Amador Water Agency (AWA) staff took 8 months to produce adjustments to correct illegal accounting at AWA. On November 29, the public, who identified the illegal comingling of funds back in March, once again found fatal errors, leaving AWA General Manager Gene Mancebo no choice but to tell the Board he would need more time to resolve the problems.

In five weeks, the Board held two Board meetings and two committee meetings to review the adjustments for accuracy. At the second Budget Finance committee meeting, directors Bob Manassero and Art Toy ignored accounting problems that the public presented and agreed to recommend that the AWA Board move to accept the cash balances as presented.

At the November 29 meeting, RPA members Debbie Dunn and Bill Condrashoff presented written documentation of the errors. They warned the Board that following staff recommendation to approve the adjustments would put their local reputations at risk as it wrongly manufactured new debt against the ratepayers.

Although agendized as “discussion with possible action”, Mancebo changed the agenda to a “review and discussion only” item. He then requested a head nod from the Board to deliver the adjustments to the auditing firm for final reporting. He suggested that their approval by vote was not needed and that he could make the changes in the normal course of business. When this matter was first brought before the Board on October 25, the public showed that staff’s figures had problems. The Board referred the matter to the Budget Finance committee for a recommendation. The committee required two meetings, because, once again, staff did not present consistent figures, and eventually recommended that the full Board approve the adjustments.

The adjustments involved allocating more than $10 million of expenses between current ratepayers and new customers. The changes were supposed to clear up discrepancies between the 2010-2011 annual audit and the Government Code 66013 financial reports. At a meeting in March 2012, the Board was forced to reject the audit because of inaccuracies that were still not resolved.

There are several problems with the adjustments. The biggest issue is that AWA will maximize costs to ratepayers after the fact, in order to minimize the cost to developers. Instead of using funds that were collected from new customers to reimburse ratepayers for their prior investments, AWA is planning to “adjust” their accounting to use the funds to benefit developers instead. If AWA uses the funds to pay for more capacity, it will leave far less money to maintain and replace the existing system and give reason for higher rates than would otherwise be needed. Using ratepayer funds to expand the systems will significantly lower the cost for future development.

Dunn stated that financial decisions made by Board members over the last 8 years would likely have been different had these adjusted account balances indicating additional debt been known. Condrashoff reminded the Board that “Government Code 66013 requires that connection fees be used solely for the purpose for which they are collected.” Mancebo disagreed with Condrashoff, and since the Board was leaving the decision in Mancebo’s hands, there was no further Board discussion on that topic.

The problem that ultimately sent Mancebo back to the drawing board came up when the Board moved to the next topic: how to record internal loans that have been made over the years, but never documented. Dunn commented, “If you know the accounting is wrong or even suspect now, then there is no 'fix' later." Dunn also offered that straitening out only two accounts (replacement reserves and restricted reserves), as AWA staff wanted to do, would lead to more changes and thus more interfund loans. She suggested that all accounts be reconciled to be sure additional issues did not arise later. Condrashoff added that there were several negative account balances, and that AWA’s auditor advises that AWA cannot have negative account balances.

Mancebo stated that since no restricted funds were being used to fund the negative balances, there would not be a problem, but he was apparently speaking without benefit of having examined the actual books. Condrashoff returned to the podium and addressed the Board, saying “This is not possible." He explained that one account had a $2.8 million negative balance. If restricted funds were not used, then there was simply not enough funds in all the other accounts to cover the $2.8 million.

Controller Marvin Davis went back into his office to verify if Condrashoff was correct. The Board addressed all other agenda items and Davis had still not returned. Mancebo advised the Board that he would bring the discussion back after further investigation.