Audits Cast Doubt
Expected to Attract
Expected to Attract
The recently released audit findings of Modoc County’s financial records will attract statewide interest and are expected to adversely affect the county’s ability to bail itself out of debt.
Those opinions, among others, were expressed by community leaders and county insiders during recent interviews with the Modoc County Daily News blog.
The audits, conducted by Vavrinek, Trine, Day & Co. of Rancho Cucamonga (VTD), were ordered by the State Controller’s Office last year after it was disclosed the Modoc County Board of Supervisors and unnamed officials illegally withdrew an estimated $20 million from the county treasury -- funds that were designated for state-mandated programs at the county level.
Representatives of VTD are scheduled to make their report on their audit findings to the board Tuesday, Jan. 25, in Alturas. Repeated e-mail media queries to VTD have gone unanswered.
Placed against a backdrop of California’s multi billion dollar deficit, Modoc County’s financial problems are minor, but the message the audits contain is a huge one for other financially-strapped counties.
“These audits will get wide circulation up and down the state,” a source with knowledge of the audits said, speaking on condition of anonymity because she was not authorized to discuss the audits.
“This is not because of little Modoc County, but because VTD is a big one and the other counties want to see how VTD has handled it. Other auditing firms will look at Modoc’s audits. State agencies such as social services and the California Department of Transportation (CalTrans) will be looking at those two audits because it involves their money. Even the U.S. Department of Transportation will take a close look,” the source said.
“The audits are straight forward and should prompt the county to make a statement and take a position, but will it?” the source said. “Modoc County needs to stand up and make a strategy plan. They will not be able to sell bonds with it, and it’s open as to how the state will react. It’s like the ‘B’ word -- bankruptcy.”
As for the county’s ability to successfully seek an estimated $15 million in institutional bonds to repay the balance owed the treasury, the financial future of Modoc County is a bleak one, according to Allan Hopkins, a school trustee and member of the ad hoc Monday Night Group citizens committee.
“Would you buy a bond from someone with financials like that?” Hopkins asked. “I wouldn’t. That will be a big problem. I would think it would have an impact on a Fitch credit rating.”
Tom Boxler of Alturas, a certified public accountant and member of the Monday Night Group, concurred with Hopkins’ assessment of the county’s chance for recovering money through a bond sale.
“Not only does the qualified opinion of the auditors hinder the proposed bond sale but the "going concern" opinion contained both in the auditor’s report and the footnotes puts any offering in serious jeopardy,” Boxler said.
In June of last year, long before the release of the audits, Fitch Ratings in San Francisco informed Modoc County that it would not qualify for an investment grade rating .This meant that Modoc County would not be eligible for a rating to sell bonds to institutional investors to restore the county treasury.
“Fitch does not advise municipalities, but based on preliminary information from the Modoc County audit we felt they didn’t qualify for an investment grade rating,” a Fitch spokeswoman said last year. (See July 14, 2010 Modoc County Daily News blog)
Hopkins agreed with other sources that the state could ask for refunds of its grants to the county for mandated programs such as social services, mental and public health and roads.
“If these are single audits for purpose of state and federal grant compliance, there will be issues with state and federal agencies,” Hopkins predicted. “They can ask for money back and refuse to grant future moneys to the county. The county still has to have its 2009-10 audit, and that’s late.
“They should go out right now and hire financial consultants with experience and bring them in,” Hopkins advised. “There is no one in the county who knows what they are doing in terms of financial stuff. They need somebody to go through a training manual.”
As for clues to the whereabouts of the missing money from the treasury and how it was taken, Hopkins is puzzled.
“The other thing they said in the audit is they cannot figure where the misappropriation occurred because they don’t know where the deficit came from,” Hopkins said. “They had problems tracking back as to where the actual funds came from.”
At the boards’ Jan. 11 meeting Darcy Locken, county auditor, said the audits did not make a determination of how much money in the treasury belonged to the road department -- as an example -- because of the county’s concern for potential litigation. The road department, headed by Rick Rudometkin, who doubles as county chief administrative officer, receives sizable funds from CalTrans.
-- Ray A. March