CLEARLAKE OAKS – What a difference eight months makes.

Eight months ago, the Clearlake Oaks County Water District Board faced a hostile crowd over a proposed rate increase. On Thursday, it had a meeting to present much-anticipated audits of the district's finances, and the small crowd that did appear was both supportive and responsive.

Beginning last summer, the district's meetings had been crowded with ratepayers concerned over the district's shaky finances and the potential for big rate increases.

The district board had anticipated a big crowd Thursday, so they moved it from the small meeting room at the district office on Highway 20 a few miles down the road to the Lake Village Estates Clubhouse, provided by Board member Dena Barron.

But an audience of only 10 people came to hear about the audits for financial years ending 2006, 2007 and 2008.

“This is too easy,” said Board President Mike Benjamin at one point during the hour-long meeting.

El Dorado Hills-based auditor Larry Bain made the trip to offer an outline of his findings and answer questions from ratepayers.

“My responsibility on the financial statements is to provide an opinion,” said Bain.

His opinion on the district's finances and bookkeeping procedures for the three years in question was an adverse one for a variety of reasons.

Bain said capital assets weren't maintained, which had been an error going back to a previous auditor who hadn't offered an adverse opinion. But Bain felt it was a significant enough issue to warrant the adverse ruling.

Governmental Accounting Standards Board guidelines require that major funds, like sewer and water, be separated, which wasn't done by the district in the time frame Bain audited.

In the June 30, 2008, audit, Bain said the district's capital was overstated by a material amount. When he did the fieldwork, the district was not in a positive cash position, with more liabilities than assets, which required them to work out payment plans with contractors.

Bain said there were some red flags in the district's finances, including multiple bounced checks and Internal Revenue Service levies.

Iris Hudson, a former water district employee for 26 years, asked about a figure in the 2008 audit that indicated the district was $300,000 in the red, and had been in the red in previous years as well. Bain said much of that negative number was due to depreciations, and he estimated the district had spent about $240,000 more than it had during the auditing period.

Community member Richard Kuehn asked Board member Harry Chase – the only board member remaining who had served through all three of the auditing years – if it was the previous board's general recollection that the district was doing all right during that period.

“I knew that we had personnel problems,” said Chase. “That was one of the things I hadn't anticipated when I ran for the board, that we would have such a big turnover in at-will employee.”

Another community member, Bill Rett, asked why the previous board hadn't done the required yearly audits, the last one of which had been for the period ending 2005, Bain reported during the meeting.

Chase said he had had no idea what was required.

“What failsafe measures do we have in place now to ensure audits will be taken care of?” asked audience member Chuck Lamb.

Noting the yearly auditing requirement, Lamb added, “For me it's unfathomable that we didn't have audits every single year.”

Chase – who has worked in government at various levels – said no one flagged the board or made them aware of it, and there appeared to be no regulatory oversight.

Lamb asked if it would normally be the general manager's position to make the board aware of such requirements. “I would think so,” said Chase.

The general manager during most of the audit period was Ellen Pearson, who left the district in March 2008, as Lake County News has reported.

Pearson, however, was not directly mentioned during the Thursday meeting.

Board looks ahead

Benjamin said the board is now working to prove its transparency in the wake of its challenging recent history.

“Continued public involvement in these meetings and the ongoing business of the water district is gong to prevent these kinds of things from happening again,” he said.

The district has learned from its past mistakes, is doing the best they can with what they have and is now moving in a completely different direction, said Benjamin.

Next is another audit that will begin this summer once the 2008-09 fiscal year ends and the crafting of a “livable” budget, said Benjamin. The board also will present and finalize responses to Bain's audit at its next meeting.

“The majority of these are going to have a positive response,” said Benjamin, explaining that many of Bain's recommendations and findings already have been addressed by the district over the last six months.

Community member Judy Barnes wanted to know if there were findings of criminal negligence.

“We aren't going to respond to requests about criminal negligence,” said Benjamin. “It is no secret that the grand jury has investigated this and has an ongoing investigation.”

Benjamin said the district ahas sought assistance from County Counsel Anita Grant.

He said there's no doubt that there were irregularities in how some financial matters were handled. “We have already taken preventative measures so these don't happen again.”

Rett asked if the district's insurance will cover any financial losses. Benjamin said it depends on whether there are findings of fraud or malfeasance, and that would be up to the insurance company.

Holly Harris commended the board for getting the audits done. She asked about Federal Emergency Management Agency (FEMA) money that had been widely discussed in the community as having disappeared.

General Manager Darin McCosker said the district received FEMA money for a storm event on New Year's Day of 2006. At the time he was working for another district. “That's my alibi,” he quipped.

He said the district does have that capital back in place but the work hasn't been done yet.

Benjamin said the district has experienced a major turnaround since last year.

“Last summer the district was several hundred thousand dollars in debt, and today we're in the black,” he said, noting they've paid off nearly all of their debts.

Last November the district implemented a minor rate increase of $9.95 per month per single-family household.

However, Benjamin said, “That didn't make the difference. The difference is the way business has been conducted.”

He said they're scrutinizing spending on everything, from saving $1 per paper towel roll to working to reduce the district's phone bill from close to $1,000 a month down to about $250 a month. They're also looking at employee benefits.

Benjamin credited McCosker for doing an outstanding job.

McCosker said he fully intends to have operating and capital budget by when we're required to this summer.

He noted that he's hampered by an outdated accounting system that could cost as much as $60,000 to replace. Benjamin said the district is trying to live within its means and isn't yet ready to spend the money for a new system.

“This is the greatest recovery that I've ever seen for a small entity,” said Benjamin.

There's much more to do, including major capital projects – among them replacement of the High Valley water tank and work on the waste treatment plant. Benjamin said everyone is contributing to the effort to continue moving forward; employees haven't received wage increases and they're down four and a half positions, two less than when they implemented a hiring freeze.

Hudson told the board that she doubts the district has employees qualified to do internal audit checks, which Benjamin agreed was an issue raised in the audits. He said the auditor position hasn't worked well in a number of years. Hudson responded that during a six-year period they had seven auditors.

Barnes asked about future rate increases. Benjamin said they're not even discussing any.

McCosker reported that the district is requesting a US Department of Agriculture grant for $4 million. The USDA is waiting on the audits as it considers the application.

Kuehn asked if the board was considering special assessments – not rate increases – for certain projects like the wastewater plant. Benjamin said after the next audit they'll know more about their financial situation to be able to answer about what the district needs to do next.

“Our goal is to keep our district in the black and to serve all customers,” said Board member Judy Heeszel.

She said she thinks it's inevitable that eventually there will be another rate increase, and she understands people's financial concerns. The district is trying to work in everyone's best interests, Heeszel added.

The board also was asked about a list of priorities, which Benjamin said they plan to have staff present. “It will be part of the budget process, absolutely.”

Barron said it's good to know the district board can work together, and that they hadn't had any real “head-butting moments.”

Benjamin said sometimes people on boards and commissions aren't given the information they need and they have to do the best job they can with what they know at the time. He said Chase has been instrumental in helping straighten out the district's finances, and he didn't want to see him criticized because of his presence on the previous board.

He said the board will continue addressing the recommendations in Bain's audits, which must be sent to the county auditor and state controller. They'll start looking at the next audit toward the end of June.

New levels of control have been instituted, he said. “You won't find credit card abuse in this district now,” nor can an employee do what they want with their own payroll. All taxes are being paid and McCosker added that they've not had a bounced check since March of 2008.

Harris said she hoped if there is wrongdoing that it will be addressed to prevent it happening elsewhere. Because the district is a public entity, Benjamin said they have to protect the public interest, and they will do what's required by law.

Barnes said she wants to see the district remain a public entity and not be owned by a private company, such as is the case in Lucerne. Benjamin said the board is there to do just that.

“It's not for the pay,” quipped McCosker.

Bain said when he accepts a client he looks at integrity. He said the board chose to make public some aspects of the audit which could have been kept private. “I view that as a positive sign of strong integrity,” Bain said.

Benjamin pointed out that the special meeting required only 24 hours notice beforehand, but the district released the audits and gave notice for the meeting 10 days ahead of time in order to give the community time to look at the information.

Lamb asked if they would pursue a forensic audit. Benjamin said they will look at it if it's needed, but it could be extremely expensive. Bain noted it would be charged hourly. Benjamin said their decision to do one would depend on the budget and have to be balanced against other district needs.

McCosker said he also is being as transparent as possible, and is getting information to the board quickly. Ninety-five percent of the things on his to do list have been accomplished.

Benjamin said the board will do everything they can to make sure past mistakes aren't repeated and to be honest with ratepayers. “And there's nothing else we can do beyond that.”

Lamb noted the difference between where the district is now and where it was six months ago is “unbelievable.”

Benjamin thanked community members for their work to change things.

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