investigate all branches of ... government to be assured that they are being administered efficiently, honestly, and in

The oversight of the renovations of the Calistoga and Mondavi Farmworker Housing Centers was the responsibility of the Board of Commissioners of the NVHA with advisory input from the FWHOC.

Due to a number of post contract changes in the projects required by the NCCDPD and the County Fire Marshall, there were major costs incurred in excess of the original contract prices on both projects; $1,020,118 for Calistoga and $ 742,264 for Mondavi, resulting in a total overrun of $1,762,382.

The Board of Commissioners of the NVHA failed to exercise control over the Calistoga and Mondavi projects when, based on the information available to them during the projects, they knew, or should have known, that the cost of these renovations was far exceeding contract amounts.

The FWHOC failed in its designated responsibilities to discuss and make recommendations to the NVHA and the Supervisors with regard to the progress, the costs incurred and the availability of funds to pay for the renovations. The Committee members knew, or should have known, that the costs were exceeding contract amounts.

The problem of cash shortfalls surfaced in April 2006, when all of the Grant funds were expended to pay for charges. The deficit continued to grow to the end of the projects resulting in a cash shortfall of $1,453,711.

The Commissioners of the NVHA and the members of the FWHOC failed to inquire into who was providing the cash to cover the shortfall so the renovations could be completed.

The NVHA and the FWHOC were more focused on having the renovations of the Calistoga and Mondavi Farmworker Housing Centers completed by the fall harvest of 2006, than how they were being financed.

During construction of these projects, many of the NVHA Commissioners and FWHOC members did not regularly attend meetings and many meetings had to be canceled for lack of a quorum.

The Executive Director of the NVHA and HACN, without informing the NVHA Board of Commissioners or the FWHOC and without authorization from the City of Napa and HACN, used City of Napa and HACN funds in excess of $2,000,000. The ability to thus manipulate funds was due, in part, to the same incumbent occupying 32 management roles for two distinct organizations (NVHA and HACN) where their funds had been commingled.

The NVHA Board, the FWHOC and the City of Napa were informed of the unauthorized use of funds after all the charges for the renovations were incurred.

While the Executive Director’s intentions may have been to complete the renovations prior to the 2006 fall harvest, this does not excuse use of City of Napa funds and HACN funds without authorization of the City of Napa and the HACN.

The City of Napa Finance Department had an outdated and inadequate financial/accounting system, operated by an insufficient and under trained staff. The Finance Department was not aware of the unauthorized use of City of Napa and HACN funds to pay for the NVHA Calistoga and Mondavi projects until after the projects were completed and all costs were paid.

The NCCDPD issued a building permit for the Calistoga renovations based on an inadequate plan review. In addition, the NCCDPD delayed the Calistoga project by taking three months to issue a building permit after it had signed-off on the submitted plans.

The NVHA sent the Mondavi project out to bid before the building permits were issued, resulting in many change orders.

The NVHA undertook to manage the Calistoga and Mondavi projects without sufficient prior experience in construction management.

The NVHA Executive Director had both actual and implied authority from the NVHA Board to authorize and approve the change orders on the two projects.

The NVHA Board of Commissioners and the FWHOC members had contemporaneous knowledge that the Executive Director was approving and signing change orders but none of them objected.

In the aftermath of these projects, there had been an effort by some government officials to focus blame solely on the former NVHA Executive Director.

County Counsel’s memorandum to the Board of Supervisors dated December 18, 2006, criticizing the NVHA Executive Director, is based on an incomplete, insufficient investigation.

Documents supplied to meeting agendas do not always list the author(s) of the document(s).

An independent accounting firm reported numerous problems with the controls and oversight of NVHA in a Management Report to the NVHA Commissioners.

The NVHA Commissioners agreed with most of the audit findings in a response to the auditors which was apparently never made public.

The NVHA does not yet have a capital improvements budget. 33

The Settlement Agreement between the County of Napa and the Cities of Napa, American Canyon, St. Helena and Calistoga and the town of Yountville and their respective housing authorities allocating the repayment of the City of Napa funds used by the NVHA, was a reasonable way to resolve this financial issue.

The first sentence of Recital L to the Settlement Agreement erroneously states that the Executive Director did not have authority to sign change orders. This Recital was drafted by the County Counsel.

There was no formal training or orientation program for people appointed to, or who volunteered to be on, the FWHOC or the NVHA.

From the Grand Jury’s own investigation and the audit of NVHA’s books by the independent auditor, it appears that all of the funds were expended on the project and that no one appeared to profit individually.

The renovations to the Calistoga and Mondavi Farmworkers Housing Centers provide a safe, clean and habitable abode for the farmworkers.

In preparing the Mondavi plans, the architect used the same building codes that were earlier used in the Calistoga project as the plans for that project had been so readily approved by the initial plan checker and the then Fire Marshall. The Mondavi plans were submitted to the NCCDPD on October 5, 2005, shortly before the building inspectors started to raise issues with the Calistoga project. In light of the problems incurred with the Calistoga plans, the architect warned NVHA against starting the bidding process until the Mondavi plans were finally approved. NVHA, in its desire to begin the Mondavi project as soon as possible, disregarded the architect’s warning and sent out the plans for public bid on October 24, 2005. NVHA awarded the job on December 6, 2005, and signed the construction contract for $1,170,535 on February 6, 2006. However, on the first review of the Mondavi plans on December 22, 2005, the plan checker insisted that the plans conform to the R1 occupancy definition, a different occupancy level than the architect had used in preparation of the plans. This plan checker also noted that the Building Code used by the architect did not have the current supplement. The marked up plans were returned to the architect who made the necessary changes and resubmitted the plans. On January 20, 2006, the plan checker completed a second check of the plans and required further changes. During this time period, the architect was meeting with the Director of the NCCDPD to resolve the corrections occurring with the Calistoga project. It was then decided, by the Director of the NCCDPD, that the Mondavi plans should be reviewed taking into account the many changes to the Calistoga project. This resulted in a third and fourth plan checker review of the Mondavi plans on February 13, 2006, and on March 6, 2006. The changes from these reviews are referred to as DELTA 4 changes and ultimately cost $309,663. A building permit for the Mondavi project was issued on March 28, 2006, and construction began shortly thereafter. Final inspection of the Mondavi Farmworker Center and approval for occupancy was conducted on September 21, 2006, some six months after construction began. Unlike the Calistoga project, the corrections to the plans were done in a timely fashion and resulted in a R1 code compliant set of plans upon which a building permit was issued. The additional expenses on this project are set forth in Appendix 4. The major faults on the Mondavi Project are the NVHA did not have a budget for the Mondavi project against which the actual cost could be measured so that appropriate steps could be taken to secure proper funding; and the NVHA did not follow the advice of the architect not to send out the project for bid until the building permit was issued. Had NVHA done so, the bid price would have included the changes and the cost of the project could have been addressed. On November 21, 2005, NVHA signed a contract for the renovation of a mobile home to house the Mondavi Center’s manager and cook. The renovation included placing the mobile home on a permanent foundation. The contract price was $60,744. This phase of the project was completed on February 20, 2006, two weeks after the contract was signed with the general contractor. The final cost for the mobile home renovation was $76,936. In the final analysis, it is difficult to identify what items were overruns and what items would have been required if a thorough plan check had been performed. What is clear is that the NVHA did not have any idea of what needed to be done and what would be the total cost for these projects. This lack of foresight set into motion a series of events, which, once started, were difficult to stop. c) Facility Review During the course of this investigation, the Grand Jury toured the Calistoga and Mondavi Centers and noted significant construction deficiencies and deferred maintenance. The overall impression was that the facilities were safe, clean and a considerable improvement over the facilities before the renovations. The NVHA did not prepare a capital improvement or maintenance plan. d) Project Time Line In order to further show the interaction between the construction phase (explained above) and the financial phase (to be addressed in the next Section) for both projects, the Grand Jury constructed a time line which is set forth in Appendix 5. 4) Overview of the Projects: What Caused the Lack of Adequate Financing? a) City of Napa Finance Department Accepted Practice for Funding Capital Improvement Projects As previously noted, the finances of the NVHA were managed by the City of Napa Finance Department and the HACN pursuant to a contract for those services. The HACN had its own cash account within the Finance Department 13 until July 2005. It was an accepted practice of the Finance Department to allow a Napa City or HACN capital account to go negative if there were sufficient accounts receivable to cover the negative amount. However, neither the City Council nor the Board of the HACN authorized or gave permission to the Executive Director of the HACN to advance Napa City funds or HACN funds against NVHA approved Grants (NVHA accounts receivable) for the NVHA construction and renovation expenses incurred for the Calistoga and Mondavi Farmworker Housing Centers. In this case, the NVHA accounts receivable included the approved Joe Serna Jr. Grants which the Finance Department knew, or should have known about. Also included were the committed funds from the Napa County Low Income Housing Trust Fund and part of the reserve fund of the CSA#4 Funds. It is uncertain whether or not the Finance Department knew of the existence of these additional funds. As funds were actually received from the above sources and from private donations, these funds would be credited to the NVHA Capital Fund (Fund 41). Prior to July 2005, the amount of funding, if authorized, that could have been advanced to cover a negative balance in NVHA Capital Fund (Fund 41), would have been limited to the amount of funding in the HACN separate cash account within the Finance Department. This limiting factor was removed when the separate cash account was merged into the Napa City cash account which had sufficient monies, if authorized, to cover any negative balance within the NVHA Capital Fund (Fund 41). b) NVHA Funding for These Projects The Joe Serna Jr. Grant required 100% matching funds, with up to 50% in real estate and the remainder in cash. Ten percent of the grant was withheld until a final inspection was completed and a Certificate of Occupancy was issued for the project. As can be seen from Table 2, NVHA needed to raise an additional $ 1,250,754 above the $1,170,523 in matching funds. This fact was not recognized by the NVHA when the renovation projects of the farmworker housing were undertaken. The time line in Appendix 5 sets forth when the various grants were applied for, granted and paid out by the State of California. TABLE 2. GRANTS PRIOR TO JANUARY 1, 2007 Funding Grant Matching Source Funding Funds Final cost Funds Needed Calistoga Joe Serna #1 $1,066,046.00 $533,023.00 Joe Serna #3 $ 500,000.00 $250,000.00 Total $1,566,046.00 $783,023.00 $2,624,875.00 $1,058,829.00 Mondavi Joe Serna #2 $ 775,000.00 $387,500.00 $2,137,448.00 $1,362,448.00 Total $2,341,046.00 $1,170,523.00 $4,762,323.00 $2,421,277.00 NVHA received an anonymous donation of $250,000 of which $218,611 was used. NVHA had a commitment from the Napa County Affordable Housing Trust of $500,000 which was received in June 2006. As a further funding source, NVHA planned to use up to $250,000 but instead used only $220,152 from the CSA#4 reserve funds that were received in December of 2006. The NVHA also received other donations and income during this time in the amount of $28,803. The total money raised and received prior to January 1, 2007, was $967,566 which was $202,957 short of the required matching funds. The total shortfall was $1,453,711 the sum of $1,250,754 ($2,421,277 - $1,170,523) and $202,957. By the end of December 2006, it was clear that the program had serious financial problems. The question is, when should the responsible governmental agencies have ascertained the lack of available funds? Using the information obtained during its investigation, the Grand Jury was able to document what the balance of the NVHA capital account (Fund 41) should have been at the end of each month (Figure 1). FIGURE 1. NVHA CAPITAL ACCOUNT BALANCE BY MONTH NVHA Capital Account (Fund 41) Month End Balance 1300000 1100000 900000 700000 500000 300000 100000 -100000 -300000 -500000 -700000 -900000 -1100000 -1300000 -1500000 -1700000 -1900000 -2100000 -2300000 -2500000 -2700000 -2900000 -3100000 16 Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Finance Dept Cash View NVHA Acct. Rec. View The Finance Department line is strictly a cash balance which accounts for charges as they were paid and money as deposited. The NVHA line includes the three Joe Serna Jr. Grants when they were approved as being accounts receivable, all other money when deposited and all charges when paid. From the NVHA line, it is clear that as of the end of April 2006, all the funds had been used to cover expenses. It appears from the Finance Department line, that if the Finance Department had balanced and then reviewed Fund 41, at the end of each month, they would have been alerted of a potential problem in October 2005. However, if at that time the Finance Department contacted NVHA, they would have been told that the negative amount was covered by approved Grants. The matter of the use of City of Napa or HACN funds for the NVHA projects would have been evident at that time and could have been addressed and resolved. By the end of April 2006, all the Grant funds were designated to pay pending charges and Fund 41, went negative as illustrated by the NVHA line. At this time, April, 2006, the Finance Department’s line would have indicated a deficit of approximately $1,500,000 most of which was not covered by any Grant funding. The unfunded deficit would have continued to grow and at the end of the projects would have been approximately $1,400,000 as shown by the NVHA line. According to the Finance Department line, the deficit was over $3,000,000 which was reduced to approximately $2,200,000 by December 2006. The difference between the two lines in December 2006, is the $775,000 from Joe Serna Jr. Grant #2. Although this Grant was approved, it could not be drawn against until the title to the Mondavi project was transferred into the NVHA name, which occurred in 2007. The Executive Director knew that unauthorized funds were being advanced against NVHA accounts receivables and that at least by mid 2006, knew there were not enough committed funds to cover the expenses being accrued. While he did make an attempt to obtain additional funds from the Napa County Affordable Housing Trust, he failed to provide an estimate of what funds were required and therefore no further funding was granted. While the Executive Director did not know the exact amount, there was enough information to give an estimate. Further the Executive Director stated many times that due to the inadequate plan check on the Calistoga Farmworker Housing Center, the Executive Director looked to Napa County to supply funding. The Grand Jury has not been able to ascertain whether the Executive Director made such a request to the County. In any event, this source of funding did not materialize. It is not known why the Executive Director did not apply for another Joe Serna Jr. Grant for the Mondavi Farmworker Housing Center in mid 2006, as was done later in 2007. The Executive Director of the NVHA and HACN did not seek permission from the City of Napa to draw against their cash fund without having a confirmed source of funds to cover the advancement. It was not until late October 2006, that the Executive Director brought the unfunded expenditures (then stated as $1,613,904) to the attention of the FWHOC and the Board of Commissioners of the NVHA. The unfunded expenditures were then brought to the attention of the City of Napa Attorney in November 2006. As previously noted, the Executive Director resigned in December 2006. The negative balance of Fund 41, as of January 1, 2007, had two components, a funded portion and an unfunded portion as shown in TABLE 3. TABLE 3. CITY OF NAPA FUNDS ADVANCED AS OF JANUARY, 2007 Advanced $2,228,711.00 Joe Serna #3 Funded $775,000.00 Unfunded $1,453,711.00 17 The unfunded amount of $1,453,711 was eventually funded. The Joe Serna Jr. Grant #4 was approved in May 2007, for $691,000 which left an unfunded shortfall of $762,711. After a donation of $205,000 was made by the Napa Valley Vintners (NVV) for these projects, the remaining unfunded amount was $555,771 owed to the City of Napa Housing Authority. This $555,771 was finally covered by a settlement agreement between the NVHA, the City of Napa, the HACN, the City of American Canyon, the County of Napa and the Housing Authorities of the Cities of Calistoga and St. Helena and the Town of Yountville. TABLE 4. SOURCES FOR UNFUNDED OBLIGATIONS POST JANUARY, 2007 (AS SHOWN IN TABLE 3) Joe Serna #4 $691,000.00 Auction Napa Valley 2007 $205,000.00 Settlement Agreement $557,711.00 Total $1,453,711.00 What is disturbing to the Grand Jury about this scenario is although the Executive Director told at least the Board of the NVHA and the FWHOC that there were ongoing increases in costs and that funds were being sought, no one, not the Board of NVHA, the FWHOC, nor the Deputy County Counsel, acting as counsel for the NVHA, asked the simple obvious question: “Where are the funds coming from to pay the contractor’s charges?” The Grand Jury posed this question to the above-mentioned representatives: “Since you knew that a Joe Serna Jr. grant in the amount of $775,000 for the Mondavi project could not be drawn against until the title to the land was transferred to the NVHA and that the NVHA approved and signed two Mondavi contracts for $60,744 and $1,170,532 respectively, where did you think the cash would come from to pay the contractor until the title to the land was transferred?” No meaningful response was given. DISCUSSION 1) The Blame Game The Executive Director of the NVHA appeared at a Special Meeting of the NVHA on December 20, 2006. The meeting minutes only report that he read a public statement. It is not clear why the minutes do not describe his statement of apology and concerns about the role of others given the magnitude of the overruns. The Grand Jury has obtained a copy of the statement9 which reads in part: The situation created by my decision to cover the cost overruns and funding the project deficit of NVHA with HACN reserve funds has caused me one of my greatest personal and professional challenges of my life... At the time, based upon my ongoing communication with both the FWOC and NVHA, I believed that my decision was necessary... I feel relieved that I can now respond in public. I have already in private session apologized and taken responsibility for my actions with the NVHA and HACN Board of Directors... I was attempting to provide to all of you the most updated information on the problems we were experience[ing], why we were experiencing them, the cost impacts and that the NVHA was going to need to identify and raise funds to cover the cost overruns. Hindsight is always 20/20. Looking back I wish I could have found a better way to communicate the problem... I must also bring to the attention of my two boards and the community that there were several other mistakes made by other public employees of the County of Napa throughout this construction project…These mistakes were a direct cause of a major portion of the cost overruns and had nothing to do with the actions of the NVHA. The report put together by County Counsel, is an attempt to explain away a number of these mistakes made by several county departments, including his own which is responsible for providing legal services to the NVHA since I became Executive Director. The Executive Director wrote a letter to the Napa Valley Register10 in which he stated: 19 On December 20, 2006…I publicly apologized to my two boards, the Farmworker Oversight committee, industry organizations…and the general public for actions I was responsible for that played a major role in creating a funding crisis... The most glaring omission from this report is the identification of what agency provided legal counsel to both the [FWHOC] and the [NVHA], reviewed and approved the bid documents and construction contracts for both projects and also reviewed all staff reports and change order logs that were provided...I know that an independent investigation and audit of the public documents will show the truth on this matter. Following the public awareness of the overruns, the Director of Napa Valley Grapegrowers Association wrote a letter11 to the Board of Supervisors, members of the NVHA, the County Executive and the Mayor of Napa publicly acknowledging that he did not know of the extraordinary cost overruns for a period of one year since they were first reported to the FWHOC. It reads in part, As you know, I represent the NVG on the Napa County Farmworker Housing Oversight Committee [FWHOC], and in that capacity became aware of the extraordinary cost overruns for the renovation of the Calistoga and Mondavi camps at the October 27, 2006 meeting of that committee. The NVG has discussed this issue …and would like to express our deep concern about these expenditures and the process that went into approving costs related to renovating the camps. Similarly, the President of the NVV wrote a letter12 to the NVHA Board of Directors, its Executive Director, the Chairman of the Board of Supervisors and the Mayor of Napa. It stated in part, It has come to the NVV’s attention, however, that the recent renovations of the Calistoga and Mondavi farmworker housing centers, which were budgeted at $3 million, have over-run by $1.5 million, … The NVV understands that none of these over-runs were approved by the Housing Authority Board of Directors. Furthermore, the size of the overruns was a surprise to the Napa County Farmworker Oversight Committee. Frankly, the NVV is deeply concerned at this level of financial mismanagement on the part of the Housing Authority staff. …we can no longer support these programs unless the following actions are taken: • A full accounting, by an outside auditor,… • Development of an approved plan to pay for the over-runs… 20 • Assurance that the Housing Authority staff responsible for expenditure of unauthorized funds are held accountable. • New policies and procedures are established to prevent recurrence of this type of situation in the future. The letter concluded by noting that the self-assessed fees paid by the grape- growing community were to be renewed early in 2007, and the approval would be strongly influenced by the confidence they have in the integrity of the system for administering these funds. Here too, it is troublesome that an organization which had membership on the FWHOC implies that they did not know of the overruns and suggest that none of the overruns were accepted by the NVHA. It suggests that they had no idea that the Board of Commissioners had adopted a resolution granting such authority to the Executive Director. 2) The Written Record of the Contemporaneous Knowledge of the Overruns As can be seen in the previous section, the public response of members of the NVHA and the FWHOC was to deny any knowledge of the overruns and to suggest that the Executive Director acted on his own. The Grand Jury has reviewed the meeting minutes for the NVHA and the FWHOC and presents an abridged version of the relevant sections from the public record in Appendix 6, to allow the reader to judge what was said and when it was said. Many meetings were cancelled, usually because of a lack of a quorum, but an agenda and staff reports had been prepared in advance and distributed to members. The Grand Jury found the same statements repeated in the minutes, month after month, of how funds were to be requested from the County Board of Supervisors and other sources without substantive discussion of when the request would be submitted and how much money would be required. It is important to note that in October 2005, the FWHOC was told of a $500,000 overrun. The NVHA was aware of the overrun by at least February, 2006, as they were voting to request an additional grant from the State. They also knew in April and May of 2006, of over $1,500,000 in change orders and unexpected costs. Throughout this time frame both entities were made aware of the series of problems in obtaining approved, workable plans from the NCCDPD and the necessity to lease a private farmworker camp due to the closure of the camps under prolonged renovation. An email dated February 2006, written by a member of the FWHOC to the chairs of the NVHA and the FWHOC and others questioned 21 the overruns and the economic feasibility of renovations. The Grand Jury found that none of the email recipients took any substantive action. In addition to membership on the FWHOC or the NVHA, many members also attended meetings of an ad hoc farmworker advocacy and farmworker committee which met regularly to discuss issues such as the renovations. At the March 6, 2006, meeting of the Farmworker Committee, with members from the NVV present, an extensive discussion of “costly and time-consuming additions, some unanticipated and some required by the county have occurred at Calistoga.” It was reported that the additions were then at $600,000 above budget. Various committee members expressed their concern about this situation and decided they wanted a meeting with Supervisors to discuss the county’s role. A meeting was subsequently held with two County Supervisors “to discuss the permit problems and subsequent cost overruns that have occurred with the renovations”. Both Supervisors expressed concern about the situation and were aware of similar complaints. They also agreed that “all county departments should be on the same page with NVHA and others involved in farmworker issues”.13 In June 2006, the minutes mention that a Supervisor had called a meeting of all county departments to discuss how to expedite the project. These minutes show that many grapegrowers, vintners and others were knowledgeable about the renovation overruns from different sources. 3) The Lack of Management and Oversight by the Governmental Entities Previous Background Sections have described the planning process, funding sources for the farmworker housing renovations and the oral and written record of these government entities. In this Section, the emphasis is on the management role played by members of numerous organizations. It should be noted that several people held membership on both the FWHOC and the Board of Commissioners of the NVHA and that, by statute, two members of the NVHA were County Supervisors. It is therefore reasonable to expect that news of problems reported at one entity would be known to members of all entities. The Editors of the Napa Valley Register ended 2006, by noting that, “The buck doesn’t stop with Dreier.” 14 They outlined the role played by the Executive Director and then found fault with the NVHA Board of Commissioners, the advisory Farmworker Oversight Committee and the County planners for their role in the overruns. The Grand Jury presents its findings on these, and additional, parties below. a) NVHA Board of Commissioners and FWHOC The Grand Jury looked at how the NVHA Board of Commissioners and the FWHOC managed the information provided by staff. Although these people are 22 finance professionals, career management consultants, career public servants and very interested parties (Farm Bureau, Napa Grapegrowers, Napa Vintners), we detected little oversight for these projects. The record reveals that members of these entities missed many meetings. In fact, numerous meetings were cancelled during the summer of 2006, due to lack of a quorum when the renovation projects were going full bore. A staff administrative assistant often called members prior to meetings to remind them to attend. Data packages were prepared prior to each meeting by the NVHA staff and sent to the Deputy County Counsel for review and approval before being sent to the Boards. There is no evidence in the meeting minutes that any member suggested that the projects be slowed or halted. There is no evidence that anyone asked where the funds were coming from to cover the increased project needs or what funds were being used for the current costs paid to the contractor. The Grand Jury has evaluated the cash flow for the two construction projects and noted a serious, prolonged shortfall that was not dealt with by management. When the overruns became public knowledge, many members of the FWHOC voiced their “deep concern at this level of financial mismanagement on the part of the Housing Authority Staff” and wanted “assurance that the Housing Authority staff responsible for expenditure of unauthorized funds are held accountable.” The Grand Jury found no accountability has been forthcoming from any of these individuals, who had advisory or leadership roles. The Grand Jury found that people trusted the Executive Director and accepted the Executive Director’s version of the problems and efforts to find financing, “there was no reason not to believe him, never any reason to doubt him.” Packages of information were provided by staff for meetings; those reading the information thought the budget was covered as presented, “I assumed that everything [the Executive Director] did was according to Hoyle, as did others around the table.” While the Grand Jury recognizes that written staff reports do not reveal a sense of urgency, or a clear budget overview of the financial situation, the Grand Jury questions why the NVHA Board did not engage in any analysis of the situation. It is interesting to note that the operating budget for the farmworker centers was presented in great detail each month while the capital budget was remarkably devoid of details. One person indicated that, “This was not rocket science, you listen and read and make decisions—it was disgusting that deeper analysis was not done”. Further evidence of a lack of vigilance can be observed in the fact that the NVHA was found to have operated without an approved budget.15 Due to the need for plan modifications and hence, project delays, the NVHA Board voted16 to lease a farmworker center from a vintner, first for two months and then, as problems persisted, for additional time. Therefore, one might 23 conclude that they were cognizant of the construction delays even if not of the costs. Several people offered, as an excuse for not asking a lot of questions, the fact that people of good will and intentions join committees and boards to perform a service to the community. While they are anxious to serve, they may not have the necessary experience with construction projects, finance or applicable ordinances and thus, there is a tendency to accept reports by staff without much in-depth probing, to act as a rubber stamp, trusting the integrity of the staff. While this lack of comprehension may well be the norm, Napa County voters approved Measure Z17 in 2006, which requires the Supervisors to certify that they have read and approve a particular motion before them because there was evidence that they were “not always reading and aware of what they were passing into law.” By extension, what is important for the Supervisors is important for all who serve the public—to take responsibility for their actions and to act in the best interests of the citizens of Napa County. While it is understandable that it is difficult for many members to develop accounting skills and management skills on the job as volunteers, the Grand Jury does think that life-experience, common sense and intuition need to be used. Members should be provided with training on best practices for committees and an understanding of the framework in which their entity operates as they assume membership. When the news of the overspending became public in December 2006, the County Auditor-Controller recommended that an outside auditing firm without prior commitments with the NVHA or the County, be hired to review the books of the NVHA. This firm made observations and recommendations to management on the following topics in a presentation (June 11, 2007) and report to the NVHA which are annotated below. The accounting firm noted: • That the NVHA did not have formal budget policies and procedures and did not formally adopt an annual operating budget. There was no accounts receivable system in place. The NVHA did not prepare a capital improvement budget. It is essential to have a budget based on projects length to ensure that all capital expenditures are properly authorized by the board and to provide the board control over capital expenditures. • That NVHA did not have its own bank accounts; all funds were commingled with HACN funds. Bank reconciliations were not reviewed by anyone other than the preparer which allowed errors to go undetected. • That the City of Napa and the HACN advanced approximately $2,000,000 to NVHA without approval of the NVHA Board or the City of Napa and the HACN. 24 • That the NVHA did not comply with the Joe Serna Grant agreement by not submitting an annual certified report to the State of California Department of Housing and Community Development nor were some operating and capital reserves maintained in a separate bank account. • That the financial position of the NVHA did not appear healthy due to the significant amount owed to the City of Napa and the HACN which was advanced to the NVHA to cover the significant cost overrun on the Calistoga and Mondavi center renovation projects. During the Grand Jury’s investigation, one person stated, “The report was a big black-eye for anyone in public office, a big embarrassment.” At their June 11, 2007, meeting, the NVHA Board of Commissioners accepted the filing of the independent audits and requested staff to prepare a response to the Management Recommendations. This response of the NVHA, prepared by the staff, does not appear in the public record. The Grand Jury has obtained a copy of the NVHA Management Letter responses issued under the signature of the Chair of the NVHA dated June 26, 2007. The NVHA Management Letter responses concurred with most findings except a few deemed not applicable. The Grand Jury notes that the NVHA Board of Commissioners which had earlier promised the public transparency and a full accounting of what allowed the overruns to take place, essentially buried this letter and the response which explained that they were responsible due to a lack of operating controls. They did not dispute this in their acceptance of the report. b) NVHA Executive Director The Executive Director of the NVHA, with concurrence of the Board, set the stage for all of the untoward events to take place by sending the plans for the Mondavi Center out to bid without having approved plans. This added to the financial problems initiated by the NCCDPD’s inadequate review of the Calistoga Center plans. It is not clear why the Executive Director did not obtain experienced personnel to manage these construction projects as was done to build the River Ranch camp. Apparently, the NVHA had solicited assistance from the County Public Works Department but was turned down due to lack of time. The Grand Jury was told that an external manager was not sought in order to keep the budget low. Thus, a staff person, with no formal training or experience in the management of construction projects and without an appropriate knowledge base, was put in a position by the Executive Director where numerous decisions had to be made. As noted previously, the Executive Director of the NVHA failed to inform the Boards of the NVHA or HACN, or the FWHOC, that he had been using City of Napa funds to pay for the overruns until late in October 2006. c) County Counsel Legal services to the NVHA were furnished under contract by the County Counsel’s office. These attorneys prepared and approved NVHA resolutions, agenda, minutes and documents relating to the bidding and contracting process. On December 18, 2006, after the overruns had become public, the County Counsel issued a memorandum18 to the Board of Supervisors, portions of which are presented in Appendix 7. The memorandum attempted to dissect the by-laws and actions taken by the NVHA Board of Commissioners regarding who had responsibility to sign the construction contracts and any change orders. The Grand Jury found it troubling that this memorandum by the County Counsel is at odds with the written documents by which the Executive Director was given the authority to enter into construction contracts and change orders by motions of the NVHA Board of Commissioners. A thorough review of the housing renovation projects by the Grand Jury has not revealed any evidence that anyone ever told the Executive Director not to sign change orders, not to pay bills, or to stop the projects until sufficient money was obtained. Indeed, members of the NVHA Board of Commissioners confirmed that “[the Executive Director] functioned as the project director and it was his job to sign for payment.” The memorandum never questions the role and actions of the NVHA Board of Commissioners or other parties; all of its emphasis was on the possible unauthorized actions by the Executive Director. Parenthetically, it must be mentioned that the County Counsel had responsibility for NVHA legal matters and that a Deputy County Counsel reviewed all contracts and reports and attended, or was supposed to attend, all NVHA Board meetings. The County Counsel’s December 18, 2006, Memorandum states that: The NVHA’s only authorization of its Executive Director to act as its representative in relation to both contracts is contained in the NVHA resolutions (05-03 and 05-13) which initially approved each contract. After approving award of the construction contract, each of these resolutions states only that: “Section 2. Authorizes the Executive Director to execute the contract documents as necessary.” 26 As discussed above, it is doubtful whether the Executive Director had the discretionary authority to approve and bind the NVHA as Owner to post- award changes in the contract price or plans and specifications affecting the contract price. The Grand Jury finds this last sentence to be disingenuous as County Counsel has the responsibility to insure that the operation of the NVHA proceeds within the law and, in fact, the County Counsel’s office drafted these resolutions for adoption by the Board. Further, the record is replete with references to change orders being signed by the Executive Director. The NVHA Board of Commissioners acquiesced in the signing of change orders by the Executive Director, which is evidence of how they interpreted this Resolution. The NVHA Board either granted explicit authority or implicit authority to allow the Executive Director to sign change orders. The memorandum goes on to promise investigations that were never completed. The County Counsel’s office initiated an investigation to determine culpability but it was terminated when the Settlement Agreement19 was signed. During that investigation, no members of the NVHA or the FWHOC were interviewed by the County Counsel’s office. Five months after this memorandum was written, a Settlement Agreement was drafted and approved by all member entities of the NVHA and the City of Napa. The Agreement has a series of paragraphs, Recitals, which describe key items that led to the drafting of the document. It is important to highlight one of these Recitals, as it was intended to be the last, official word on the overrun saga: Recital L. The NVHA Executive Director did not obtain the approval of the NVHA Board of Commissioners to execute any of the additional work which resulted in the Total Cost Overages…Upon learning of the Total Cost Overages, representatives of the governing boards NVHA, the member agencies of NVHA, and the Napa Entities each disputed responsibility for payment of all or some portion of the Total Cost Overages. The Grand Jury takes exception with the portion of Recital L that states the Executive Director did not obtain approval from the NVHA Board of Commissioners to execute the additional work. The NVHA Board of Commissioner resolutions and meeting minutes and our investigations, belie this notion. Recital L also implies that these organizations only recently learned of the overages, which, as we have already discussed above, is not what the NVHA and FWHOC minutes reflect. Prior to a Board vote, staff typically prepares an explanatory document that describes the requested action, financial impact and background information. It is intriguing to read the supportive documentation prepared for the NVHA20 and for the City of Napa21 for the Settlement Agreement, which was drafted by a Deputy County Counsel and the City of Napa Attorney. What makes these documents of such interest, is that they mirror each of the Recitals (E-R) of the Settlement Agreement in most every detail except that they fail to mention the Executive Director and any actions he is alleged to have taken that is otherwise noted in Recital L. The Grand Jury understands that this portion of Recital L was insisted upon by County Counsel. The City of Napa Attorney did not want it in the Agreement. Thus the Grand Jury wonders what the motivation of the County Counsel was in singling out the Executive Director from all those involved, and reporting him guilty of signing change orders without authorization, first in the County Counsel Memorandum and then in Recital L of the Settlement Agreement, when the record reveals otherwise. After reviewing these and numerous other documents relating to the farmworker housing issues, the Grand Jury has reluctantly concluded that the services provided by the County Counsel’s office were occasionally performed in a careless manner. d) City of Napa Finance Department The City of Napa Finance Department allowed the overruns to proceed without check due to the commingling of accounts and general accounting inadequacies. The independent accounting firm brought in after the overruns became public, reviewed all contracts, change orders and financial statements and almost all of the receipts and invoices. While there were weaknesses in the system, it did not find any suspicious financial dealing. All revenues and expenses were properly documented and were related to the project. The City had significant turnover in the Finance Department between 2001, and 2005. Key people left or were let go, resulting in a situation with no knowledgeable leaders and a dysfunctional finance system. The then Finance Director was not an accounting professional and was not focused on the needs of the Department. The computer system used by the City was created in 1976. There is no documentation of the software, which made it difficult to make changes. Approximately 2 years ago, the City began to consider the purchase of a new system. Installation of the new system is said to be progressing satisfactorily and should be operational in July 2008. The culture of the Finance Department allowed the HACN to stand apart and they were not required to follow the City’s policies and procedures. Thus, the staff in Finance did not feel that they had any authority over the HACN finances. During the period of time from 2004-2005, one accounting technician handled the Housing Authority funds. This position was eliminated due to budget cuts resulting in the loss of the Finance Department person who was primarily responsible for handling the Housing Accounts. This resulted in the loss of institutional knowledge. Starting in November 2006, the staff was finally empowered to question the management of the Housing finances. In October 2006, the then Finance Manager who was preparing a State Controller Report for the NVHA, discovered a negative cash balance, called Housing to question this finding and was told that they knew about it. The NVHA Executive Director informed the City Attorney of the situation on November 15, 2006. The Finance Director retired in February 2007. The current Finance Director is prioritizing the department needs to correct the years of benign neglect. Among the recent activities are completion of 3 years of back audits, a budgeting process, the hiring of experienced personnel and the implementation of the new accounting software. e) Napa County Conservation, Development & Planning Department The NCCDPD admits it performed an inadequate review of the Calistoga Center plans that resulted in the need for numerous change orders to the original contract. There was also an excessive, unexplained delay between approval of the plan by the checker and the issuance of a permit. f) County Executive Staff After the Calistoga Center permit was received and construction begun, field inspectors from NCCDPD and the Fire Marshall began to request numerous changes to the plans. A meeting was held with the NVHA staff, a Supervisor, the County Executive Officer and the Director of the NCCDPD to see if a clear plan could be developed. It is, therefore, fair to assume that at least these County leaders were aware of the issues in April 2006. As reported in the NVHA and FWHOC minutes, the Executive Director discussed with the Manager of the Community Partnership Department the possibility of attaining additional funds from the County Affordable Housing Trust Fund to cover the project needs. While there was correspondence on this subject, the Executive Director did not respond to repeated requests from this Manager for an estimate of the total overruns and the amount of the additional funds required. 29 2) The Aftermath: The Key Events of 2007 How did the governmental agencies respond to this crisis in governmental stewardship of public funds? The responses varied among the officials involved in trying to restore the public’s trust. Some can be severely criticized for disclaiming prior knowledge of the overruns, which they clearly had to have had, and some for deflecting responsibility or failing to immediately disclose that unauthorized funds had been taken from one entity to cover costs of another. As both the NVHA and NCHA Board minutes reflect, there were several closed sessions which obviously dealt with this matter. The Grand Jury reminds all of the public stewards of section 54,950 of the California Government Code (the Brown Act) which provides in part: The people do not give their public servants the right to decide what is good for the people to know and what is good for them not to know. The people insist on remaining informed so that they may retain control over the instruments they have created. When the County’s Auditor-Controller learned of financial problems with these projects in November 2006, the Auditor-Controller immediately insisted that the NVHA retain an independent accounting firm to audit NVHA’s finances over the 18-month period during which these problems occurred. This Auditor-Controller recommended an independent accounting firm that had never done any business with the County, the City of Napa, the NVHA or any of the agencies involved in this matter. The NVHA was prohibited from paying any more bills without the prior review and authorization of the County Auditor-Controller. In the spring of 2007, action was taken to have the County regain control of the farmworker housing centers. With the NCHA set to take over operational responsibility for the farmworker centers from NVHA on July 1, 2007, the County Auditor-Controller requested the adoption of a resolution whereby the NCHA would adopt the County budgetary and purchase procedures as its own set procedures. This was approved by the NCHA on March 27, 2007. The Auditor- Controller then started the budgetary process for the NCHA’s fiscal year 2007- 2008 continuing to insure that controls would be maintained. At their March 27, 2007, meeting, the NCHA voted to create the Napa County Housing Commission (NCHC). The main purpose of the NCHC would be to provide input to the NCHA regarding operations of the farmworker housing centers and advise the Board of Supervisors on the allocation of annual assessments imposed within CSA#4. Once the present assessment renewal was 30 completed on or about June 30, 2007, there was no longer a need for a CSA#4 Advisory Committee. Likewise, the creation of NCHC eliminated the need for the FWHOC. On April 24, 2007, the ordinance creating the NCHC was adopted and the FWHOC was dissolved. The CSA#4 Advisory Committee was dissolved effective July 1, 2007. The functions of the two separate committees under the old NVHA, the FWHOC and the CSA#4 Advisory Committee, were then consolidated into a single Commission. The County expects this change to streamline the advisory process and at the same time, “address and resolve the public perception that oversight of the farm labor camps was so diffused among existing committees, that a less than desirable level of accountability exists.” The Grand Jury believes that the County’s first expectation should be realized but believes that the public’s perception will not be so easily altered merely by this change, as some of the same people who served on the NVHA and the FWHOC during the events described in this report, were appointed to serve on the NCHC. The Grand Jury expects that appropriate oversight is now in place to prevent any recurrence of financial mismanagement. While the foregoing changes were being made, the various governmental entities involved were negotiating a resolution of the NVHA debt to the City of Napa, a result of the unauthorized use of the City’s money. This was principally done out of public view. The public learned the results of these negotiations when a NVHA Farmworker Housing Settlement Agreement to cover a portion of the total cost overages of $2,228,711, for renovation of the Calistoga and Mondavi Farmworker Centers, was presented to the NCHA and the Board of Supervisors at their meetings on May 22, 2007. The settlement agreement was approved by all parties with the County of Napa paying $185,904, the City of Napa paying $185,904 and the Cities of American Canyon, Calistoga, St. Helena and Yountville, each paying $46,476. As noted above, the rest of the overage was covered by various sources, principally the State of California Joe Serna, Jr. Farmworker Grants and the NVV contributions. This was indeed an expensive occurrence, not only financially, but also in the loss of public trust. Unfortunately the questions asked by those working to resolve the problem and to restore the public trust, “When it’s the public’s money, you don’t spend without funds or a budget” or “How can you spend money that is not there?”, were not asked by those responsible for the farmworker housing projects in 2005 and 2006. The Grand Jury concludes that it may have spent more time trying to understand the events surrounding the renovation and financing of the two farmworker housing centers than those charged with the responsibility to carry out the original projects. The Grand Jury hopes that these findings will give the public a better understanding of this breakdown of governmental stewardship and are used 31 constructively to improve the governance of future authorities, boards and committees in Napa County. FINDINGS The 2007-2008 Grand Jury finds that: 1. The oversight of the renovations of the Calistoga and Mondavi Farmworker Housing Centers was the responsibility of the Board of Commissioners of the NVHA with advisory input from the FWHOC.