Report 2018-110 Recommendation 1 Responses

Report 2018-110: City of Lincoln: Financial Mismanagement, Insufficient Accountability, and Lax Oversight Threaten the City's Stability (Release Date: March 2019)

Recommendation #1 To: Lincoln, City of

To ensure that it complies with state law, Lincoln should immediately review all of its outstanding interfund loans to determine whether the borrowing funds can repay the loans according to the terms. For any loan that is from a restricted fund and that does not have the capacity to be repaid, Lincoln should develop a plan that ensures repayment within a reasonable time frame, including seeking possible alternative financing or revenue sources, such as the general fund, bonds, one-time revenue, or a tax increase, to address the obligation.

Annual Follow-Up Agency Response From September 2023

The City had previously evaluated all interfund loans and provided a written analysis that includes evaluation of compliance with the City's interfund loan policy. A plan was developed and presented City Council to address non-compliant loans. This plan has been fully implemented. On March 28, 2023 City Council approved amortization schedules for the 2 remaining non-compliant loans bringing them into compliance with the City's interfund loan policy. There are no non-compliant interfund loans remaining.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

Annual Follow-Up Agency Response From October 2022

PARTIALLY IMPLEMENTED The City had previously evaluated all inter-fund loans and provided a written analysis that includes evaluation of compliance with the City's inter-fund loan policy. A plan was developed and presented City Council to address non-compliant loans. This plan has been partially implemented. On June 14, 2022 City Council approved amortization schedules for 2 of the non-compliant loans bringing them into compliance with the City's inter-fund loan policy. There are 2 non-compliant inter-fund loans remaining. The City intends to bring the remaining 2 loans into compliance prior to June 30, 2023.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

Lincoln did not provide documentation of its implementation efforts, so we have assessed the implementation status of this recommendation as pending. We will reassess the city's progress upon receiving evidence of full implementation, either during the next annual follow-up or sooner.

Annual Follow-Up Agency Response From September 2021

I am an Interim City Manager and also the Acting City Finance Director. The previous responsible parties have left City employment. Nonetheless, being responsive to the JLAC recommendations has been very important to this city and we intend to complete the remaining two. I am in the process of reviewing the remaining interfund loan records and will make recommendations on how to resolve them properly in the upcoming budget and audit processes.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

We look forward to reviewing Lincoln's progress in addressing this recommendation.

Annual Follow-Up Agency Response From October 2020

The plan to address this recommendation includes the following:

1. Evaluation of all interfund loans has been completed.

2. Written analysis of all interfund loans that includes evaluation of compliance with interfund loan policy has been completed.

3. Development of written plan to address non-compliant loans has been completed.

4. Presentation of written plan to City Council was previously completed.

5. Implementation of written plan. Full implementation is assumed to be a long-term strategy and is still underway.

California State Auditor's Assessment of Annual Follow-Up Status: Pending

We look forward to reviewing Lincoln's progress in addressing this recommendation.

1-Year Agency Response

The plan to address this recommendation includes the following:

1. Evaluation of all interfund loans has been completed.

2. Written analysis of all interfund loans that includes evaluation of compliance with interfund loan policy has been completed.

3. Development of written plan to address non-compliant loans has been completed.

4. Presentation of written plan to City Council was previously completed.

5. Implementation of written plan. Full implementation is assumed to be a long-term strategy and is still underway.

California State Auditor's Assessment of 1-Year Status: Pending

We look forward to reviewing Lincoln's evaluation, analysis, and adopted plan at its next annual update.

6-Month Agency Response

All interfund loans have been evaluated for compliance with the 2013 interfund loan policy and to determine whether or not the borrowing fund can meet all debt service obligations without impacting the stated purpose of the lending fund that is considered a restricted fund. A comprehensive interfund loan repayment plan has been developed for all loans determined to be noncompliant. The repayment plan was presented to the Fiscal and Investments Oversight Committee and the City Council on July 24, 2019 for consideration. Based on feedback received staff is completing additional legal research and evaluation prior to submitting the final repayment plan to City Council for consideration.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

The plan to address this recommendation includes the following:

1. Evaluation of all interfund loans (underway).

2. Written analysis of all interfund loans that includes evaluation of compliance with interfund loan policy.

3. Development of written plan to address non-compliant loans.

4. Adoption of written plan by City Council.

5. Implementation of written plan. Full implementation is assumed to be a long-term strategy.

California State Auditor's Assessment of 60-Day Status: Pending

All Recommendations in 2018-110

Agency responses received are posted verbatim.