By Tom Lochner
The fiscal year 2009-2010 audit, by Moss, Levy & Hartzheim LLP of Beverly Hills, normally should have been done more than six months ago but was delayed by upheaval in the city's finances and top management, including revelations of multimillion-dollar deficits in the general fund and redevelopment agency and the departure of several top officials.
In October 2010, then-City Manager Nelson Oliva went on medical leave, ushering in a string of three interim city managers interrupted by Oliva's brief reappearance at the helm when the City Council ousted his interim successor, Charlie Long, who had revealed the gravity of the city's financial crisis.
Also in the fall, former planning consultant and project manager Liz Warmerdam replaced Gloria Leon as finance director;
Warmerdam has since become interim city manager, succeeding the retiring Fred Deltorchio, who had held the interim post for six months after serving 7 1/2 years as police chief. And just last month, the city hired an interim finance director, David Baum
The audit was further delayed by the preparation of a
The Moss, Levy & Hartzheim audit consists of six reports: a comprehensive annual financial report of more than 160 pages; a brief review on the basics of auditing; citywide financial statements; separate management reports containing opinions on the city's and the agency's internal controls and compliance with financial regulations; and a report that monitors compliance with federal and state grant rules.
The auditor found a lack of competitive bidding for bond issues; a lack of a formal nepotism policy; irregularities related to inventory control, time sheet monitoring and collection of accounts payable, especially leases of redevelopment agency-controlled property; questionable allocation of expenses to certain city funds and other flaws. One late finding notes New Town Center invoices that lack supporting documentation or appear excessive.
Councilman Dan Romero questioned why the auditor did not call attention sooner to the billing spree by New Town Center developer The Red Barn Co., that went on for most of 2009 and 2010 and included individual invoices that exceeded $10,000 and even $20,000.
“If you did do the auditing, how did your company fail to find this and report this to our city?” Romero said, noting that the firm found “trivial” irregularities such as a handful of unsigned time sheets in the parks and recreation department.
Moss, Levy & Hartzheim auditor Derek Rampone replied, “We test things on a random basis,” adding that he would have to check to see whether any of the New Town Center invoices ever came up during that process. “If they were selected and missed, that would be a mistake,” Rampone said.
Just in the first nine months of 2010, Red Barn ran up almost $2.5 million in bills, much of it for luxury hotels, travel and a $20,000-a-month consulting fee for its president, Tom Weigel, and other consultant fees. The bills also included a $10,000-a-month retainer to Red Barn's law firm and a $50,000 bonus to the law firm in April 2010. The firm, the TownField Group of Charlotte, N.C., also collected a $50,000 bonus in December 2009.
Interim City Manager Liz Warmerdam interjected that Red Barn invoices did not come up in the random sample initially checked by Moss, Levy & Hartzheim and that Red Barn's expenses only really became an issue in early 2011.
But Romero wasn't buying it: “Those invoices were going on in 2009 and 2010,” Romero said
Turning to Rampone, Romero asked: “After knowing what occurred here in the city of Hercules for the last two years, has your company done an internal audit of how you're conducting business so that other cities like Hercules are going to be protected when your auditing firm comes in?”
Rampone said his firm goes through third-party review every three years as part of internal controls.
Vice Mayor John Delgado had a different take on the audit, describing the comprehensive report as “a fantastic document,” notwithstanding the criticism.
“If you go through it, you really get to see how the city functions financially and where all the money comes and where it goes,” Delgado said, adding: “I was impressed by the breadth and detail of the report.”
Mayor Myrna de Vera questioned whether Rampone's firm adequately communicated to city officials the deterioration of the city's finances that had begun years earlier. Rampone said his firm had brought the matter up during City Council finance subcommittee meetings.
“It was discussed and obviously it's my word against nobody's,” he said, in an apparent nod to the fact that no current council member's tenure goes back further than December. In April, the city issued a request for proposals for an auditor on the recommendation of the council finance subcommittee and the Citizens Finance Advisory Ad Hoc Committee. The Council is expected to vote on a choice of auditor on Aug. 23.
Moss, Levy & Hartzheim, LLP did not respond to the request for proposals, said Hector Rubio, chairman of the finance ad hoc committee.