Corrective Action Plan and Assessment—City of Montebello
| Subject | May 31, 2022 |
|---|---|
| Declining Financial Situation | Pending |
| Subject | May 31, 2022 |
|---|---|
| Did Not Provide Analysis of Hotel Performance | Partially Addressed |
| Did Not Include an Important Financial Decision on the Council Agenda | Fully Addressed |
| Did Not Adopt a Policy to Timely Pay Hotel Management Fees | Pending |
| Subject | May 31, 2022 |
|---|---|
| Did Not Follow Competitive Bidding Process | Partially Addressed |
| Did Not Follow Petty Cash and Credit Card Policies | Fully Addressed |
| Made Gifts of Public Funds | Partially Addressed |
Corrective Action Plan and Assessment—City of Montebello
May 31, 2022
View Montebello's Corrective Action Plan from May 31, 2022
The City of Montebello (Montebello) remains a high-risk local government entity. We reviewed the corrective action plan Montebello submitted in response to the audit report issued in October 2021 by the California State Auditor's Office, entitled City of Montebello: Although It Is Making Positive Changes, It Remains at High Risk Because of Recent Declines in Its Financial Condition (2021-807). Montebello submitted its original corrective action plan in November 2021, and submitted an update to the plan in February 2022. In October 2022, our office's Local High Risk Dashboard showed that, based on Montebello's 2020-21 financial statements, the city was at high risk in six of ten indicators including its general fund reserves, debt burden, and liquidity. Montebello has addressed many of the recommendations we made in our audit report, and we plan to continue to evaluate its financial data along with all California cities in our annual update for the Local Government High-Risk Dashboard.
| Despite Progress in Some Areas, Montebello's Financial Stability Remains Uncertain | |
|---|---|
| California State Auditor's Assessment Status: Pending |
Montebello's financial situation in fiscal year 2020-21, the most recent year for which we evaluated its audited financial statements, indicated significant areas of risk. In October 2022, when we updated our local high-risk dashboard, which measures more than 400 California cities according to 10 financial indicators, Montebello's ranking in terms of its risk of facing fiscal distress went from seventh in fiscal year 2019-20 to fifth in fiscal year 2020–21. We continue to monitor Montebello's financial condition and will update our assessment of the risk of fiscal distress in 2023. Nevertheless, it is clear that Montebello will need to leverage its new sources of revenue—including a new sales tax its residents recently approved—to achieve year-over-year financial stability. |
| Montebello Continues to Make Questionable Decisions Related to Its Hotels | |
| California State Auditor's Assessment Status: Partially Addressed |
Montebello is working to address the three recommendations we made to improve its decision-making related to the city's two hotels. It has begun reviewing the financial information the hotel operator submits, as we recommended, but the information it presented to the city council was incomplete and inconsistent. For example, the city calculated a projected surplus for one hotel but did not present a similar calculation for the other. Although it presented revenue totals, it did not provide the expenditure totals for either hotel. The city will need to improve the relevance and consistency of the information it presents to its city council to improve transparency and provide sufficient information to city leaders to make informed decisions. Specifically, each presentation to the city council should include the revenues, costs, and significant financial developments for both hotels. It should also present the current performance of the hotels in comparison to past performance to establish a point of reference for evaluation. Finally, it should explain how the hotels' financial performance is affecting the city's finances. The city has implemented our recommendation to ensure that it includes all matters of fiscal policy it will consider at its public city council meetings on the meeting agenda to increase transparency and opportunity for public involvement. However, the city has not yet taken action to develop and adhere to a policy and process to pay the management fees for its hotels in a timely manner. The city asserts that it will pay those fees on time, and points to the bond agreements that require timely payments, but those agreements were in place when the city was making late payments. A written policy and procedure would provide increased assurance that the city will not begin making late payments again and help the city to avoid accruing interest on those fees. |
| Montebello Has Not Fully Resolved Problems With Its Procurement Processes | |
| California State Auditor's Assessment Status: Partially Addressed |
Montebello has not fully implemented the three recommendations we made to address its failures to follow competitive bidding processes in its procurement of services. It adopted a policy to document the rationale for any valid exceptions to the city's requirements for procurements when an item or service is only available from one source. However, the city did not develop a policy requiring documentation of the rationale for any of the several other types of exceptions to the standard procurement process, and has not yet adopted a policy to report the rationale for exceptions to those processes to the city council. It states that it intends to implement one of the remaining two recommendations by adopting requirements in its city code to implement our recommendation to require a maximum amount in contracts, or to have the City Council review contracts that do not include a maximum amount. In addition, it has conducted some training on procurement requirements in response to our third recommendation; however, it has not yet demonstrated that it can ensure all staff involved in procurement receive training in the procurement requirements annually, as we recommended.
The city implemented all of our recommendations regarding its use of credit cards and petty cash. The city stated it eliminated petty cash drawers with the exception of a single drawer overseen by its finance department. It also eliminated departmental credit cards and issued credit cards to individuals in their place. Montebello set transaction limits for each card for each individual, which reduces the risk that single transactions and total purchases exceed the allowed limits. Finally, the city established a credit card policy in October 2021 that prohibits splitting payments and requires city council approval for transactions over the transaction limits. The city also took measures to implement our recommendations to ensure that it does not make gifts of public funds. The city revised its municipal code to specify limitations on the types of expenditures the city will approve or authorize, including prohibiting gifts of public funds, and has sought city council approval to raise private funds to pay for events such as a holiday party in 2021. However, the city has not yet implemented our recommendation to obtain bi-annual legal and ethics training from an independent entity such as the Attorney General's Office regarding the appropriate use of public funds and the prohibition on using public funds to make private gifts. The city stated that it is exploring options related to this recommendation. |