Morro Bay officials discover $800,000-plus reporting error in city budget

A reporting error discovered by Morro Bay’s newly hired finance director means the city has $800,000 less in its coffers this year than reported in its most recent budget, though every dollar is accounted for, the city manager reported to the council Tuesday.

City Manager Scott Collins, who has also been on the job a little more than a month, reported to the council that previous years’ sewer fund expenses were omitted in drafting the Fiscal Year 2017-18 budget, which was adopted in June.

“As a council and as a community, you thought you had more money than you had, but you never had that money,” Jennifer Callaway, the city’s new finance director, said Tuesday. “There was no misappropriation.”

The budget has since been adjusted, and the city has sufficient cash on hand to continue funding already budgeted projects.

The new city administration says it will also begin posting monthly cash balances and expenditure reports for all city funds on its website, as next fiscal year’s budget talks get underway late next month.

The city council was scheduled Tuesday to receive last fiscal year’s fourth-quarter budget update for its ongoing water reclamation facility project. Late last week, Collins sent an addendum to the meeting agenda reporting the error, which he said occurred during preparation for the current budget, when both the Finance Department and City Manager’s Office were transitioning leadership.

The Finance Department was also hiring two staffers at the time, he said.

Collins said Callaway, who was also hired in November, was asked to provide a financial report from the FY 2017-18 budget to the sewer project’s citizen advisory committee ahead of a Dec. 5 meeting and decided to verify the documents before forwarding them to the committee. She soon discovered the discrepancy in cash balances, which Collins said was the result of human error.

According to a staff report, reports provided to the council in July of FY 2016-17 year-end balance overstated the correct amount by $2.68 million based on omitted expenses from the previous year, among other errors. Ending cash balances carried forward into the following fiscal year, affecting the most recently adopted budget, the report states.

Balanced against other reporting errors such as the double-counting of a large capital expense, the cumulative difference in this year’s city coffers amounts to $813,471, according to the staff report.

Collins said cash balances in the city’s financial system are all updated, and a third-party auditor has given the city’s financial statements a clean bill of health.

Following the presentation Tuesday, members of the public and council thanked Callaway and Collins for identifying and reporting the discrepancy within a span of weeks.

“They were like detectives that were determined to get to the root of the problem,” Councilwoman Marlys McPherson said. “I’m confident moving forward that we’ll be on the right track.”

Both Collins and Callaway will also hold public office hours to answer questions about the reporting error to the public from 8:30-10 a.m. Monday and 4-6 p.m. Tuesday at City Hall, 595 Harbor Street.

The city council is scheduled to hear an update on financial reporting Jan. 9.

This story was originally published December 13, 2017 at 4:53 PM with the headline "Morro Bay officials discover $800,000-plus reporting error in city budget."