LOS ANGELES — Standard & Poor's removed from credit watch and affirmed its A-plus rating on the West Covina Public Finance Authority, Calif.'s lease-revenue bonds, saying the city enacted improved internal controls.
The authority landed on credit watch July 15, a week after State Controller Betty Yee released an audit in which she called the city's accounting controls almost non-existent.
The revised outlook is stable, Standard & Poor's said Wednesday.
"The actual fiscal impact of these weaknesses in management has been small, in our view, and limited primarily to minor delays in account reconciliation and closing financial statements," said S&P Analyst Sarah Sullivant.
The city's independent auditor has issued an unqualified opinion of its financial statements the past three fiscal years, Sullivant said.
The removal of the bonds from CreditWatch "reflects our opinion of the steps taken by the city to address the State Controller Office's findings regarding a lack of internal accounting and administrative controls," Sullivant said.
The state controller's audit, conducted at the request of the city council, found the city's internal financial controls and administrative oversight in fiscals 2012 and 2013 to be "severely deficient."
The controller's review found that city leaders in the San Gabriel Valley city of 106,000 didn't have a handle on how much revenue it was collecting or what it was spending. Large contracts were signed without proper bidding and administrators were hired without being vetted. It also lost $1 million on land it illegally sold to a developer.
The audit further found that, due to recent budget cuts, key risk management positions in the city had been left vacant. Senior accounting and financial oversight positions were filled by unqualified or inexperienced personnel, according to the controller's audit. The city agreed with the controller's findings in this regard.
"Based on conversations with management, we believe that sufficient and appropriate action has been taken to address the personnel deficiencies identified in the report," Sullivant said.
Specifically, Sullivant wrote, "the city has hired new, experienced heads of finance, accounting, and human resources; added positions in finance and administrative services for fiscals 2015 and 2016; and is in the process of developing a comprehensive procedures handbook and training schedule to ensure that sufficient financial and administrative controls are in place and are followed."
S&P, however, cited the city's pension and OPEB liabilities as a weakness adding that there is no plan to address the liabilities.
The city's combined pension and OPEB contributions totaled 13.4% of total governmental fund expenditures in 2014.
The city made 96% of its annual required pension contributions in 2014 and the pension funded ratio is 75.3%, according to S&P.
The city had $47.2 million in outstanding bonds as of June 30, 2014.
All of the outstanding bonds are lease revenue bonds secured by leases from the general fund.
