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J. Rick Normand Response to query on City Capital to General Fund Transfer

J. Rick Normand

J. Rick Normand

Sedona AZ (February 15, 2010) – In a guest opinion, J. Rick Normand responds to a query on City of Sedona Capital to General Fund transfer:

Hi Barbara,

I know transferring that $864,000 of tax revenues allocated to the Wastewater Enterprise Fund to the General Fund appears to most people to be, as you said, “Like taking from my 401K to shore up my checking account. I see this as just shifting dollars…” But, unfortunately, it isn’t the same thing for several reasons.

First, Sedona has lived off bond financing proceeds since  2004, and particularly since November 2007 thanks to the Series 2007 Bond Issue used to finance the Chapel district sewer project. In today’s bond financing market very conservative, if not draconian, credit/bond ratings are now being assigned to bond indentures of the type Sedona has always relied upon to supplement its deteriorating excise tax revenues. Scagnelli, Colquitt, Surber and the departed John Bradshaw and Eric Levitt always planned on re-financing our current bond indentures in 2012 if the economy didn’t turn around. But, transferring that amount of money from a reserve fund to the general fund sends a very clear signal to the bond rating agencies that Sedona is in financial trouble. This will result in a lowered credit rating and make it almost impossible for Sedona to obtain re-financing of our current debt when we most need it.

This is an extraordinarily serious situation for this City. I warned Council of this repeatedly a year and three months ago to no avail. These warnings were the genesis of Scagnelli’s decision to scuttle the Mayor’s Economic Steering Committee since these repeated well-researched warnings embarrassed Staff who couldn’t figure out how to resolve the then emerging problem. Now, the inevitable has come true!

Secondly, I have been counseled by [a retired learned professional investigator whose name has been withheld by request], who for 18 years was the Chief of Municipal Fraud Investigations for New York City, and who lives right here in Sedona if you would like to meet him, who made it abundantly clear that virtually all municipal accounting frauds begin with the use of general  credit/debit or transfer payments entries in the GENERAL FUND.

Over a year ago, I found an inordinate number of undisclosed and non-transparent general fund transfer payments entries in the City’s books which were entered by Eric Levitt. Under stern questioning from me of Alison Zelms regarding these untraceable end-use entries, which she could not or would not explain, she complained to Scagnelli about me which resulted in Scagnelli’s attacks on the Economic Steering Committee. Increased transfer of reserve funds to the General Fund in light of the use of these untraceable entries permits an inordinate amount of increased accounting risk. Alison did admit that Eric’s accounting methodology was “highly creative” and that neither she nor Barbara Ashley ever understood it.

As of today, nothing has been corrected in the City’s books as to those entries, but now this $864,000 transfer of funds makes it much more likely that the City will continue the use of these non-transparent nefarious transfer payments for routinely non -disclosed “unexpected expenses.” Meanwhile, municipal bond rating agencies are looking at these types on General Fund transactions and reserve transfers with a very critical eye, Barbara. This is an extremely serious matter and it will cost this City dearly!

J. Rick Normand
Sedona AZ

 

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1 Comment

  1. Marge says:

    Rick,

    Great to see you are writing again for the Sedona Times!

    If the city is not willing to look at the first cause of the problem (undisclosed and non-transparent general fund transfer payments) how will they ever keep the city of of trouble? Making the tough or right decisions don’t get you elected, so they just pass the fraud problem down to the next guy how is foolish enough to take office. This won’t stop anywhere including Sedona until someone is able to pierce the veil of executive liability insurance and force these political animals to be responsible for their decisions.

    Great job Rick, keep holding their feet to the fire! All Sedona residents should be grateful that you make the time to watch their backs!

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