Years of accounting errors related to permits granted for various kinds of Los Altos Hills development projects have resulted in more than $2 million in refundable deposits owed to residents, money town staff members are now working to reimburse.
“We are in the process and are processing currently refunds to residents,” said Sarina Revillar, the town’s administrative services director, when asked at the May 28 joint city council and Finance Investment Committee meeting how the unresolved deposits might affect the 2020-2021 budget.
Revillar, who is spearheading the massive reconciliation project, indicated the money owed is recorded as a liability.
The deposits, amounting to $2,244,198 through Dec. 31, 2017, are from planning, building and engineering permits from the past decade, Revillar wrote in a May 21 memo to the council. By that time, she had identified $368,229 as unused deposit funds, which staff refunded. The rest included $758,146 related to deposits against required residential landscaping, $121,423 related to staff time not previously recognized as revenue and $996,400 from permits yet to be resolved.
As of last week, approximately 650 permits still needed to be reviewed and researched, but Revillar expects more than 200 refunds will be issued in June, she wrote in an email to the Town Crier Thursday. Each refund is approximately $500 per permit.
Software, staff turnover to blame
Revillar, who joined the town staff in August, cited a discrepancy between the accounting software used to track refundable deposits and the amount recorded in the general ledger, as well as town staff turnover, as the source of error. Up until Dec. 31, 2017, staff used FileMaker accounting software to track deposits. Since Jan. 1, 2018, when they started using TRAKiT software instead, deposits have been properly recorded and reimbursed in a timely manner, she said.
The expected typical turnaround for a permit deposit refund varies by project, but some permits, including those related to the construction of new homes, can extend for several years, Revillar said.
Councilwoman Courtenay C. Corrigan is a member of the audit subcommittee tasked with reviewing the reconciliation project. In an interview with the Town Crier Thursday, she described her understanding of why some deposits may have lingered beyond just a handful of years.
“One of the things that we recognize is that there was a failure to communicate between the collection of the deposit from our planning staff and the return of the deposit by our financial staff,” Corrigan said. “So I hope Sarina is working to put a system in place to ensure that’s not happening anymore, that once a deposit is collected, the finance staff has that information, and once the planning staff says that it’s a green light to release the deposit, the finance staff has that information as well.”
During an audit subcommittee report delivered at the May 21 council meeting, Corrigan urged the reimbursement of all owed funds.
“I would like to strongly encourage staff – I would like to direct staff, as a council member, with the support of at least two others – that any deposit we find that is rightfully due to any resident should be returned,” she said.
Fellow Councilwoman Kavita Tankha echoed that desire, and City Manager Carl Cahill agreed, but he pointed out the possibility for warranted exceptions.
“I might give you an example that many projects, there’s more than one deposit, so in one deposit, the balance may be positive, there may be cash there,” he said. “Another deposit for the same project may be negative, so there may not be any refund forthcoming on that basis. And there may be some situations where we’re not able to locate the property owner and we’ll have to investigate what the next step is that we should do on that.”
The extent of the problem has proven worse than previously perceived.
In a Dec. 16 memo to the council concerning an audit of the town’s financial statements for the fiscal year ending June 30, 2019, accounting firm Maze & Associates of Pleasant Hill reported that more than $500,000 of the deposits owed by the town were more than 10 years old. The memo recommended analyzing the town’s refundable deposit accounts annually to ensure software and the general ledger are reconciled; Cahill subsequently assured Finance and Investment Committee members at their March 2 meeting that such review will take place monthly.
Finance and Investment Committee members Roddy Sloss and Allan Epstein have also offered up some potential solutions. In a May 21 memo written to the council, their suggestions include establishing policies for refunding and writing off deposits, documenting current procedures to identify needed change and preparing ahead for unexpected staff turnover by creating accounting manuals detailing procedures.
Last week, Revillar asserted the implementation of some of those procedures already.
“The procedures include department specific step-by-step instructions when an applicant applies for a permit through completion of the project,” she wrote to the Town Crier. “The long-term solution includes training staff on these procedures so the projects are managed properly and refunds are done in a timely manner.”
Anyone with questions about the refundable deposit reconciliation project may call Revillar at 941-7222.