Department of Finance Audits California Coastal Commission

The results of an audit conducted by the California Department of Finance earlier this year paint a picture of the California Coastal Commission in dire need of some fiscal reorganization. 

The examination was prompted after commission staff requested — and received — a $1.46 million loan from the department of finance “to address a significant cash shortfall impacting the commission’s ability to pay June payroll, rent and other miscellaneous expenses,” according to a document recently released. The loan was requested after the commission essentially ran out of money in June 2016. The department of finance granted a loan but, due to its size and the lack of information provided by the commission, the department asked that the matter be audited.

The audit examines fiscal management and internal controls of the commission from July 1, 2015 through June 30, 2016.

Cash flow problems

The audit, in analyzing some of the cash flow problems that the coastal commission was encountering, said the coastal commission’s lack of cash stems from a slow turnaround in billing and processing payments, which account for $2.7 million of the commission’s $22.8 million annual budget.

The commission would regularly wait weeks or months to request reimbursements. In the words of the report, the commission experienced “significant delays in collecting reimbursements,” which resulted in the need for the department of finance loan.

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Billing delays could go on for up to a year. Approximately half of all reimbursements billed by the commission had billing periods between 120 to 365 days — meaning it could take a year or more for the commission to get its money back. In addition, 29 percent of invoices were sent more than 60 days after the end of the billing period. 

One example of this staggering delay was a payment of $79,998 that was tied up in the commission and did not reach the accounting unit for four months.

Communication issues

The documents, prepared by the Office of State Audits and Evaluations, also seem to point at issues that have plagued the statewide body, namely, a lack of communication between commission staff and appointed commissioners.

“Although the commission staff identified the potential cash flow shortage in February 2016, the department of finance was not notified until May 2016,” the audit reads. “Further, several of the commissioners indicated that they were not aware of the commission’s inability to meet its cash needs until after the loan was approved in June 2016.”

This information seems especially troubling in light of the stated roles of the commission and its staff, also outlined in the document prepared by the department of finance.

“While the commission is one organization, the commission and the commission staff fulfill distinctly different roles. Specifically, the commission staff prepare recommendations to the commission based on their independent analysis of facts, law, and the Coastal Act,” the document describes. “The commission considers those recommendations in addition to public testimony, weighs the environmental risks and public benefits of a proposed project, and exercises their independent judgment to rule on the projects.”

The issue strikes a familiar chord in light of past complaints that surfaced during the infamous Coastal Commission meeting in Morro Bay last February, at which commissioners complained that then-Director Dr. Charles Lester failed to return phone calls and sometimes provided “90 or 100” pages of information to commissioners the night before meetings were set to begin.

Commissioner Mark Vargas complained at the February meeting that commissioners were sometimes forced to “operate completely in the dark.”

“I’m not sure whether we are purposely being denied this information or whether there is no way of knowing, but either way it is unacceptable,” Vargas said.

During that meeting, Lester was dismissed. Jack Ainsworth has been filling in the position on a temporary basis since March. 

Potential conflicts

The audit also warns the commission about the “appearance of a conflict of interest,” due to the origin of certain funds.

“Due to the regulatory nature of the commission’s work, certain funding sources create the appearance of a conflict of interest,” the document states. “Specifically, the commission received $375,000 during 2015-16 via Memorandum of Agreements (MOAs) from utility companies and a public corporation in return for expedited work activities.”

It goes on to outline why this appears as a conflict of interest: “Due to the regulatory nature of the commission, the acceptance of these funds in return for expedited work activities can be viewed by other interested parties as unfairly prioritizing these projects and a potential risk of undue influence of state officials.”

Commission response

California Coastal Commission staff provided a response to the audit, which was included in documents published online.

While the commission staff say they have “already begun implementation” of many of the report’s recommendations, they wrote they are short-staffed and implementation will be difficult.

“Staffing constraints and budgetary limitations will make it difficult to implement all of these recommendations immediately,” the commission staff wrote, adding the commission employs four permanent full-time employees and two part-time retired annuitants who “work intermittently throughout the year.”

The document ends on a somewhat optimistic note from the commission — and a request for further loans.

“We believe in FY 2016-17 and future years, we can reduce the year-end cash flow problem that occurred in FY 2015-16 due to severe staffing difficulties,” staff wrote. “However, due to the commission’s heavy dependence on reimbursement contracts and grants, it is very likely that some cash flow problems will continue to be an issue every June. We recommend the department of finance consider an ongoing year-end cash flow loan to allow for the reimbursement billings that must occur after May and June staff work is completed and billed in early July.”

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