A grand jury report highly critical of Santa Barbara County’s internal financial controls received strong pushback Tuesday by the Board of Supervisors, which disagreed even more sharply with the findings than the staff’s recommended responses.
Supervisors were required to respond to all 11 findings and to 14 of 19 recommendations made in the report published June 20.
The grand jury said it was asked to investigate the county’s internal financial controls after the discovery that a Public Works Department employee, with help from co-conspirators, had embezzled $2 million of county funds over a period of time.
Grand jurors review annual financial reports from the 2013-14 to 2016-17 fiscal years, budgets for the 2017-18 and 2018-19 fiscal years, county guidelines and policies on financial matters and a loss report on the 2017 fraud and interviewed current and former staff from six county departments as well as several elected officials.
In its summary, the grand jury said it found “significant control risks” in the way the county manages its finances.
“Despite the clean audit opinions on the finances of the County of Santa Barbara provided over many years by independent auditors, the (grand jury) found significant residual risks to the county’s finances,” the report summary said.
“These risks occur from the failure of elected officials and department heads to promulgate, apply and integrate financial management guidelines and (information technology) systems in a consistent and fully rigorous manner and to hold staff accountable in financial management.”
The report also said financial training of staff in some divisions and departments was lacking.
Staff recommended the board agree with only one finding — that the Internal Audit Division of the Auditor Controller’s Office had a staff of 10 full-time equivalent employees prior to the 2008 recession, but that just prior to discovery of the 2017 fraud that had fallen to five funded full-time equivalent positions, only half of which were filled.
Of the remaining findings, staff recommended partially disagreeing with six and wholly disagreeing with four.
Supervisors upped that to wholly disagreeing with five findings and added qualifying statements to the staff’s proposed responses to three grand jury recommendations.
The board members noted that in most cases they support the conclusions drawn by grand juries, but that wasn’t the case with this report.
Fourth District Supervisor Peter Adam, who keeps a close eye on county revenues and expenditures, took exception to the report’s criticism of how well the county manages its money.
“I think we do a pretty good job,” Adam said.
Third District Supervisor Joan Hartmann said she had met with grand jurors and pointed out they “labor in anonymity” in their oversight of county operations.
“But I also want to thank Supervisor Adam, who’s a special watchdog of (the) county and county processes and his validation that our county is, indeed, well-managed financially,” she added.
Board Chairman and 1st District Supervisor Das Williams said he would “disagree with how scathing” the report was but generally agreed with recommendations.
Second District Supervisor Janet Wolf said she thought Finding 6 was “a little offensive. I totally disagree with that.”
Finding 6 said, “The jury found that the importance of the work of the Internal Audit Division within the Office of the Auditor-Controller and of internal controls generally has a low priority across county government.”
The staff recommended response was to partially disagree with that finding, but supervisors elevated that to “wholly disagree,” as Wolf recommended.
“I think as a board, as a county … that is of primary importance to us,” Wolf said.
But 5th District Supervisor Steve Lavagnino slammed the report.
“Findings 5, 7, 8 and 10 are flat-out wrong,” Lavagnino said. “When we do something wrong, we have to be held accountable. But you also have to get your facts straight. And just because it’s the grand jury doesn’t mean they’re infallible, and they obviously had someone they were listening to that had some sort of an ax to grind.”
Lavagnino hit the highlights of each of those four findings, punctuating each one with “wrong,” including Finding 5 that said the county had “no consistent policy of requiring program heads, division heads or department heads … to account for spending under their control to their superiors … .”
Finding 7 said, “It was stated by senior staff that a comprehensive investigation into the strengths and weaknesses of the internal controls … would be conducted by an outside consultant after the fraud; no such investigation took place.”
Lavagnino said while that was wrong, other issues affecting the county were taking place while the investigation was underway, “so you can’t look at this in a vacuum.”
Finding 8 said county management’s response to the 2017 fraud “were slow and inadequate.”
Finding 10 said “minimum professional and academic qualifications for financial staff positions are not standardized nor consistent throughout departments … .”
“But I’m very curious about how they went about their investigation,” Lavagnino said. “If ours was inadequate — they had one senior staff person that went in and spilled their guts, and they write the report.”
He added, “Usually I side with the grand jury. I think they do really good work. (But) I found their investigation lacking. That’s my finding.”
He said the 2017 embezzlement was an isolated incident that was dealt with properly.
“But to say that the entire system is fraught with … fraud, and there’s all these other opportunities … ,” Lavagnino continued. “OK, then how come in the 30-year history we haven’t seen this?”
September 18, 2018
Santa Maria Times
By Mike Hodgson
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