given the opportunity to replace a departing LL member, the council chose one of the two non-CPA applicants rather than one of the three CPA applicants, with Whalen inquiring of one of the CPAs whether she could work well with the existing committee.
When it was publicly pointed out to council that the call for applications for the latest version of the committee did not include a requirement for accounting or auditing expertise, nothing was changed, and no one with accounting or auditing expertise was selected.
Is the failure to get the audit committee involved in auditor selection a coincidence?
In 2017, Whalen suggested removing from the list of proposed audit committee responsibilities the participation in selecting the auditors, suggesting that this was a management responsibility. This suggestion was never adopted as it is not best practice for audit committees. Nevertheless, since its inception, the audit committee has had little to no involvement in selecting outside auditors.
There is hope. New City Manager Dave Kiff has announced that cleaning up issues in the city’s finance department is one of his top priorities. He has already hired a new finance director with an extensive accounting, auditing and finance background. We can help by insisting that councilmembers include getting our finances right as one of their priorities.
Mary Locatelli, Laguna Beach
This letter asks some good questions:
• Is a functioning audit committee a council priority?
• Is the lack of audit expertise on the audit committee an oversight?
• Is failure to get the audit committee involved in auditor selection a coincidence?
Clearly those are rhetorical questions. From its inception in 2018, council has never structured the committee properly, always treating it as a poor stepchild. It has never given it the expertise necessary to do its job. And it has stood by while management usurped one of the committee’s key responsibilities, that of participating in the selection of the outside auditors.
This would be less important if the City had a well-functioning finance department. But as the letter points out, since 2017 the auditors have given us failing audit reports citing the same types of problems. The happy ending may be that the council, either wittingly or unwittingly, has hired a new City Manager that has promised to make fixing the finance department one of his top priorities. And he has already taken steps in that direction.
That’s the good news. The head scratcher remains: why has the council majority been unwilling or unable to fix the issues within the finance department? And if the later, why have they not actively looked for outside expertise via its audit committee to assist them?
In the upcoming election ask yourselves which of the candidates will, as the letter states, make getting our finances right one of their priorities. I know my answer. Bob Whalen has had his chance and after eight years has not managed to get it done. I’m voting for George Weiss and Judie Mancuso, the two candidates that believe getting our finances right is important.
I agree with you Mike. The inception of the “audit commitee” was a rubber stamp, literally, to acknowledge that what the CC said they were going to spend the LL funds for was being spent. Nothing more than checking that they did what they said they were going to do. This committee was filled with political appointees – not finance specialists. For years residents have been asking for a CPA on the committee. Sue stated that if one wanted to apply they would be considered. But residents wanted it mandated that qualified people would be on this committee. John Pietig unilaterally decided to expand their role to overseeing the city budget – yet their qualifications didn’t match that mission. He just did it. And so we had, for years, an unqualified and basically neutered committee. I’m not sure when they changed the mission but it’s just so interesting that even with qualified people on the committee city staff bypassed them in the firing and subsequent selection of the auditor process. It all stinks and I hope that they now have the gravitas to demand that their role be serious and relevant to the Finance dept. and that they can oversee what the Finance Dept. has been getting away with for so many years.