Immediately after the termination of former City Manager Leon Churchill’s contract March 5 for using his city-issued credit card for personal charges, the City Council instructed the city staff to conduct a thorough review of the city books to see if there were any other problems.
“That really is the intent, to try to identify any decade-old bad practices that we have exercised here in the city and just correct that,” interim City Manager Maria Hurtado said in an interview Wednesday.
Those practices included the city issuing 160 different credit cards and store cards to city employees and allowing some of them to make personal charges and repay the city the amount charged.
The root of the problem
Jenny Haruyama, city administrative services director, is leading the review with police Chief Gary Hampton, who is the acting interim assistant city manager. They have hired Chavan and Associates of San Jose to audit their records and findings.
Haruyama, interviewed Tuesday hours before giving an update on the inquiry to the City Council during its regular meeting, said that part of the problem was a lack of understanding about what was required for adequate checks and balances with city spending.
“Department directors really have that autonomy to determine who in their department gets a credit card,” she said. “Anybody that makes a credit card purchase under a department head, that department head is responsible for sanctioning those, authorizing those.”
Each city employee with a credit card is required to submit an explanation of the charges along with the monthly billing statement for each card they carry. Haruyama said it was clear that the city was getting incomplete forms.
“As we’re going through this preliminary process, we’re learning what really needs to happen in terms of clarification on source documentation that’s provided in explanation,” she said.
After a public records request Jan. 8, the Press reviewed five years of records for every credit card and store card maintained by the city. The records show 54 US Bank credit cards and 106 cards from stores including Costco, Chevron, Home Depot, Orchard Supply Hardware, Sears, Staples, Radio Shack and Walmart.
“I think that list you have is accurate,” Haruyama said. “In my preliminary discussions with an external auditor, (the number of cards is) too high and it does need to come down. When you have a number like that, you need to look at your risk and your exposure.”
That risk includes the potential for internal and external fraud.
“I do not have data on any fraud per se,” she said. “My guess is that it’s very reasonable, but in this day and age, as you’ve seen the identity theft and all that increase, you’re going to have that regardless.”
The administrative services director said she agreed with a recommendation from the auditor to immediately reduce the number of cards underwritten by the city.
“Think about it, if you’re a homeowner and you’ve got seven credit cards, you are setting yourself up for potential fraud, identity theft. Anything could go wrong, the more exposure you have. So the fewer cards you have, when you’re strategic on who has those cards, the better you can control some of those potential issues,” Haruyama said.
Tuesday night at the City Council meeting, Haruyama and Hampton reported that they had already cut the number by more than half, to 75 cards citywide.
Personal use of city cards
The review of city records by the Press found that Churchill was not the only city employee to use his city-issued card for personal reasons.
The former cultural arts manager for performing arts at the Grand Theatre Center for the Arts, Jeffrey Haskett, submitted at least two credit card statements with handwritten notes in the margin about personal expenditures.
A charge on Haskett’s card on Feb. 7, 2012, included an addendum that he had repaid the city for the item with personal check No. 2025. Further personal expenses were marked on an April 2012 statement for charges March 28 and April 1.
One charge made by the executive assistant to the city manager, Sharon Davis, was on behalf of Mayor Pro Tem Michael Maciel for a conference he attended Sept. 5-7, 2012.
“I went to San Diego for the League of California Cities convention and had the option of taking my wife, at my expense,” Maciel said in an interview Tuesday. “I don’t book those directly, so the city manager’s secretary said, ‘I’ll book the flight, but you have to pay me.’”
At the time, Maciel thought nothing was amiss with the practice.
“I didn’t know they were doing it with a credit card. She just said, ‘Here’s my cost, here’s what it’s going to cost, bring me a check.’ I brought her a check,” he said.
When asked if repaying the city for some personal charges was accepted practice in years past, Haruyama, who was hired in August 2012, said she did not have enough history with the city to say for sure.
“I couldn’t say that,” she said, adding, “I could reasonably guestimate, based on some of the patterns that we see, that that’s a possibility.”
Hurtado, who has been with the city eight years, said personal credit card use had never risen to the point of being a problem.
“I have not heard of any of those personal things,” she said. “What I can tell you is that what we have found with this preliminary review is that although there are several examples where some charges were done in the spirit of the policy, it wasn’t really to the letter of the policy.”
The letter of the policy
The city of Tracy adopted an administrative policy Jan. 12, 1996, governing the use of city credit cards. The use of those cards for personal charges is mentioned only once, in Part 3 of Section 2: “City credit cards are the property of the City and the individual charge cards are issued and intended for City business related expenses only.”
The policy does not overtly discuss a prohibition of or penalty for personal charges. The city did not update the policy until January 2013, and it did so then only after the City Council was made aware that the city manager had used a city card for personal purchases.
The council reprimanded Churchill on Aug. 22, 2012, for credit card misuse after an independent auditor, Moss, Levy & Hartzheim LLP, found the personal charges and told the city attorney.
Churchill was disciplined again Dec. 17, under the new policy, for using his card for personal charges at an unspecified time in 2013. Press research found two charges that year: one on April 18 for $110.88, which he repaid by check May 1, and the second on Aug. 22 for $244.17, which was repaid Sept. 13 by check.
That policy states in Section 4 that “personal use of a city credit card by an employee under any circumstance is strictly prohibited.”
The interim city manager said the data gathered so far had not revealed any criminal intent on the part of any city employee, including a finding from San Joaquin District Attorney James Willett about Churchill’s actions.
“I personally don’t feel that there is intent and wrongdoing throughout the organization,” Hurtado said. “I really do feel, given our preliminary review, that there are a couple of isolated cases, and we’re going to address those. For the rest of the organization, what the preliminary review has shed light on is that there is just this lack of understanding of what the policy is.”
The city’s overhaul of its financial policies will also respond to some issues that came to light in the records reviewed by the Press.
Several statements throughout the records from 2009 through 2014 showed past-due balances. In one example, from a Costco American Express card issued to Director of Development Services Andrew Malik, the card carried a $105.66 balance that was 30 days past due on a statement dated Dec. 1, 2011. That same card showed an $89 past-due balance on a May 1, 2012, statement.
Haruyama, who said Tuesday that the city was responsible for paying off all 160 city cards, explained that those late balances were the result of a lack of communication with the finance department.
“That’s something we’re also looking at. Sometimes departments will not get the information to Finance in a timely way,” Haruyama said. “That’s kind of an efficiency issue that we need to explore. When we don’t get it, that’s what happens. Clearly there are some processes that we need to work on.”
The problem, she said, might be a direct result of recession layoffs of more than 100 city workers in 2009 and 2010, including many whose job it was to monitor credit card use.
“You really lost a level of accountability in the organization,” Haruyama said. “Those were a lot of managers, a lot of supervisors.”
Haruyama told the City Council, in her public report Tuesday night, that she and Hampton had begun looking at systemic changes to manage those gaps in oversight.
In addition to reducing the number of cards, the finance department will offer the council monthly public reports on financial matters, initiate better internal controls, investigate potential misuse and even make financial data available to the public on the city website.
“It’s unfortunate that we had this incident,” Haruyama said, referring to the firing of Churchill, “but the silver lining is that we are taking a closer look at what we are doing.”
• Contact Michael Ellis Langley at firstname.lastname@example.org or 830-4231.