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WATSONVILLE — A court-ordered independent Performance Audit of the City of Watsonville says the poor economy does not fully explain the city’s current poor financial decision and points out a number of possibly irresponsible and questionable fiscal practices, but the city of Watsonville administration says the report is just inaccurate.
The public will get a chance to hear more about it in an open City Council session on Tuesday at 4 p.m.
The audit was requested by the Santa Cruz Grand Jury as a follow-up to its initial investigation of the city, which excoriated Watsonville for creating unacceptable risk for misappropriation of funds regarding its cash-handling policies; providing incomplete, inaccurate and untimely information regarding government functions to the public; possibly misappropriating government funds and more. In its response, the city administration disagreed with all the Grand Jury’s remarks. The City Council’s response was the same as the city’s word for word.
And Harvey M. Rose and Associates, a firm that specializes in public sector management consulting, sided with the Grand Jury.
“The economy does not fully explain the City’s current poor financial condition. A pattern of spending beyond the City’s means, particularly in the case of the General Fund, has contributed to a depletion of the City’s reserves and net assets,” the audit starts.
“While information on the City’s financial condition can be distilled from reviewing publically (sic) available City documents, such as the City budget and the Comprehensive Annual Financial Report (CAFR), these documents alone do not include either sufficiently accurate or sufficiently analyzed and summarized data to enable the City Council and public to have a full accurate picture of the City’s financial state and trends,” it further reads.
The audit lists many problems with the way the city operates its budget, and the ways in which it has transferred funds within the budget through loans that were not properly paid back. It lists a number of problems regarding over expenditures, particularly for public safety employees’ overtime.
“The City lacks adequate management tools, reports, and resources to ensure expenditures are controlled and that all variances with the budget are clearly disclosed,” the audit reads.
Most alarming is that, according to the audit, prior to 2012, the city had no cash-handling policies and procedure in place, “in spite of the fact that tens of millions of dollars are collected each year Citywide. City staff reports that more such written procedures will be prepared in the near future.”
The audit also found irregularities with the city’s purchase orders, and that the city generally fails to find competitive bids. It also found problems with the way the city charges development impact fees.
“Many are not tied to clearly established standards or clearly linked to documented development‐related costs. Some of the uses of these fees do not appear to be growth‐induced, as required by State law,” the audit reads.
Judge Timothy Volkmann, who signed the court order, ordered the audit in June. It was expected to complete in September and had been a secret until Jan. 10.
But the city disagreed with most of the audit. A press release issued by City Manager Carlos Palacios’ office said the audit “made poor choices in comparison cities. In fact, the city’s key financial indicators show that when the city is compared to truly comparable cities, the city is close to the median in financial strength.”
It is also “strongly disagreed with the auditors characterization of city budget management practices. The auditor made the error of comparing original budget to final budget amounts while ignoring City Council approved mid-year budget amendments. … the auditor also ignored city manager approved intra-fund departmental budget adjustments.”
It later read “A true performance audit would acknowledge the city’s significant achievements during the time period under study, including the 1.3 billion gallon water recycling plant, the LEED Platinum Water Operations Center, the 131,000 square foot civic plaza building and the new Main Library and Superior Courts and 460 car parking structure … and the Watsonville 2030 Vista General Plan.”
Some of those achievements are seen as questionable by some in Watsonville. The Civic Plaza building has been underutilized ever since the county, to save money, removed many court services from Watsonville. That has likely been a sign a significant factor in the lack of revenue the 460-car parking structure has produced to offset its expense. Also, the Watsonville 2030 Vista General Plan is being redrafted after the city lost a lawsuit over trying to build too close to the Watsonville Municipal Airport. That error cost the city more than $1 million.
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