Examining County’s Financial Status
Q & A With Auditor Locken

Editor’s Note: This article first appeared in the Modoc Independent News. In that story there was a typo that indicated Auditor Darcy Locken needed approval of the Board of supervisors to “assign” debt. That typo has been corrected to read she does not need the Board’s approval.

One of the key components in Modoc County’s financial recovery are new and updated audit reports ordered by the State Controller’s Office (SCO) in late 2009 when it was discovered the county’s treasury was being illegally used.
   
So far two outside audits for the fiscal years 2007-08 and 2008-09 have been completed, according to Auditor Darcy Locken. The SCO has accepted the 2007-08 audit and received the 2008-09 last month for review.
   
The 2009-10 audit is nearly complete and will be issued within the next 30 days. The audit for the last fiscal is under contract and scheduled to be underway this month and issued either later this year or in January.  
   
(See accompanying story The Ironies of Municipal Debt).
   
Q. Have you assigned the treasury deficits? And has the BOS approved the assigning of the debt?
   
Locken: I am working on the 2010/11 close now, which includes "assigning the debt," but I'm not done and don't have final numbers. I do not need the Board of Supervisors’ approval to "assign" the debt.  It's an accounting function.
   
Q. What are the outstanding -- or larger -- individual account deficits?
   
Locken: If you mean the negative funds, the hospital at about $13 million.
   
Q. Yes, negative funds, meaning which individual accounts and their amounts have been assigned debt in addition to the hospital account?
   
Locken: The hospital fund is negative, so it doesn't get "assigned" debt, it is the debt.  Other large negative funds include CalWorks and the tax fund. 
   
Q. Has the SCO noted the treasury deficit problem, including any note that Modoc has not complied with state law?
   
Locken: The audits note the deficiencies, and the SCO accepted them.
   
Q. So, the SCO has not notified those state agencies affected by the misuse of treasury funds?
    
Locken: I don't know whether they have or not.  I'm not sure they have a duty to. Our audits are available to everyone, including those state departments. 
   
Q. Are state and federal agencies, where applicable, aware that their funds have been used for purposes different than they were intended?
   
Locken: They all have access to the audits.
   
Q. It’s inferred from your answer that neither you nor any county staff have informed the state agencies that are affected by the treasury debt?
   
Locken: Various agencies are aware, either because of the media coverage or because they were contacted by our department heads. The county as a whole has not sent official notifications to anyone.
   
 Q. Have any of these agencies made demand for immediate repayment, or a plan be presented for repayment?
   
Locken: Not to my knowledge.
   
Q. Wouldn’t this indicate that the affected agencies have not been notified of the treasury misuse?
   
Locken: Not necessarily. All of the state and federal agencies have reporting requirements. County departments submit reports showing what funds have been expended for their programs. I imagine that as long as the departments are continuing the programs, and any funds with time limits are being spent within those limits (which we have), the state and fed departments are happy.  That's basically what Auerbach vs. Los Angeles Board of Supervisors says.
   
Q. What, if any, impact or influence will the status of these audits have on the county’s credit rating -- if it has a credit rating?
   
Locken: We don't have a credit rating. The negative audits can't do any damage because there's nothing to damage.
   
Q. From your answer it’s inferred that Modoc County actually never formally applied for a credit rating.
   
Locken: We didn't follow through with the formal application process but we did ask for an informal review by at least one of the leading credit rating agencies. The result of the informal review was, try again later. This was before the 07/08 and 08/09 audits were completed.