Monday, October 24, 2011

Conflict-of-interest controls in place, (San Luis Obispo) official finds

Auditor-controller’s review runs counter to a grand jury report critical of district board

By Cynthia Lambert |

In the wake of a civil grand jury report that found a conflict of interest at a South County sewage treatment plant, a review by the county auditor-controller has found there is sufficient oversight of finances to prevent such conflicts.

Auditor-Controller Gere Sibbach — who was not investigating whether or not a conflict of interest existed at the South San Luis Obispo County Sanitation District — found a few areas he called a small “breakdown of their systems.” But by and large his office’s review of some district finances and methods was far brighter than a critical report the San Luis Obispo County Grand Jury released in June.

The grand jury report alleged a conflict of interest exists at the sanitation district because John Wallace serves as the treatment plant’s administrator while his engineering firm, the Wallace Group, provides engineering services for the di­strict.

The grand jury also criticized the district board for failing to recognize the conflict.

The board vehemently disputed that conclusion, stating in a rebuttal that a conflict does not exist, the grand jury’s assertions were largely inaccurate and its “depiction of the board of directors as being generally ‘unaware’ is both inaccurate and offensive.”

The district provides wastewater treatment services to about 39,000 people in Arroyo Grande, Grover Beach and Oceano.

Sibbach didn’t determine whether he believes a conflict exists at the sanitation district. Instead, he focused his review on what types of policies the district has in place regarding district finances to offset any potential conflict.

“The district has been making some changes, and I think they’re going to come out of it with stronger financial controls and more transparency than they had before,” he said Friday.

Sibbach released a final copy of his review to the district board members on Friday, in which he primarily reviewed documents in fiscal year 2010-11, which ended June 30.

Among his findings:

• In one out of 23 instances, the district’s list of checks to be issued (called a warrant register) was only signed by one board member. District practice requires two board members to sign it. In three of 13 separate instances, Wallace and one board member had signed to authorize payments to Wallace’s firm. Sibbach recommended that Wallace not be allowed to sign for payments made to his company, and as of August, he has not been authorized to do so per a new district policy.

• The district board receives quarterly financial reports, but Sibbach did not find a year-end report showing the budgeted estimates compared to actual results. Michael Seitz, the district’s attorney, said the board does receive the information while preparing the following year’s budget, just not in a formal report.

• The district’s cash balances have decreased by about $1.8 million over the past three fiscal years.

• Costs for Wallace Group services in major budget items were not always easily identified or separated from other project costs. But the information in the budget and board reports from fiscal year 2011-12 improved.

• The district has a clear and well-understood organizational structure, and all employees and officers who have to disclose economic interests have done so.

The board has also split Wallace’s contract into two: one for his administrative role, a second for engineering services his firm provides. The board moved to do so before the grand jury report, Seitz said, “and so the inference that the grand jury caused that is not particularly accurate.

“But,” he added, “the fact that we were getting looked at did cause us to be a little more self-introspective in terms of what we’re doing.”

Seitz said the board will discuss a response to Sibbach’s review at its next meeting.

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