City of Beaumont Audit
The overall problem with the Beaumont 2011 GAAP Audit is the incorrect accounting of 'pooled funds'. Agencies can give themselves different titles, but the debt still belongs to the City as a whole. The City has put their bond debt under 'Fiduciary Funds', separated it from the rest of government activities, and publicly refuses to acknowledge the debt exists.

Pg 6 – Statement of Activities: Lists Business-type Activities as Sewer and Transit, but should also include Fiduciary Funds. Fiduciary Funds are listed separately on Page 19 balancing out itself. This is incorrect. The $235,650,831 debit must be included with the other funds on the financial statements.

Page 8 – Balance Sheet of Governmental Funds: Again the City leaves out Fiduciary Funds and does not show the $235 million debt. Page 23, Note 1 b states: .. “(fiduciary funds) are excluded from the government-wide financial statements.” A notation does not make it acceptable, it only proves that the Auditors were aware the City was hiding the bond debt to balance their books.

Page 26 – Note 1 c reports the Fiduciary Fund's use as: “...purely custodial capacity..”. The City can keep a separate account of debt, but the fund still must be part of the total sum. The Fiduciary Fund account is being used as a 'black hole' to hide the debt.

Note 1 c also lists involvement in .. “the receipt, temporary investments, and remittance of fiduciary resources to individuals, private organizations, or other governments.”

This is a reference to the City's financing of private enterprise. The Finance Director and Auditors should know that government funds can not be used for personal loans. California Government Code 53602 – 'Legislative Body shall Invest only in notes, bonds, bills, certificates of indebitedness, warrants, or registered warrants which are legal investments for savings banks.'

Page 27 Note 1 d. Capital Assets: The Auditors clearly state: “The City does not maintain a complete record of accumulated depreciation and depreciation expense of capital assets for its governmental activities. Due to lack of records, no opinion has been given on the Capital Assets, Accumulated Depreciation, or Depreciation Expense related to the governmental activities in the government-wide statements.”

Capital Assets and Depreciation are accounts that contain multimillion dollar transactions. If the City is not properly maintaining their books to the extent that the Auditors can not or will not give an opinion then the Financial Statements are not GAAP compliant.

Page 32 Note 3 d – Excess Expenditures over Appropriations: This account lists CDBG Special Fund 7 with $113,000 Appropriations and $148,086 Expenditures. CDBG Fund 7 General Ledger shows transactions totaling $1.4 Million. The General Ledger lists transactions 207206 transferred $411,613.35 from another fund. The 'other' Deposits total $140,086.17 and there was an additional $148,086 credited to this account through interfund transfers paying for 'MAMCO' Contract Services. There is another $148,086.17 credited to 'CDBG Grants', but where this money comes from or what it was used for is unclear.

MAMCO is another company that has no existence outside the City of Beaumont.

Page 33 Note 4 – Investments Authorized by California Government Code and the City's Investment Policy lists 'Guaranteed Investment Contracts'. California Government Code 53601 state the limitations of agency investments. The City is making personal loans and gifts to private citizens and hiding the expense under the guise of 'guaranteed investment contracts'.

Page 34 Note 4 - Investments Authorized by Debt Agreements states “ Investments of debt proceeds held by bond trustees are governed by provisions of the debt agreements, rather than the general provisions of the California Government Code or the City's investment policy.” This is incorrect – the City can not override State law and Federal laws.

Disclosures Relating to Interest Rate Risk states the City has $25 Million in a Money Market Fund, but the City can provide no proof that a money market fund ever existed. The City also lists $207,985,805 as an 'investment', but this amount represents the bond debt. In pooled funding all of the pieces must equal the whole. The agency can not claim 'investment' in one fund and ignore the debt that was created.

As of this writing; the only amount of actual investments from the $248.4 Million claimed by the City on the 2011 GAAP Audit is $1.8 Million remaining in the LAIF account. Page 36 lists 'Blackrock Institutional Funds' as the holder of the $25 Million investment, but the City has produced no documentation to show this investment ever existed.

Page 36 Note 5 – Note Receivable and Land Held for Resale or Exchange talks about a transfer of 91.56 acres of land from the Sewer Enterprise Fund to the RDA in 1995. The terms of the note are payment in 30 years without interest. California Government Code 53600.5 clearly states the three objectives of when investing – to safeguard the principle, to meet liquidity needs, & to “achieve a return on the funds under its control”. This transaction should have never been allowed and needs to be removed from the books. This transaction overstates 'promissory not payable' by $1.1 Million.

Page 36 Note 6 – Notes and Loans Receivable refers to the land deal made with now sitting Councilman David Castaldo in 2000. Although the Audit states an 11% interest rate and a 20-year time limit, the only interest recorded is was $592.00 on the 1st two payments made. No payments are recorded on the General Ledger until Saturday, November 3, 2011 – three (3) days before Castaldo was elected to City Council.

Page 37 Note 6 – Notes and Loans Receivable states the City makes advances on payroll checks that are: “..paid back immediately at the next payroll run.” This is not true. The General Ledger clearly shows that loans are being made that exceed the elected and appointed officials' bi-weekly pay. The City even gave Councilman Fox's son $200 and he doesn't even work for the City.

The City also refers to loaning $50,000 that was scheduled to be paid back with 5% interest by October, 2010. The Financial Statements still show a balance of $50,000. What happened to the money or who the money was loaned to is unknown. I could not find the transaction listed on the General Ledger.

Page 39 Note 8 – Capital Assets lists $2,486,915 in Machinery & Equipment purchased for the Sewer Enterprise Fund, but no record of any actual purchases are listed on the General Ledger, only plugged numbers.

The Transit Fund lists $107,789 in Machinery & Equipment and $682,892 in Vehicle purchases, but the General Ledger shows no purchases recorded, only plugged numbers. The GAAP Auditors did not read the General Ledger, perform and tests, or verify purchases through receipts.

Pages 43-55 Note 12 – Debt Without Government Commitment lists all the bond debt held by the City of Beaumont. Each bond is listed separately with the notation: “Neither the Authority Bonds nor the District Bonds are general obligations of the City.” This is incorrect. The City is responsible for all of the debt incurred by Council. The bond notes further state: “..since the City is not obligated to make payment beyond the available bond reserves, these bonds have not been reflected as long-term liabilities ...” The City is obligated to make the debt payments and is in fact making the bond debt payments from the General Fund because the property tax revenue generated does not cover the $15 Million/year bond debt payments. Page 63 states a total of only $2.8 Million was collected in property taxes for the entire city FYE 2011.

Page 61 Note 21 – Management's Review of Subsequent Events states that the Auditors entrusted city management to include any events recorded from June 30, 2011 until the audit was released on August 1, 2012. That is incorrect. It is the duty of the Auditor to review the data and notify the Board of Accountancy of any changes to the financial reports within 30 days. The Auditors' assumption that nothing had changed in 13 months or that the City would 'tell them' of changes is unrealistic. The GAAP Auditors would have seen the hundreds of 207206 transactions plugged into the General Ledger if they had only looked or actually performed an audit.

All Bonds should have a Reserve Fund holding 10% of the bond balance, but Beaumont has no Reserve Funds set aside for the bonds.

On May 16, 2013 Mayor Burg stated at the Beaumont Chamber of Commerce 'State of the City' meeting that there was $11 Million in Reserves and when questioned regarding rumors there is no money the Mayor stated: “ They're wrong. The City has money in the Bank”.

The City claims $11 Million in 'Reserves' on the Budget and Financial Statements. At the June 4th, 2013 City Council Meeting the City Manager states: “Reserves are not cash, that is assets over liabilities.” The statement can be heard on the Podcast at the 124 minute mark. The Budget was presented by the City Manager. The Finance Director was present at the Council Meeting, but he never said a word.

At the 135 minute mark on the 06/04/13 podcast a Citizen asked about the $300 Million Bond Debt. The City publicly states: “There is no debt.” This is a material misstatement intended to mislead and defraud the Public.

May 16, 2013 Beaumont City Council meeting podcast -

 The Financial Statements in no way accurately express the fiscal condition of the City of Beaumont. The Finance Director made fraudulent entries and material misstatements intended to skew the Financial Statements. The Auditing Firm of Moss, Levy, Hartzheim are either ridiculously incompetent or they knowingly conspired with the City to defraud the Public and the State of California.

 The bonds issued by the City of Beaumont name Alan Kapanicas as the Finance Director. William Aylward is no longer holding the title of Finance Director on official documents. Mr. Aylward is still listed on the City website as the Finance Director, but he has lost all control of his position.

The 2012 Bond Series B (Improvement Area No. 20) lists Alan Kapanicas as 'Authority Executive Director, City Manager, Finance Director, and Deputy City Clerk. Alan Kapanicas has removed all checks and balances and created a Totalitarian form of government. Totalitarian rule in a Democracy is unacceptable.



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