MOORLACH UPDATE — Clerk-Recorder — October 15, 2013

The Internal Audit Department released one of its most unflattering and lengthy reports last Friday, see http://ocgov.com/civicax/filebank/blobdload.aspx?BlobID=30556. It was also one of the most lengthy audits in terms of completion time. I believe that I requested a review a couple of years ago. One would hope that a former county-wide elected official would receive a clean bill of health. Regretfully, this was not the case for the former Clerk-Recorder. The Board’s recently appointed Clerk-Recorder, Hugh Nguyen, has been keeping me apprised of the staffing changes he has made and the “policies, procedures and oversight” that he has implemented. The OC Register covers this “Critical Impact Audit” below.

Audit faults clerk’s office

Better oversight sought as officials seek to retrace millions in fees.

By MIKE REICHER

Orange County’s Clerk-Recorder’s Office failed to keep sufficient records about how it spent $6.8 million in public fees during two recent fiscal years, according to an internal audit.

The office mingled some of the money – which can only be spent on a limited list of expenses – with money in a general account during 2010-11 and 2011-12, the audit found. Then the clerk’s office failed to denote which expenditures it made with the fees, which came from a special account known as Fund 12D, the audit states.

But former clerk-recorder Tom Daly, who led the office during those years, has challenged the audit, saying “everything was done according to county procedures.”

Fund 12D collects about $5 million in fees each year for recording real estate liens, copying birth certificates and other department functions. Money from the account can only be spent on new technology to process records and other certain expenses.

Officials started asking questions about Fund 12D after it was used to finance $2.1 million of a 2008 bungled real estate deal.

“It became sort of a slush fund,” said county Supervisor John Moorlach, who requested the audit, the second to find financial irregularities in the Clerk-Recorder’s Office.

Orange County has about $1 billion in similar funds, which restrict how money is collected and used.

“These side funds need to have better budget and accounting policies and procedures,” Moorlach said.

The latest audit, which recommends better oversight and accounting controls, identified 12 “critical” problems and seven less serious issues. Among the findings:

  • The clerk’s office had no experienced accounting managers, or a written policy governing Fund 12D.
  • The office overcharged the public $97,000 for government lien releases and map filings.
  • The office lacked a strategic spending plan for the fund, which as of June 30, 2012, had a $14.8 million balance.

Internal Auditor Peter Hughes couldn’t determine if some of Fund 12D’s money was later transferred into the county general fund, the report states, where it could have been directed to the Sheriff’s Department, foster care and other unrelated services.

The clerk’s office transferred a total of $4.9 million from its general fund to the county general fund during the two years.

Daly, now a state Assemblyman, said in an interview Monday that the challenged expenditures were on salaries, equipment and other “routine needs for the department.” The elected auditor-controller, whose office is separate from Hughes’, was fully aware of the accounting methods, Daly added.

Daly represents Santa Ana, Anaheim, Garden Grove and Orange, and serves on the Assembly subcommittee on budget process oversight.

Clerk-Recorder Hugh Nguyen, appointed in April after Daly left for Sacramento, said he is trying to trace the two fiscal years’ expenditures.

“We believe we can hopefully justify where all the funds went,” said Nguyen, who concurred with all the audit recommendations.

Nguyen has hired two accounting managers and has developed a system to double-check and track expenditures.

Hughes will conduct a follow-up audit in six months.

Contact the writer: mreicher

FIVE-YEAR LOOK BACKS

October 15

2008

The OC Register provided its support in an editorial titled “Insurance for the taxpayer – Measure J puts pension hikes to a vote.”

Voters should support a countywide measure, Measure J, which would require voter approval for all pension increases for Orange County elected officials and employees. This is a good-government measure that will save taxpayers money and restore a semblance of balance to a system that has gotten out of control.

Most Americans are facing serious reductions in the value of their retirement account as the nation’s financial crisis takes its toll. Even when mutual funds and 401-k plans were increasing in value, most of us were looking at only modest gains and contemplating the reality of delayed retirements and the possible insolvency of the Social Security system in the not-so-distant future.

But as times get tougher for the nation’s private-sector workers, the country’s government workers have been constantly rewarded with higher pension plans and earlier retirement dates. That’s because private workers base their retirement savings on the ups and downs of the market, whereas pension decisions for public-sector workers are made in the political arena, where public-sector unions have enormous clout. That political reality is stressing government budgets, which will result in a double whammy as private workers have to pay higher taxes to sustain the promises politicians have made to government workers.

The Northern California city of Vallejo has declared bankruptcy, largely because of the excessive pay and pension benefits paid to government workers, and the nationwide pension debt is soaring to the point that other municipal bankruptcies will no doubt be coming. In Orange County, the pension system is only 73 percent funded thanks to two massive retroactive pension spikes approved by the county Board of Supervisors in 2001 and 2004. Taxpayers face total pension and retiree liabilities of $3 billion. Both spikes were made retroactive – meaning that the workers were given huge increases in their pension payouts for pastservice.

Ironically, liberal San Francisco has had a law similar to Measure J on the books for years, and its employee pension plans are fully funded.

Public safety employees (police and fire) in Orange County now can retire at age 50 with 90 percent or more of their final year’s pay, and all the contributions to those plans are made by taxpayers. The average county government worker can retire at age 55 with 81 percent of the final year’s pay. Measure J doesn’t reduce any of these generous benefits, but it will slow the never-ending push to expand them.

Critics say that it’s wrong to take this power away from the elected Board of Supervisors. In an ideal world, that might be true. In the real world, however, boards are beholden to unions, and they rarely put the taxpayer first. Even self-styled conservatives have been leading the charge for fiscal irresponsibility. Two current Republican Assembly members and former Orange County supervisors, Todd Spitzer and Jim Silva, led the charge for the 2001 spike, and Mr. Silva also supported the 2004 spike.

As Board Chairman John Moorlach and Orange County Taxpayer Association President Reed Royalty noted in the ballot argument supporting it, "Measure J is an insurance policy for the taxpayer." Given how politicians behave these days, it’s a policy well worth investing in. Vote "yes" on Measure J.

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