State Controller to Mayor: 'Patience and Understanding Must Have Their Limitations'

A sharply worded letter from State Controller John Chiang tells Dan Romero that it's time to start cooperating with auditors.

[Editor's note: The following letter from State Controller to John Chiang was delivered to city officials Thursday. It is reproduced below in its entirety. See all of Hercules Patch's coverage on the city's financial meltdown.]

Dear Mayor Romero,

I Want to thank you for the commitment you made in your May 13 response to my office’s audit, in which you directed municipal officials to search for the records requested by my office. Your statement represents the most solid commitment We have received to date from the City of Hercules to providing records necessary to account for the spending of more than $2 million of state and federal funds.

My auditors have made 32 separate requests for 107 documents since September 2011, and only a handful of those requests were satisfied. You should know that in the past two years, alone, my office has completed nearly 1,100 field audits throughout California and I cannot recall any that have taken longer than our audit of Hercules in obtaining requested documentation. While our recent local government audits of Bell and Montebello — cities which were similarly embroiled in fiscal crisis and facing demands from multiple criminal and regulatory investigations — ranged from 4 to 6 months, Hercules is running into its tenth. Simply stated, patience and understanding must have their limitations, especially when Hercules has enjoyed twice as much time as other municipalities to produce records detailing how it spent the public’s money.

In the appendix of my office’s audit report relating to the City’s spending of state and federal funds, my auditors summarize their repeated attempts to enlist your staffs assistance in locating 107 specific documents and files that were germane to our investigation. It does not matter if your staff provided our auditors with 50 boxes or 500 boxes of documents if, in the end, we Walk away Without the specific materials necessary to determine the lawfulness and appropriateness of your expenditures. Quantity is a poor substitute for the quality of documentation required for a thorough examination of Hercules’ use of state and federal funds. The very acknowledgement that your staff flooded us with fifty-two boxes of materials containing up to 15,000 documents rather than the specific ledger statements, canceled checks, bank account records, cash reconciliation documents and other pertinent records requested raises questions when coupled with our audit work papers which demonstrate that your staff repeatedly ignored communication requests and failed to attend scheduled meetings.

I understand the terrible difficulties faced by the City of Hercules, which is why my audit team went out of their way to provide extra time for your staff to produce basic records of the city’s expenses. They also shared a draft of their audit with your staff more than three weeks before it went to print. This standard practice of our office affords the audited party a final opportunity to provide information and documents before we publish our findings. City officials did not avail themselves of this last chance.

I respectfully urge you to follow-through with your commitment and to work closely with my staff as they complete their remaining audits into the City’s redevelopment agency and internal oversight controls. The purpose of these four audits is to provide the community of Hercules with reliable, no-nonsense answers for how such a promising city fell into fiscal distress and, more importantly, a roadmap for recovery. Not only are millions of dollars of state and federal funds at potential risk, but recent history has evidenced how the lack of transparency and accountability is a breeding ground for waste, abuse, and malfeasance.

I look forward to working with you.
Original signed by
JOHN CHIANG California State Controller

Ben May 17, 2012 at 08:41 PM
So I hope someone is now sifting through the 52 boxes one by one, regardless of how impossible or monotonous it seems. And I hope there's next steps planned out if the documents cannot be located in said 52 boxes. 10 months guys. Who's accountable? Don't make it the residents please.
Toni Leance May 17, 2012 at 09:12 PM
What policies have been put in place to make sure our financial records are now up to date and accurate? I don't think for a moment that this is in any way political on the part of the state auditor. I think he is only trying to get to the bottom of a terrible financial mess that is Hercules. Ms Warmerdam did the 11/12 budget she had to have used the 10/11budget for numbers why didn't she identify problems then. Seems like the most basic of ledgers were missing. I am worried that until we get a complete forensic accounting Hercules will never know where it is financially it will just keep asking tax payers for more money to bail out a sinking ship.
John Loudermilk May 17, 2012 at 09:21 PM
City Managers and other high ranking public officials have a fiduciary responsibility to their employer, the citizens of this city. I believe they should be bonded to guarantee all is on the up and up. I think the entire book keeping mess was engineered to bolster the scam against the city. As I have said many times, we haven't begun to realize the depth of this scam. Bell is a joke compared to this.
RJ May 17, 2012 at 10:03 PM
To vote for a sales tax increase is simply throwing more money into the never-ending waste of tax payers dollars. Provide the records required by the state, come clean in this ongoing audit or the residents of Hercules will never trust city hall.
Glenn Abraham May 17, 2012 at 11:21 PM
We'll, I'll be voting Yes on O (in about 5 minutes) because Chief Goswick believes we should. But I share RJ's general dislike of the regressive sales tax. Some of the residents have already stopped trusting city hall. How the city now deals with this mess should give some guidance on whom, if anyone, deserves a restoration of trust.
David Charles May 18, 2012 at 12:56 AM
Thanks, Mayor Romero for your leadership. You are the only City Council Member that is standing up for our City staff, who are the ones dealing with all the past sins of Belico and Oliva and all the havoc they created with their incompetence. We should be thankful that Mr. Duran and Ms. Mastay were even willing to come here and jump into this mess. They and the rest of the staff deserve our support.
Giorgio C. May 18, 2012 at 05:46 AM
If anyone is not cooperating, Chiang should have them cuffed. Note to Chiang: you and your staff are in the midst of a crime scene. Conduct yourselves accordingly. The honest city employees and council members will applaud you. We want to be rescued from this mess, not scolded.
Toni Leance May 18, 2012 at 06:44 AM
"In light of the recent audit by the state, we are exercising our option to terminate the grant," Clark Blanchard, spokesman for the California Natural Resources Agency, said Thursday. None of the grant money has been spent, he added. We have lost the 1.8 million dollar grant to restore the Chelsea wetlands. This is a failure of Steve Duran and his staff for not providing the necessary documents to the auditors.
Susan D.Keeffe May 18, 2012 at 03:03 PM
Unfortunately, the old Council and CM are not available to help fix this. The documents were requested of the current staff and CM. I don't see how dumping thousands of documents on the auditors was helpful. Perhaps the City should get some professional help to fix this. And they need to hold an emergency meeting to determine how they are going to handle the possibility of a domino effect hitting like a ton of bricks. The items lusted in Chisng's letter shouldn't be missing. Doesn't the City keep copies of canceled checks and keep ledgers?
Susan D.Keeffe May 18, 2012 at 03:04 PM
Sorry re typos.
Toni Leance May 18, 2012 at 03:35 PM
It calls into question the entire financial reporting policies of the city. I agree with Susan that the council needs to meet to get ahead of the news cycle. The need to talk to each agency that is approving our grants and give them the action plan for finishing the state audit and going forward the safeguards that are in place to assure them that this will never happen again. We need squeaky clean open books that can be accessed at any time for review. The financial ad hoc needs to be the impartial body that checks on financial records to determine that they are in order and report their findings directly to the council.
willie May 18, 2012 at 04:01 PM
I believe there has been significant criminal activity in Hercules city Gov't for many years and the missing paperwork is a coverup for the crime
Richard L. May 18, 2012 at 04:25 PM
Cancelled checks shouldn't be difficult. I know requesting such request can be made to banks as they have copies of these.
Kent Von Aspern May 18, 2012 at 05:58 PM
Susan, some typos are better than others. I particularly like the reference to the "items lusted" by Chiang. I was once writing a report where the typist made a typo in the word "typographical." Couldn't help but laugh over that.
Kent Von Aspern May 18, 2012 at 05:58 PM
Susan, some typos are better than others. I particularly like the reference to the "items lusted" by Chiang. I was once writing a report where the typist made a typo in the word "typographical." Couldn't help but laugh over that.
John Arca May 18, 2012 at 06:26 PM
great job Hercules - maybe you can send them the extra 50 boxes of junk mails!
Selina Williams May 18, 2012 at 07:05 PM
Hercules must conduct a complete internal control audit immediately. Should have done it when Charlie Long exposed the dire straits we are in. They should have staffed explicitly for the audit. I've said it before and it worth repeating over and over again, you do not dump records on auditors! That is considered obstruction or obfuscation. The normal response to an auditors request is to provide exactly is asked, nothing more and nothing less. You must vet all information and prepare cogent answers for any thing "lacking". Most importantly of all, do not make excuses!
Brent Marin May 18, 2012 at 11:02 PM
A crime of this type and scope could not have possibly been committed alone by the former City Manager without the complicity of the Former City Attorney and all of the various Department Heads that were responsible in the day- to- day operation of this City. The former City Council should have raised questions to these parties regarding financial items that they may have perceived as worrisome when they reviewed various forms, ledgers and reports that they were privy to and obligated to review on behalf of the residents of this City. They should have demanded the immediate resignation of those individuals that could not explain the gross accounting irregularities that should have been discovered by the Council. This is, to the best of my knowledge part of the responsibility that the City Council bears when they take the oath of office. This clearly was not done in the past. From what I have read lately, it doesn't seem that it is being done now either. This is simply unacceptable behavior amongst all the above named parties. In my experiece, if you were found out to be part of a "stunt" like this in the business world you would be fired. If your actions were found to be with criminal intent, then you would also be prosecuted. No more Excuses!
Brent Marin May 18, 2012 at 11:28 PM
John, you are absolutely right. The City of Bell, Ca. is indeed nothing compared to this multilayered fraud that has been and continues to be perpetrated here in Hercules. I continue to be disgusted by the unmitigated contempt that was demonstrated by the past appointed and elected city officials. I can only hope that the current City Council has the wherewithal to ask the tough questions and take the appropriate action when it is found to be warranted.
David Charles May 18, 2012 at 11:59 PM
There they go again, the lynch mob that really knows nothing about anything just can't wait to blame the current City Council, City Manager and staff. I smell politics going on; but who is orchestrating it? Thank goodness for our City Council, City Manager and staff for being willing to run into this burning building we call Hercules and give it their all. It's a big mess, and at least the Mayor and City Manager are standing up for Hercules against cheap shots from the brilliantly managed State of California. Accusing our present City Council and staff of fruad - really? That comment is at the same time over the top and beneath contempt! This is the Council and staff suing the crooks that did the misdeads and also working with the FBI to nail them. Then some idiot asserts that there is fraud going on whille the FBI and state auditors are crawling all over the place. Amazing.
Brent Marin May 19, 2012 at 12:35 AM
It is amazing that people like you exist In this world. In my opinion Sir, you are just a Mindless Shill for someone in our city government. Opinions, are like certain body orfiices Everybody has one. Yours my friend is just as foul to me as mine are to you. if you choose to be led around by the nose that's your problem. I choose to voice my concerns and will not be stifled by a fool such as yourself. And please, get over yourself.
Giorgio C. May 19, 2012 at 02:03 PM
When I read this, I am reminded of my own public agency employer and so I am sympathetic to one group of city employees, those being the competent, hardworking and ethical folks like ourselves. Posted on my employer's webpage is a scathing audit that even says "we have no credibility with our legislature." It is bad. The good news is that we are now on the road to accreditation. The mess didn't happen over night. And there is no record of those of us who tried to prevent it. Most of us have zero authority being rank-and-file workers, but we tried. Some of us might have some documentation of our efforts. There is no transcript of a meeting held to counsel me in which a superior said my "standards were too high", that I "might be happier working elsewhere." Some of us have letters from a whistleblower agency, thanking us for reporting our concerns. So when I read the auditor's comments about Hercules, I am wondering which employees remain. Hopefully, all of the crooks have vanished, but what about the incompetent, or those with low standards? Do we have any of them on board? If so, to them I say “Please pack your bags. We will fire you. “ And to those who are competent and have high standards, thank you for being who you are. Don’t change and hang in there.
Brent Marin May 19, 2012 at 04:14 PM
G.C. I agree with your statement completely. I should have articulated the point in my statement about current employees that work in City Hall more succinctly, so as to be not misunderstood. I do still have my reservations concerning the handling of the request for pertenate accounting documents that were and continue to be requested by the State Controllers Office. Ten month's from the original request and the Controller still has not been furnished the documents that his office has requested. Really? Could the City not hire from a company like the Robert Half organization or Account Temps that specialize in supplying tempoary certified accountants to help them sort through and find the requested material? This City Council and City Manager should have had a pretty good idea that a request for information would inevitably come from an outside Government body before they were sworn into their respective positions. This is why I stated "No More Excuses".
Susan D.Keeffe May 19, 2012 at 06:06 PM
Kent, Thanks! I think that was one of my better typos!
Douglas Bright May 23, 2012 at 05:31 PM
Glenn, I would suggest you not do anything simply because Chief Goswick believes you should. That kind of mindset led you to (as you've admitted) blindly support Dan Romero and Gerard Boulanger, which you now believe were terrible mistakes. Chief Goswick can not force the city to spend new tax revenue with his department; nor can he make a regressive tax, progressive.
Glenn Abraham May 24, 2012 at 12:45 AM
Douglas, I have a flawless record in selecting liars, schemers, frauds and turkeys. And a horrible record with Gérard (who's thoroughly dishonest but not especially dangerous) and Dan Romero (who has recently proven that he lies, but who probably is otherwise honest; even if honest, he is a schemer, a bully who publicly and privately attacks his own constituents, an autocrat who tries to crush dissent (as with Toni) and stifles opposing opinions, values opacity and disdains the community which elected him, and has a volatile temper...so, less dishonest than Gérard, but much, much more dangerous). I have a proven record of misjudging politicians. So, you're absolutely correct in saying that I shouldn't rely on individuals. But with Bill Goswick, I do think it's different. I first met him 13 years ago, but never got to know him well; however, a number of people who I know VERY well have known Bill Goswick since the 1980s, and they all vouch for him. You gotta trust somebody, and Chief Goswick comes with a lot of very good references. He never pretended to be able to convince the city to spend money on the police, but he is personally convinced that passage of O can help in avoiding further reductions in officers. He knows more than I do, and I put more value in his opinion, on this, than mine.


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