VICTORVILLE • The city’s assets are worth $203 million less than previously reported, it is in default on two major bonds and it’s posting $159 million in deficits for two major funds. (Click here to read the letter from the auditor.)

These were a few of the more significant findings revealed by the release Tuesday night of the 14-month-late audit of Victorville’s finances.

The City Council accepted the report as it stands, though Councilmen Mike Rothschild and Terry Caldwell disputed several of the issues raised and one key piece of the audit was left out.

Audits typically include an opinion from the auditor on the financial statements. However, Caporicci & Larson declined to even issue an opinion, citing significant concerns with the reliability of the city’s finances and what’s known as the “tone at the top,” or the message and direction coming down from top city officials.

A letter from the firm states: “The city has not maintained adequate internal control and accounting records for the year ended June 30, 2007.”

Other significant concerns revealed by the audit include:

• The city has until Friday to negotiate a new deal or pay $126 million owed to General Electric for equipment for the Victorville 2 power project; otherwise, it may lose a $50 million deposit and immediately owe GE $100 million.

• The city is in default on an $83 million bond for Foxborough, due to the late audit and late payment to GE.

• The audit reports a $36 million loss for hangers at Southern California Logistics Airport, with the Airport Authority then posting a $97 million deficit.

• The city also took a $60 million loss for the Foxborough power project, with the city’s municipal utility then posting a $62 million deficit.

• The general fund — used to pay for fire services, parks and recreation and most operating expenses of the city — is depleted and may not be able to support all other funds depending on it through June.

For a more detailed look at what the audit reveals about the city’s financial condition, read the Wednesday and Thursday editions of the Daily Press. To subscribe, call 241-7755 or click here.

Brooke Edwards may be reached at 955-5358 or at bedwards@VVDailyPress.com.

Here is the letter from the auditor to the City.

To the Honorable Mayor and Members of the City Council of the City of Victorville
Victorville, California

We have audited the accompanying financial statements of the governmental activities, the business-type activities, each main fund, and the aggregate remaining fund information of the City of Victorville, California (City), as of and for the year ended June 30, 2007, which collectively comprise the City's basic financial statements as listed In the table of contents. These financial statements are the responsibility of City's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards in the United States and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit 1:0 obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall basic financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

The City has not maintained adequate internal control and accounting records for the year ended June 30, 2007. Generally accepted auditing standards define internal control as a process - affected by an entity's governing board, management. and other personnel - designed to provide reasonable assurance regarding the achievement of objectives in the following categories: (a) reliability of financial reporting, (b) effectiveness and efficiency of operations, and (c) compliance with applicable laws and regulations. Internal control consists of five interrelated components.

a. Control environment sets the tone of an organization, influencing the control consciousness of its people. It is the foundation for all other components of internal control, providing discipline and structure.

b. Risk assessment is the entity's identification and analysis of relevant risks to achievement of its objectives, forming a basis for determining how the risks should be managed.

c. Control activities are the policies and procedures that help ensure that management directives are carried out

d.Information and communication systems support the identification, capture, and exchange of information in a form and time frame that enable people to carry out their responsibilities.

e. Monitoring is a process that assesses the quality of internal control performance over time.

These internal control components listed above were not adequately maintained by the City for the year ended June 30, 2007. Because the City did not maintain adequate internal control and accounting records, the accompanying basic financial statements may be materially misstated and may not present fairly the financial position and the respective changes in financial position of the City for the year ended June 30, 2007

Subsequent to the basic financial statements date of June 30, 2007 and the year then ended, the United States has entered into a financial credit crisis. Although the United States Federal Government has taken actions which, at least in part, are intended to relieve and correct this financial credit crisis, investments are subject to significant impairment and losses. To date, the City has not been informed and is not aware of any investment losses Accordingly, investment losses, if any, have not been reflected in the accompanying basic financial statements

Because of the significance of the matters discussed in the preceding paragraphs, the scope of our work was not sufficient to enable us to express, and we do not express, opinion on the City's basic financial statements for the year ended June 30, 2007,

As discussed in Note 13 to the basic financial statements, the City has continued to suffer significant reductions in net assets from operations, which raises uncertainties regarding future operations. Management's plans regarding those matters are also described in the Managements Discussion and Analysis. The basic financial statements do not include any adjustments that might result from the outcome of these uncertainties.

In accordance with Government Auditing Standards, we have also issued our report dated February 23, 2009 on our consideration of the City's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grants. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government  Auditing Standards and should be read in conjunction with this report in considering the results of our audit.

The accompanying Required Supplementary Information, such as Management's Discussion and Analysis, budgetary comparison information and other information as listed in the table of contents, is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the Required Supplementary Information.

However, we did not audit the information and express no opinion on the Required Supplementary Information.

Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the City's basic financial statements. The accompanying Supplementary Information is presented for purpose of additional analysis and is not a required part of the basic financial statements. The Supplementary Information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

San Diego, California February 23, 2009

Roberts' 'handshake contracts' rampant in Victorville

March 4, 2009 - 1:17 PM

BROOKE EDWARDS Staff Writer Victorville Daily Press

VICTORVILLE • Former city manager Jon Roberts made a series of costly verbal contracts, without council approval or even written documentation — sparking auditors’ concerns over the city’s internal controls, Victorville officials said Wednesday.

Though he couldn’t give specifics since there is pending litigation tied to the agreement, Councilman Ryan McEachron said he was recently made aware of a half-million dollar commitment made without council approval that most members didn’t even know existed.

“It was agreed to verbally,” McEachron said. “You don’t commit a city to these kinds of dollars without having some type of contract in place.”

McEachron said nearly everyday Interim City Manager Jim Cox comes across another invoice for payment on services the city never contracted for. 

These internal control issues are a large part of the reason Caporicci & Larson declined to give an opinion on the city’s financial statements. This lack of comment, experts are saying, is very rare and has serious potential implications for the city.

For more information, read Thursday's edition of the Daily Press. To subscribe, call 241-7755 or click here.

Brooke Edwards may be reached at 955-5358 or at bedwards@VVDailyPress.com.