Update: City Manager Disputes Auditor's Finding of 'Improper Cash Transfer'

Update 4:18 p.m. Beaumont City Manager Alan Kapanicas said Tuesday afternoon that isolated statements from an "Independent Auditor's Report on Internal Control Over Financial Reporting" for the fiscal year that ended June 30 2012 are "partial information that was either misinterpreted or an attempt to unnecessarily scare Beaumont Citizens."

The internal controls report released last week includes Management's Response:

The City acknowledges that it has a deficit cash balance in the general fund but did not improperly transfer cash from the Community Facilities Capital Project Fund at June 30, 2012.  The City's general fund is temporarily borrowing from the Community Facilities Capital Project Fund and is paying interest on the temporary borrowing.

"Internal Audit findings are as much instructive for the City and a question by the Auditor to explain normal operations," Kapanicas said Dec. 3 in an email to Patch.

The auditors rightly ask questions, make suggestions and city officials respond with the right answer or plans to improve, Kapanicas said.

"Audits are both Investigative and Learning experiences," Kapanicas said.

The city has posted Auditor Internal Control Reports for 2010-2011 and 2011-2012 under the heading "Reports" at the following link:

http://www.ci.beaumont.ca.us/index.aspx?NID=218&ART=2173&ADMIN=1

Posted 3:28 p.m. Public records released last week by the City of Beaumont include an "Independent Auditor's Report on Internal Control Over Financial Reporting" for the fiscal year that ended June 30 2012, with a cover letter from Moss, Levy & Hartzeim dated Sept. 25, 2013.

Under "Current Year Recommendations" and "Significant Deficiencies" 2012-2, the first observation states verbatim:

Finding - Deficit cash balance in general fund: During the review of the trial balance, we noted that the general fund had a deficit cash balance, which the City reduced by improperly transferring cash from the Community Facilities Capital Project Fund at June 30, 2012.

Asked about this observation on Monday and Tuesday this week, city officials did not respond.

The effect of the finding is stated:

Funds with deficit cash balances are borrowing cash from restricted capital project funds for activities that are not designated by the capital project fund. In the event that the City does not obtain cash flows to support operations, the City could become insolvent.

The City is not in compliance with the intended purposes of restrict funds and misappropriation of funds could occur.

Other observations from Moss, Levy & Hartzeim include:

Finding - Deficit unassigned fund balance in general fund: During the review of the trial balance, we noted the general fund had a deficit unassigned fund balance of $4,162,063 on June 30, 2012.

Blogger Lloyd White has posted copies of the internal controls reports released last week at this link:

Internal Control Reports - The Bigger Picture

The internal controls reports were put together by Moss, Levy & Hartzheim, LLP, Certified Public Accountants. They have offices in Beverly Hills, Culver City and Santa Maria.

In October, Beaumont council members voted 5-0 to accept the city's audit dated June 30, 2012.

The Beaumont city council is scheduled to meet at 5 p.m. Tuesday Dec. 3 for closed session and public session is scheduled to begin at 6 p.m. Beaumont Civic Center is at 550 E. 6th St.