City of Hemet fixes the books

Prior budget work study revealed negative attorney services fund balance

■ By Melissa Diaz Hernandez / Reporter

Administrative Services Consultant Joy Canfield’s revelation that the city’s attorney fund balance is negative by $1.23 million resulted in a corrective plan that she presented to the Hemet City Council June 20.
Canfield’s revelation stunned Hemet’s City Council a week prior and launched the city’s accounting practices to the forefront. Council still struggled to get a handle on rising attorney costs and how to combat those rising costs at the budget work study on June 20.
Canfield stated that “The bills were paid out of the attorney fund which now has negative cash.” Mayor Pro Tem Michael Perciful remarked that the bills were paid from somewhere. Canfield replied that “the money informally came from other funds.” The city has to correct the negative cash balance to get the fund back to zero, added Canfield.
Later in the conversation Perciful asked, “So the general fund has not been reflecting a true number?” Canfield answered, “Correct.”

Chart by City of Hemet
This chart outlines the recommended adjustments to correct the fund balance as of July 1, 2016. The allocations required to correct the negative fund balance were calculated based on the five-year average cost of each fund.

State auditor warned of ‘inaccurate information and overly optimistic assumptions’
The California State Auditor, Elaine Howle, in her assessment and report presented to the city in August 2016 stated that “Hemet is a high-risk city due to its financial and organizational risks. Specifically, Hemet’s budget deficit has persisted for many years and our projection indicates that it will continue through at least fiscal year 2019-20, raising concerns about the city’s ability to fund its services. Although the city developed a five-year plan to address its deficit, inaccurate information and overly optimistic assumptions distort the validity of the city’s projection.”
The staff report from the June 20 work study specifies “The attorney services fund had a negative fund balance of $1,233,197 as of June 30, 2016. In addition, it is anticipated that the current budget for fiscal year 2016-17 will not be sufficient to cover the remaining bills for the year.”

Litigation and special projects are likely culprits of overages
The staff report continued: “The overages are primarily related to litigation and special project costs which have exceeded budgeted amounts,” according to the staff report. “These costs comprise the majority of the attorney services fund expenditures each year. The chart below outlines the cost breakout from the expenditures listed above for just the litigation and special projects. The figures were not available for fiscal year 2011-12 due to the fact the costs were not split out on the monthly billings prior to fiscal year 2012-13.”
According to Canfield’s presentation, the “litigation and special projects costs have risen over the past four years.” In FY 12/13 those costs were $802,305 and rose to $930,588 for FY 14/15. However, for FY 15/16 the costs skyrocketed to $1,340,387 resulting in an increase of $538,082 from FY 12/13 to FY 15/16.
Later in the meeting, Canfield suggested that the council ask the city attorney for a breakdown of the types of litigation over the past few years, so that the city can mitigate.

Chart by City of Hemet
This chart outlines the Attorney Services Fund’s operations over the past five years. There is a $1.23 million negative balance.

General fund absorbs 60% of ‘adjustment’
The fund taking the biggest hit on the adjustment is the general fund at $740,905, absorbing 60.08 percent, followed by the water fund at $181,527 with 14.72 percent. Note that public safety litigation, per the budget work study meeting on June 20 at the Hemet Public Library, comes out of the general fund budget.
Councilwoman Karlee Meyer inquired as to why the water fund has the second highest cost. Deputy Director of Public Works Kristen Jensen said that her best guess, because she didn’t have the paperwork in front of her, was that “I know we have had some claims come through that they have had to work on. Some people have decided to do things like step on the top of water meter lids that are not made to use as stepping stones and things like that, but we also had quite a bit in the earlier shown in that slide where we were still working through the beginnings of the groundwater management plan. I am sure that Eric [Vail, city attorney] had some time billed in those earlier years to that.”
Jensen summed it up with “If you are looking at this in terms of overall for those four or five years, my best guess would be a couple of claims and time spent on the groundwater management funds.”
The general fund reserve will have an Attorney Fund correction in the amount of $740,905, according to Canfield’s presentation.

City attorney fees may already be over budget for FY 16-17
Later in the meeting when discussing the Finance Department’s budget, Canfield told the council that the city attorney’s fees may already be over budget for FY 16/17. Canfield suggested that the city collect the data from the city attorney to determine what’s instigating the increase in costs.
Canfield gave a little bit of history regarding how this occurred. She stated that the attorney fund was combined with the information technology fund – and she didn’t know why, “but at some point someone decided that wasn’t a good idea and split them apart. When they split them apart, that’s when you started to see that we were not charging enough for what the attorneys’ costs were every year.”
Wright asked Canfield for her best analogy as to why that happened.
“You were in challenged economic times and I can’t speak for the people that were here and doing the accounting. Bottom line is – it is what it is,” Canfield responded to Wright. “I am trying to get it fixed for you now so that you can move forward with accurate numbers.”
Wright suddenly recalled receiving an email about the issue.
“So in all honesty, we did get an email early on. When I say early on, I mean in the fall,” admitted Wright during the Attorney Services Fund conversation. Wright went on to say that her opinion “is that when it was brought to the attention that it should have been addressed and taken care of then.” Mayor Linda Krupa commented with “Yes.”
Krupa also stated that they were notified of this by the city attorney that there was a balance showing up in there.
To determine which funds were to be corrected, Canfield stated “They took it off the billings of what they are working on, so it could be litigation, it could be other projects they are working on.”

Chart by City of Hemet
This chart outlines the cost breakout from the expenditures resulting in the negative Attorney Services Fund balance for just litigation and special projects.

Leave a Reply

Your email address will not be published. Required fields are marked *