California State Auditor: Government Agency SOCWA Misreported Financial Statements for 15 Years

A press release from the Moulton Niguel Water District:

The South Orange County Wastewater Authority engaged in sloppy accounting, failed to properly track cash received from government agencies, broke state laws, and “misreported its financial statements for 15 years,” the California State Auditor has confirmed after a 2,000-hour audit of SOCWA’s finances.

“SOCWA has had issues with and misreported its financial statements for 15 years,” a state audit released Thursday morning stated, “and although its external auditor identified deficiencies in its financial protocols, it has been slow to correct deficiencies.”

Auditors also found sloppy accounting involving millions of dollars in public funds.

“Based on its accounting records, SOCWA determined that a total of $2.5 million in cash had been collected for capital projects but not spent or refunded as of June 30, 2016,” state auditors wrote in a 43-page report and fact sheet.

Those findings directly contradict what SOCWA General Manager Betty Burnett told state lawmakers last summer in opposition to the audit request that was proposed by State Senator Pat Bates and State Assemblymember Bill Brough.

“An audit really isn’t something that is going to be helpful in terms of being more transparent to the community and the public,” Burnett told members of the Joint Legislative Audit Committee last summer, “(SOCWA) provides highly detailed accounting to all member agencies.”

SOCWA Pattern of Misreporting and Misrepresentation
In addition to misreporting financial statements for 15 years, state auditors found that SOCWA policies do not comply with state laws requiring the rotation of external auditors and compliance with the California Public Records Act.

“SOCWA’s current policy for selecting an external auditor does not reduce audit costs by requiring multiyear contracts with its external audit firm, nor does it comply with a new state law that requires it to rotate its external auditor every six years,” according to state auditors.

During the JLAC audit hearing, then Laguna Beach Mayor Toni Iseman, a member of the SOCWA Board of Directors, presented a different picture to the public before the state audit. “Our finances are solid,” Iseman claimed last June. “Our management is strong. Our agency is on a firm, sustainable path… this is not your problem.”

California State Auditor Elaine Howle found otherwise, “SOCWA did not adequately account for cash it collected from its member agencies, resulting in a $354,000 discrepancy in the amount of cash collected but not yet spent between its audited financial statements and its accounting records.” 

Moulton Niguel Water District Concerns Affirmed
Moulton Niguel Water District, the largest funding agency which first called into question SOCWA’s financial irregularities, thanked state lawmakers for proposing the audit and commended state auditors for their thorough review.

“State auditors independently confirmed what we’ve been saying for years: SOCWA has been conducting business without proper financial oversight,” said Moulton Niguel General Manager Joone Lopez. “This audit is a victory for public transparency and fiscal accountability. Moulton Niguel Water District is grateful to Senator Pat Bates and Asm. Bill Brough for their leadership in proposing this audit.”

She added, “We also want to thank the California State Auditor for spending an estimated 2,000 hours meticulously reviewing SOCWA’s books.” 

OC Auditor-Controller Eric Woolery: Need to Promote Transparency
OC Auditor-Controller Eric Woolery praised the State Auditor’s report.

“The results of the SOCWA audit show just how important independent audits and an outside perspective are to keeping organizations’ finances in order,” he said. “I hope that the results help SOCWA and its ratepayers move forward and that the key stakeholders involved continue to promote transparency in the finances of this organization.”

“Our ratepayers deserve swift action to bring SOCWA into compliance with the highest accounting standards,” said Moulton Niguel’s Lopez. “The SOCWA board must immediately implement all of these recommendations in a public forum that engages all stakeholders. Despite the opposition to the audit by the majority of the SOCWA Board, we are hopeful that SOCWA will embrace these recommendations with the same sense of commitment and urgency to improve the financial management that MNWD has demonstrated.”

Proposed by State Senator Pat Bates and Asm. Bill Brough, the audit, which was approved by a 14-0 bipartisan vote by the Joint Legislative Audit Committee, addressed concerns raised by community leaders from Mission Viejo, Laguna Niguel, Aliso Viejo, Laguna Hills, Dana Point and Ladera Ranch, along with Orange County Coastkeeper and the Orange County Employees Association.

State Audit Confirms SOCWA Financial Mismanagement 

  • Misreported Financial Statements for 15 Years: CONFIRMED BY STATE AUDIT
  • Policies Do Not Comply with State Law by Failing to Rotate External Auditor: CONFIRMED BY STATE AUDIT
  • Policies Do Not Comply with State Public Records Act Law: CONFIRMED BY STATE AUDIT
  • Inadequately Accounting for Cash: CONFIRMED BY STATE AUDIT
  • Unclear Pension Obligations: CONFIRMED BY STATE AUDIT
  • Poor Accounting Practices & Improper Controls over Inventory, Payroll, and Capital Asset Records: CONFIRMED BY STATE AUDIT
  • Financial Statements Missing Critical Assets: CONFIRMED BY STATE AUDIT
  • Inadequate Financial Controls: CONFIRMED BY STATE AUDIT
  • Late Audited Financial Statements: CONFIRMED BY STATE AUDIT

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