Riverside County orders audit of property-tax system

By: DAVE DOWNEY - Staff Writer | Tuesday, June 21, 2005 9:58 PM PDT ∞

RIVERSIDE ---- Riverside County officials Tuesday ordered an independent audit of the county's $2-billion-a-year property-tax collection system to determine why about $50 million was wrongly withheld from local governments and how to prevent it from happening again.

Voting 5-0 to launch a search for a consulting firm to tackle the project, the Board of Supervisors said the audit also will examine the working relationship among the county's three elected officers ---- the assessor-clerk-recorder, treasurer-tax collector and auditor-controller ---- who bill, collect and distribute tax revenue.

The outside audit is in addition to an in-house one begun in February and completed in May, said county Finance Director Bill Luna. The results of that internal audit are being compiled and will be detailed in a report to the board June 28.

Luna acknowledged that county officials knew about the problem in early fall and should have moved quicker to resolve it. The county has been trying to figure out why supplemental tax collections from sharply rising property values were put in the wrong fund since the inception of a distribution program in 1993, denying cities, schools, water districts, park districts and the county itself tens of millions of dollars. That internal report is expected to determine how much agencies are owed individually and trigger the release of the money.

Meanwhile, Riverside County's plight has come to the attention of the state controller's office and may trigger the acceleration of a regular state review of the county's property-tax system.

"We are sending an auditor down there this week to look into the situation, as a sort of initial meeting to see if there is any state aspect that we need to be concerned with," said Laura Adleman, a spokeswoman for the state controller in Sacramento, in a telephone interview Tuesday.

Adleman said state officials are concerned about any withholding because Sacramento distributes property-tax revenue to schools.

"They (Riverside County) are due for an audit, anyway," she said, saying the last audit was completed in 2002 for the period of July 1997 through June 2001. "It's possible we may accelerate our timetable for doing that audit."

That would likely cover the period from July 2001 through June 2005, she said.

For now, county Auditor-Controller Robert Byrd said the county has fixed the problem and no more money is going into the wrong pot.

"The bleeding has stopped," Byrd said.

Byrd said after the board meeting that he first suspected something was wrong in 2003, when it appeared more money was accumulating in a debt service fund than should have been.

The fund was set up a decade earlier when the county put in place a so-called Teeter Plan that pays participating agencies the full amount of property taxes due them within a month of tax deadlines. The county sells bonds to make up the difference between collected and uncollected taxes, and uses collections of delinquent taxes and penalties to pay off the bonds. Only delinquent taxes are supposed to be put into the fund.

By early fall 2004, Byrd said, he had determined how much was owed to local agencies for the most recent fiscal year of 2003-04, which ended June 30, 2004. And he said he proposed making extra payments to cities and districts for that particular year.

Byrd's proposal triggered an Oct. 28 memo from Luna under the title of "Teeter Debt Service Fund Surplus." In it, Luna urged Byrd to hold off on payments until after an internal audit.

"Before we distribute the surplus from this fund, however, it is still important we document how it occurred," Luna wrote. "For us to put things right with this fund, I think we must validate with reasonable accuracy what, if anything, went ... wrong." The two-page letter urged payment "once we are confident of our conclusions."

However, Luna told the board Tuesday the audit was slow in coming, not beginning until February ---- well after his correspondence with Byrd.

"I didn't push hard enough for it, and as you know the road to hell is paved with good intentions," Luna said.

County Executive Officer Larry Parrish said he made a mistake as well in not highlighting the accumulation of money in the Teeter fund when the county presented midyear and third-quarter budget reports to the board in January and April. Those reports mentioned the surplus, Parrish said, but he said he should have been "louder" in pointing it out.

Board Chairman Marion Ashley said the good news is the money will be paid back.

"We're fortunate here because we had a perfect storm brewing here and we caught it," Ashley said.

On the other hand, Supervisor John Tavaglione said officials must make changes to the tax collection system to avoid a repeat.

"It's a complicated system, and it's a big county," Tavaglione said.

Treasurer-Tax Collector Paul McDonnell said one of the changes has to be the replacement of the county's "outdated" computer system. Welcoming an outside audit, McDonnell said there also is a need for some type of new institutional structure to help the three elected finance officers work together to solve such problems as the current one.

"The three departments share information on a regular basis and have had very frank discussions about proposed solutions," he said. "The problem, rather, is that we lack a system of governance with a means of resolving differences. Consequently, unless there is consensus, there is no resolution."

Contact staff writer Dave Downey at (951) 676-4315, Ext. 2616, or ddowney@californian.com.

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