Colton 10 years behind in balancing some books

Aug. 19--COLTON -- The city is trying to play catch-up after 10 years of failing to write off more than a half-million dollars in uncollected money since 2003.

Since then, what the city's auditor called a "significant deficiency" inflated the balances of three city accounts -- the general fund, electric fund and wastewater fund.

City Manager Stephen Compton had been investigating the problem and others with the city's finances when he was placed on paid administrative leave in June, pending a personnel investigation.

The Colton City Council is expected to vote on Compton's fate and writing off $642,000.06 in uncollected accounts receivables at a council meeting Tuesday.

City auditor Lance Soll Lunghard, LLP, noted the problem with the accounts receivables in a 2013 audit, saying the city was not properly reviewing and maintaining its accounts, according to a city staff report.

A city spokesman said Monday that most of the debts have been collected, adding that the city invoices had not been marked off.

"It's not actual funds," city spokesman David Santos said. "The money has been collected, it just wasn't accounted for properly."

Councilman David Toro said he was flummoxed to see the outstanding debt amounts and was unaware the city had not been writing the uncollectibles off on a regular basis. He plans to ask staff for answers at the council meeting.

"I really don't have any answers," Toro said. "I was a little surprised when I saw that. My eyes bulged out (because of) the amount, the number of years, some of the individual accounts.... I'm sure the public wants to know, too."

To straighten out the numbers, the city will have to reduce its balance in those three accounts, with the biggest change to the wastewater fund by a hefty $448,022.60, the general fund by $163,752.46 and in the electric fund by $30,225.

Most of the balances were for code enforcement services and false alarm calls. But the largest amounts were about $360,000 in invoices for Arrowhead Regional Medical Center and more than $75,000 from McCain Foods USA, Inc., both for discharge permit billings, according to city documents. Bristol West Insurance owed $16,655.82 in property damage.

The way the city determined which debts were still uncollected was by comparing invoices in each department the money was supposed to come into with invoices in accounts receivable, Santos said.

Now, the city has decided to reconcile its accounts receivables annually, Santos added.

"The audit brought everything to light," he said.

Experts say the inflated books can be problematic.

"You're presenting a brighter, rosier picture than generally accepted accounting principals would call for," said dean of the Leventhal School of Accounting at USC, William Holder.

Generally accepted accounting principles say that cities should analyze debts annually that are likely to be collected and those that are not, to keep their account balances accurate.

"If it's probable you're not going to collect them, you should write them off," Holder said, adding that the debt can also be written into a reserve account, and some debt can be collected years later from property when homeowners die.

City of Fontana Accounting Manager Dawn Brooks said their policy requires analyzing its accounts receivable quarterly and have the council approve write-offs about once a year.

"From an accounting standpoint, they should be looking at it at least several times a year," Brooks said of analyzing accounts receivables.

The Colton city manager, who has extensive financial experience, was investigating the accounts receivables and the city's financial practices when he was placed on administrative leave. He could not be reached immediately Monday. But in a previous interview, he said some accounts appeared to be overstated, and he was trying to untangle those and other financial issues he was learning about after being hired recently.

"The receivables are sitting on the system," Compton said. "They're supposed to be written off over time. If they're not collectable, then it overstates the revenue. You need to back down the asset... It's an uncollecting.... They weren't collecting on them or writing them off."

Public Works Director Amer Jakher could not be immediately reached for comment, but had said in a previous interview that he was unaware of an overstatement in the wastewater account, and that every month or every other month information is provided to the utility commission. He had said the numbers could not be overstated on the front end because they are brought into the system by cashiers and customer service representatives.

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