Internal Control Reports - The Bigger Picture

The reports on the City’s internal controls provided by the auditing firm Moss, Levy, and Hartzeim were finally released, forty days after the original public records request was made. Click here to read the detailed reports: 2012 , 2011, 2010.

John and I talk about the Internal Control Reports, college football and other pressing current issues in our latest hangout, Beaumont Hangouts Ep. 14 - Internal Control Reports and Football

If you are at all concerned about the financial condition of the City of Beaumont, you need to review these reports, it should take less than 15 minutes. These reports are provided to the City Council after each annual audit. They are not the Internal Control Audit I am requesting but they indicate significant deficiencies and material weaknesses. The reports alert the City’s financial department and City Manager about areas of concern regarding the financial management of our resources. After the report is submitted to the City Manager and Finance Director and before it is made available to the public, the City has an opportunity to dispute the findings and to comment about how the city will work to address the problems. These reports contain the City’s comments and the administration’s plans for addressing the deficiencies.

Others will be blogging on the Patch and other sites about the details of the reports and what it all means. I’d like to focus on the bigger picture. How should these reports be used by the City to address the internal control issues? What are the reports really telling us? And, do we still need a complete Internal Controls Audit?

These reports should be used as a guide on how the finance department can work to eliminate deficiencies and shore up weaknesses. In the 2012 report, the auditor reviews the items from the previous year’s report and comments on whether or not the finance department has implemented the plans they had made to address problems from 2011. In most cases, the City of Beaumont failed to implement their own plans. Most of the problems in 2011 were also concerns in the 2012 report.

These reports are telling us that there are many significant deficiencies and the finance department and City Manager are not making a serious effort to solve the problems. These reports, along with the comments made by the auditing firm and our council members in previous meetings, are also telling us that the City Council either isn’t concerned about the significant deficiencies and material weaknesses or they haven't been reading these reports. Mr. Hartzeim, a partner from the city's auditing firm told us at an earlier council meeting that there were no serious issues coming from these reports and recommended against a full audit of the internal controls. The Council made every argument they could to avoid the audit. It is hard for me to fathom how they could have read the 2011 report and not have at least a few questions for the auditor about the City's progress to address the deficiencies in the following year.

The most important thing I take away from these reports is not the poor management and controls our City Manager and City Council are willing to accept; it is the fact that our City is operating with annual deficits in the millions and are using the residents of the Community Facility District areas as their bank. This can’t go on forever and Beaumont needs to follow the example of other cities facing similar financial concerns. We need to cut spending and get our financial house in order.

We are not going to be able to grow our way out of this mess. The Council can’t just keep creating more CFD areas and continue issuing bonds saddling future homeowners with the debt they are creating as a result of their mismanagement of our resources. They are going to need to make some difficult decisions. It is clear to me their first decision should be to hire an independent auditing firm, other than MLH, to perform a complete audit of the finance department’s internal controls. If a review of the controls reveal this many problems that aren’t being addressed year after year, one can only imagine what a complete audit might reveal. A problem like this doesn’t go away by ignoring it.

Mr. Berg, Mr. Fox, Mr. De Forge, Mrs. Knight and Mr. Castaldo - please show some courage and begin making the difficult decisions.