The media has been all over a request by the California State Controller’s Office (SCO) to “conduct an investigation of financial practices and reporting by the City of Richmond.” Without even giving the City a chance to respond, the letter is highly inflammatory, including the statement, “…I have concluded that there is reason to believe that the Annual Reports of Financial Transactions by the city are false, incomplete or incorrect.”

See  Controller Letter 8/25 and Controller Letter 8/26.

the State Controller's Annual Report is prepared by our external auditor, Maze & Associates, as is our Comprehensive Annual Financial Report (CAFR).  Based on the letter from the State Controller identifying apparent discrepancies between the City's Comprehensive Annual Financial Report (CAFR) and the annual report submitted to the State Controller.

After reviewing the SCO letter, our external auditor completed a complete financial Reconciliation that completely explained the alleged discrepancies.

Today, Wednesday, September 23, Bill Lindsay and Finance Director Belinda Warner requested a meeting with the on-site audit team from the SCO, and they immediately accommodated this request.  City Manager Bill Lindsay and Finance Director Belinda Warner, along with several Finance Department staff members, met with SCO audit team members, provided them with the account reconciliation prepared by the City’s outside auditors, and reviewed with them our specific issues and concerns.  Mr. Lindsay indicated that, based on our auditors’ reconciliation of the accounting information, the SCO audit was completely unnecessary and a waste of public resources.  The local audit team indicated that they would contact their manager in Sacramento to discuss this.

This afternoon, Bill Lindsay received a call from the SCO audit manager in Sacramento, and related reiterated his concerns.  The audit manager stated that he would review the information on a priority basis, and respond to the City.  He indicated that, if it appeared there was no need to continue the audit, he would withdraw the audit team and the City would not be responsible for any audit costs.

In sum, the differences between what was reported in the City's CAFR and the annual report of financial transactions to the SCO may be summarized as follows:

1.  The major differences in numbers have to do with the fact that the wastewater enterprise transactions were not included on the SCO report.  These transactions were reported on a separate report to the SCO which covers enterprise funds.  This is consistent with the SCO's required reporting procedure.

2.  Other, smaller differences in the numbers reflect a difference in accounting procedures.  The CAFR is prepared in accordance with standard accounting procedures (GAAP); the SCO report uses modified accounting procedures.  Our auditor prepared the report to the SCO consistent with SCO's accounting procedures.

3.  Other, less material changes reflect the fact that there were minor changes to the final CAFR after the SCO report was submitted.  These related to Richmond Housing Authority transactions (separately audited by another accounting firm other than Maze & Associates).  These are included in the attached reconciliation.

There were other statements identified in the SCO letter that reflect a misunderstanding by the SCO of RHA Properties and the sale of Westridge Apartments.  However, notwithstanding confusion by the SCO, transactions related to the sale were correctly reported and the status of RHA Properties is easily explained.

Another issue that contributed to the SCO’s confusion is that because of unrealistic deadlines imposed by the SCO, the Annual Report Submitted to the State Controller is made from pre-audited numbers. The SCO has taken steps to change this deadline next year to remedy that problem.

Perhaps because of the Moody’s and S&P bond downgrades in recent months, which we believe are unfounded, both the State agencies and the press seem to be in a feeding frenzy over Richmond’s finances. See http://www.contracostatimes.com/richmond/ci_28860586/richmond-state-controller-launches-investigation-into-city-finances and After further review, at least one State agency the State Joint Legislative Audit Committee (JLAC) has decided not to conduct an audit of Richmond after all.

Last fiscal year, 2014-15, the City of Richmond actually completed with a balanced budget despite what started out to be a multi-million deficit. This fiscal year, 2015-16, we have adopted a balanced budget, and the revenue number even continue to improve.

This afternoon, I talked to the person at the Controller’s Office responsible for the audit, Jeffrey V. Brownfield, and expressed my concern over the inflammatory nature of his letter prior to even conducting an investigation. He assured me that he had the City’s information a d would review it as soon as possible. If the issues are resolved, there will be no charge to the City.