State controller blasts Hercules’ financial books

State Controller John Chiang today called Hercules’ books the “worst set of accounting records” he has ever seen, and blasted the city on numerous fronts in its audits of the city’s use of federal and state grants and transportation money.

Read my colleague Tom Lochner’s story here.

Here’s what Chiang had to say a few minutes ago:

SACRAMENTO – State Controller John Chiang today released findings from his first two audits of the City of Hercules, one focusing on its use of state and federal grants , the other on the City’s use of transportation funds . The audits found glaring holes in the City’s accounting and management of state and federal grant funds, as well as inappropriate charges against street repair funds.

“During my time in office, this could be the worst set of city accounting records I have seen,” said Controller Chiang. “The City’s books were so poorly managed, that I must question their use of every single federal and state dollar granted to the City.”

Auditors made 32 requests for 107 documents from the City, many of them basic ledger statements that are fundamental to any accounting system, but the City only could provide 15 documents. Requests for meetings with City staff often were ignored or cancelled, and by the end of the review, the City no longer employed a senior accountant.

The City could provide almost no records showing how it spent more than $2 million in state and federal grants, leading auditors to question the use of all grant dollars in 2009-10. Some of the grants included:

  • State Citizens Office of Public Safety: $100,000
  • State Housing and Community Development: $720,000
  • Federal EPA Watershed – West Coast Estuary Initiative: $146,025
  • Homeland Security Grant Program: $4,824

The City’s reporting was so poor that it even failed to list four additional federal grants, which together totaled $159,984.

Auditors also found the City was commingling gas tax receipts – which are solely restricted to fund street improvement projects – in an investment pool with other city funds. Given the City’s questionable fiscal management practices, there is concern that gas tax dollars may have been diverted to fund activities unrelated to public streets and roads, and the Controller has ordered the City of Hercules to remove those dollars and place them in a separate bank account. The City also incorrectly charged more than $39,000 in interest against the gas tax funds, which must be replaced.

“The manner in which city officials approached their fiduciary responsibilities falls below every reasonable standard of care and begins to explain why Hercules is under water,” said Chiang. “The longer the City goes without accounting for its taxpayer dollars, the greater the risk that federal and state authorities will withhold money from the City, further increasing Hercules’ difficulties.”

The audits released today by the Controller will be followed by two separate reviews focusing on the City’s financial internal controls, as well as its redevelopment agency.


Moniz tops CA city manager pay list

San Ramon City Manager Herb Moniz was the highest paid city manager in the state in 2009, according to a compensation survey just released by the League of California Cities.

Moniz earned $359,669 annually per his W-2 income as reported to the league.

Three other city managers collected more total money in 2009 but it came in the form of one-time vacation or other retirement-related pay outs. Beverly Hills City Manager Roderick Wood collected $438,571 in 2009, for example. However, Wood’s total compensation included $140,289 in sick leave and vacation pay outs when he retired in August 2009. Wood then served as a contract city manager until Jan. 22, 2010. (Caveat: Keep in mind most city managers operate under contract and no two contracts are alike. For example, the city does not pay Moniz’ health insurance. Some city managers receive a car allowance, others do not. The leagues’ PDF includes a note field that explains some of the details behind the specific numbers.)

The league’s voluntary compensation survey included 90 percent of California’s city and towns. The agencies reported the amount of compensation that appeared in “Box 5” of the Federal W-2 form for 2009.

“This method allowed for quick results and accounted for many benefits (e.g., car allowance, deferred compensation, payouts of unused leave, life insurance greater than $50,000, etc.),” the league stated in its news release.

The list does not include the infamous city of Bell, whose former city manager earned in excess of $800,000 and triggered statewide outrage and demands for reforms.

“Sunshine is the best antiseptic, and the league is working to ensure maximum transparency of compensation information to provide residents with the tools they need to ensure continued accountability at the local level,” said league executive director Chris McKenzie in a prepared release. “Within days of the revelations of the excessive and unreasonable salaries paid to the former city manager of Bell and others, the league’s City Managers’ Department responded immediately by conducting a manager compensation survey in partnership with the International City/County Management Association.”

McKenzie also said his association is developing guidelines for city councils in setting the compensation levels for appointed city managers that are expected to be released shortly after review and approval by the league’s board of directors.”