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California State Auditor

Assessment of Corrective Action Plan
The City of Maywood


The city of Maywood (Maywood) submitted its corrective action plan in January 2017, in response to the audit report titled City of Maywood: Its Flawed Governance and Financial Mismanagement Could Compromise the Basic Services It Provides to Residents (2015-803) issued by the California State Auditor (State Auditor) as part of its high-risk local government agency audit program. After reviewing the corrective action plan, we prepared the following assessment of Maywood’s action items to address the high-risk areas we identified, as referenced on page v of our report. Many of the activities Maywood discusses in its plan are ongoing and it indicates that it will provide timelines for completing these activities in its next update. We will review the city’s progress in its next update and evaluate whether to remove the high-risk designation from the city at that time.

Maywood’s cover letter to its corrective action plan contains two statements about our audit report that require clarification. First, Maywood states that our audit report is a review of the fiscal year ending in June 2015 and prior years, and that our views and interpretation of the significance of the city’s situation are not representative of the city’s actual governance and present financial condition. However, our evaluation of the city’s governance and financial condition extended beyond fiscal year 2014-15. For example, despite the election of new members to the city council in December 2015, the city’s governing body continued to exhibit poor stewardship, as we note on page 8 of our report. Specifically, the city council made wasteful spending decisions, hasty hiring decisions, and repeatedly violated the Brown Act (the State’s open meeting law for local governments) from December 2015 through May 2016. In addition, we reviewed Maywood’s biennial budgets to determine its projected financial condition for fiscal years 2015-16 through 2017-18, as we note on pages 16 through 19 of our report. We also analyzed the city’s increasing required pension contributions for fiscal years 2016-17 through 2021-22, as we note on pages 19 and 20 of our report. Furthermore, during our fieldwork (which primarily occurred in the spring and summer of 2016), we found that the city was failing to maximize revenues in several ways, as we describe on pages 24 through 28 of our report. For example, we analyzed Maywood’s parking citation data from October 2015 through June 2016 and found that the city was failing to maximize revenues because it lacked sufficient staff to enforce its parking laws.

Maywood also asserts in its cover letter that a review of its financial condition by the State Auditor far sooner than in 2015 could have enabled the city to develop a corrective action plan prior to its worsening financial condition. However, Maywood’s city council and city manager/city administrator are responsible for overseeing Maywood’s finances, not the State Auditor. Furthermore, the regulations that govern the State Auditor’s implementation of the high-risk local government agency audit program did not become effective until July 2015, the same month that we conducted our initial assessment in Maywood.



MAYWOOD’S WEAK GOVERNANCE INHIBITS RECOVERY FROM ITS
PRECARIOUS FINANCIAL AND OPERATIONAL CONDITION
City Council’s Inadequate Oversight of City Operations
California State Auditor’s
Assessment Status:

Pending

Maywood’s city administrator will recommend to the city council that future contracts with city managers/city administrators do not contain provisions that would make it difficult to terminate a poorly performing employee. In addition, the city administrator will recommend that the city council only renew contracts when warranted by an assessment of performance and that the city council not extend contracts more than six months in advance of their expiration. The city committed to providing a timeline for the completion of a policy manual that will detail the steps necessary to hire a city manager/city administrator with its next update to its corrective action plan. The city should ensure that this policy covers all contract employees.

In addition, the city will implement a performance appraisal process for the city manager/city administrator that will be conducted by the city council twice a year. Maywood states that this new process will be documented in a memorandum of understanding between the city and the city manager/city administrator. We believe that Maywood should also include the performance appraisal requirement in the city manager’s contract and should develop a written policy requiring regular performance appraisals.

As we recommended, Maywood’s city council voted to eliminate the $250 monthly mileage payment effective October 30, 2016, and the city states that it will implement a policy that defines mileage reimbursement procedures for elected officials and city employees. The city also states that the city administrator and city council now regularly review expenditures and reject those that contain inappropriate costs, and it will document this new process in an accounting policy manual. Finally, Maywood stated that it will provide us with a timeline for various corrective actions it plans to take including developing the mileage reimbursement policy; the accounting policy manual that outlines its expenditure review process; the city council’s plans for reimbursing the city $3,250 for inappropriate costs; and a plan for training city council members on the provisions of the city’s municipal code and key areas over which they exercise important responsibilities. We look forward to reviewing the city’s timeline for these various activities when we receive its next corrective action plan update.

 
City Council’s Lack of Transparency
California State Auditor’s
Assessment Status:

Pending

Maywood states that the city council undergoes Brown Act training every two years, and the city administrator believes that this training should be expanded to include all elected officials, which would include the city clerk and city treasurer. While we commend the city for expanding our recommendation in this way, we disagree with its assertion that the city council undergoes Brown Act training every two years. As we discuss on page 11 of our report, we identified two city council members who either had no training record on file with the city or had not demonstrated receiving this training within the last two years, as mandated by law. Nevertheless, Maywood indicates that the city council will undergo Brown Act training in 2017 and that it will develop a training plan and policy, as well as a monitoring mechanism. The city should also include ethics training in its new training plan and policy. Maywood states that it will provide us with a timeline for completing these efforts with its next corrective action plan update.

Maywood is also working with the city attorney to cure past Brown Act violations and states that when those violations are cured it will send us supporting documentation. Maywood has not yet formulated a corrective action plan for ensuring that it receives reliable legal advice concerning the Brown Act and other areas of state law affecting its operations. The city states that it is in the process of reviewing this recommendation and that it will provide a timeline for completion of its corrective action with its next update.

In addition, Maywood states that it is formulating revised personnel policies that will include a detailed process for demonstrating the need for each position and for hiring the most qualified individuals. The city is also in the process of documenting a more formal process for executing written contracts for applicable positions. Maywood states that it will provide us with timelines for both of these activities with the next update to its corrective action plan.



INEFFECTIVE FINANCIAL MANAGEMENT
HINDERS MAYWOOD’S ECONOMIC RECOVERY
Ongoing Deficits
California State Auditor’s
Assessment Status:

Pending

Maywood states that it reached agreement with the California Public Employees’ Retirement System on a plan for repaying delinquent amounts (totaling $3.1 million, including accrued interest) for its inactive safety retirement plan by the end of fiscal year 2018-19. However, Maywood has not yet developed a plan to address its $2.6 million debt to its successor agency. The city states that it intends to verify this amount by retaining a consultant to review the State Controller’s Office’s determination by August 2017. Maywood further states that it has continued to meet with the California Joint Powers Insurance Authority (Insurance Authority) to discuss a repayment plan. The city also asserts that it has been making monthly payments of $10,000 in accordance with its agreement with the insurance authority. We look forward to receiving an update on the city’s efforts to negotiate a repayment plan with the insurance authority in its next update to its corrective action plan.

Finally, the city stated that it is in the process of reviewing documentation, including previous contracts, and that it will provide its corrective action plan for requiring city council members and city staff to begin paying their share of retirement costs with its next update.

 
Deficient Budgeting Process
California State Auditor’s
Assessment Status:

Pending
Maywood states that it will update its current budget model to meet the best practices issued by the Government Finance Officers Association, which will include developing various new policies and procedures. For example, the city plans to develop a fiscal policy that it can use to determine how to use any excess revenues and a five-year financial plan that will outline projected repayments of outstanding obligations for upcoming fiscal years. According to the city, these new policies will also include procedures for the city council to periodically review budgeted to actual revenue and expenditures. The city stated that its next update to us will include a timeline for developing the new budget model and each of the related policies and procedures.
 
Failure to Maximize Revenue
California State Auditor’s
Assessment Status:

Pending

As we describe on pages 24 and 25 of our report, Maywood’s lack of sufficient staff to enforce its parking laws resulted in significant lost revenue. After we brought this issue to the attention of the city administrator, Maywood hired an additional parking enforcement officer who issued 1,755 citations over a period of approximately 2.5 months, resulting in $107,673 in additional parking revenue. The city indicated that it needs at least one more parking enforcement officer and is conducting a comprehensive overview of its parking and code enforcement needs. The city also states that its new parking citation contractor is in the process of converting Maywood’s old parking citation data in order to capture all unpaid citations. Maywood also states that it now contracts with a firm to help it identify businesses that collect sales tax but do not have a Maywood business license. Maywood indicates that it will also study the option of hiring a collection agency to identify those businesses that neither pay sales taxes, nor have a Maywood business license. Finally, Maywood is reviewing past payments received from Republic Services, and if it identifies any underpayments, the city will pursue the collection of those amounts.

Maywood also states that it will provide us with timelines for completing these corrective actions with its next update. For example, the city indicated that its next update will include timelines for developing a refined business license policy and for documenting a new process that requires business owners to submit supporting documentation for their reported revenue that Maywood uses to calculate the cost of their business licenses. The city indicates that its next update will also include timelines for completing its revised accounting policies and procedures manual that will include procedures to enable Maywood to more effectively manage its leases, and for completing the process of capturing all unpaid citations in its new system. Finally, the city states that its next update will also include its findings related to its review of past payments from Republic Services, and a timeline for documenting a process to monitor all future payments from its waste contractor to ensure that they comply with the terms of the contract.

 

WEAK INTERNAL CONTROLS AND NONCOMPLIANCE WITH ITS MUNICIPAL CODE
COMPROMISE MAYWOOD’S PROVISION OF BASIC SERVICES TO RESIDENTS
Poor Contract Administration
California State Auditor’s
Assessment Status:

Pending

Maywood states that it has purchasing policies in place that were adopted by the city council, and that the city administrator is in the process of reviewing these policies and will modify them as appropriate. However, this statement is not entirely accurate. Maywood’s municipal code requires the city to prepare a policies and procedures manual to implement the city’s purchasing regulations. However, as we point out on pages 36 and 37 of our report, Maywood does not maintain such purchasing policies and procedures. Maywood also indicates that it is in the process of reviewing all vendor contracts and that so far, it has not identified any breaches in contracts or lapses in service. However, as we point out on page 37 of our report, Maywood’s contract for animal control services expired on June 30, 3016. As of August 29, 2016 (the end of our fieldwork), the city had yet to renew this contract.

Maywood indicated that it will provide us with timelines for completing various corrective actions related to its contracting practices with its next update. For example, the city indicated that its next update will include a timeline for considering amending its municipal code to define the competitive process that the city now uses to contract for services; formalizing a training plan to educate city council members and city staff on the contracting requirements contained in the city’s municipal code; and developing a detailed city contractor policy that will help the city better monitor its contracts.

 
Inadequate Accounting Controls
California State Auditor’s
Assessment Status:

Pending

Maywood states that it is in the process of reviewing its current accounting processes and updating its accounting policies and procedures manual and that it will complete this documentation by the end of the third quarter of fiscal year 2016-17. The city also indicates that its new principal accountant will train employees to ensure that the updated accounting policies and procedures are implemented, but it did not provide specific information on the contents of this training in its corrective action plan. We look forward to seeing additional detail about this training in the city’s next update.

Although Maywood states its agreement with our recommendation concerning its financial statements, it appears to have misinterpreted the recommendation. Maywood’s corrective action plan implies that the city believes this recommendation applies to its internal financial reports and budgets, but we intend for it to apply to the city’s audited financial statements. When Maywood provides its next update, it should revise its response to address the timeliness and the quality of its audited financial statements.

Maywood indicated that it will provide its updated accounting policies and a new organizational chart that will demonstrate that all departments are properly staffed with its next update.



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