MORAGA -- An audit of the Moraga-Orinda Fire District's deeply troubled finances has revealed serious cash flow problems, prompting officials to adopt stricter accounting standards and adopt a reserve policy as they struggle to reduce a $950,425 operating budget deficit.

The review Wednesday of a financial analysis by Walnut Creek-based Cropper Accountancy Corp. came on the heels of the board's approval of a cut in daily staffing that will reduce the district's overtime expenses by $550,000 this fiscal year. The average number of firefighting and emergency service personnel will drop from 19 to 17 beginning next week.

That cut is one of the first few steps in addressing problems detailed in the audit, released last month.

In addition to the budget deficit, the district also faces exhausted general fund reserves. Administrators are relying on $3.67 million in capital project money to pay the bills, after Administrative Services Director Gloriann Sasser discovered the district has spent about $2 million -- from a "custodial account" set aside to help repay more than $28 million in pension obligation bonds the district issued in 2006 -- on daily operations instead. The account, replenished annually, now has a $12 balance. A separate $503,088 account was determined to be unrestricted.


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But auditor John Cropper's report shows the district's problems run deeper than the $2 million error. The district has continually budgeted general fund deficits since 2008. It has seen overall revenues decrease to $19.1 million while expenditures have increased to $20.86 million. The district's health care and pension liability costs are also a significant concern.

"The general fund budget is having a large unfavorable variance this year," Cropper said. "What changed from last year to this year? This is the most important thing I would like the board to hear: Cash flow became a huge concern."

Directors later agreed to implement a governmental accounting standard requiring specific fund balances be designated as restricted, committed, assigned or unassigned, and in what order those funds should be spent. That standard should have been adopted more than two years ago, according to government recommendations.

Officials also adopted a policy that requires the district to put an amount equal to 10 percent of budgeted general fund revenue into reserves.

Cropper reiterated the auditor is not an "internal control" and questioned why the district chose to purchase a $1.22 million Lafayette parcel in July given its cash problems. That move -- opposed by Director Fred Weil -- came before the board learned its general fund reserve had been exhausted.

Director Steve Anderson, who co-chairs the finance committee with Evans and listened to Cropper's report last week, rebuked Cropper for not previously identifying the restricted funds. Cropper countered that the district never produced documents showing the "custodial account" was legally restricted.

Weil said the fire district is looking at selling off a portion of the Lafayette property that will not be needed for a station.

Board president John Wyro said he is satisfied officials have been handling the situation properly and that the auditor's comments were "speculative."

"I know this board feels the way they do. I'm not going to get into a contest with you," Cropper replied. "I apologize if I've offended the board, but I need to say professionally, and this needs to be heard by the board, I hope you understand that you're on an unsustainable fiscal path."