Fresno County Grand Jury • 2000-2001

Reports 2000-2001

Published: May 01, 2001 117 pages Consolidated Report
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Note: Missing finding numbers detected: F16, F17, F20, F21

Findings 19 findings

F4 Page 17
During fieldwork it was noted that a check was issued to the Finance Director on August 6, 1998 in the amount of $1,504.31 for training reimbursement. The Finance Director also authorized the payment and signed the check. It is the City Manager’s policy to approve the warrant register, which he believes provides proper segregation of duties. However, based on our review, the warrant register does not provide details of each payment, just check totals. Therefore, the City Manager’s approval of the warrant register does not indicate that he approved the contents of the payment. At a minimum, internal controls require segregation of duties which provides an adequate level of review. Although this can be difficult in a small office like Parlier’s Finance Department, the City Manager should review and approve the payment contents as well as payment totals, when the Finance Director is the payee.
F5 Page 18
It was noted during fieldwork that Parlier’s City Manager and Finance Director utilize City credit cards. Purchases for office equipment, travel and meetings, etc. are made using these credit cards, and in 9 out of 11 (81%) credit card statements reviewed, receipts were not attached to the statements to support the expenditures. Only vendor names and handwritten general descriptions were included on the statements. We further tested 3 of the above 9 statements and determined that $117.11 of the insufficiently supported expenditures on a statement totaling $684.51 was attributable to Parlier’s Redevelopment Agency. In addition, $525.17 and $177.07 of the expenditures on two other statements totaling $5,037.59 and $1,980.00, respectively, were attributable to the Measure C – Transportation Authority, Sales Tax Proceeds fund (Measure C). In addition, when costs are charged to the Measure C program that cannot be substantiated and, therefore may not be in compliance with program requirements, Parlier’s future allocations may be withheld and reimbursements of such funds to the Fresno County Auditor-Controller/Treasurer- Tax Collector may be required. Such funds would only be released when exceptions are resolved and Parlier is in compliance with program requirements. Compliance issues regarding redevelopment agencies are addressed by various regulatory agencies as explained in the Parlier Redevelopment Agency section on .
F6 Page 18
It was noted during testing of expenditures, that the Finance Director used the City of Parlier’s Office Depot credit card on two separate occasions to purchase personal items such as movie videos, games, a chair, bookcases, etc. totaling $768.06. Both the Finance Director and City Manager stated the card was used by mistake and that actions were taken to reimburse the City through payroll deductions. However, when this matter was brought to the Finance Director’s attention by our audits staff, the Finance Director researched and determined that Parlier had not yet been reimbursed. Although this matter should have been followed up more timely, on April 2, 2001, the Finance Director did reimburse the City $914.77 which includes interest. 8
F7 Page 19
Health & Safety Code Section 33490 requires redevelopment agencies to submit a 5-year plan to the State Controller’s Office on or before December 31, 1994 and every 5 years thereafter. The RDA submitted a 5-year plan in 1994. However, based on information provided, Parlier’s 5-year plan, which was due on or before December 31,1999, had not been submitted to the State Controller’s Office as of the date of this review.
F8 Page 19
It was noted that the RDA appropriately recorded $747,015 in revenues for fiscal year 1998/99. However, only $145,496 of this amount was transferred to the low-income housing fund, which was less than the 20% required by Health & Safety Code Section 33487 by $3,907. The calculation was based on the net amount received by the RDA instead of the gross apportionment as required by the Code. The transfer to the low-income housing fund was properly calculated for fiscal year 1999/00. 9
F9 Page 20
It was noted during a review of Parlier’s financial statements that redevelopment notes receivable in the amount of $1,257,180 were erroneously listed in the general long-term debt account group in the 1998/99 statements. These notes receivable were properly reclassified by Parlier staff in the 1999/00 statements, which resulted in a $1,257,180 increase in the capital projects beginning fund balance; however, there was no disclosure explaining this material change.
F10a Page 20
According to Parlier’s City Manager, all redevelopment loan programs must be approved by the RDA Board, which is Parlier’s City Council. We reviewed all available loan files for the sixteen redevelopment loans issued by Parlier as identified below, which were made between 1993 and 1996. There are nine individual loans and seven commercial loans. Based on documentation provided, it could not be determined that any of the loans were properly approved by the RDA Board. The Executive Director of the RDA is authorized to execute loan documents on behalf of the RDA, and we verified that he did sign agreements for all of the loans except as noted in Findings #10b, c and d below. In addition, based on information provided in loan files, we could not determine if any of the borrowers met the RDA criteria needed to obtain the loans. The City Manager stated that it is unlikely that any of the borrowers would not meet the criteria due to Parlier’s demographics. In addition, both the City Manager and Finance Director stated that there may be additional RDA loans that they do not know about. They said that loan files were incomplete when they began working for the City, and they had to piece together documentation for the loans as it was located. Based on the documentation provided, all nine individual loans were charged 5% interest. However, of the six commercial loans that had any supporting documentation (the seventh loan did not), one was charged 4.39% interest, three were charged 5%, and two others were charged 8%. Parlier staff did not know how these various interest rates were determined or why it was decided to charge different borrowers different rates. Based on our review of redevelopment guidelines, no provisions could be found that addressed the matter of interest rates on outstanding loans. In addition, except as noted in Finding #10b, we could not determine that any of the borrowers were related to City officials at the time of the issuance of the loans; however, this should not necessarily be an issue provided all borrowers met RDA loan criteria as addressed above.
F10b Page 21
Nine of the sixteen loans issued by Parlier were “written off” for financial statement purposes and seven were not. Except as noted below, payments on six of these seven loans were received regularly and currently from the borrowers. Four of these six loans were provided to individuals in the amounts of $6,013, $7,000, $13,782, and $15,000. The fifth and sixth loans were commercial loans for $102,000 and $488,000 at a 4.39% and 5% interest rates, respectively. The seventh of these loans, which did not have any supporting documentation, is addressed in Finding #10d. The $15,000 individual loan noted above was issued in 1995 to a relative of the mayor. No payments were received by the RDA until the previous Finance Director contacted the borrower in April 1997 requesting copies of loan documents, which Parlier did not have at that time. Shortly after that, the borrower began to make regular payments on the loan and has continued making payments through the date of this review. These loan payments are included in a schedule in our workpapers. In addition, based on our review of loan documentation provided by the City, the agreement for this $15,000 loan was signed only by the borrower. Therefore, it is not clear whether the loan was properly executed by the Executive Director, or whether the loan was properly approved by the RDA Board as addressed in finding #10a. Based on documentation provided, we did find evidence that the Executive Director authorized $5,000 of the loan, because he approved two checks issued on this loan totaling $5,000.
F10c Page 21
One of eight reportable conditions in Parlier’s 1998/99 audit report stated “The RDA has made numerous redevelopment loans to individuals and businesses. Many of these are totally non- performing.” The corresponding recommendation stated “Staff should contact each delinquent borrower to determine if stronger collection action is required, or if the loan cannot be reasonably collected, then it should be written off.” Parlier’s response was “RDA receivables were turned over to a professional collection service. Collection of the majority of housing loans is not possible, since the loans were not secured by real property. The issue of whether to pursue or forgive these loans is a policy for the Council to pursue.” 11 For 1999/00 financial statement purposes, the RDA “wrote off” four commercial loans and five individual loans totaling $46,736. Based on information provided, Parlier’s City Council did not approve writing off these loans, although it was disclosed in Parlier’s 1999/00 financial statements that the “City wrote off” the loans. During our review, Parlier staff explained that it was not the City’s intention to officially write off loans as they just wanted to report loans for financial statement purposes net of amounts considered to be uncollectible, and they are continuing to pursue collection of these loans. Based on information provided during our review, Parlier referred the delinquent loans to one collection agency who declined to pursue collection of the loans. According to Parlier staff, based on that collection agency’s response that these loans were not collectible, it was decided not to try to obtain further collection agency services. As of the date of this review, Parlier has not referred these loans to any other collection agency. The RDA continues to send invoices monthly on the “written off” loans to all of the individual borrowers but to none of the commercial borrowers, which, according to the City Manager, are no longer in business. However, no payments have been made by the loan recipients in several years. Information received on these “written off” loans is indicated below. The loan type is designated by a C for Commercial or I for Individual as follows: Loan Loan Loan Interest Unpaid Date of Type Year Loan Recipient Amount Rate Balance Last Pmt C 1993 El01 $12,500 8% $10,000 7/97 C 1993 Gor02 5,500 8% 4,940 11/93 C 1995 Sal03 2,390 5% 1,647 1/98 C 1995 Ant04 2,550 5% 513 7/97 I 1995 Mar05 5,000 5% 3,062 4/97 I 1995 And06 3,044 5% 2,639 4/97 I 1995 Noe07 2,500 5% 2,048 12/96 I 1996 Elo08 14,430 5% 14,430 None I 1996 Man09 7,683 5% 7,457 12/96 Total $55,597 $46,736 In addition, based on our review of the related loan documentation, the following exceptions were noted for these “written-off” loans: 1. The signed loan agreement for loan recipient Gor02 specified a loan amount of $4,000, but the amortization schedule included in the documentation provided an amended loan total of $5,500, yet there was no authorized amendment to the loan agreement. 12 2. The loan documentation for loan recipient El01 (El01) did not contain a loan agreement but contained other miscellaneous documents including a 1993 request from the attorney in fact for a $12,500 loan; an incomplete and unofficial copy of a 1993 RDA minutes indicating that the RDA Board approved a $12,000 loan to El01, and a copy of a $12,500 check signed by the RDA Executive Director and made out to El01 in 1993. Therefore, there was a conflict between the $12,000 amount that appeared to have been approved by the RDA Board and the $12,500 check approved by the Executive Director.
F10d Page 23
During our review of the seven outstanding loans that were not “written off”, we noted that the financial statements disclosed that “…the Agency has a receivable … relating to low-income housing assistance provided in prior years. As long as …” the borrower “…continues renting to low-income individuals, they will be required to pay back a discounted amount equaling the annual installments, without interest, in the amount of $83,418 beginning in December 2013.” Parlier staff was able to provide us with a recorded deed of trust for this loan in the amount of $1,668,366; however, they could not provide a copy of the loan agreement. Therefore, we were not able to verify whether the borrower has complied with the terms of the agreement or whether the agreement was properly approved as discussed in finding #10a. Also, we were not able to determine whether interest will accrue if the borrower does not continue renting to low-income individuals or any other details about the loan.
F11 Page 24
It was noted during fieldwork that reimbursement requests submitted to the Fresno County Public Works Department were properly supported by invoices to outside entities. However, transactions were not properly recorded in the City of Parlier’s general ledger. Payments made by Fresno County to Parlier during fiscal year 1998/99 were understated in Parlier’s CDBG general ledger by $14,271.61, thereby understating CDBG revenues on the 1998/99 financial statements. The difference was due to a check issued by Fresno County in the amount of $149,271.61 on May 13, 1999. It was confirmed that Parlier received and endorsed the check for $149,271.61; however, only $135,000 of this amount was recorded in Parlier’s CDBG fund. The balance of $14,271.61 was recorded in Parlier’s general fund. Also, we were not able to trace 2 of 30 (6%) invoices totaling $4,370 to Parlier’s CDBG fund. However, we were able to confirm with the vendor that the invoices had been paid. Parlier staff has not been able to provide information regarding where these expenditures were recorded. Additionally, during a test of CDBG expenditures recorded in the general ledger, Parlier staff were not able to locate supporting documentation for 2 of 8 (25%) expenditures tested. Accurate and complete records are essential for restricted revenue funds to ensure continued funding and enhance internal controls.
F12 Page 24
During a review of Parlier’s financial statements for fiscal years 1998/99 and 1999/00, it was noted that the Child Development Fund listed expenditures for capital projects, which is not in compliance with the terms of the grant. Further analysis found that capital expenditures were not made in violation of the grant provisions. Instead, expenditures were not properly classified in the general ledger or the financial statements. 14
F13 Page 25
During a review of grant agreements for fiscal years 1998/99 and 1999/00, it was determined that grant expenditures recorded in the general fund and reported in the financial statements were in compliance with grant provisions except for a 1998/99 expenditure of $582.50 for engineering expenses.
F14 Page 25
During a review of the general ledger it was determined that expenditures do not agree with reports submitted to the State. The general ledger for fiscal year 1999/00 reports grant revenues of $283,950.97 plus $10,216.73 interest revenue for a total of $294,167.70. The general ledger also indicates total expenditures of $81,966.58 for 1999/00. The audit report sent to the State, which was prepared by the subcontractor’s CPA, indicates costs of $1,094,953.00 and revenue received of $72,808.00 for 1999/00. It appears that this audit report was prepared to reflect revenues and expenditures of the subcontractor and not the City of Parlier’s Child Development revenues and expenditures.
F15 Page 26
During the review, it was noted that payments made by the State Controller’s Office (SCO) to Parlier, which were posted on the SCO’s website did not agree with totals recorded in Parlier’s accounting system for fiscal years 1998/99 and 1999/00. For fiscal year 1998/99, the SCO recorded payments of $197,403.36 and Parlier recorded revenues of $218,610.40 for a variance of $21,207.04. For fiscal year 1999/00, the SCO recorded payments of $200,512.18 and Parlier recorded revenues of $202,545.85 for a variance of $2,033.67. Based on our review and documentation provided we could not determine whether the variances were due to timing differences or other factors.
F18 Page 27
During a review of the audit report issued by an independent accounting firm for fiscal year 1998/99, it was noted that the report contained an unqualified opinion despite the insufficiently supported expenditures discussed in findings #1-3 and the understated revenues discussed above. The same firm is conducting an audit of the Local Transportation fund for fiscal year 1999/00 but has not yet issued their report. During a conversation on March 26, 2001 with a staff member of the independent firm, the staff member said that the firm is questioning the method that Parlier uses to apply administrative overhead costs to this fund. The staff member also stated that the 1999/00 report will contain findings and recommendations related to the overhead application process.
F19 Page 27
Parlier’s Finance Director said that the City uses LLEBG money to pay for overtime expenditures in the Police Department since the amount of the grant is not enough to hire an additional police officer. Although overtime used to increase or enhance police services is an appropriate expenditure for this grant; based on information reviewed, we could not determine that overtime expended was an inappropriate use of grant monies. One officer’s salary is charged to the fund as an equivalent to the law enforcement overtime costs incurred outside of the fund. The amount of the 1998 grant was $19,623 and overtime for that period was $92,705. The amount of the 1999 grant was $19,097 and overtime for that period was $65,135. The Finance Director stated that he spoke with personnel in the US Department of Justice (DOJ) who told him that he can account for the fund in this manner as long as he can support the amount of overtime claimed on the grant. We contacted the DOJ and were told that this practice is not appropriate. DOJ staff stated that the actual expenditures paid with LLEBG money must be recorded in the fund established to account for the grant. During our review, expenditures for equipment were tested. During fiscal year 1998/99, 4 of 5 (80%) equipment expenditures tested did not appear to be appropriate for fund purposes based on information provided. As confirmed with the DOJ, LLEBG money is to be used to increase or enhance law enforcement services. The expenditures questioned include chairs for $1,356.68, rug runners for $343.73, and office supplies for $161.61. 17
F22 Page 29
During a test of expenditures for fiscal year 1999/00, the City of Parlier was not able to provide support for $769.50 charged to salaries and benefits recorded through a journal entry. The City’s Finance Director stated that the support for the journal entry could not be located.
F23 Page 29
Based on our review, another COPS program (AB3229, Supplemental Law Enforcement Services Fund) was charged $886.13 for an officer’s salary that was also included in a Universal Hiring Grant report submitted to the DOJ for the period 10/1/98 to 3/31/99. In addition, the salary included in this report also included overtime which is not allowable according to Universal Hiring Grant provisions.

Recommendations 15

Conclusions 35

No Responses Found 2

Government entities assigned to respond to this report. No response documents have been linked in our database.

California Department of Transportation Agency
Fresno City