Electing City Treasurers and Clerks: Wise or Otherwise?

Elected city treasurers sometimes lack the technical skills and professional experience to adequately perform the duties of the office. Honorable Charles S. Crandall, Presiding Judge

Health benefits alone may be sufficient to attract unqualified persons to run for the job, leaving the work to city staff and costing the cities health benefits for persons performing no useful function.

Efforts to convince voters to approve making the job appointive have failed in all three cities.

The cities have found different ways to deal with these challenges. One approach is to arrange for a city employee to be elected treasurer and have that employee designate the finance director to do the job. But that approach can have inherent conflicts of interest.

Communication is minimal between the Atascadero treasurer and the other city officials who have financial oversight responsibilities. City Council Response to Recommendation #1 Summary The City agrees with Recommendation #1 in that investment policies should be effective and should be adhered to. This Recommendation has been implemented as a strong Investment Policy has long been in place and adhered to. The City did not have access to the same information as the Grand Jury regarding Findings #1 & #2, and therefore, due to the lack of sufficient supporting data, can neither agree nor disagree with these Findings. The City disagrees with Finding #5. Analysis The City has a strong Investment Policy which has long been effective at keeping the City safe from the misuse of powers by elected Treasurers. The Policy is carefully followed and reviewed annually. A revised Investment Policy was recently approved by Council on February 23, 2010. This policy requires the Treasurer to submit investment reports to Council on a quarterly basis. The December 2009 investment report was approved by Council in February, and the March 2010 investment report was approved May 11, 2010. The Investment Policy authorizes the City Treasurer, City Manager, and the Director of Administrative Services to undertake investment transactions on behalf of the City. According to the Policy, the Director of Administrative Services manages the investment activity of the funds of the City, and the City Manager and the City Treasurer supervise the Director of Administrative Services. The Finance Review Committee, which is made up of all five members of Council, meets to discuss investments and strategies. The City of Atascadero has been fortunate with the elected Treasurers. The City’s current Treasurer, Joe Modica, Jr., is a Certified Financial Planner, Enrolled Agent, and Registered Investment Advisor. His firm, Modica Financial & Tax, Inc. offers local individuals and businesses investment advice and financial planning strategies. Mr. Modica is fully qualified and has the technical skills and professional experience necessary for the position of City Treasurer. The Treasurer prior to Mr. Modica was Mr. David Graham. During the term of Mr. Graham, he was a part-owner of North County Honorable Charles S. Crandall, Presiding Judge Tax, Inc., a tax preparation and accounting firm in Atascadero. He, too, was quite experienced in the world of finance and effectively executed his duties as elected Treasurer. There is frequent informal communication between the Treasurer and other city officials with oversight responsibilities. The Treasurer and the Director of Administrative Services work effectively together to maintain the City’s financial assets and invest the City’s funds with the primary concerns of safety, liquidity and yield. Although formal communications are less frequent, and for a time were temporarily suspended, the informal communications remain, and had remained, quite regular. The obligations to preserve and grow the City’s cash and investments are taken very seriously by the elected Treasurer and staff, and prudent and adequate steps are outlined and followed to ensure the strength of the City’s assets. Grand Jury Recommendation #2 City councils and city managers should require that their functioning treasurers and city clerks, whether elected, appointed or deputized, provide all reports required of those offices at the time designated in state law. (Finding 6)

Atascadero officials failed to complete and provide the council with the state-required monthly financial reports in a timely manner for the period of April 2008 through November 2009. City Council Response to Recommendation #2 Summary The City agrees with Recommendation #2 in that all required reports should be timely. This Recommendation has been implemented as all reports are current. The City agrees with Finding #6. Analysis The City is now in full compliance with all local and State laws, and has provided all required reports to Council. The reporting requirements of the City’s Investment Policy actually surpass the reporting requirements of the State. California Government Code §53646(b) (1) states that the City Treasurer “may render a quarterly report to the chief executive officer, the internal auditor, and the legislative body of the local agency.” Subdivision (d) of that code section further states that “the legislative body of a local agency may elect to require the report specified in subdivision Honorable Charles S. Crandall, Presiding Judge (b) to be made on a monthly basis instead of quarterly.” However, this same code section’s final subdivision asserts (h) In recognition of the state and local interest served by the actions made optional in subdivisions (a) and (b), the Legislature encourages the local agency officials to continue taking the actions formerly mandated by this section. However, nothing in this subdivision may be construed to impose any liability on a local agency that does not continue to take the formerly mandated action. State law does not require monthly investment reporting. It does allow the legislative body to elect to require reporting, either quarterly or monthly. The Investment Report that was approved by the Council in February requires quarterly investment reporting. The Council is receiving those reports on a quarterly basis. On behalf of the Treasurer, City staff has historically prepared the investment reports (which are subsequently reviewed and approved by the Treasurer), but during the period April 2008 through November 2009, the reports were delayed due to limited staffing resources. However, all internal fiscal controls and financial reconciliations remained in place. The delayed reports were approved by Council at the Special Meeting held on January 7, 2010. All reports are current through the quarter ending March 31, 2010. A separate section of the California Government Code, Section 41004, requires the Treasurer to submit “a written report and accounting of all receipts, disbursements, and fund balances” on a monthly basis to the City Clerk. This report does not include investment activity, but does include summary information regarding cash ins and outs and fund balances. During the period when the investment reports were completed monthly, this information was included in those reports. However, since switching to quarterly reporting of the investment reports effective January 1, 2010, a summary report including the above information is submitted monthly to the Atascadero City Clerk, with a copy going to the Council. The monthly report is in addition to the quarterly investment report, which is also approved by the Council. Grand Jury Recommendation #3 Financial reports, and backup documents recording changes in investments, should be carefully scrutinized by a council member on a monthly basis. (Findings 1, 2, 5 and 6)