2024-801 Local High Risk Program
Corrective Action Plans and Assessments
Published: April 9, 2025Report Number: 2024-801
City of Lindsay
| RISK AREAS AS REPORTED IN AUGUST 2021 | DECEMBER 2024 | FEBRUARY 2025 | |
|---|---|---|---|
| Lindsay’s Actions Raise Doubt About the Financial Stability of Its General Fund | |||
| 1 | Inadequate revenue led to illegal transfers to the general fund | Pending | Pending |
| 2 | Potentially improper contributions to the city’s streets maintenance efforts | Partially Addressed | Partially Addressed |
| 3 | Insufficient planning for federal assistance funds | Fully Addressed | Fully Addressed |
| Lindsay Must Increase Its Efforts to Address Deficits in Its Enterprise Funds | |||
| 4 | Inadequate enterprise fund balances | Partially Addressed | Partially Addressed |
| 5 | Service fees did not cover costs | Partially Addressed | Partially Addressed |
| Lindsay Must Improve Its Management Practices to Effectively Plan for Its Financial and Operational Needs | |||
| 6 | No long-range financial planning | Partially Addressed | Partially Addressed |
| 7 | No formal strategies to address its rising employee retirement costs | Pending | Pending |
| 8 | Lack of planning for public safety training and equipment needs | Fully Addressed | Fully Addressed |
February 2025
The city of Lindsay (Lindsay) submitted its corrective action plan in February 2025, in response to the audit report titled Local High Risk Program: The State Auditor Is Removing Its High-Risk Designation From Four Cities and Retaining the Designation for Three Others (2024-801) issued by the California State Auditor in December 2024 as part of its high-risk local government agency audit program.
After reviewing its corrective action plan, we prepared the following assessment of Lindsay’s efforts to address the high-risk areas we identified. The risk areas we present below are the high-risk areas that were not fully addressed as of December 2024. The city has not fully addressed our concerns regarding the amount that it transfers to its general fund to address the cost of the damage to its roadway conditions. Further, the city has not fully addressed other risk areas, including our concerns regarding its financial condition and internal control weaknesses pertaining to its cash receipt processing. We will continue to review the city’s progress in its next update, due in June 2025, and we will evaluate the extent to which it has fully addressed these remaining risk areas at that time.
HIGH-RISK AREA #1
Inadequate Revenue Led to Illegal Transfers to the General Fund
California State Auditor’s Assessment Status: Pending
In our December 2024 audit, we concluded that Lindsay had not addressed this risk area. We found that although the city’s revenue was sufficient to cover expenditures, its negative general fund reserves of $1.4 million as of the end of fiscal year 2022–23 will hinder its ability to react to current and future financial risks. Moreover, fiscal year 2022–23 was the second fiscal year in a row in which the city ended the year with negative general fund reserves.
In its corrective action plan, Lindsay reported that it is working to reduce its overall general fund expenditures. Specifically, the city identified 22 vacant positions that will not be filled and will instead be eliminated from the budget. The city also stated that it is evaluating the use of zero-based budgeting to eliminate its deficit and begin building its general fund reserves. We will continue to monitor the city’s actions to address this area of high risk.
HIGH-RISK AREA #2
Potentially Improper Contributions to the City’s Streets Maintenance Efforts
California State Auditor’s Assessment Status: Partially Addressed
Lindsay has not fully addressed this risk area. In our August 2021 audit report, we noted that the city charges its utilities for the cost of street repair and maintenance that result from damage by those utilities. However, we found that the city did not know the true annual cost of the damage its water, sewer, and refuse utilities caused to its roadways. In our December 2024 report, we concluded that the city had partially addressed this risk area by conducting a cost study identifying the impact of water and sewer damage to roadway conditions. We recommended that the city update the amount that it transfers to the general fund to reflect the amount supported by its cost study.
Lindsay reported that it would complete the adjustments to the amounts it transfers to the general fund from its water, sewer and refuse funds by the end of fiscal year 2024-25.
HIGH-RISK AREA #4
Inadequate Enterprise Fund Balances
California State Auditor’s Assessment Status: Partially Addressed
In our December 2024 report, we concluded that Lindsay has partially addressed this risk area by developing a plan to build and maintain its fund balances, but risks remain for its water fund. We noted that the city’s water fund had incurred operating deficits in fiscal years 2020–21 through 2022–23 and relied on general fund subsidies. To address this issue, the city approved water rate increases in October 2024, and those increases will go into effect over the next four to five years, with the first increase to take effect in January 2025.
In its February 2025 corrective action plan, Lindsay reported that it increased its water rates in January 2025. The city anticipates that the new rates will sufficiently cover costs in the water fund by the end of fiscal year 2024-25 and allow it to begin building a fund balance. The city projects a reserve of $1 million in five years to address uncertain events or unforeseen costs.
HIGH-RISK AREA #5
Service Fees Did Not Cover Costs
California State Auditor’s Assessment Status: Partially Addressed
Lindsay has not taken sufficient action to fully address this risk area. In our December 2024 report, we concluded that the city must address weaknesses in its cash receipt processing. In particular, in its fiscal year 2022-23 audit, the city’s external auditor reported that for one city department’s fees, a single individual handled deposits of fee revenue and did so without preparing proper supporting documentation. The external auditor noted that deposits that do not include supporting documentation leave a city at risk of misappropriation of funds. Further, the external auditor reported that city staff did not reconcile cash receipts from two departments to the city’s general ledger, which leaves Lindsay susceptible to the potential for misappropriation of fee revenue. We recommended that the city adopt appropriate controls to address these internal control weaknesses.
Lindsay reported in its recent corrective action plan that it plans to adopt strong internal controls, which would include centralizing all processes with fiscal oversight. Elements of such controls would include proper documentation to support each transaction, adherence to proper cash handling procedures, and segregation of duties. Moreover, the city stated that it will create standard operating procedures that address segregation of duties. The city anticipates addressing this risk area by June 2025.
HIGH-RISK AREA #6
No Long-Range Financial Planning
California State Auditor’s Assessment Status: Partially Addressed
Lindsay has not taken sufficient action to fully address this risk area. In our December 2024 report, we reported that the city had developed a financial improvement plan, but it had not kept up with the financial forecasting requirements of that plan. In particular, the plan indicated that the city would create annual five‑year long‑range fiscal forecasts. Although the financial improvement plan contained an initial five-year forecast, the city acknowledged that it had not performed any updates to that forecast.
In its corrective action plan, Lindsay indicated that it is addressing its current year deficit and will then present five-year forecasts at least bi annually to the city council in addition to each budget adoption. As we noted in our December 2024 report, the city would likely benefit from following through with its long-range financial forecasting so that it can better anticipate its revenue and expenditures and take steps as necessary to improve its poor financial condition.
HIGH-RISK AREA #7
No Formal Strategies to Address Its Rising Employee Retirement Costs
California State Auditor’s Assessment Status: Pending
In our December 2024 audit, we concluded that Lindsay had not addressed this risk area. We noted that the city’s financial improvement plan includes a commitment to fully fund the costs of the city’s retirement plans. However, the city had not prefunded its other post‑employment benefits (OPEB) costs in fiscal year 2022-23, a condition we also identified in our August 2021 audit. Further, we noted that if the city does not require its employees to begin contributing to their OPEB, the city will likely have to make higher contributions from its general fund, displacing other spending priorities.
Lindsay reported in its corrective action plan that the city manager and its negotiation team will address personnel costs through negotiations with the established unions. The city stated that it will prepare a plan in 2025 and establish funding within 2026. As we concluded in our audit reports, the city’s pension costs could place a financial burden on the city, so it needs to develop and implement strategies to reduce its retiree health benefit costs. We will continue to monitor the city’s progress to address this area of high risk.
City of Montebello
| RISK AREAS AS REPORTED IN OCTOBER 2021 | DECEMBER 2024 | FEBRUARY 2025 | |
|---|---|---|---|
| Despite Progress in Some Areas, Montebello’s Financial Stability Remains Uncertain | |||
| 1 | Declining financial situation | Pending | Pending |
| Montebello Continues to Make Questionable Decisions Related to Its Hotels | |||
| 2 | Did not provide analysis of hotel performance | Fully Addressed | Fully Addressed |
| 3 | Did not include an important financial decision on the council agenda | Fully Addressed | Fully Addressed |
| 4 | Did not adopt a policy to timely pay hotel management fees | Fully Addressed | Fully Addressed |
| Montebello Has Not Fully Resolved Problems With Its Procurement Process | |||
| 5 | Did not follow competitive bidding process | Partially Addressed | Fully Addressed |
| 6 | Did not follow petty cash and credit card policies | Fully Addressed | Fully Addressed |
| 7 | Made gifts of public funds | Partially Addressed | Fully Addressed |
February 2025
The city of Montebello (Montebello) submitted its corrective action plan in February 2025, in response to the audit report titled Local High Risk Program: The State Auditor Is Removing Its High-Risk Designation From Four Cities and Retaining the Designation for Three Others (2024-801) issued by the California State Auditor in December 2024 as part of its high-risk local government agency audit program.
After reviewing its corrective action plan, we prepared the following assessment of Montebello’s efforts to address the high-risk areas we identified. The risk areas we present below are the high-risk areas that were not fully addressed as of December 2024. The city has since addressed some risk areas including updating its purchasing policy to require its contracts to include a maximum dollar limit and updating its process to track employees who attend its procurement training. In addition, Montebello provided its staff with ethics training in January 2025 that addressed the prohibitions on gifts of public funds. However, the city has not addressed our concerns regarding its financial situation. We will continue to review the city’s progress in its next update, due in June 2025, and we will evaluate the extent to which it has fully addressed this remaining risk area at that time.
HIGH‑RISK AREA #1
Declining Financial Situation
California State Auditor’s Assessment Status: Pending
In our December 2024 report, we concluded that Montebello had not yet addressed this risk area because the city had continued deficit spending in its general fund. We identified that the city had generally been unable to maintain general fund expenditures below the amount of its revenue. In particular, for fiscal years 2020-21 through 2022-23, the city had a cumulative general fund deficit of $4.4 million. We recommended that Montebello adopt a financial plan with specific strategies to reduce its expenditures and build and maintain its revenue.
In its corrective action plan, Montebello confirmed that its progress on this risk area is ongoing and will take several years to fully address our concerns. The city’s initial efforts included developing a three-year financial forecast to project revenue and expenditures. The city also indicated that it is continuing its economic development efforts and will monitor expenditures and reduce them where possible. However, Montebello did not state in its corrective action plan whether it was in the process of developing a financial plan with specific strategies. Accordingly, we will continue to monitor the city’s actions to address this area of high risk.
HIGH-RISK AREA #5
Did Not Follow Competitive Bidding Process
California State Auditor’s Assessment Status: Fully Addressed
Montebello subsequently addressed this risk area. In our December 2024 report, we found that the city had not updated its municipal code or created a policy that requires contracts to include maximum values when feasible. Following our audit, in February 2025, Montebello updated its purchasing policy to require its contracts to include a maximum dollar limit or identify the reason that such a limit is not included as part of the agreement.
Further, in our December 2024 report, we identified that the city approved a policy in October 2024 for procurement training that described the minimum topics to be covered in the training and specified the job classifications required to attend at least one training event annually. However, we recommended that the city monitor adherence to the new procurement training policy to help ensure that city staff are properly trained. As part of its recent corrective action plan, Montebello addressed our recommendation and updated its process to track employees who attend its procurement training. The city provided a spreadsheet that it uses to track attendance by staff and their job classification. The city also provided examples of training sign-in sheets.
HIGH-RISK AREA #7
Made Gifts of Public Funds
California State Auditor’s Assessment Status: Fully Addressed
In our December 2024 audit, we concluded that Montebello partially addressed this risk area by updating its municipal code to prohibit gifts of public funds, but that the city had not ensured that its employees received ethics training that addressed the prohibitions on gifts of public funds. As stated in its corrective action plan, by having an independent entity conduct training on this topic in January 2025, Montebello took sufficient measures to implement our recommendations to help ensure that it does not make gifts of public funds. The city provided a copy of its training materials on the appropriate use of public funds. Further, the city provided examples of its sign-in sheets for the training. Montebello reported that it is committed to holding this ethics training every two years.
City of West Covina
| RISK AREAS AS REPORTED IN DECEMBER 2020 | DECEMBER 2024 | FEBRUARY 2025 | |
|---|---|---|---|
| West Covina’s Ineffective Fiscal Management Threatens Its Ability to Meet Its Financial Obligations and to Provide City Services | |||
| 1 | Continual diminishing of reserves | Partially Addressed | Partially Addressed |
| 2 | Questionable use of city resources | Partially Addressed | Partially Addressed |
| 3 | Financial decisions based on insufficient analyses | Fully Addressed | Fully Addressed |
| 4 | Lack of formal financial recovery plan | Fully Addressed | Fully Addressed |
| West Covina’s Weak Enforcement of Its Procurement Policy Increases the Risk of Waste and Fraud | |||
| 5 | Inadequate management of purchase cards | Fully Addressed | Fully Addressed |
| 6 | Lack of oversight to ensure that contracts provide best value | Partially Addressed | Fully Addressed |
February 2025
The city of West Covina (West Covina) submitted its corrective action plan in February 2025, in response to the audit report titled Local High Risk Program: The State Auditor Is Removing Its High-Risk Designation From Four Cities and Retaining the Designation for Three Others (2024-801) issued by the California State Auditor in December 2024 as part of its high-risk local government agency audit program.
After reviewing its corrective action plan, we prepared the following assessment of West Covina’s efforts to address the high-risk areas we identified. The risk areas we present below are the high-risk areas that were not fully addressed as of December 2024. The city has since addressed some risk areas including resolving our recommendation to adopt a policy requiring the city to document its rationale for contract periods longer than five years. However, the city has not fully addressed our concerns regarding its policies for establishing a general fund reserve, and it has not renegotiated its labor agreements with its employee unions as we recommended. We will continue to review the city’s progress in its next update, due in June 2025, and we will evaluate the extent to which it has fully addressed these remaining risk areas at that time.
HIGH‑RISK AREA #1
Continual Diminishing of Reserves
California State Auditor’s Assessment Status: Partially Addressed
West Covina has taken additional steps pertaining to this risk area. In our December 2024 audit report, we concluded that West Covina partially addressed this risk area. We found that although the city’s general fund revenue was higher than its operational expenditures, the city chose to maintain the minimum recommended reserve level, which introduced higher risk it would not be able to address future financial needs. We recommended that West Covina establish a general fund reserve level higher than its current 17 percent goal that is sufficient to mitigate current and future risks, including its pension‑related debt.
In its corrective action plan, the city indicated that it initially proposed to increase its minimum unassigned fund balance to 18 percent of its general fund operating expenditures and allocate a greater portion of its reserve for pension and other post-employment benefit liabilities. The city formally adopted those changes in February 2025 and reported that it will continue to review its fund balance policy annually. We will continue to monitor the city’s efforts to address this risk area.
HIGH‑RISK AREA #2
Questionable Use of City Resources
California State Auditor’s Assessment Status: Partially Addressed
West Covina has not taken sufficient steps to fully address this risk area. In our December 2020 report, we concluded that the city had funded its employees’ health benefits at rates above the average for state and local governments. In particular, we found that West Covina paid 95 percent of its employees’ healthcare premiums, compared to the 86 percent and 75 percent rates, on average, that state and local governments in the region paid for employee‑only and family plans respectively. Further, in our December 2024 report we found that, as of fiscal year 2022–23, the city’s contribution rates to employee health benefits remained at 95 percent, demonstrating that the city is still incurring unusually high costs for healthcare. We concluded that the city partially addressed this risk area but needed to renegotiate its labor agreements with its employee unions.
As stated in its recent corrective action plan, West Covina identified that its ability to lower its employee health care costs is limited by the bargaining groups’ willingness to negotiate. The city reported that it will work to lower these costs when renegotiating its labor agreements in 2025. For example, the city reported that its contract with the firefighters’ association expires in June 2025, and the city plans to renegotiate the contract by September 2025. Accordingly, we will continue to review the city’s progress in addressing this risk area.
HIGH‑RISK AREA #6
Lack of Oversight to Ensure That Contracts Provide Best Value
California State Auditor’s Assessment Status: Fully Addressed
West Covina recently took sufficient measures to address our concerns regarding its contracting practices. In our December 2024 report, we found that the city had partially addressed this risk area. We found that the city established policies clarifying when the city manager may amend purchase orders or contracts, but it did not address our recommendation to adopt a policy requiring the city to document its rationale for contract periods longer than five years.
As described in its corrective action plan, West Covina addressed our recommendation by updating its contracting policies to include a requirement that city management document its reasons for entering into any contract or extension that exceeds five years.
