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August 2013 MiniNews

  • Willdan Financial Services
  • Harris.
  • Cutwater Asset Management
  • Bartle Wells
  • NBS

Download the pdf version
*Please note that updates are continually made to the Job Board section of the MiniNews (PDF format) after its original release. Check the Job Board regularly.


President’s Message

By: Pauline Marx, City and County of San Francisco

GFOA Standing Committee Opportunities

In April I wrote about our opportunity to influence the Governmental Accounting Standards Board by weighing in on how GASB sets its agenda and whether the agenda setting process has the proper amount of transparency.
Government Finance Officers Association (GFOA) has played an important role in our profession’s continuing dialog with GASB. I want to encourage your participation in this dialog and a good place to start is to join one of the GFOA committees.

The GFOA Board is advised by seven standing committees. These committees work throughout the year, discussing policies, professional standards and recommended practices. They meet in person twice a year: once in the winter in Washington, DC and again at each annual conference. Each member is expected to attend at least one of these meetings. The term is 3 years with an opportunity for reappointment. For those of you who are not public officials, the committee structure also allows for expert advisors who provide can technical guidance to the committees.

The seven standing committees are the following:

  • Committee on Accounting, Auditing, and Financial Reporting (CAAFR)
  • Committee on Governmental Budgeting and Fiscal Policy (BUDGET)
  • Committee on Canadian Issues (CCI)
  • Committee on Governmental Debt Management (DEBT)
  • Committee on Economic Development and Capital Planning (CEDCP)
  • Committee on Retirement and Benefits Administration (CORBA)
  • Committee on Treasury and Investment Management (TIM)

I have served on the Treasury and Investment Management Committee for the last three years and have found the experience rewarding. Personal opinion is that the committee tends to be a bit geeky. The experience has given me an opportunity to know colleagues from outside of California and I find that great from both a networking and a reality-check point of view.

It is application “season” for the GFOA committees. If interested, you need to apply before August 23rd. See the following link for the application materials.

CSMFO’s Policy and Procedures Manual state that “it is the policy of CSMFO to incourage involvement of its members in GFOA activities.” When the participant’s employer is unable to provide expense reimbursement for committee related expesense, CSMFO makes some funds available for reimbursement of those costs.

If you chose to apply, please inform Melissa Dixon, CSMFO Executive Director. CSMFO leadership will then contact GFOA to put in a good word for our members’ applications.

 


Executive Director’s Message

By: Melissa Dixon, CAE

I hope you are all having a wonderful summer! In my house, summer is quickly coming to a close, as the kids go back to school on August 7. When did this change? When I was a kid, we didn’t go back to school until mid-September. It’s a wonder our parents managed to deal with us unoccupied children for three whole months… Personally, I’m grateful for the earlier start date, as my kids were bored and at each other’s throats within a week of their last school day back in June.

As you can probably tell by my summer-rambling, not much is happening nowadays with CSMFO as a whole. Everything kind of slows down for the summer…which is nice since the rest of the year is pretty chock-full! Some things happening year-round that you should keep in mind include:

Training – We offer everything from webinars to multi-day classes throughout the year. Check in with our training calendar often so you don’t miss anything!
Chapter Meetings – Our chapters are always active! Look at the “Chapter Meetings” page on our website to find the next meeting nearest you!
CalCPA – Remember, CSMFO members receive CalCPA-member pricing on CalCPA education!
Budget Awards – Submissions are now accepted year-round (deadlines are based on the end of your fiscal year). Visit our website  for more details!

Please take advantage of all the value membership in CSMFO provides, and hopefully I’ll see you in February in Palm Springs!

 


Not If, but When

By:  Greg Fankhanel, CPA, Certified Fraud Examiner, Van Lant & Fankhanel, LLP

It’s been around a long time, and it’s not going away any time soon. The trouble is, most organizations don’t talk about it until it becomes a problem. It’s a good guess that top management at the small City of Dixon, Illinois didn’t take much time to discuss or evaluate the risk of fraud in their municipality. The CFO/Treasurer of Dixon was recently sentenced to 19 years in prison for diverting $53 million in City funds to her own benefit. This apparently occurred over a 20-year period.

What did she do with the money? She bought property, cars, motorhomes, approximately 400 horses, and many other items. In other words, she was living the high life, but on an annual salary of approximately $56,000.

News like this brings up many questions. It makes us wonder how someone could have gotten away with so much, for so long. It also raises the question, “Where were the auditors?” In summary, the CFO at Dixon accomplished the fraud by setting up a bogus bank account and diverting funds from legitimate City bank accounts to this false City account, from which she distributed funds to herself. Like most fraudsters, she started small, but became more aggressive over time, since no one was paying attention. Based on recent articles, it appears the fraud was finally caught by a fellow employee while the fraudster was on vacation.

In California, we’ve seen our share of fraud in government – maybe not as big as the Dixon case, but fraud nonetheless. As an auditor of local governments over the past 25 years, I have seen and experienced various types of fraud, mostly involving fraudulent disbursements. I have also encountered situations that, technically, didn’t involve “fraud,” but more accurately represented what auditing standards refer to as “abuse,” which can be a subjective concept.

Wondering why government auditors aren’t catching more of the fraud (and abuse) is a fair question. Have there been audit failures? Yes. The word “audit” can mean different things to different people. In this context, I am referring to the annual financial statement audit required of local governments. Based on my experience, the general public and many government officials consider catching fraud to be the main function of the annual audit. After the City of Bell hit the headlines, many governments started asking their auditors what procedural changes were being made in the audit process, to ensure that similar things won’t happen within their agencies. The State of California introduced various legislation and new audit regulations in reaction to the City of Bell situation.

Here’s the problem: the latest statistics from the Association of Certified Fraud Examiners indicate that a very small percentage of known fraud cases were caught by the outside auditors (only 3%). The vast majority of fraud is caught by tips from fellow employees and management oversight. Where does this leave a government agency that relies on the outside auditors as the primary fraud prevention/detection measure within their organization?

Another problem, in my opinion, is that all the legislation in the world won’t stop the fraudsters – you can’t legislate integrity or morality. New regulations may cause a dent, but they won’t prevent fraud. For example, even if governments hired outside auditors to scrutinize every disbursement, the risk of fraud would still be present. Methods of committing fraud are only limited to the creativity of the perpetrators. In addition, while there may be similarities, no two frauds are exactly the same.
Auditing standards state that financial statement auditors are responsible for obtaining reasonable assurance that financial statements as a whole are free of material misstatement, whether caused by fraud or error. The standards require various audit procedures to evaluate the risk of material misstatement due to fraud. The auditing standards (AU-C Section 240) also state that, “The primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and management. It is important that management, with the oversight of those charged with governance, places a strong emphasis on fraud prevention…” Language similar to this is included, or should be included, in audit engagement letters signed by government agencies. Government auditors are supposed to evaluate whether management has developed an appropriate fraud risk assessment and monitoring process.

Many governments may say that what happened in Dixon could never happen in their organization – which may be true. I have encountered various government agencies where, because of the organization’s culture and tone at the top, the risk of material fraud is very slim. I have also encountered government agencies that are ripe for fraud. Many governments have developed and adopted a fraud policy, which is a good start. As an auditor, I am always interested in what has happened since the adoption of such a policy: Was it just a one-time event? Where is the policy now? If asked, would most employees be aware of the policy? Does management have an on-going risk assessment and monitoring process?

Auditors need to do their job. It’s probably safe to say the Dixon auditors did not properly assess the risk of material fraud while conducting their audit. However, who is in the best position to prevent and detect fraud within an organization – the auditors who show up for a few days each year, or management of an organization who are present year-round, are responsible for the success of the organization, and are heavily involved in the daily operations? The big question is not if it will happen again, but if it will happen to your organization.


SEC’s Probe Into Bond Disclosure Compliance Puts Bond Issuers on Alert

By Renee Graves, Dan Warden, and Abigail Stokes Palsma

On July 29, 2013, the Securities Exchange Commission issued a press release announcing that they charged West Clark Community Schools in Sellersburg, Indiana, and Indianapolis-based municipal bond underwriter City Securities Corporation with falsely stating to bond investors that the school district had been properly providing annual financial information and notices required as part of its contract related to prior bond offerings.

This is the first sting since the SEC turned up the heat looking to enforce the nearly twenty-year-old Rule 15c2-12, which requires underwriters to verify that the state or local government issuing bonds will agree to regularly post financial reports about the securities on an on-going basis. This information generally reflects the financial health or operating condition over time as well as discloses the occurrence of key events that can have an impact on key features of the bonds.

As of 2010, before underwriting new bonds, dealers are required to check the Electronic Municipal Market Access (EMMA) website hosted by the Municipal Securities Rulemaking Board to ensure that the municipality has a solid history of compliance with any previously issued bonds. This is where West Clark Community Schools and City Securities got into trouble. Documents related to bonds issued in 2007 include signatures of district staff as well as employees of City Securities indicating that the district had properly disclosed all required reports related to their 2005 bond issuance in a timely manner. As the investigation revealed, the district had not been compliant for several years, and City Securities had not conducted due diligence to detect the false statements.

“West Clark Community Schools defrauded bond investors by leading them to believe that it had provided the annual financial information contractually required in a prior bond offering, when in fact for five years they failed to submit the required information,” Andrew Ceresney, Co-Director of the SEC’s Division of Enforcement said. “This case demonstrates that we will be vigilant in making sure municipal issuers and underwriters comply with their obligations.”

The investigation also revealed that Randy G. Ruhl, the head of public financing and municipal bond department at City Securities, had provided improper gifts and gratuities to district representatives and charged them back to the bond issuers under the accounting code for “printing, preparation and distribution of official statements.”

Many believed that a San Francisco based probe was an indication that the SEC would focus their initial investigation of noncompliance in California. Underwriters and issuers in that city had been ordered to hand over all documents showing disclosure-related communication between the issuer and underwriter, the names of all issuer officials involved in the drafting of official statements, and all underwriter personnel involved in the solicitation and underwriting of several series of bonds.

But the case in Indiana makes it clear that the SEC’s crack down on continuing disclosures is nation-wide. In addition to the SEC probe, the Financial Industry Regulatory Authority is investigating whether bond dealers are monitoring issuer’s compliance with continuing disclosure rules before selling any future bonds.

Nevertheless, California governmental agencies that are currently out of compliance need to become compliant as soon as possible, as they have already been flagged as “woefully out of compliance.” In 2011, the California Debt and Investment Advisory Commission reported that twenty-five percent of bond issuers in the state were found to be noncompliant. Additionally, the SEC issued a risk alert in 2012 stating that underwriters were to have written evidence to show they have adequately determined whether state and local governments have met their continuing disclosure requirements before underwriting or selling their bonds to investors. Their initial investigation warned that some underwriters did not have adequate written evidence to prove their due diligence.

What’s at Stake
While underwriters and dealers found in violation will face the direct consequences from the SEC, bond issuers are the real targets of Rule 15c2-12. In the West Clark case, the SEC settled with City Securities who agreed to pay nearly $580,000. Ruhl agreed to a one-year bar from activity with the bonds industry as well as fines of more than $42,000. The district was issued a cease and desist order, which included orders to become compliant with continuing disclosure requirements according to Rule 15c2-12. They were also directed to write policies and procedures for on-going compliance and provide training for district employees responsible for posting the disclosures. The real consequence for a district found out of compliance remains to be seen in terms of how the community will view management’s integrity going forward. Will West Clark be able to pass bond measures in the future, or will the community have lost faith in their financial integrity?

Include Disclosure Filings in Year-End Closing or Budgeting Process
Posting financial reports and material events on time is the best way to protect your organization’s ability to sell bonds when you need to and to protect your reputation regarding bonds previously issued. Write a policy and develop procedures regarding compliance with the continuing disclosure rules, and then stick to them. To satisfy compliance definitions, delinquent reports must be posted going back five years. Entities may want to incorporate such procedures into the year-end closing or budgeting process to ensure continuing disclosure postings are not overlooked.

For detailed information regarding financial reports and material events required by the SEC’s Rule 5c2-12, see page 5 of the December 2011 MiniNews. For a legal description of reportable events, visit www.vlsllp.com/CSMFO/.

Renée Graves is a Partner at Vicenti, Lloyd & Stutzman and can be reached at RGraves@vlsllp.com. In addition to being a CPA, Renée is a Certified Government Financial Manager and serves on the State Government Audit and Accounting Committee; she has more than 25 years of governmental audit experience. Dan Warden, Director Consultant, can be reached at DWarden@vlsllp.com. Dan holds an MBA in Finance and has more than 30 years of experience assisting financial personnel with facilities and bond oversight. Abigail Stokes Palsma, Knowledge Manager, can be reached at APalsma@vlsllp.com.


The California Debt and Investment Advisory Commission presents: MSRB Rule G-17 and Other Market Disclosures: A Pathway to Clarity or Not?

Pre-Conference at the 23 Annual Bond Buyer Conference
September 25, 2013
LA Marriott Live
Los Angeles, California
This pre-conference is aimed to help issuers understand what questions they need to ask and what forms of disclosure they should expect or require from underwriters, financial advisors, investment advisors, bond counsel and other consultants, and to better identify and manage the conflicts and risks inherent to the business relationships that support the issuance of bonds. You must be registered for the main conference to attend the pre-conference.

CDIAC’s DEBT ESSENTIALS
Municipal Debt Essentials is a seminar series delivered over three days: Debt 1: Debt Basics (October 22), will supply the foundational concepts for issuing debt; Debt 2: Accessing the Market (October 23), will provide an understanding of the strategic planning that occurs prior to debt issuance; Debt 3: Debt Administration (October 24), will explain the fundamental responsibilities of debt administration after bond issuance. The seminar series is designed to build upon concepts from each day; however, participants may choose to take individual courses or the entire series based upon their educational needs.

Brochure
Register

CDIAC WEBINAR
Refunding Redevelopment Debt: New Challenges
Following the dissolution of redevelopment agencies in California, Assembly Bill (AB) X1 26 (Chapter 5, 2011) transferred to successor agencies the obligation imposed by debt issued by redevelopment agencies — an amount approaching $30 billion. Assembly Bill 1484 (Chapter 26, 2012) provided some opportunities for successor agencies to benefit from lower interest rates or to restructure these obligations by refunding outstanding bonds. AB 1484 did not address all of the challenges presented by a refunding. This webinar considers the complexities that remain as successor agencies consider refunding outstanding redevelopment debt.

Agenda
Register


CSMFO MiniNews Committee Member Feature

Ken Brown Photo

Name: Ken Brown

Agency: City of Irvine (Manager of Budget and Business Planning)

Committee Chair of: Professional Standards and Recognition

Q: How long have you been in the municipal finance profession? Why did you choose this profession? I have worked in municipal finance for 14 years. I enjoy working in this profession because you are part of something bigger than yourself: you are challenged each day to do your best for your community. The responsibilities are diverse, the priorities change frequently and you are blessed to work with many great people.

Q: How long have you been a CSMFO member? Served on a CSMFO committee? I have been a member of CSMFO since 2009. This is my second year on the Professional Standards and Recognition Committee.

Q: What committee are you a part of now? Why did you become involved with CSMFO’s committee(s)? I became involved thanks to the leadership of Scott Catlett, the Assistant Finance Director for the City of Riverside, who reached out to me and asked me to step up to a bigger role within CSMFO. It is people like Scott, who volunteer so much of their own time in the service of our profession, who make CSMFO such a great resource and an incredible organization.

Q: What are your goals for the committee for the coming year, and how do they relate to the overall organization’s goals? Our number one goal is to continue to enhance the budget awards review process. We want to reduce subjectivity within the reviews and make reviewer suggestions and comments central to the overall evaluation process. We are also working to assist CSMFO’s leadership in their goal of developing an online resource library to promulgate best ideas and best practices among CSMFO’s membership.


Coaching Corner

Webinar – “California Municipal Fiscal Health Diagnostic”

2:00 – 3:30 p.m. PT, Wednesday, September 4, 2013
CSMFO Coaching Program

Learn a key diagnostic tool that will help you, your agency, and your elected officials identify problems and address them before they become unmanageable. This webinar will brief and prepare you before the Diagnostic is presented at the League’s Annual Conference September 18-20. Be prepared for the questions that your elected officials will be asking.

Over the past year, Michael Coleman has been developing the California Municipal Fiscal Health Diagnostic (the “Diagnostic”) with the advice of a number of experienced finance professionals and academics and in depth research into other similar tools. After numerous beta tests, this pragmatic financial assessment tool is now ready for use and assessment by local agencies.

Advance registration required for this no-charge webinar can be found here.

Key topics:

  1. What is fiscal insolvency?
  2. How can preventative diagnosis uncover potentially unhealthy practices and conditions?
  3. How was the California Municipal Fiscal Health Diagnostic developed and why is it an essential tool for your organization?
  4. How can you use the California Municipal Fiscal Health Diagnostic’s ten point diagnostic tool to assess your organization’s fiscal health?
  5. What resources, skills, and analytical methods can you apply to determine your organization’s true fiscal condition, strengths, and vulnerabilities?

Presenter:
* Michael Coleman, Fiscal Policy Advisor, League of California Cities and CSMFO.

We’ll be using webinar tools (including real-time questions and live polling) to make this a great opportunity for audience interaction.

Are you a member of CSMFO and want to earn CPE credit for participation in the webinar? Note the requirements at registration.

Post-Webinar Group Discussions:
Many agencies are organizing groups to participate in the webinars (live or recorded) and discuss the topics among themselves after the webinars. Some are summarizing their discussions and distributing them to managers throughout their organizations. Use the CSMFO Coaching Program as an effective way to enhance professional development in your agency. Here are some discussion starters for this session:

  • How does our agency rate on key indicators of fiscal health?
  • Where does our agency have vulnerabilities, and what can we do about them?
  • How do we communicate our agency’s financial condition effectively to gain necessary support to improve its fiscal health?

MORE RESOURCES–See the “Coaching Corner” at  for valuable resources to boost your career. These include a Financial Management Skills Inventory, Resource Matrix, Coaches Gallery of 24 volunteer CSMFO Coaches willing to help you on a one-to-one basis, and an archive of digital recordings and materials from past webinars at www.csmfo.org/training/webinars.

Don Maruska, Master Certified Coach
Director, CSMFO Coaching Program
See “Coaching Corner“.

Don Maruska & Company, Inc.
895 Napa Avenue, Suite A-5, Morro Bay, CA 93442
805-772-4667; fax: 805-772-4697; www.DonMaruska.com
Author of “How Great Decisions Get Made”
and “Take Charge of Your Talent” www.TakeChargeofYourTalent.com

 

Webinar – “Debt Management: An issuer’s and an investor’s point of view”

1:00 – 2:30 p.m. PT, Tuesday, August 20, 2013
CSMFO Coaching Program

Advance registration required for this no-charge webinar can be found here.

The municipal debt markets are abuzz with bankruptcy declarations in California and beyond. These raise concerns about credit quality of California municipal bonds. Attend this webinar and learn what local government finance professionals need to know about navigating critical issues for debt financing. Gain valuable perspectives from an investment banker, legal counsel, bond buyer and agency issuer.

Panel topics:

  1. What’s the impact of recent municipal bankruptcies and declarations of “fiscal emergency” on the ability to issue debt?
  2. What can local government agencies do to position their general fund securities favorably for public sale?
  3. How can you serve your agency’s needs in these challenging times?
  4. Your questions & answers

Presenters:

  • Sara Oberlies Brown, Managing Director, Public Finance, Stifel Nicolaus
  • Stephen Melikian, Bond Counsel, Jones Hall
  • Jennifer Johnston, Vice President/Research Analyst, Franklin Templeton Investments
  • Lisa Taitano, Debt Administrator, City of San Jose

We’ll be using webinar tools (including real-time questions and live polling) to make this a great opportunity for audience interaction.

Are you a member of CSMFO and want to earn CPE credit for participation in the webinar? Note the requirements at registration.

Post-Webinar Group Discussions:
Many agencies are organizing groups to participate in the webinars (live or recorded) and discuss the topics among themselves after the webinars. Some are summarizing their discussions and distributing them to managers throughout their organizations. Use the CSMFO Coaching Program as an effective way to enhance professional development in your agency. Here are some discussion starters for this session:

  • What debt financing needs are coming up for our agency?
  • How can we navigate the market challenges in gaining financing on favorable terms?
  • What information and ideas from today’s webinar will help us deal with these issues effectively?

MORE RESOURCES–See the “Coaching Corner” at  for valuable resources to boost your career. These include a Financial Management Skills Inventory, Resource Matrix, Coaches Gallery of 24 volunteer CSMFO Coaches willing to help you on a one-to-one basis, and an archive of digital recordings and materials from past webinars at www.csmfo.org/training/webinars.

 


Welcome New CSMFO Members!

  • Tish Berge, San Diego, Director of Administration
  • Leonard Legotte, San Diego, Professor

 


Chapter Meetings

CSMFO East Bay & CMTA Joint Meeting
-August 9

Approach, Analysis and Strategic Planning Needed to Comply with the Affordable Care Act
-Howell Southmayd, Keenan & Associates

 


Education Opportunities

Intermediate Governmental Accounting, Hemet, CA  – August 21, 8:00 a.m. – 5:00 p.m.

  • Susan Mayer

Power of Fiscal Policies, Fairfield, CA – September 5, 8:30 a.m. – 12:00 p.m.

  • Bill Statler

Power of Fiscal Policies/Long Term Financial Planning, Fairfield, CA – September 5, 8:30 a.m. – 4:30 p.m.

  • Bill Statler

Long Term Financial Planning, Fairfield, CA – September 5, 1:00 p.m. – 4:30 p.m.

  • Bill Statler

Intermediate Government Accounting, Camarillo, CA – September 11, 8:00 a.m. – 5:00 p.m.

  • Susan Mayer

Long Term Financial Planning, Palm Desert, CA  – September 12, 8:30 a.m. – 4:30 p.m.

  • Bill Statler

Power of Fiscal Policies, Palm Desert, CA  – September 12, 8:30 a.m. – 4:30 p.m.

  • Bill Statler

Power of Fiscal Policies/Long Term Financial Planning, Palm Desert, CA  – September 12, 8:30 a.m. – 4:30 p.m.

  • Bill Statler

 


Career Opportunities

CSMFO provides government finance professionals with numerous resources for enhancing and advancing their careers. Visit the job opportunities page of the CSMFO website for a list of current job openings.