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Extracted from Consolidated Report
This investigation was originally published as part of a larger consolidated report containing multiple investigations. View the consolidated PDF for the complete document.
⚠️ Translation Notice: This content has been automatically translated. The original English text is the official version. Translation may contain errors.
⚠️ Este contenido ha sido traducido automáticamente. El texto original en inglés es la versión oficial. La traducción puede contener errores.
Findings 9 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
Recommendations 9
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R1Page 17To be in compliance with the above restricted revenue requirements and regulations and to eliminate the appearance that restricted revenues are being used to fund general fund expenditures, the City of Parlier should ensure that such restricted revenues are clearly used for the related program purposes. Costs charged to the special revenue funds should reflect actual costs attributable to the program and should be supported by applicable documentation such as time tracking. The City of Parlier should obtain clarification from the applicable regulatory agency to determine if their current cost allocation methodology is acceptable.
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R2Page 17In the absence of fully supportable cost allocation methodologies or regulatory approval of existing cost allocation methodologies, the City of Parlier should reverse the $268,224 and $393,602 in overhead costs charged to the special revenue funds listed above. In addition, any other insufficiently supported cost allocations that were not noted in this report should also be reversed.
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R3Page 17In order to provide for sound accounting and budgeting practices and to ensure a clear audit trail, appropriations and expenditures should be initially recorded in the originating department/fund where the activities are incurred.
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R4Page 17The City of Parlier Finance Department should implement procedures that provide segregation of duties related to accounts payable. Specifically, the person who approves payments should not be the same person who signs checks and submits requests for payments. When it is necessary for the 7 Finance Director to submit a request for payment, the payment should be sufficiently reviewed and approved by another authorized staff member (e.g. the City Manager).
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R5Page 18To strengthen internal controls over expenditures in special revenue funds and to ensure that funding does not need to be reimbursed or that future funding is withheld, the City of Parlier should ensure that program costs incurred are fully supported and are in compliance with program requirements. This can be achieved in part by requiring that receipts for credit card purchases be retained for supporting documentation and submitted to the Finance Department for review and approval.
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R6Page 19To prevent losses and enhance internal controls, the City of Parlier should immediately implement procedures to ensure that the City’s charge accounts and credit cards are not used for personal purchases. Parlier Redevelopment Agency (RDA) Compliance issues involving redevelopment funding are addressed by the State Controller’s Office, the State Attorney General and the Court. Based on Section 33080.8 of California’s Health & Safety Code, the State Controller compiles lists of redevelopment agencies that appear to have uncorrected major violations, based on the annual independent audit reports filed by such agencies. The Attorney General can pursue filing lawsuits against redevelopment agencies having uncorrected violations, and the Court can prohibit the agency from performing various activities until the Court determines that the major violations are corrected. Since the RDA’s annual audit reports for 1998/99 and 1999/00 contained unqualified opinions, it is unlikely that it was determined that Parlier had any major violations, and it is not known what actions, if any, the above regulatory entities would take as a result of the redevelopment findings noted in this separate report. This report may affect the findings and opinion of independent accounting firms performing future redevelopment audits; however, it is not known if these
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R7Page 19In compliance with the above code sections and to ensure that funding is not withheld, the RDA should immediately submit a 5-year plan to the State Controller’s Office and submit all future required documents when due.
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R8Page 20In order to comply with Health & Safety Code Section 33487 and to ensure that funding is not withheld, the RDA should transfer $3,907 to the low income housing fund for fiscal year 1998/99 from the RDA Capital Projects Fund.
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R9Page 20In order to explain material changes in the financial statements in accordance with generally accepted accounting principles, the City of Parlier should provide adequate disclosure in the notes to the financial statements. For example, Parlier could have identified the above increase in the capital projects fund balance as a “restated” fund balance in the financial statements. In addition, a note disclosure should have been provided to reconcile the restated fund balance to the prior year ending balance. The disclosure should have also explained the reason(s) for the restatement. Parlier should consider this for future reporting purposes.