Restore public trust, audit the sanitation district

December 9, 2014
Debbie Peterson

Debbie Peterson

OPINION  By DEBBIE PETERSON

San Luis Obispo County Grand Jury said, “Board and district exposed to financial, legal, and public trust issues.” Reason enough for an operations audit.

In 2010, a major sewage spill in Oceano originated at the Arroyo Grande, Grover Beach, Oceano and Pismo Beach sewer plant, the South San Luis Obispo County Sanitation District (SSLOCSD). This was just one of a decade of problems at the district. The spill was the culmination of what the grand jury in 2011 called “bad management.” The district board at the time said the grand jury report was “offensive.”

The first sign of problems at the district was in 2005, when the 16-year trend of funding reserves every year stopped. Thereafter the plant lost $500,000 to $2,000,000 a year until 2013 when the board restructured the management team, taking the finances back to a positive balance.

Not only did the finances drift from 2005 onward, but around 2008 lawsuits started appearing, associated with equipment failures, high employee turnover, the spill, and insurance.

Following the spill, from 2010 through 2011 there were many investigations. The first, considered “inept” by the grand jury was followed by a modified county audit and a peer review. These investigations made several recommendations to the board. Some were implemented, most were disputed.

The losses of 2005 through 2012 gobbled up reserves that some say were $12 million or more. Obscure financial reports make it difficult to determine the amount. If the district had remained on course, annually contributing to reserves, it would now have around $16 million available to upgrade the plant. Instead, it barely survived and must now seek grants, rate increases or bonds for needed improvements.

A good chunk of the reserves went to bungled capital projects. The major recipients of those funds were John Wallace, the Wallace Group and the district’s legal advisers, who all benefited financially by managing the ongoing mechanical and legal problems.

When the board restructured the district in 2013 it included an operational audit in the request for proposal (RFP) for management. It is standard practice in well run organizations to carry out an operational or ‘forensic’ audits during a restructuring, or sale or as procedural best practices. The district board sought efficiencies from a top to bottom, in-depth review of current and historic finances, systems and procedures, but subsequently refused to implement the audit. Without the audit the restructure is incomplete.

A truly independent audit by an outside expert is the only responsible action the board can take as a steward of ratepayer resources. A thorough audit will turn up any further improvements the district can make. It will bring financial responsibility and closure to the cycle of the past 10 years. It will allow the district to go forward to upgrade the plant and reassure the public of the district’s commitment to fiduciary responsibility. It would include an engineering review for single point vulnerabilities to guard against future spills.

The excerpted RFP below illustrates the scope of the operational audit requested. At the time it was presented I had researched several consultants, working out a viable proposal in which the consultant would work in $5,000 two-week increments, thus allaying the board’s assertions that it would be too expensive.

Independent of the influence or involvement of the Board/the District Administrator and/or the Wallace Group the consultant shall:

• Complete an in-depth review of the District finances, including income and expenses within all accounts such as, but not limited to operations, maintenance, capital projects, reserve and revolving funds.

• Review of policies, practices, procedures, equipment and plant to rule out and/or prevent fraud, waste or abuse.

• Evaluate current and a minimum of five years of purchasing practices and procedures, including invoicing by district administrator, engineering service providers, legal counsel and other service providers and contractors.

• Evaluate plant, staff, operations and materials costs as compared to other waste water plants and advise as to working conditions, work load and typical costs.

• Suggest operational efficiencies, cost saving opportunities, best practices and appropriate controls.

• Advise on setting up systems, practices and procedures that provide financial and operational information that the Board needs for responsible oversight, accounting comparison of budgets versus expenses for the last five fiscal years and relevant analysis of all district accounts for board and management use.

Team: Investigative Accountant with equivalent knowledge and experience as a CPA or forensic accountant, a seasoned accountant with experience in or with “Big Five” accounting firms, investigative experience, experience in government auditing and familiarity with current industry technologies.

In 2014, the plant is under excellent management and functioning effectively. Recent elections have brought changes to the board. Now is the time to complete the turnaround. Management cannot succeed merely by compliance with a system of internal controls. The turnaround happens from the top, addressing any matters that may be unsound.

A good forensic or operational audit will establish clear lines of accountability for controls, reduce the risk of fraud and create a more reliable, effective organization. If truly independent, it will put to rest or address lingering public concerns and allegations of malfeasance. For the sanitation district it would also help to re-establish credibility and public confidence, allowing the board to move forward with critical health and safety improvements.

A forensic audit will be considered at the next district board meeting on Dec. 17 at 6 p.m. Members of the public may attend and speak during public comment on the first and third Wednesdays of the month at the Arroyo Grande City Hall.

Debbie Peterson was the mayor of Grover Beach from 2012 through 2014 and a sanitation district board member.

 


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43 Comments

  1. Toadstomper says:

    Pelican 1,

    You asked me what “negotiations” I was referring to between the SSLOCSD board and the state water board (WB) regarding the $1.1 million fine.

    First of all, let me say I don’t have any special knowledge or inside information on any negotiations. You probably know at least as many facts as I do. And with all that has gone on before with prior SSLOCSD boards and with Wallace, how can anyone not feel mistrust? It seems reasonable to feel that EVERYTHING should be discussed in public so that there is no opportunity for abuse. But I do respectfully disagree with this “take no prisoners everything must be done in public” approach.

    Let me describe a scenario that may require showing a little faith in Jim Hill and the new board to negotiate a settlement of the state fine on behalf of SSLOCSD ratepayers.

    First of all, it is reasonable to assume that the SSLOCSD board and the WB haven’t just been sitting there and staring at each other for the past couple of years. Something has been going on. Both sides have an interest in the resolution of the fine and they aren’t going to just do nothing even if what is being done hasn’t been transparent.

    It’s not that difficult to see the concerns of both the WB and the SSLOCSD board and it’s not a great leap to see where that could lead in a NEGOTIATED SETTLEMENT. From the WB standpoint, they saw mismanagement at the SSLOCSD and little if any attempt to recognize it and deal with it. They had to impose a big fine. However, if they hit the SSLOCSD with the full fine they are going to look like they are brutalizing SSLOCSD ratepayers who were the victims rather than the cause of mismanagement. It is not in the WB’s best interest to be perceived as an abusive bully. The WB’s apparent earlier willingness to negotiate the amount down to $300,000 (which was rejected by the SSLOCSD) is a sign of their concern about this.

    The new SSLOCSD board understands it has some leverage. Why wouldn’t they use that leverage to try to negotiate a settlement less than the $1.1 million? Then after negotiating a lower amount, why not say to the WB, “Let the SSLOCSD pay the remaining fine into a reserve account that will be used to make the improvements that you and our customers want in order to remedy these problems? We are actively making the changes needed, and if you take away our funding with a fine you are impeding rather than helping to resolve things.”

    I do have a problem with not trusting Hill to do the right thing and asking him to negotiate EVERYTHING in public. This is asking him to paint himself into a corner and to give up much of his ability to maneuver in any negotiations. Negotiation is not linear; it is messy. Once Hill takes a public position, if he then changes his mind he looks like a lying politician or like he doesn’t know what he is doing. The same is true with the WB. With public negotiation they may understand where they want to end up but not be able to get there.

    Anyway, with no real knowledge about what is actually being negotiated, this is my long winded explanation of what I meant when I referred to “negotiations”.

    To those of you who are going to board meetings and actively working for change, keep on with your activism and good luck and good by.

    (2) 8 Total Votes - 5 up - 3 down
    • Big Tony says:

      ToadStomper,
      Thank you for your support and your words of encouragement. If we’ll all just set back and let our elected officials deal with it it’ll work out for the best. No need to question anything, nothing to see here, move along…..

      If I close my eyes and tap my heels three times will this all go away?

      (0) 10 Total Votes - 5 up - 5 down
    • Mike Byrd says:

      You’re absolutely correct. Legal issues such as this are one of the two legitimate reasons for closed meetings under the Brown Act. Let’s hope this board does the right thing for the ratepayers. The last one certainly didn’t.

      (7) 13 Total Votes - 10 up - 3 down
      • Julie says:

        There are three reasons for Closed Sessions: Personnel, Legal and Property Negotiations.

        (4) 10 Total Votes - 7 up - 3 down
    • soccermom says:

      Who came up with this $300,000 dollar amount? There has never been an offer for settlement of the fine by the RWQB for $300,000. Never has been offered or rejected. I don’t know who first started this rumor or why it is still being tossed about. Just because you say it, doesn’t make it real. Check your information before you throw it out there as fact.

      (0) 0 Total Votes - 0 up - 0 down
  2. doglover says:

    Where were you last night Big Tony? Did Carmel have you stored away in the upper conference room?
    Good thing Nick did not see you. He’s kinda mad at you.

    Afterall, you promised him that sucky project would go through.
    I guess you always thought you’d be mayor. Ha!

    (7) 9 Total Votes - 8 up - 1 down
    • agag1 says:

      I can just see Tony now, watching the meeting on TV,
      red-faced with steam coming out his ears
      as Tim Brown said he WAS one of those
      who thought Nick’s project should be approved initially,
      just cuz Nick had been through so much…

      With Tony only gone less than a month, already the brainwashing is starting to wear off!
      Thank you Mr. Brown.

      (-1) 5 Total Votes - 2 up - 3 down
  3. Big Tony says:

    Allright, listen up here.

    Enough of this picking on my friends from Grover….Bill and John. They’re stand up kind of guys and I’m sure hoping they stand up for me…..(sweating here…)

    But hey, all Grover politicians have skeleton’s in their closet. Take former Mayor of Grover David Ekbom (yep, the same one the park is named after. Nobody ever named a park after me).

    Anyyyyyyyway….back during the time Ekbom was on the San Dist he lobbied long and hard to not increase the rate laundromats would be charged. With his “gentle” guidance, laundromats got a rate that was comparable to a four person residential house.

    Oh yeah, I forgot to mention, Davie owned a laundromat when he was making those votes and everybody didn’t crawl up inside of him like you all are doing to me.

    Haven’t you Village Idiots realized there’s other fish you can fry? Speaking of fish fry…damn, I’m hungry. Didn’t we all have some good times during the Village fish fries?

    Try to remember me kindly, all I ever wanted was a friend.

    Sweatin bullets in AG

    Big Tony

    (8) 16 Total Votes - 12 up - 4 down

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