MALIBU : $1-Million Error in Budget Revealed

Finance officials erroneously added nearly $1 million in nonexistent cash reserves to the Malibu city budget over the past two years, inflating the general fund at a time when fires, floods and mudslides reduced revenues from sales taxes and other income sources, the City Council learned last week.

“I was quite surprised and not a little upset that staff could have overstated our cash position,” Mayor Jeff W. Kramer said. “I do intend to get to the bottom of this, although I still don’t quite understand it.”

Former council member Walt Keller made the revelation at a meeting Wednesday night, saying he had caught the discrepancy when he compared the budget proposals for the last three years and reread a 1991-92 city audit.

Despite the audit, which first revealed the $900,000 error in October, 1992, the mistake was carried over to the 1992-93 budget and into the proposed version of this year’s budget, Keller said.

“The audit shows the beginning of the problem, where it says that we should have been using a balance of $1,233,390 in July ‘92, but (City Finance Director Mark Lorimer) used $2,134,942 instead,” Keller said. “The error was in the audit but was not pointed out to staff by the auditors.”

Lorimer told the council that he had not used audit figures when calculating the city’s budget for this year, but relied on projected figures instead.

“There is no question in my mind that the budget in this fiscal year got away from us,” Councilman John Harlow said.

On Thursday, Lorimer said he was working with the city’s auditing firm, Peat Marwick, to try to come up with an explanation in time for the next council meeting June 13, when the budget is scheduled for adoption.

Peat Marwick, which has looked over the city’s books since Malibu was incorporated in 1991, has not completed the city’s 1993-94 audit, he said.

As of last week, the city’s total expenditures for 1994-95 were projected at $7.6 million, up from the $7.1 million actually spent during the current fiscal year. But the revelation of the nonexistent $900,000 cast that projection into doubt, officials said.

Lorimer said the city lost sales tax revenue because of traffic blocked during fires and storms. Utility tax revenue also decreased because nearly 300 homes burned down.

On the plus side, the city expects to receive about $1 million from the settlement of a 1992 lawsuit against Los Angeles County over what Malibu officials see as a miscalculation of property tax rates.

City Manager David Carmany said it was determined that Malibu should have been getting about $3 million a year in property taxes as opposed to the $1 million a year it has received since incorporation in 1991.

If the two parties agree on a figure, said City Atty. Christi Hogin, the county will pay “at least some of the money owed.”