Six-figure discrepancies in IWD budgets

This past June 2020, Idyllwild Water District (IWD) Chief Financial Officer Hosny Shouman presented IWD’s annual budget. IWD directors unanimously approved that budget in the board’s Resolution No. 775. The 2020-21 budget is posted on IWD’s website. (Go to idyllwildwater.com, then navigate by clicking on “Information” … “Financial Reports” … “2020-2021 Budget.” The pages of the budget are not numbered, but navigate to the fifth page, counting the cover as page 1.)

The top left of the fifth page bears the title: “Idyllwild Water District, Water Fund Income Statement, Year Ending June 30, 2021.”

A Town Crier Member pointed out to us that the addition in the section “Water Operating Expenses” is not correct. Under the left-hand column (“2018-2019, Last Year, Actual”) the total of listed expenses is shown as $1,467,647, but that column actually totals only $1,255,273. And the total in the right-hand column (“2020-2021, Future Year, Budgeted”) is shown as $1,707,004 when it actually totals only $1,494,630.

The Town Crier investigated.

First, we noticed that the left-hand column is over-totaled by $212,374. Then we noted that the right-hand column is over-totaled by that same amount: $212,374. Since it seems extremely unlikely that simple errors of addition in two different columns would result in identical six-figure discrepancies, we investigated further.

We examined the previous year’s budget, 2019-2020, which also is on IWD’s website. On the corresponding page of that budget (the unnumbered sixth page), we saw that the total in the left-hand column (“2017-2018, Actual”) is shown as $1,580,372, but the column actually totals only $1,367,998. Further, the right-hand column (“2019-2020, Budgeted”) total is shown as $1,650,000 when it actually totals only $1,437,626. Each of these columns in last-year’s budget is over-totaled by exactly $212,374 — the precise amount of the over-totaling of those columns in this-year’s budget.

We then examined the 2018-2019 budget. There we found that the two corresponding columns total perfectly. But we also noticed that they each include an additional expense category, not included in the two most-recent budgets, called “Water Depreciation” (which we took to mean water system depreciation), and in the column headed “FY 16/17, Actual” that amount was listed as $212,374 — the precise amount by which the columns were overstated in the 2019-2020 and 2020-2021 budgets.

It is clear that in the 2019-2020 and 2020-2021 budgets, the expense category for “Water Depreciation” does not appear, but the amount stated in that category in the 2018-2019 budget under the column “2016-2017, Actual” was nonetheless added into those two most-recent budgets anyway. (For some reason, that same page of the 2018-2019 budget shows that a slightly different amount — $218,745 — actually was budgeted for “Water Depreciation” in 2018-2019, but that was not the figure added into the two most-recent budgets.)

The TC observed similar discrepancies with the totals in the Sewer Operating Expenses columns in each of the last two budgets, both of which also lacked entries for depreciation.

On Monday, the Town Crier contacted IWD General Manager Leo Havener to inform of these discrepancies in the past two budgets and to ask for comment. Havener’s responses clearly indicated that he was learning of this for the first time.

On Tuesday, Havener called back and took the position that for the last two years it has been IWD’s policy to not include depreciation as a category in its Water and Sewer operating expenses, but to include six-figure numbers for those depreciations in the operating expense totals anyway. Consequently, items IWD lists under operating expenses do not total up to the total IWD gives for operating expenses — they are hundreds of thousands of dollars off. IWD is doing this intentionally, and it will continue to do so “until we are told not to,” according to Havener, who further asserted that this procedure is in accordance with GAGAS (Generally Accepted Government Auditing Standards).

By resolutions, the five-member IWD Board of Directors unanimously adopted these last two budgets, both showing six-figure discrepancies in operating expense totals for both water and sewer, which, according to Havener, is exactly what IWD intends.

The Town Crier knows of no other public agency, or any business at all for that matter, that intentionally shows totals for operating expense items that do not match the actual totals of the items listed therein. The TC will follow up on this story, with responses from various agencies we will be contacting.