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Oceano CSD seeks a forensic audit

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No one can say for sure that someone is stealing public funds from the Oceano Community Services District, but it looks that way. In fact, as of press time, district board members were set to vote on whether to perform a “forensic audit” on their finances.

As the name sounds, a forensic audit would be an all out autopsy of every financial aspect of the district for the 2008-09 fiscal year. Most audits focus on a small sample of the district’s finances, explained board member Jim Hill.

“Hopefully, we’ll end up with a forensic audit that will figure out if we have some problems or not,” Hill said. “But I think we’ll get a better idea about what’s actually going on.”

So what exactly is going on? In the quick and dirty version, Hill and a few others suspect someone might be using the district’s checkbook to write checks under board members and management’s noses. It also appears someone may be trying to cover their tracks.

The potential problem hinges on how the district handles its checks. According to Hill and district General Manager Raffaele F. Montemurro, there’s a discrepancy between the check numbers the district tracks and those on record with the bank. Such tracking numbers are kept on what’s called a warrant.

“I found out that in some cases there were checks written that don’t correspond to any warrant numbers,” Hill said.

Montemurro, now just two months into his tenure as general manager, said one of his first tasks was to work toward getting all the numbers to match. He said the solution to the mystery could be as simple as this: The old printer they use often jams and could be causing the problem.

“No one is accusing [anyone] directly or indirectly of wrongdoing,” Montemurro said. “But the possibility of wrongdoing is definitely there.”

Hill said he’s found “hundreds and hundreds” of discrepancies between checks the district’s approved and those the bank has cashed, totaling possibly hundreds or thousands of dollars in unapproved district funds. Other district checks have been discovered that were never cashed. If, hypothetically, someone was trying to skim cash, Hill speculated, he or she could write a check that was never intended to be cashed, which would wash away any evidence on the balance sheet. Hill said he found a check dated from January for about $13,000 that still hasn’t been cashed.

Then there were suspicious letters from the Internal Revenue Service. The communications raised eyebrows for two reasons: First, the district was charged at least $384.10 in civil penalties no one claimed to know about. And second, the penalties were silently quashed when someone overpaid the district’s payroll taxes by $473.96, which again no one on the board claimed to know about or approve.

Both the penalties and overpayments are items that should have gone to the board but never did. Hypothetically, if someone was writing fraudulent checks but didn’t work everything out on the tax roll, the error could have incurred penalties from the IRS. Rather than take such an error to the board, one solution that wouldn’t raise red flags would be to send the IRS more than necessary to compensate.

Perhaps it’s the confluence of quirks in the district’s finances that has Hill fairly convinced someone is bilking public funds.

“And the fact of the [IRS] fine, the fact of the overpayment, it was glossed over, or I have to say covered up,” Hill said. “There’s no other way to describe it.” At least one resident believes potential fraud goes even deeper.

“I know that together, there’s nothing we can’t do—including saving our communities and our nation from wanton, reckless corruption, greed, lust for power, and elitism,” Nina Grabiel said in a news release attached to a citizen petition calling for the removal of some district members.

A forensic audit, if approved, would cost more than the routine auditing services from Moss, Levy, and Hartzheim of Santa Maria. Officials from the firm declined to comment on the issue.

Most surprising is how something could slip through in a small district that employs about 20 people with an annual budget of about $3.3 million. According to Hill, there are two or three people with access to district tax forms, for example.

Asked if anyone is being questioned in addition to the proposed audit, Montemurro said, “We’re in the process of trying to get to the bottom of it.”

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