An internal audit of credit card usage by employees of the Imperial Irrigation District found a number of irregularities, including fees charged for exceeding credit limits, missing or late expense reports and cards being used beyond their intended scope.
While the audit suggests that the utility's controls on the use of credit cards are loose, it didn't find that the cards were used fraudulently, only that money had been wasted on paying over-limit fees.
Still, the audit pointed to shortcomings in the utility's management of the cards, which are held by 500 of the agency's 1,400 employees.
An accounting expert who reviewed the audit at the request of The Desert Sun described the utility's controls as “lax” and said it didn't appear that managers understood the potential for abuse.
“This is highly serious as it represents ... a negligence on the part of management for not enforcing its policies,” said John G. Herndon, a former bank auditor who is an accounting and finance lecturer at California State University, East Bay in Hayward.
IID officials say they are in the process of tightening and clarifying policies and switching from their purchasing card, or P-Card, program to a new “CalCard” that helps correct some of the issues.
“Our examination of 1,208 P-Card transactions incurred during 2010 showed that policies are generally working as intended, but compliance is not always achieved,” internal auditor Frances Williams stated in her report to IID's board of directors this month.
The district charged more than $767,000 in airfare, hotel, training and seminar and other expenses to purchasing cards last year, according to the audit. Overall, travel and training expenses at the district have dropped by more than half over the past four years, from more than $2 million in 2007 to $929,000 last year, the audit stated.
Based in Imperial, IID provides Colorado River water for agricultural and domestic uses in the Imperial Valley, and energy to both the Imperial and Coachella valleys.
IID's energy division supplies electricity to about 135,000 customers — two-thirds of them in the central and eastern Coachella Valley, including La Quinta and Indio.
Among the audit's findings:
Expense reports missing required itemized receipts or employee signatures.
An employee charging personal expenses to a P-Card who didn't reimburse the district for more than 90 days.
P-Cards being used for non-travel-related purposes such as purchasing equipment and office furniture.
Cardholders having the ability to get cash advances from their P-Cards in violation of policy.
Ten accounts as of Dec. 31, 2010, in which terminated employees still had active P-Card accounts. No transactions were made on the cards after the employees' departure, however, the auditor found.
Numerous accounts had over-limit fees.
The fees, along with charges such as supplies purchases were often improperly listed as “travel and training” expenses, the auditor found.
“That's bad business,” IID board member James Hanks said, referring to the over-limit fees.
The audit also said a “specific senior executive,” who was not named, routinely submitted expense reports late.
“Subordinate personnel stated this to be a reflection of the executive's unwillingness to provide receipts or other supporting information necessary to complete their reports in a timely basis,” Williams' audit report stated.
Hanks, without naming the executive, said he is no longer with the district.
IID General Manager Kevin Kelley did not respond to messages seeking comment.
IID management accepted the findings of the audit report, and in responses throughout the audit noted ongoing efforts to improve card-use practices.
But Herndon, the expert consulted by The Desert Sun, said he was not encouraged by the staff's rebuttal.
“The responses of management are confusing and appear to be ambivalent to the potential errors and magnitude,” he said.
IID board president Stella Mendoza said the board asked for the audit earlier this year.
“We were aware that certain guidelines weren't being followed; that's why we asked the auditors to look into it,” she said.
“I have full confidence that we'll get on the right track. It's getting fixed. We have the best auditors.”
Mendoza expressed concern at the number of employees who have a purchasing card.
“I've asked the general manager to look into that and see if we can lower the number,” she said.
Having more than one-third of employees holding a card “means that the sheer volume of transactions and policies to audit is nearly impossible even with a dedicated group,” Herndon said, adding that the cards should be held by a highly restricted number of employees and used for very specific purposes.
Mendoza said the travel budget is “very minor” compared to the agency's $527 million overall operating budget for both water and power.
She noted that the agency has the largest allotment of Colorado River water in the country and has to maintain the balance of energy supply and demand on the interconnected grid.
“We need to travel; we need to protect what we have,” she said.
The board president also spoke in favor of a robust training program at the district, which often requires travel.
“As a board member, I encourage our employees to get as much training as possible, to become as knowledgeable as possible,” Mendoza said.
Keith Matheny is an investigative reporter for The Desert Sun. He can be reached at firstname.lastname@example.org or (760) 778-4693. Follow on Twitter @keithmatheny