O.C. Agency Dozed as Cash Crisis Mounted

A critical internal audit released Thursday shows that Orange County planning managers did virtually nothing as the department careened toward financial crisis last year and plunged into a deficit.

The county’s internal auditor, Peter Hughes, also faulted budget officials at the county executive office for not questioning the financial figures provided by planning officials, figures that later proved to be wildly inaccurate.

The audit was released by interim County Executive Officer Jim Ruth and acting planning department director Larry Leaman.

It found that despite several layers of oversight, the department failed to heed warnings that its building unit was rapidly depleting an $18-million reserve.

The Board of Supervisors approved an $8-million emergency loan for the department in August. Expenses are still outpacing revenue by $500,000 a month, however.

Hughes recommended a full-scale audit of the department’s two operating funds going back to 1999 because of the “fiscal oversight issues” raised during his limited, two-month review.

He also recommended tracking revenue and expenditures at least quarterly, and requiring employees to complete finance classes so they can handle budget matters.

Those steps should be taken by all county departments, Hughes said.

“The board wanted us to look at the budget controls [because they] had a concern this situation could happen again,” Hughes said.

So far, the Planning and Development Services Department has reduced staff by 59 positions -- from 204 to 145 -- and taken other belt-tightening measures, slicing $11 million in expenses for the year. About three dozen employees found other county jobs.

Despite the cuts, the department will be about $10.4 million in the hole by June 30, the end of the fiscal year.

The red ink wasn’t unexpected, Leaman said. Even in the best of times, the county used some general tax money -- usually about $3 million -- to cover expenses such as enforcing building and safety codes.

But supervisors will have to decide how much of a subsidy they’re willing to contribute for future budgets -- a difficult decision given the state’s economic woes.

On Tuesday, supervisors approved a new method for collecting planning and building fees that should better account for the department’s costs. The system should take effect in April.

Hughes said the fee change came far too late.

“Management should have known where they were in spending down the reserve balance, when they needed to initiate a fee increase ... or if they also needed to reduce expenditures prior to running out of money,” he said.

Developers have cautiously endorsed the new fee system. But they remain worried that the county won’t be able to provide timely inspections, Leaman said. Some large developers have proposed covering the costs of an inspector that would be devoted full-time to their project.

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New numbers

Orange County budget planners have recrunched the numbers for the Planning and Development Services Department, which is running deficits of $500,000 a month. The department was projected to generate nearly $30 million in revenue this fiscal year; instead, revenue will be closer to $11 million. Below are the revised figures for the fiscal year that ends June 30.

*--* Fiscal year 2002-03 Revenue Expenditures Difference Building fund (Fund 113) $6.5 million $13.3 million -$6.8 million Planning fund (Fund 071) $4.4 million $8.0 million -$3.6 million Totals $10.9 million $21.3 million -$10.4 million

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Source: Orange County Planning and Development Services Department