10/25/2012 AWA Board Meeting Minutes

  • AWA Accounting Adjustments Expose $6 Million Omission

    After more than 7 months, AWA General Manager Gene Mancebo brought AWA staff’s financial work to the Board for approval. This considerable effort by staff was supposed to clear up discrepancies between the 2011 annual audit and the 66013 financial report. With less than two days to review the 75 pages of documents, the public still managed to find $6 million in omissions and questioned the legitimacy of some of the participation fee revenue numbers.

    Because of the omissions, Mancebo’s accounting adjustments showed that ratepayers owed the restricted connection fee accounts $415,000 with interest. If two-thirds of the $6 million Amador Transmission Line (ATL) debt service is charged to the restricted reserves as the 2007 AWA fee study requires, ratepayers will go from owing $415,000 to being owed $3.6 million with interest. The difference would give huge relief to ratepayers.

    At the meeting, Mancebo explained that restricted funds and operating reserves were combined somewhere between July 2004 and June 2005. When Bill Condrashoff pressed for a specific date and who was responsible for the unlawful act, Board member Paul Molinelli asked, “What purpose does that serve at this time in our lives?” Condrashoff responded with “Accountability.” Condrashoff went on to explain that without accountability, the problem will arise again and again. Mancebo later said that he did not know who combined the funds, and that whoever is responsible is no longer working at AWA.

    However, in April 2004, consultant Robert Reed advised AWA that the 66013 law required the funds to be separated. No explanation has been given by AWA why Reed gave that advice if the funds were already properly separated. AWA staff updated Reed’s 2004 fee study in 2007 and elaborated the admonition to separate funds, even though they had been unlawfully commingled since the 2004 study. No explanation has been given why Agency Counsel Steve Kronick allowed the Board to disregard the law, even after officially reporting what the law was.

    As of June 2011, total debt payment for the ATL was around $6 million, all of which was omitted from Mancebo’s reports. The debt payments will total $40 million over 30 years. The adjusting documents show that ratepayers have paid all $6 million of the ATL debt, and none of the connection fees collected for the ATL were used for ATL debt payments.

    When the ATL project was built, ratepayers were told they would pay for 1/3 of the project and new customers would pay the remaining 2/3 with their connection fees. Instead, the new customer connection fees were used to fund other expansion projects and the reports showed that no connection fees collected for the ATL were used for the debt payments.

    The question of who is ultimately responsible for the unlawful accounting is still unknown to the public. Debbie Dunn stated, “You could seek advice from your attorney, but be mindful that this is the same attorney that has allowed these actions for the last nine years.”

    Dunn cautioned the Board to think their decision through before approving Mancebo’s accounting adjustments. Dunn remarked, “It is my belief that what ever gets adopted by this board today better be accurate, because your vote is a corroboration of this input and as a named director your vote could establish a potential liability to the suit. Think what that will do to your local reputation.”

    Ken Perano pointed out that if the Board approved inaccurate financial documents, it would be impossible to settle a lawsuit that asks AWA to produce accurate 66013 reports.

    The 66013 lawsuit allows discovery of all financial documents at AWA. Should the AWA board follow Mancebo’s recommendation and approve inaccurate information in the report, the lawsuit will uncover the inaccuracies.

    The Board voted 5-0 to send the reports to the AWA Budget Finance Committee for further review and for the committee to bring back the reports with a recommendation.