No New Bonds Without An Internal Controls Audit First...Please

Next Tuesday, Beaumont’s City Council will hear public comment on their plan to encumber more of our future neighbors with millions in Mello-Roos debt. However, they still refuse to consider public comment about bringing in an outside independent accounting firm to audit their internal controls. Following are reasons why I continue to press the council for more transparency and to try and compel them to order an Internal Controls Audit.

Every audit the city has made public in the last few years has referenced a report of the City’s internal controls delivered to the City by the firm hired by the city, so far I have been unable to locate them anywhere on the City’s website. We learned from the auditor at last month’s Council meeting the 2012 version of this report has been presented to the City but they were waiting for the City’s response to their findings before the City would allow the report to be made public. The complete audits for the last few years have been posted to the City’s website but not the reports on the internal controls. Why not?

The City listed a $21,500,000 debt from the former RDA (Redevelopment Agency) as an asset on their 2011-2012 audit. This enabled them to avoid having to declare a $4,000,000 deficit on an audit they submitted more than a year late. This is a debt the City’s own auditors believe is uncollectable.

The City made a $2,000,000 one-time accounting entry transfer from the 2012-2013 fiscal year’s budget to help cover the deficit on their 2011-2012 audit.

The City took more than a year to complete the 2010-2011 audit, 17 months for the 2011-2012 audit, and has yet to close the 2012-2013 books. Of all the issues I discussed with a CPA specializing in local government audits, who is a partner for one of the Big 4 accounting firms, this pattern was the one issue that concerned him the most. He indicated this was a symptom of poor internal controls.

The State has told the City they need to repay the County the more than $2,900,000 paid to the City for RDA obligations that the State Finance Department later ruled were unenforceable obligations. These obligations were ruled unenforceable because there was no documentation to back up the city’s claim they had been contracted by the RDA to act on behalf of the RDA. Keep in mind the RDA board is the City Council and the administration for the RDA is our City’s own administrators. Why doesn’t a single Council Member recognize the failure of internal controls that would allow such a costly mistake when they are contracting with themselves?

The City has agreed to make “pass thru” payments on the $2,900,000 in $300,000 annual installments. Until this debt is retired, the City won’t be able to begin requesting from the State the $21,500,000 they claim as an asset. By my calculations, they will be unable to even begin requesting the $21,500,000 until the year 2023.

The City’s law suit over TUMF money against WRCOG and the corresponding counter suit go to trial before the end of the year and, if the City loses, it is estimated it could cost the taxpayers between $40,000,000 and $50,000,000.

Earlier this year, the City, acting as the Beaumont Financing Authority (BFA), refinanced two Mello-Roos bonds to lower the interest rate charged the BFA but the BFA didn’t pass any of the savings along to tax payers. The City’s financial consultants and attorneys received tens of thousands of dollars and $100,000 was transferred to the city’s accounts while extending homeowners’ property tax obligations. The City’s consultants, Urban Logic, received another $70,000 for two Project Engineering Reports for the 2 bond reissuances. Urban Logic compiled existing project engineering reports, very few performed by Urban Logic, and created two, 4 page, cover letters and delivered these compilations to the Council as their “Project Engineer’s Reports”.

I have yet to see a single audit of one of the BFA’s Mello-Roos CFD bond funds to verify where the homeowner’s fees are being spent presented at a council meeting. Does anyone remember when the last one was presented? I haven’t been able to locate any of these audits on the City’s website. I believe the BFA is required by law to regularly audit their CFD bonds.

The City failed to properly contract with themselves, as the former Redevelopment Agency, in a way that protects the interests of our families and our children’s future. They continually refinance the existing Mello-Roos to benefit their consultants at the expense of the taxpaying homeowners. And, now they want to issue millions more in Mello-Roos without providing timely audits of their annual books or the existing bond funds.

The city has argued that there will be no new taxes on current residences, just on future homeowners. Remember ten years ago, 30,000 of us were those “future homeowners”. Ten years from now, we should want to be able to look our future neighbors in the eye and tell them we were responsible with their kids’ futures.