Los Osos district manager being investigated after critical audit

The Los Osos Community Services District’s general manager is being investigated for allegedly taking unpermitted time off and using her office computer for personal activities.

The district’s board of directors held a special meeting Monday to approve hiring an outside investigator to look into the allegations against general manager Kathy Kivley, board president R. Michael Wright said.

Wright said the outside investigation has no timeline but could be completed by the new year.

“The reason we’re doing this investigation is that this is a very serious allegation of the misuse of public funds,” Wright said. “But we want to find out what occurred based on factual information and not speculation.”

The investigation comes after an independent annual audit released in September found numerous problems in the district’s bookkeeping for fiscal year 2013-14. The audit by the firm Moss, Levy & Hartzheim said bookkeeping entries were difficult to track, many original entries were later changed, and proper district oversight was lacking. The audit also found that vacation and sick pay were inaccurately reported and that at least two employees received overtime pay for work done during normal business hours.

County auditor-controller James Erb, whose authority includes monitoring county special district audit reports, sent an Oct. 7 letter to the Los Osos board calling the audit’s findings “of great concern.”

Erb sought more detail about how the district will implement corrective accounting practices. “One of my main concerns is that if these procedures aren’t addressed properly, it will be very difficult to understand how to account for the district’s funds in the future,” Erb said in a phone interview. “It’s not good enough just to say they’re being corrected. A plan needs to be in place.”

Though the audit didn’t directly blame Kivley, it found that bookkeeping entries made by her led to difficulties following the accounting.

“My main concern was the ‘excessive’ journal entries at the end of the year and how those impacted balances moving forward into fiscal year 2014/2015,” Erb wrote in his letter.

Wright said district officials have been directed to cooperate with the investigation.

In response to the audit’s findings, Erb requested that the district show that: Checks aren’t being distributing with only one signature, any overpayment is being corrected, timecards are approved with proper monitoring and that petty cash isn’t used for expenditures over $50.

Kivley, who was hired in 2013, has said that difficulties in tracking ledger entries were due to mistakes in entries by past employees that had to be reversed or reclassified, as well as the learning curve of a new accountant.

However, in his letter, Erb said the focus shouldn’t be on past employees.

“The District had a very capable accountant over the last six or seven years,” Erb said. “Blaming current problems on past employees does not help any situation and is far too easy to do.”

Erb said he also felt it was very unusual to “digress” from a clean audit in 2012-2013 to one with “a disclaimer of opinion” the next year in 2013-2014.

The audit also stated that Kivley should not have made any entries into the ledger. Rather, those duties should have been handled solely by the district accountant with Kivley's signature approving the entries.

Erb said he spoke with Kivley and was assured that she changed accounting procedures for the 2014-15 fiscal year that ended June 30. She did not make accounting entries and only two or three year-end fund balance entries were made by the district’s accountant for “clean up” purposes, she told him.

An audit of 2014-2015 is underway and expected to be completed by February. Kivley did not return an email request for comment for this story.