When former Councilman John Drayman didn't turn in money he collected from the Montrose Harvest Market on time, that should have been a warning sign that something was amiss, said an accountant who spoke to market officials about improving their financial practices.
“Obviously, the fact that he didn't make deposits in a timely manner should have been a red light” even though Drayman was a trusted person, said Pasadena accountant Steven Fishman at the Montrose Shopping Park Assn. board meeting Thursday.
Drayman, who maintains his innocence, was indicted in May for allegedly embezzling at least $304,000 over seven years from the Sunday farmers market that the board operates to promote the quaint shopping area along Honolulu Avenue.
Officials didn't realize they had a problem until 2010, after 11 months' worth of receipts from the farmers market hadn't been turned in. Drayman, who had worked with the group for years, collected payments from vendors and was supposed to deliver them to the board.
Drayman did not return requests for comment.
As Drayman's criminal case unfolds, shopping association members have been taking steps to improve how they operate. This week, they discussed revamping their financial reporting as well as missteps they have taken in the past when it comes to state public-meeting laws.
Fishman said the board should have a stronger treasurer who understands the financial books and collects bank statements. Historically, the treasurer has had a mostly ceremonial title, with Executive Director Dale Dawson doing the bookkeeping, writing checks and receiving bank statements.
“Bank statements don't go to the bookkeeper,” Fishman said, adding that they should be sent to someone with oversight authority who can verify the payments and signatures.
The board, which has a roughly $525,000 annual budget, can improve most of their financial practices internally without the need for an audit, Fishman said. Dawson said he plans to work closely with Treasurer Corey Grijalva, who will be collecting the bank statements going forward.
For years, the business improvement district struggled financially, losing tens of thousands of dollars on its weekly farmers market. Since Drayman left, the market has become one of the group's highest-income generators.
But the group got in hot water in 2011 because it was hosting the market without having nonprofit status. In California, only a government entity, a nonprofit group or a grower can operate a certified farmers market.
The group had said it was a nonprofit for decades, when it never had proper paperwork from the state.
On Thursday, Dawson said the state Franchise Tax Board approved the organization's application to become a nonprofit last month. The Los Angeles County Agricultural Commissioner/Weights & Measures must now review the documents.
The market is sponsored by a certified farmer who has long managed the event, but the business group still collects all the revenue.
In addition, the association needs to get in line with state public-meeting laws. Montrose officials had disagreed over whether they had to follow the laws.
But on Thursday, Chief Assistant City Atty. Gillian van Muyden said they must follow the rules and the group should consider hiring an attorney.
Montrose officials have consistently denied public comments on agenda items, held closed meetings illegally — such as the Harvest Market Oversight Committee they created after severing ties with Drayman — and discussed votes in secret, officials said.
Following the rules, especially the ones about public comments, won't be easy, said President Ken Grayson.
“That is so handicapping,” he said.