City of Riverbank Grand Jury Case #06-06

R1

The agency must provide written notice by mail of the proposed increase in fees or charges to property owners.

R2

The agency must conduct a public hearing on the proposed increase in fees or charges.

R3

The agency must receive voter approval to increase fees or charges with the exception of water, sewer and refuse collection fees. • The CGJ determined, under Proposition 218, that agencies are allowed to establish a formula or use an index for fees after sending notices to the property owners and conducting a public hearing to consider rate adjustments. As a result, it can increase rates, per the formula, or index on an annual basis without notifying property owners. Since this is not considered a new fee adjustment, but a continuation of the formula or index, this provision is allowed. This automatic adjustment still needs to meet the test of collecting revenues no greater than the actual cost to provide the service. The CGJ reviewed Proposition 218 and interviewed an expert legal consultant with regard to its implementation. 4 • Through sworn testimony and records review, the CGJ determined that the City in 2000 increased its sewer rates (property related fees and charges) by sending notices to 4,335 property owners and conducted a public hearing. Since this was an increase in sewer rates including an annual Consumer Price Index (CPI) adjustment, the City was not required to receive voter approval. In 2001, the City also increased its water rates including the adoption of a CPI adjustment. Procedurally, for the 2001 water adjustment, the City conducted a public hearing but failed to send notices to the property owners of record as required by Proposition 218. 3) The City is lax in its credit card policy…“has no receipts and no real records.” • The CGJ reviewed the Procurement Card Procedures approved by Council in September 2004. The procedures require that appropriate receipts be attached to the procurement card statements. The department head will review, sign, date and forward these statements to the Finance Department. The Finance Director shall review (for consistency with policy), approve, sign and date the procurement card statement. The CGJ reviewed procurement card statements from December 2004 through November 2005. It was found that there were numerous statements that did not have the appropriate signatures and/or dates (Table 3.) • The CGJ investigation determined that the procurement card holders were not always attaching receipts to their statements. • The CGJ reviewed the City’s Public Resource Policy (PRP), approved on April 24, 2006. The CGJ determined that the City has a policy specific to what types and categories of expenses they will pay. The PRP is a reasonably comprehensive expense policy. The CGJ noted that in the review of the procurement card statements some business lunches were being charged without complete explanation. The PRP does not set forth a definition of business lunches, nor does it establish guidelines for employees to be reimbursed for qualified business lunches. 4) The City did not properly bid nor obtain approval for the purchase of a truck- mounted hydraulic crane. (cid:121) In 2001 the City formally bid an upgrade and expansion of its Waste Water Treatment Plant (WWTP) with the bid going to Kirkwood-Bly, Inc. for $625,700. (cid:121) The project was funded through a State of California Department of Water Resources “State Revolving Loan” in the amount of $623,132. 5 (cid:121) During the execution of the Kirkwood-Bly, Inc. contract several change orders resulted in a savings to the project of approximately $100,000. (cid:121) The City was able to enhance the operation of the WWTP through the purchase of a truck-mounted hydraulic crane with the surplus funds. (cid:121) The City used its WWTP contractor, Kirkwood-Bly, Inc., to bid and purchase the crane. Table 1 reflects the results of Kirkwood-Bly, Inc.’s bidding process. Table 1 Summary of Proposed truck-mounted Crane Bids National Terex Manitowoc Item Model 500D Model TC3063 Model 1561C Cost of truck- $86,996.00 $93,258.00 $89,210.00 mounted crane Contractor labor, material and 4,349.80 4,662.90 4,460.50 markup Contractor Quote $91,345.80 $97,920.90 $93,670.50 Freight 1,800 0 0 Sale Tax and 8,102.63 8,509.79 8,140.41 Licensing Total $101,248.43 $106,430.69 $101,810.91 The state provided close oversight of the City’s purchases through an accounting of the payments to contractors and others. • After selection of the winning crane bidder, the City made some minor enhancements to the crane specification, which did not affect the bid process. (cid:121) The project engineer, Public Works Director and the contractor, approved the Change Orders to the Kirkwood-Bly Inc. contract. • The state approved the purchase for inclusion in the loan and paid the crane company. (cid:121) There were no funds that were expended without State approved invoices. 6 (cid:121) From the records and sworn testimony, the CGJ determined that the City did purchase a crane for approximately $100,000. The purchase process was accomplished through the City’s WWTP contractor who received three bids. The award was made to the lowest cost bidder and payment was made by the state. (cid:121) Although the WWTP was accomplished at a lower cost, the addition of the purchase of the truck mounted hydraulic crane was a major modification to the scope of the project. The Council did not approve the change order. The City has no process for Council review of major change orders to projects. 5) The City’s accounting system did not charge employee retirement benefits to the correct accounts for the City Attorney. The CGJ investigated several accounts to test for proper charges. The 2004 records indicate a specific journal entry to the City’s Retirement Account on behalf of the City Attorney. The City Attorney is not a participant in the City’s retirement program. Under sworn testimony, the City’s Senior Management Analyst/City Clerk reviewed the documents and did clarify that, in the report made public, an incorrect allocation was shown. The staff member also clarified that before payments are made to the retirement or insurance carriers, the personnel list and amounts are reviewed and checked for accuracy. The specific example cited was found to be in error. It was corrected and not paid as a retirement plan charge for the City Attorney. 6) Monies to pay for projects were charged to the wrong accounts. City Account 108 is established for sewer capital improvements. An item of the WWTP expansion included $15,649.40 for environmental mitigation. The WWTP project included repair of a collapsed levee and related environmental damage. The repair costs were charged to Account 108. This account is for future capital improvements to the existing sewer system. The required environmental mitigation was considered to be a capital improvement of the existing system and therefore an appropriate charge to Account 108. 7) The City claims that “growth will pay its way” yet it plans to reimburse a developer for installing infrastructure improvements using 40% of the sales tax revenues from a store in the development. (cid:121) The City entered into a development agreement with Browman Development Company for the Browman Development (Crossroads Community Specific Plan), Agreement No. 02-2003. The Council approved the agreement on a 3 to 0 vote with one abstention and one absent. The agreement provides for the developer to install the total public infrastructure improvements and later be reimbursed for all of his costs except for his allocated share of system development fees. The agreement provides a safety net for the developer. It 7 committed 40% of the sales tax revenue from a single existing Crossroad’s business to reimburse the developer if the business park did not attract tenants as planned. (cid:121) There have been new businesses within the development paying their share of project System Development Fees, thereby making funds available to reimburse Browman Development Company as well as generating additional revenues for the community. (cid:121) Under sworn testimony, the CGJ determined that no sales tax revenues have been used to reimburse the developer. The system development fees have been collected and used for this purpose. (cid:121) As an example of “how growth is paying its way” the City just increased its single family residential System Development Fee from approximately $11,000 to $25,354 per lot. RECOMMENDATIONS Each allegation will be followed by the CGJ’s recommendation. 1) The City does not implement its external auditor’s recommendations consistently and/or in a timely manner. When the auditor’s report is presented to Council, the City Manager shall present an action plan for recommendations being considered for implementation. The report shall clearly justify the reasons why an audit recommendation is not going to be implemented. The Council shall review the action plan for consistency with the external auditor’s recommendation. The Council shall exercise its authority to ensure the City’s finance office is complying with good business practices and general accounting principles. 2) The City increased water and sewer rates without notification to property owners required by Proposition 218. • The City shall comply with the principles and provisions of Proposition 218 when raising water, sewer and refuse collection fees and charges. Specifically, when establishing a new formula or index, the City will properly mail notices to the affected citizens and conduct legal public hearings before adjustments are made to City service charges. • The CGJ recommends that annual “CPI index rate” adjustment be posted on the City’s web site and in its offices for viewing by the public. 8 3) The City is lax in its credit card policy…“has no receipts and no real records.” • The City Finance Director and employees shall follow the “Procurement CardProcedures” adopted by the Council in September 2004 by attaching receipts and having them properly authorized and dated. Not following the “Procurement Card Procedures” could potentially lead to litigation at the expense of the citizens of Riverbank. • The City’s “Public Resources Policy” shall be amended to include a business lunch policy. 4) The City did not properly bid nor obtain approval for the purchase of a truck- mounted hydraulic crane. The Council shall develop or modify its existing bidding ordinance to require any change order greater than 5% of the total project cost be submitted to Council for final approval. 5) The City’s accounting system did not charge employee retirement benefits to the correct accounts for the City Attorney. No recommendation 6) Monies to pay for projects were charged to the wrong accounts. No recommendation 7) The City claims that “growth will pay its way” yet it plans to reimburse a developer for installing infrastructure improvements using 40% of the sales tax revenues from a store in the development. No recommendation This report of the City of Riverbank is issued by the 2005-2006 Civil Grand Jury with the exception of one member of this Civil Grand Jury, who is a resident of Riverbank. This Grand Juror was excluded from all parts of the investigation, which included interviews, deliberations, and the making and acceptance of this report. This report is based on information obtained from outside sources with none of the information being obtained from the excluded Grand Juror. Table 2 Management Letter Recommendations Management Letter 1996 1997 1998 1999 2000 2004 2005 General Fund-Fund Balance Deficit X Reconciliation of Cash X X Internal Controls X X X X X Accounts Receivable X X X Investment Policy X X Operating Deficits-Enterprise Funds X X X Budgets Practices X Warrant Register X Self Insurance X X Encumbrances X X Consolidation of Funds-Storm Drain X X X X X Account Manual X X X X X Staffing-Finance X X Inactive Funds X X X X Community Development Block Grant X X Authorized Account Signers X Outstanding Checks & Reconciliation Procedure X Year 2000 Issue X X Purchase Orders X X Documentation For Manual Checks X Accounts Payable Invoices X Fixed Assets X Credit Card Policy X X Housing Grants/Loan Receivables X X Budget Controls X Accounting Procedures X Accounting Adjustments X 10 Table 3 Credit Card Statement Findings Year-Month Cardholder Signature & Date Approving Official & Date 2004-December Six Statements NOT Signed and NOT Dated Seven Statements NOT Approved and NOT Dated One Statement Signed but NOT Dated 2005-January Three Statements Signed and Dated Four Statements NOT Approved And NOT Dated One Statement NOT Signed and NOT Dated One Statement Approved and Dated 2005-February One Statement NOT Signed and NOT Dated Five Statements NOT Approved and NOT Dated Three Statement Signed and Dated One Statement Signed but NOT Dated 2005-March Four Statements Signed and Dated Five Statements NOT Approved and NOT Dated One Statement NOT Signed but Dated One Statement Approved and Dated One Statement Signed but NOT Dated 2005-April Five Statements Signed and Dated Five Statements NOT Approved and NOT Dated 2005-May Five Statements Signed and Dated Five Statement NOT Approved and NOT Dated One Statement Signed but NOT Dated One Statement NOT Approved but Dated 2005-June Eight Statements Signed and Dated Eight Statements NOT Approved and NOT Dated 2005-July Seven Statements Signed and Dated Six Statements NOT Approved and NOT Dated One Statement Approved but NOT Dated 2005-August One Statement Signed but NOT Dated Eight Statements NOT Approved and NOT Dated Seven Statements Signed and Dated 2005-September Six Statements Signed and Dated Seven Statements NOT Approved and NOT Dated One Statement NOT Signed and NOT Dated 2005-October Seven Statements Signed and Dated Seven Statements NOT Approved and NOT Dated 2005-November Four Statements Signed and Dated Four Statements NOT Approved and NOT Dated One Statement Signed but NOT Dated One Statement Approved and Dated 11

R4

The City did not properly bid nor obtain approval for the purchase of a truck- mounted hydraulic crane. (cid:121) In 2001 the City formally bid an upgrade and expansion of its Waste Water Treatment Plant (WWTP) with the bid going to Kirkwood-Bly, Inc. for $625,700. (cid:121) The project was funded through a State of California Department of Water Resources “State Revolving Loan” in the amount of $623,132. 5 (cid:121) During the execution of the Kirkwood-Bly, Inc. contract several change orders resulted in a savings to the project of approximately $100,000. (cid:121) The City was able to enhance the operation of the WWTP through the purchase of a truck-mounted hydraulic crane with the surplus funds. (cid:121) The City used its WWTP contractor, Kirkwood-Bly, Inc., to bid and purchase the crane. Table 1 reflects the results of Kirkwood-Bly, Inc.’s bidding process. Table 1 Summary of Proposed truck-mounted Crane Bids National Terex Manitowoc Item Model 500D Model TC3063 Model 1561C Cost of truck- $86,996.00 $93,258.00 $89,210.00 mounted crane Contractor labor, material and 4,349.80 4,662.90 4,460.50 markup Contractor Quote $91,345.80 $97,920.90 $93,670.50 Freight 1,800 0 0 Sale Tax and 8,102.63 8,509.79 8,140.41 Licensing Total $101,248.43 $106,430.69 $101,810.91 The state provided close oversight of the City’s purchases through an accounting of the payments to contractors and others. • After selection of the winning crane bidder, the City made some minor enhancements to the crane specification, which did not affect the bid process. (cid:121) The project engineer, Public Works Director and the contractor, approved the Change Orders to the Kirkwood-Bly Inc. contract. • The state approved the purchase for inclusion in the loan and paid the crane company. (cid:121) There were no funds that were expended without State approved invoices. 6 (cid:121) From the records and sworn testimony, the CGJ determined that the City did purchase a crane for approximately $100,000. The purchase process was accomplished through the City’s WWTP contractor who received three bids. The award was made to the lowest cost bidder and payment was made by the state. (cid:121) Although the WWTP was accomplished at a lower cost, the addition of the purchase of the truck mounted hydraulic crane was a major modification to the scope of the project. The Council did not approve the change order. The City has no process for Council review of major change orders to projects.

R5

The City’s accounting system did not charge employee retirement benefits to the correct accounts for the City Attorney. The CGJ investigated several accounts to test for proper charges. The 2004 records indicate a specific journal entry to the City’s Retirement Account on behalf of the City Attorney. The City Attorney is not a participant in the City’s retirement program. Under sworn testimony, the City’s Senior Management Analyst/City Clerk reviewed the documents and did clarify that, in the report made public, an incorrect allocation was shown. The staff member also clarified that before payments are made to the retirement or insurance carriers, the personnel list and amounts are reviewed and checked for accuracy. The specific example cited was found to be in error. It was corrected and not paid as a retirement plan charge for the City Attorney.

R6

Monies to pay for projects were charged to the wrong accounts. City Account 108 is established for sewer capital improvements. An item of the WWTP expansion included $15,649.40 for environmental mitigation. The WWTP project included repair of a collapsed levee and related environmental damage. The repair costs were charged to Account 108. This account is for future capital improvements to the existing sewer system. The required environmental mitigation was considered to be a capital improvement of the existing system and therefore an appropriate charge to Account 108.

R7

The City claims that “growth will pay its way” yet it plans to reimburse a developer for installing infrastructure improvements using 40% of the sales tax revenues from a store in the development. (cid:121) The City entered into a development agreement with Browman Development Company for the Browman Development (Crossroads Community Specific Plan), Agreement No. 02-2003. The Council approved the agreement on a 3 to 0 vote with one abstention and one absent. The agreement provides for the developer to install the total public infrastructure improvements and later be reimbursed for all of his costs except for his allocated share of system development fees. The agreement provides a safety net for the developer. It 7 committed 40% of the sales tax revenue from a single existing Crossroad’s business to reimburse the developer if the business park did not attract tenants as planned. (cid:121) There have been new businesses within the development paying their share of project System Development Fees, thereby making funds available to reimburse Browman Development Company as well as generating additional revenues for the community. (cid:121) Under sworn testimony, the CGJ determined that no sales tax revenues have been used to reimburse the developer. The system development fees have been collected and used for this purpose. (cid:121) As an example of “how growth is paying its way” the City just increased its single family residential System Development Fee from approximately $11,000 to $25,354 per lot. RECOMMENDATIONS Each allegation will be followed by the CGJ’s recommendation.