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

Copy of "Independent Auditor's Report on Internal Control Over Financial Reporting" for the fiscal year that ended June 30 2012, by Moss, Levy & Hartzeim dated Sept. 25, 2013. Banning-Beaumont Patch photo by Guy McCarthy.
Copy of "Independent Auditor's Report on Internal Control Over Financial Reporting" for the fiscal year that ended June 30 2012, by Moss, Levy & Hartzeim dated Sept. 25, 2013. Banning-Beaumont Patch photo by Guy McCarthy.
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:


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.
Libi Uremovic December 03, 2013 at 07:25 PM
'..."partial information that was either misinterpreted or an attempt to unnecessarily scare Beaumont Citizens."...' so now the auditing firm of moss, levy, and hartzheim is making up lies against the city...is that what kapanicas is saying...???? the internal control reports aren't 'wordy' - the auditors only use a few sentences - and most of the sentences contain 'misappropriation of funds'....
Jack Smith December 03, 2013 at 07:25 PM
NO, NO, NO, we do not want to SCARE our citizens. Everything is fine. All we have to do is to build a few thousand more homes; charge each $2,000 a year mello-roos taxes and PRESTO - the deficit is solved.
Reuben E. Dominguez Sr. December 03, 2013 at 08:05 PM
I bet it's Roger Berg! he's the biggest crook on the council.!! Fire his Butt.
Ken December 03, 2013 at 08:41 PM
HELLO? SCARED? Its not like this happened yesterday Mr City Manager! HOW MANY times and in WHAT AMOUNTS has this occurred? Perhaps revealing the AMOUNTS and TERMS and INTEREST RATES and the "LOAN" BALANCES and FUND ACCOUNTS you "borrowed" from would be appropriate. MAYBE you need to be a bit more TRANSPARENT when you go about loaning yourself monies from RESTRICTED ACCOUNTS! Council you have a responsibility to all the residents of Beaumont, but ESPECIALLY to our newer neighbors and taxpayers in the CFD Areas. How many more AFTER THE FACT details are you NOT revealing? Deception by omission or by outright misstatements have no place in City Hall.
Rudy Garcia December 03, 2013 at 09:01 PM
Something smells really rotten down at City Hall. I think we need a more comprehensive audit.
Judy Bingham December 04, 2013 at 12:09 AM
What is scary is that the truth comes out and Council appears not to be surprised nor concerned. Wonder if Alan Kapanicas has ever mentioned the words INSOLVENCY or BANKRUPTCY to his puppets/Council Members ?
32 years in the pass December 04, 2013 at 12:50 AM
Maybe they needed to borrow the money to pay a certain council member's excessive bar tab....Yeah, you know who you are.
Judy Bingham December 04, 2013 at 10:27 AM
You know the scariest part is that in 2012, I was trying to get my hands on the 2011 audit that showed a 10.8 million dollar deficit and the audit was not available to me through a public records request until after the election in November. Jeff Fox, running for re-election in a debate assured everyone that we had an 11 million dollar surplus!
Judy Bingham December 04, 2013 at 11:07 AM
Lying to the public is a violation of the public trust. Beaumont citizens are able to read these reports and glean the truth. Council refuses to fire Kapanicas and the City's Finance Director, Aylward for his "sloppy bookkeeping". Believe me there is a method to their madness. When the City Manager hand- picks his puppets, like Brenda Knight, to keep his elaborate ponzi scheme going -- 2014 is time to fire Alan's pathetic cheerleader, Castaldo, the abusive Berg, and the useless DeForge. It only take 3 new council members to banish the greedy Urban Logic Consultants, Alan Kapanicas, and Aylward. It is way past time to Clean Up Beaumont !
BMF2012 December 04, 2013 at 11:56 AM
Why on earth would the general fund need to BORROW from the Community Facilities Capital Project Fund AND pay interest if Beaumont (according to Council) has 11 million in the bank? HAHA- House of cards ready to fall?
Judy Bingham December 04, 2013 at 12:07 PM
www.beaumontgate.org The website the city tried to take down!
Libi Uremovic December 04, 2013 at 12:43 PM
it's a ponzi scheme - which is illegal in the private sector, but should absolutely never be allowed to happen in the public sector.... last night's council meeting had one developer planning to build more warehouses and another developer planning to build more single-family homes ... and as long as the city is 'the bank' and carrying the debt it's all profit to everyone else, so they're more than willing to go along with whatever makes them money... the developers say: 'they bought land in beaumont', but they didn't buy land to build a home and raise a family, they bought it to flip it....the rest of the community has no more obligation to improve the developers' land than there is to improve any other private citizen's land.... if a private citizen chooses to install various roads and sewers on their property the only obligation of the government is to provide the permits, not to finance the construction or be involved in any way ...
. December 04, 2013 at 09:44 PM
As of June 30, 2012, Beaumont City Council took out an $8.8 million loan from the CFD's to pay for General Fund City operations and for paying back the interest on this loan. (Basically taking cash advances card to make interest payments.) No interest rate, loan period or payment due dates are given. **Using my family as an example: Our property taxes in Fairway Canyon are $7,109. Of this $4,031 is for CFD 93-1. The CFD taxes we pay are supposed to be for projects and services directly related to our neighborhood. Our CFD payments are not to loan the City's General Fund money because they refuse to cut back or find other revenue. **The City's audit states this is happening because of a $21.5 million loan the City made to its former Redevelopment Agency (RDA) and the State is the problem because they disagree that the loan was allowed and are not giving Beaumont the money back. **The RDA excuse is a ruse as its unlikely the RDA "loan" would be paid back at $8 million a year. **Also note, the City Council made a one-time transfer of $2 million from their Equipment Replacement, and some other funds to cover the General Funds **We should expect more of the same for June 2013 audit which has not been done yet--The City using CFD funds to cover the General Fund deficit and an explanation that they need their former $21.5 million loan back to cover their CFD loans. **If the State doesn't do what Beaumont wants, then how do the CFD's get paid back?? Where will the $8.8 million (and probably another $8-20 million for years ending June 2013 and 2014) come from? **Even if the State gives back the RDA $, this will only cover the CFD loans for 3 years--what happens then? **This is a serious breach of trust with the CFD tax payers. ** City Council is using the CFD's like a slush fund. As we pay our December tax bill we are disgusted by the Mayor, Council, and City Manager. They have breached our trust, they have never explained that they are using CFD homeowners to cover a General Fund deficit. They had no business loaning any $ to the RDA because it was risky and now they just borrow from Peter to pay Paul. **Please take the time to read the 2011 and 2012 Internal Control Audit Reports that are 'marked for City Council and mgmt's eyes only” on the City of Beaumont website. There is much more in them than the CFD violations. Each Note in the reports reveals how badly managed the City really is. They have petty cash, employee loan, credit card documentation, and CalPers problems. In addition to debit cards with negative balances that keep accruing fees. I guess they open new accounts when they overspend and let the overage charges and late fees add up.
. December 04, 2013 at 09:45 PM
Here is weblink: http://www.ci.beaumont.ca.us/index.aspx?NID=218&ART=2173&ADMIN=1 Just a little more then I might have it out of my system... **The City Council is mismanaging the CFD's. They never cut back during the recession like neighboring cities, and they are always jovial about the budget. They never addressed complaints about the use of CFD funds; in fact, they treat residents who have questions like they are losers, interfering, and costing the City time and money. They hire consultants who do what they are told to keep their Ponzi scheme running. Even though the auditor did privately present council with a rash of internal control violations, at the Council meeting in October, the auditor was very measured in his comments and said he was not an internal control guy. His final report was adopted without any serious discussion by the council. One Council member explained the City had been investigated for years but never caught in the wrong. ** The Mayor and Council should all recall themselves by not running again and stepping down. They have proven they are not up to the job at hand. We don't need whitewashing nor endless BS loans with no actual legitimate payback. To leave us all with such a financial mess, the whole lot should resign and not run if they have any sense of dignity. **Of course they won't do this, so it's up to all of us, especially in the CFD areas, to find candidates who can provide leadership, will fight for us, and restore the City's financial health. Otherwise we can expect more of the same bad management--year after year.
. December 04, 2013 at 10:20 PM
Okay, its unreal, but I found one more item. Last item. I promise--this time I mean it.... ** The Internal Control Reports state the City has a hiring Freeze. Yet last week they posted a new position for Public Works Director/City Engineer, paying a range of $40.18 to $102.68 an hours plus full City Benefits--and believe me they are rich. **Here is link: http://www.ci.beaumont.ca.us/Jobs.aspx?UniqueId=80&From=All&CommunityJobs=False&JobID=Public-Works-Director--City-Engineer-37 **This position is now handled by Deepak Moorjani,a VP at Urban Logic. Sounds like he may now want the sweet deal City Manager has to become a lifer at the City and ride out his career at our expense. The salary range is outrageous for a City our size. The typical City Engineer in our region is paid $40 to $70 an hour. The City of Beaumont wants to pay $83k to $213k depending on qualifications???? Seriously, this is a huge range that should be tightened up--there is a budget deficit. This job should be commensurate to a City our size, and what the heck, what about the so called hiring freeze! **Plus, they advertise during Thanksgiving and Christmas for 2 1/2 weeks--for a job of this magnitude?? The Council recently said they paid $105k ($35k each) for three Civil Engineer signature on some stale CFD documents to make them current. Our Council is the biggest sugar daddy in the region!! No shame either--in your face and hand out for CFD taxes money at all times for any purpose. Remember we also had to have a doubling of our sewer costs--the engineers said so! Who wants to bet they hire at the $100 an hour mark rather than try to stay in budget. They will say we can't find anyone unless we pay the most money possible--who else would come here? I've heard it all before, yet our neighbors manage to find qualified people and pay less! *Will it be an Urban Logic person or another hand-selected cronie? **ad nauseam***
Ken December 04, 2013 at 11:31 PM
Well said BR!!! All the while giving our "CPA Finance Director/Asst Manager back to back raises of 13% and 6% in yrs 2009 and 2010 plus 102% increase in retirement and health benefits (over50K). Compare this page http://gcc.sco.ca.gov/Reports/PositionDetail.aspx?employeeid=1107990 (2010) with the previous year (2009) http://gcc.sco.ca.gov/Reports/PositionDetail.aspx?employeeid=1107989 At the same time they cant balance a budget or be honest about it. Im sure our City Manager has received his annual step-up of 5% for "exceeding expectations" as well. His nice 10% salary deferral (paid by the City of course) goes up with it. Either the Council is brainwashed or too scared to say something. I dont know how they can sit upright.
Ken December 04, 2013 at 11:43 PM
And another question that begs an answer...Where exactly did the City get the $21 mil that it "loaned" its RDA? Let us see the dates and fund transfers and amounts. "Various loans from the City" doesnt work for the State Controller (or us) and at 12%?? You are going to loan yourself money you dont have and have the nerve to ask the Sacramento to pay it back at those rates? You submitted an error filled Due Diligence Report that resulted in another $3 mil owed to the State. You agreed to pay it back over 10 yrs. Only then can you get the Certificate that allows you to even contemplate asking for any sort of reimbursement for your squandering of City finances. I suppose the State may take pity on your sorry state of financial affairs and offer a pittance of your claims.
Judy Bingham December 05, 2013 at 12:15 AM
When is Deepak Moorjani going to pay the $58,000 in attorney fees he owes Beaumont Citizens for Responsible Growth? Of course, Council will generously reward a Public Works Director who sues a citizen's group (and loses that and an appeal) for 3 million dollars just for telling the truth about violations of the Public Contracting Code. But when Finance Director Aylward's partner, Ron Moody (MOKRAY, LLC) gets even more no bid contracts and shares the profits with our Chief Overworked Book Cooker, Bill Aylward, then they are just keeping jobs local- that's all.
Libi Uremovic December 05, 2013 at 08:18 AM
'..the City Council made a one-time transfer of $2 million from their Equipment Replacement, and some other funds to cover the General Funds...' - there is no equipment fund .....all the special funds listed on the 2013-2014 budget are on page 19/44 ....if the city had an equipment fund set up it would be listed on the budget and there would be a provision in you fees or taxes to collect money for an equipment fund...
Mary Daniel December 06, 2013 at 09:41 AM
Thanks Patch editors for putting all this information up in the "news" section. In your article, Mr. Kapanicas stated that when presented with an audit where questions are asked and deficiencies are noted, the city should "respond with the right answers or plans to improve." He forgot to add a third choice which is the one the city decided to go with: ignore most of the items on the audit. Out of 8 deficiencies listed on the 2011 Internal Controls audit, 5 of the recommendations to correct them were never implemented or even addressed, and were still listed on the 2012 audit. So much for using the audit as a learning experience.
Judy Bingham December 06, 2013 at 10:35 AM
As most of us know there was no such thing as a "free press" in the Pass area until the Patch came to town. The Record Gazette is disgraceful in its unwillingness to cover the serious corruption issues in Beaumont. Just consider the RG an advertising supplement and a forum for Steve Moore, paid spinner for by the City, to disperse their continuous load of disinformation such as Kapanicas' "pioneering style of management". Illegal might be closer to the truth. Thank you, Patch for giving concerned citizens a voice ! It is we the taxpayers who will ultimately pay the price. They will be gone and we will be left with the ruins.
BMF2012 December 06, 2013 at 12:55 PM
Let's not forget that GGMS and Kapanicas gets paid writing and managing the CFD Bonds that Beaumont is so FAMOUS for. Deepak/Urban Logic is on with it too. Residents of Beaumont- WAKE UP! The good old buys are stealing your money. This continues to happen when council are their puppets. Same crowd in council- same thefts!
. December 06, 2013 at 01:49 PM
Will the Press Enterprise, LA Times, or any other press pick up this story? **Patch, the City has grown from 10,000 residents to 40,000 in less than 10 years and is now running a deficit, borrowing more than $8 million a year with no known loan agreements with the CFD Bondholders and there is nothing but nods of approval from council and staff! **Patch, can you update and investigate this story further to keep it on your front page????


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