Sausalito audit reveals $1.37M in unauthorized spending

Sausalito City Hall made $1.37 million in unauthorized expenditures last fiscal year, an auditor has found.

The spending, which could have been approved by City Council budget adjustments, occurred in 14 funds. The pattern led to a “significant deficiency” finding, sparking tensions at the council meeting on Feb. 17.

“We expect our clients to go back to the council and say we need to approve some change orders,” said auditor Ahmed Badawi. “What we don’t want our clients to do is go forward first and then go back to the council and say: We went forward, can we get authorization?”

The finding in the draft audit report stood out in an otherwise healthy review of the $21.6 million budget. During the last fiscal year, which ended in June, revenues exceeded projections by $1.5 million.

More than half of the unauthorized spending was in the public works and community development departments.

The council heard the draft audit report, asked what led to the deficiency finding, debated its significance and welcomed the auditor’s suggested remedies.

“We’re a small city. This is not acceptable,” Mayor Steven Woodside said of the unauthorized spending. “I have every confidence it will not be ongoing.”

“We had three different finance directors during the period, and it’s pretty clear the controls were not as rigid as they should have been,” he said. “I don’t want to blame anybody for that. I just think that’s a fact. It’s been uncovered by the auditor and let’s fix it.”

“The buck stops with me,” said City Manager Chris Zapata, who said he has begun to implement new controls suggested by the auditor.

Materials submitted by Angeline Loeffler, whom the city appointed finance director last August, after the fiscal year in question, include a response to the audit.

“Management acknowledges the finding and recognizes the importance of compliance with appropriation limits as required by applicable laws and regulations,” it said. “The over-expenditure resulted from unbudgeted operational expenditures, such as the housing element project, business improvement district projects, emergency repair and maintenance expenditures, or timing delays in processing budget amendments. While these circumstances were addressed operationally, management recognizes the need for stronger controls to prevent recurrence.”

Vice Mayor Melissa Blaustein, Councilmember Ian Sobieski and Councilmember Joan Cox noted the audit found no evidence of fraud or missing money.

“I appreciate how seriously our city staff is taking the fact that there is a finding in the audit,” Blaustein said. “There’s always room for improvement and I think we are in good fiscal standing.”

But Councilmember Jill Hoffman said the council and city staff were minimizing the issues.

“I do want to reiterate that it wasn’t just one or two funds. It was 14 funds,” she said. “These aren’t small amounts of money. Together it’s $1.3 million.”

“At the time, there was a significant amount of residents, and myself included, were requesting that we do a forensic audit for various reasons,” Hoffman said. “Red flags were flown about what was going on in our finance department.”

Hoffman said the city needs a forensic audit.

“If nothing comes up, fantastic,” she said. “Then that’s a good finding.”

“I’m going to say something now that I may regret,” Woodside said. “All five of us know there’s no evidence of fraud; not just from the auditor, but from what we learned from an intense independent investigation that was conducted contemporaneously that we’re not at liberty to discuss, except to say there was no evidence of fraud.”

“To suggest anything to the contrary now is just flat-out wrong,” he said. “A forensic audit is an audit when there is some evidence of fraud and you’re trying to find the evidence of the canceled check, etc. I’ve done that kind of litigation. I know what a forensic audit is. It is not warranted here.”

“I’ve done those investigations, too, and we didn’t do that investigation,” Hoffman replied.

“This issue has been brought up year after year after year by many of the same people claiming there must be fraud and abuse,” Woodside said. “Let’s have a forensic audit. Let’s go crazy. Let’s spend hundreds of thousands of dollars to look at every canceled check, because somebody must have stolen something.”

“We have an independent auditor who said no, nothing’s been stolen,” he continued. “There is a failure to have adequate checks and balances so that at the end of the fiscal year you don’t exceed the department budget. … We can fix that and it should be fixed.”

Hoffman said that “forensic audits are to detect fraud as well.”

“You don’t do a forensic audit when you know there’s been fraud,” she said. “You do a forensic audit to detect fraud when you suspect something’s amiss.”

The final audit report will be presented at a future meeting.