City Gets Its Finances in Order After Years of Uncertainty : Government: The $7.2-million budget for 1992-93 is the first since 1989-90. Officials blame a turnover of city managers.

For the first time in three years, Hawaiian Gardens has adopted a city budget.

It also has balanced its checkbook for the first time in four years.

The City Council recently approved a $7.2-million spending plan for 1992-93, after untangling a mismanaged accounting system that had left the city uncertain how much money it had and how much it had spent.

“It’s a good feeling” to finally have a budget, said Marylou Matienzo, city finance director and treasurer.

“Without a budget, you’re strictly going on your best estimate,” she said. “This gives us exact directions, where to go, what’s allowed, and what we can do.”

The last time Hawaiian Gardens had a formally adopted budget was 1989-90.

An audit concluded that the city spent $3.9 million during the 1990-91 fiscal year.

Along with passing the current budget, the council retroactively adopted a $4.4-million budget for 1991-92, based on expenditures made during the fiscal year, according to city staff.

Lacking formally adopted budgets--which are not required by law--city officials have been determining how much could be spent based on the amount available each month. All spending was approved by the council, according to City Manager Nelson Oliva.

City officials attribute the tangled finances, which began surfacing in the late 1980s, to a turnover of city managers, inadequate staffing and a lack of sound financial controls.

Mayor Kathleen Navejas, who was elected to the council in 1986, said that during the period budgets were submitted that “were a farce” and concealed problems from the council.

When Oliva became city manager in November, 1990, three years’ worth of audits had not been conducted or were incomplete, he said. Documentation of city spending was not available.

“I can’t say if we spent more than we earned, but funding wasn’t identified and posted properly,” he said.

Matienzo said the city did not have a finance department, and the work was being handled by an accounting technician and a part-time financial consultant.

“There was no full-time staff who had the time to monitor and do all necessary checks and balances,” she said. “No one was keeping a record and reconciling budgets versus actual expenditures and requisitions, so it was easy to let an expenditure overrun and exceed the budget.”

For example, in 1991, the city could not show, as required by state law, that it had spent gas tax funds for street maintenance, so state auditors forced the city to transfer $400,000 from the General Fund to the gas tax fund.

Oliva said that, although a 1991-92 budget was drafted, it was pointless to adopt it until the accounting system was untangled.

“I went to the council and said, ‘I could give you a document called a budget but could not tell you what we’ve got to spend until all of the audits are done and the auditors are comfortable. I’m not comfortable giving you a budget which is a piece of paper but may not have strong validity,’ ” he said.

In 1991, the city brought in Conrad & Associates, an Irvine-based accounting firm, which audited the books back to 1989-90 and helped the city get its finances on track. The company has been paid about $40,000 for its work.

The auditors found no evidence of misappropriation of funds, just poor bookkeeping, Oliva said, and the city did not go into debt.

As a result of the audits, the city tightened controls over the way checks are authorized and recorded. It also started requiring that department heads and council members approve payments. The finance staff was expanded to three people.

“We have set tight controls,” Matienzo said. “Before, we didn’t have any of these controls.”

The city also began reconciling its bank and investment account balances, which is comparable to balancing a checkbook. Matienzo said this had not been done for four years because “no one was trained to do it.”

As a result, she said, some expenditures had not been recorded, and there were instances in which payments had been recorded but never paid. City funds also were not being properly invested, again because of a lack of proper staffing, Matienzo said.

The auditors recommended that the city install a computer system to keep track of finances. Matienzo acknowledges that an in-house system would help but said the city cannot afford it.

Some council members are optimistic that the city has its accounting system under control at last.

“It’s in good shape now,” said Councilman Lupe Cabrera. “We’re starting to find out some of the mistakes that were done. Nobody was watching the store.”

Cabrera said the city’s real financial worries now center on the economy and whether the Legislature will take money from cities to balance the state budget. The city has estimated that it could lose $500,000, which would force a municipal budget reduction. The 1992-93 budget includes a 6.5% raise for rank-and-file employees under a union contract, though a city golf tournament and an annual city birthday parade were eliminated.

This year’s budget increased to $7.2 million because of a $2-million Civic Center expansion, for which the city will be reimbursed by the Redevelopment Agency, and $1 million in federal funds for housing rehabilitation and rent subsidies through the new city Housing Authority.

Navejas praised the budget as a sign that the accounting problems have been solved and said the format is an improvement over past budgets because it links expenditures to specific city programs and functions.

“Each department is broken down by costs of staffing, what supplies are, so it is easy to understand,” she said.