City Will Scrutinize Permit Applicants More Closely

LA MESA -- The City of La Mesa is going to take a little closer look at organizations seeking to use city streets for special events.

The council voted 5-0 Tuesday night to require those seeking special events permits to prove their organization's paper work is in order and that its financial records have been independently audited.

The move was spurred in part by a LaMesaToday.com special report last month that outlined a number of inaccuracies and other problems with the records of the La Mesa Village Merchants Association, one of the two local groups that runs the annual Oktoberfest. Mayor Art Madrid said those irregularities and similar problems exhibited by groups in Rancho San Diego and South Bay convinced the city it needed to do a better job guarding its own reputation when it partners with civic groups.

Madrid described the LaMesaToday.com report as "the culmination'' of a series of problems that brought the issue to the head with the council.

The LaMesaToday.com report outlined a series of problems with the Merchants Association records, including failing to inform the Internal Revenue Service that it was making payments to its own directors with tax exempt money. The organization also acknowledged not having an independent audit nor a written conflict of interest policy. Its minutes lacked recorded votes and there had been no elections of officers for several years.

Since that story was published the Merchants Association has announced in letters to the editor that it had hired an attorney and an auditing firm and was planning elections.

Arlene Moore, the Merchants' Association president, attended Tuesday's city council meeting and reminded the council that the association has successfully run the Oktoberfest for 33 years.

But Tuesday's motion, put on the agenda by Madrid and Councilwoman Ruth Sterling, wasn't dealing with the Merchants' annual request for the Oktoberfest permit. It was putting in place requirements of what all organizations will have to demonstrate if the city is going to grant a permit.

Madrid explained that going forward the city would require of special event permit applicants the same disclosure required of local groups seeking access to federal funds distributed each year by the city.
That includes, among other things, copies of the group's latest audited financial reports, its bylaws and records demonstrating the group's membership.

Members of the Merchants' Association questioned why the the council wanted to scrutinize membership levels while considering a special event permit. The topic has been part of an undercurrent of tension between the Merchants Association and city officials, including Madrid, who have come to see the organization as a small, insular group of business owners, rather than a group operating in the best interest of all merchants.

Deena While, the association's treasurer, pointed out that the organization represents only four blocks of downtown so its membership couldn't grow as large as other organizations, like the Chamber of Commerce, that draw members from throughout the city.

But after hearing from several speakers, the council clearly was convinced it wanted the city offices that process permits to assure applicants have their books in order.

The 5-0 vote occurred with virtually no debate among the council members.

The council also voted 3-2 not to wade into the growing "fair trade'' debate, an issue with largely symbolic impact at a local level. Council members had concerns that the proposal would bind the hands of the city in unacceptable ways.

The council also agreed to look into establishing a permanent fund to help support the annual Flag Day Parade, but expressed its desire to keep it privately funded through sponsorships and donations.

Prior to the main council actions, the city also honored the Den 5 Webelo Cub Scout group from La Mesa for its volunteer beautification project at the 9/11 memorial on Dallas Street. La Mesa teacher Alicia McBride was also honored for being named one of San Diego County's Teachers of The Year.

Heartland Fire officials also issued new patches that will recognize each of the cities in the new, combined fire force.

Pictures below show the Cub Scouts, McBride and the new Heartland La Mesa seal.  

                                                                        
Find more photos like this on La Mesa Today - Community Website & Online Newspaper

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Tags: Alicia McBride, Arlene Moore, Art Madrid, Chamber of Commerce, Councilwoman Ruth Sterling, Dallas Street, Deena While, Den 5 Webelo Cub Scout, Downtown Village Merchants Association, Flag Day Parade, More…Government, Heartland Fire, La Mesa, La Mesa Chamber of Commerce, La Mesa City Council, LaMesaToday.com, Mayor Art Madrid, Oktoberfest, Rancho San Diego

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Comment by Kristin Kjaero on October 20, 2011 at 12:52pm

Dave, it seemed proper to me: They voted, and next time it will come back for a second reading, i.e. there hasn't been any meetings since the vote to have a second reading at yet.

You still have an opportunity to voice your opinion at the second reading, if you did not make it to the first.

Comment by David Smyle on October 19, 2011 at 11:53pm
We shall see at the next Council meeting on the 25th.  Since the ordinance passed at the last meeting 5-0 was done improperly with no vetting or a second reading or objection by the City Manager, City attorney or council people who have been doing this for many years and who ought to know the normal procedure to present and pass an ordinance, I am hopeful through objections both in these blogs and directly to the Council that a reasonable amount of thought, research, and common sense will prevail in the end and that the people affected by this proposed law will have time and be notified about it to be able to make plans to be present at the next meeting and voice their opinions.  I prefer actions over words to restore my faith.  I would be very interested to know if other cities require organziations to present financial statements in order to obtain permits or if La Mesa will be alone on this.
Comment by Lynn McRea on October 16, 2011 at 8:53pm

Hello Mr. Smyle,

Yes – I was previously Treasurer for LMVMA for close to 5 years and it breaks my heart to know that the current Board is struggling with its operations and finances.  I have frequently heard various members including board members describe the organization as “broke” and unable to continue with its contractual obligations/commitments.  I’m very concerned for its future.

During my time on the board, I provided unaudited interim financials at every meeting where members could review the details and ask questions.  The members also voted on the approval of the financials.  Additionally, the year-end financials were presented to a local CPA firm who then reviewed it for accuracy and completed the non-profit tax returns.  Full disclosure and independent reviews by outside professional CPA’s ensured that there was no conflict of interest by my involvement as the Treasurer. 

In all businesses, small or large, for profit or not-for-profit, there are “best practices” that help maintain an organization’s integrity in their business operations and financial statements.  The significant increase in scrutiny by the IRS of non-profits is no surprise to me.  Many nonprofits are unwittingly conferring private gain on insiders such as members, officers, and directors and getting into trouble with their donors, the government, etc.  One of the areas under close review by the IRS is “conflict of interest”.  For example, a board officer or director receives some form of compensation or provides a loan and this information is not fully disclosed in the financials or on the tax returns.  These types of conflicts can lead to financial abuses.  Reviewed or audited financials with footnote disclosures its one way to improve the accountability, reliability and integrity of a business operations and its financials.  Financial audits alone are not sufficient to account for issues related to overall compliance with its own Bylaws and state and federal laws.  A legal audit should also be considered where all organizational and operational related documents are reviewed.  The objective with all of these important steps is to provide reassurance that an organization is solvent, compliant and operating correctly under is bylaws and nonprofit purpose.  The expenses involved should be budgeted for and be expected.

I have read the attachment to the last City Council meeting and did not see the word “audited”.  That may have been mentioned during the council meeting, but it was not listed on the interoffice memo.  To me, that suggests that there may be some room for interpretation.  I have faith, unlike you, that the City of La Mesa will consider each organizations situation and act accordingly with its requests for documentation to perform its due diligence.

Comment by David Smyle on October 14, 2011 at 11:24am
Hey Laura Lothian.  You are a board member of the merchants and a candidate for City Council.  Hey Jim Wieboldt, you are a board member of the La Mesa Chamber and a member of the Merchants and candidate for City Council.   No comment from either of you?  You are our future leaders?  Hey La Mesa Today, how about getting some comments from the all the known candidates who are runninng for a council seat on this?  What do they think about requiring non-profit organizations to spend thousands of dollars on audited financial statements to reserve a park or street in addition to the hefty permit fee paid to the City?
Comment by David Smyle on October 14, 2011 at 12:09am

Lynn:

 

Also, why penalize 9 well run organizations and businesses for the misgivings on one?  Last I heard, the Merchants Assoc doesn't have any creditors knocking at heir door and owes nothing to the City.  Granted it may be a less than stellar run organization but ask the merchants on the boulevard if they want to put on the Christmas in the Village, Antique Fair and Car show by themselves without the Association running it.  Ask the Merchants who own stores on the blvd during Oktoberfest if their business would suffer if the Merchants Assoc did not put on the Oktoberfest.  The problem with the Merchants Assoc is a lack of leadership and participation by more merchants who benefit from the Association's efforts, getting more involved and making a change in the current board and leadership.  To make an ordinance that affects so many based on one poorly run organization is not a reason to cost other businesses and non-profits the expenses of preparing audited statements.  Protecting taxpayer dollars and City resources?  When is the last time the City lost money or tax payers dollars from an event put on by any organization and had it resources damaged?  Yes the City used to pay for 50% of cost recovery for Oktoberfest and the Car show but it also earned plenty of sales tax revenue it refuses to acknowledge even today.

 

As a member and accountant of the merchants association for many years, did you not have an issue with members not getting annual financial statements from the association according to its bylaws or the association not holding annual elections?  John Vigil is a Director for the merchants and a Banker so how do the financials become so misstated and where was he during all of this?  The City has known the Merchants have been having financial issues for years since they couldn't keep up the maintenance of the sidewalk planters so the finances of the Merchants is no surprise to the City.

 

Over reaction with audited Financials versus CPA prepared tax returns or verification of assets and liabilities is not the answer to non-profit organizations and businesses already working hard for every dollar earned.  Find another way!

Comment by David Smyle on October 13, 2011 at 11:41pm
Hey Lynn, weren't you the Village Merchants Treasurer and accountant for a number of years?
Comment by David Smyle on October 13, 2011 at 11:26pm

John:

 

It is not just the Oktoberfest.  This ruling affects those who also put on the Spring Harp Fest, the Relay for Life, the Brady Company Picnic, The Dr. Stormberg patient appreciation party, the Christ Lutheran Church Block Party, the Keller Williams Chili Cookoff, the Crosspoint Life Church Block Party, the Soap Box Derby, Christmas in the Village, the Antique Street Fair, the Classic Car show and anyone else who wants to have a special permit to use the parks or the streets.  So you see, there is no difference per the ordinance that separates any of these events whether it blocks off 10 blocks or one block and all these organizations will have to provide audited financial statements costing thousands of extra dollars per organization and again, what difference does it make how many people are in the organization?.  This is not what we elected our officials to do.  The organizations already pay 100% of the cost for City services including police if needed if they are involved with these events whether beer is involved or not.  The problem here is our elected officials took it up on themselves to hastily pass an ordinance without any notifying the parties being affected or bothering to have a conversation prior to the meeting with any of the parties being affected to obtain their viewpoint and comments.  A good elected official involves their community, does some research, looks at the potential consequences, talks to its constituents and then votes on the ordinance.  They hold the meeting during normal business hours where most of the working public can't come because they are earning a living and you call this good government?  You can give them a pass if you want but this is not the type of representation I voted for.  Whether there is time before the next event depends on which organizations have events prior to the next Oktoberfest since that is what you think is the only event affected here.  How does this ordinance make them good stewards of public assets?  The ten or so organizations who have been putting on these events year after year have never had any trouble running the events or paying the City their costs for their events. Mayor Madrid pointing out a poorly planned "first time" event by the Rancho San Diego Chamber as an example compared to events that annually are successful and well run and comparing providing financial statement and even worse audited financial statement to applying for a CDBG grant are not even similar.  If I am applying for a loan, I need to show I can pay it back.  If I am putting on an event, I need to maybe show a budget and a plan and if needed a financial statement but an audited statement?  Yes it can be changed but no guarantee it will be but the problem still lies with the process and the haste on which the decisions were made.  The mayor is mainly to blame but the rest of the council could have also spoken up and asked for additional time which makes me wonder why no one on the council has any forward thinking or takes the time to consider the mere 10 organizations being affected by this.  Did anyone even stop to think or ask what the cost of an audited financial statement would be to these organizations which are mainly "non-profits".  On top of that, these organizations pay 100% cost recovery to the City with no credit given back for sales tax revenue generated from these larger events which Oktoberfest alone generates at least $10-$20K in sales tax revenues so the City gets it cake and eats it too.  The City Manager was there, I am sure he could have added some input.  I am sure they could have checked with the finance manager or postponed the vote to check with some local CPAS.  It is like the health care bill.  We need to pass it to see what is in it.  I didn't elect them to cost me or any non-profit organization more money and don't even get me started on this "Fair Trade" nonsense.  The last place I want my city to be like is Berkeley or San Francisco.

Comment by Lynn McRea on October 13, 2011 at 11:01pm

In my opinion this action by the City Council is timely and appropriate.  I applaud the City for recognizing the need to ensure that it is doing as much as possible to protect City taxpayer dollars and City resources.  As a local CPA that provides financial audits for non-profits (some as small as the LMVMA) I can list numerous benefits that a financial audit provides for the organization and the readers of those financials.

The recent article by La Mesa Today about the errors on the tax returns filed for the LMVMA really highlights the need for careful oversight and involvement by a CPA.  During my attendance at the last member meeting of the LMVMA, I reviewed financial statements for September 2011 that were overstating profits by as much as $150,000!  How can that be allowed to continue?  It should not be acceptable to anyone and it certainly isn’t for me.

The City has the right and the obligation to do its due diligence when transacting business with any organization – for profit or not-for-profit.

Comment by John C Schmitz on October 13, 2011 at 3:45pm
Down Simba! ;-)   The City Council is doing what they are elected to do, being good stewards of the public assets.  A wedding in a park for one partial afternoon, or a Soap Box Derby taking up a portion of a side street for part of a weekend is radically different than sealing off 4 blocks of the downtown public rights-of-way for almost three day and inviting more than 100,000 of our friends and neighbors to come and drink copious amounts of beer.  Maybe this is a bit draconian, but there is plenty of time to review it before the next event in December.  And certainly time before the next Oktoberfest.
Comment by David Smyle on October 12, 2011 at 11:46pm
Audited Financial statements?  Really?  And the purpose of this is what versus a CPA prepared or the less expensive reviewed statement.  In all the years La Mesa has given out permits, has it ever not been paid for its costs?  Requiring audited statements could cost the Non-profits thousands of extra dollars which most non-profits struggle as it is.  If the City wants to make sure it gets its cost recovery paid, wouldn't it be better than have the organization show the City a budget letting the City know where the funds are coming from to pay the costs if a regular internal or CPA prepared financial statement doesn't reflect enough cash in bank or credit to cover City costs?  Are individuals who request a permit to have an event in a park such as a wedding or celebration exempt from this requirement and what does membership have to do with anything paid or traded?  Does a business have to show how many employees it has to rent out a park and what is the magic number of employes or members and who is going to determine what is an acceptable level?  Is the City now trying to get into the ins and outs of running an outside business when it can't even balance its own budget?  Are you going to make the soap box derby people present an audited financial statement to use the street near La Mesa Middle School for the derby?  Does the Little league need to present an audited financial statement to be able to use the City ball fields?  Think this through City Council.  You voted hastily without any thought or discussion or time to reflect on the proposal and get input from the organizations going to be affected and as usual did not think about the unintended consequences.  There is noting wrong with making sure an applicant has the proper insurance, valid organization paperwork and proper licenses but the number of employees or membership has nothing to do with anything and to require an audited financial statement which no criteria of how you are going to use or decipher the information is excessive and unnecessary.  Should we make sure you all on the City Council provide an "audited" financial statement and have a credit report run before you run for office so we know you have all paid your debts and bills on time and are not over-extended?  Are all your income taxes paid?  Are all your real estate taxes paid?  Are your home loan payments current?  Shouldn't we know as much about you as you want to know about us?  Protecting the City is one thing.  Over reaching is another and one has to wonder if there are hidden agendas regarding this ordinance.  Does any other City require the same information the City of La Mesa is now requiring?  If so, why wasn't that brought forward in the discussion.  Elections are only a year away.  If this is the kind of laws our Council is passing without any forethought or insightful discussion, can't wait to see some fresh faces on the Council.

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