RANCHO MURIETA, CA (MPG) - Although past-due audits have been delayed, fixing the accounting so they could happen has resulted in the recovery of $623,000 for the Rancho Murieta Community Services District.

Mark Matulich, director of finance and administration, shared the news during his report on the state of accounting at the Finance Committee meeting held on April 10.

Matulich said the amounts owed to the district that the staff identified and collected during this period were as follows.

Unpaid developer deposit fees totaling $142,000. “If we hadn’t looked into this, the district would have just eaten this,” Matulich said. These deposits help ensure the district recovers costs during the review and inspection of new development.

Unpaid security impact fees totaling $125,000. They are required when developers connect to the water system to help pay for security capital improvements. The fee of $1,200 per lot “was completely forgotten about,” he said.

Past-due and unpaid utility bills totaling more than $100,000 “that people just didn’t pay.” This included 40 homes that had never been set up with district accounts and, in one case, went unbilled for 14 months.

Water treatment plant reimbursements totaling $256,000. “You may have heard these referred to as previously funded infrastructure,” he said. The reimbursements came from The Retreats and Riverview subdivisions.

Noting that the total reached $623,000, Matulich said the staff was able to recover the funds “because we took the time to understand how critically important it was to learn how the district operates, to identify the problem areas and to do the work … in fixing what’s going on here.”

“This is in the context of the audits; they are important, and I understand that. But it’s also important to get $623,000 in the door,” he added.

Matulich also explained that staff efforts to resolve the accounting issues are ongoing.

“General Manager Morris, the staff here, myself, we are here day in and day out, working diligently to fix these problems,” he said.

Matulich also provided an update on the overdue audits. The 2020-21 fiscal year audit was completed in December 2023, and the 2021-22 audit is in progress. Two temporary accountants are working on the 2022-23 and 2023-24 fiscal years. Matulich said they are close to finishing the accounting work and have begun to organize supporting documentation in preparation for the audits. He added that the auditors indicated they could perform both audits under a single set of audit procedures, “which will create some efficiencies in getting that done.”

The Finance Committee consists of two board members—President Steve Booth and Director John Merchant—Matulich, General Manager Mimi Morris and other district staff. It conducts in-depth reviews of financial issues and provides recommendations to the full board. Booth did not attend the meeting.

Public Communication

Impressed by Matulich’s report, Merchant said he wanted to find a way to share it with the public “to highlight the progress that Mark and his staff have made.”

As a CSD director out in the community, Merchant said residents consistently ask him two questions: “Do we have enough water, and where are the audits?” He explained that the second question prompted him to propose hiring two temporary accountants to help speed up the audit process.

While completing the audits is important, Merchant emphasized that having confidence in the numbers is even more critical.

“Having numbers that I can look at and draw meaningful conclusions is much more of an important element than closing the audits themselves,” he said.

Merchant added that he would speak with Booth about ways to share the progress publicly. His suggestions included using the district’s monthly newsletter, sending a direct letter, and—most importantly—creating a link to an excerpt of Matulich’s 15-minute report from the meeting audio that the public can easily access.

Accounting Fixes

In delivering his accounting report, Matulich said it was important to highlight some of the changes made in response to the complaints about late audits that had come into the office over the past month.

“I think it is very important to understand that the current staff didn’t create the problems,” he said. “These problems had been building for five years.”

The district experienced significant staff turnover before Matulich joined the district 15 months ago. “That led to a really massive, massive loss of institutional knowledge, lack of training and a clean handoff to new people coming into the organization,” he said. “There was no regular financial reporting to the Finance Committee or the board.”

Matulich said the work required for the 2020-21 fiscal year audit had been underway for 18 months. Despite involving up to seven accountants, an outside consulting firm was unable to complete the task and billed the district $250,000, he said.

The only consistently accurate accounting at the time was the checkbook. However, accounts payable, payroll and utility billings were not being posted to the general ledger—the district’s central record-keeping system. Developer deposits and connection fees were also not being recorded, and the developer security fee had been overlooked entirely. Matulich said front desk staff spent most of their time responding to customer complaints about billing, with no system in place to monitor or collect unpaid utility bills. The audit clearing account, a placeholder used for unresolved transaction discrepancies, had a $500,000 balance, which delayed the completion of the first audit.

The district has five accounting funds—water, sewer, drainage, security, and solid waste—all of which were out of balance during that year and subsequent years.

Matulich said that as he, General Manager Mimi Morris and accountant Chris Funakoshi worked to finalize the financials for the 2020-21 audit—completed in December 2023—they developed a deeper understanding of the district’s operations.

“You can’t complete an audit without the accounting,” he said. “But you can’t do the accounting without understanding the type of financial accounting the district uses and having confidence that the finance and accounting records are complete and accurate.”

As they turned to the upcoming audits for fiscal years 2021-22, 2022-23 and 2023-24, they “determined there was just too much uncertainty with the accuracy and completeness of the financial accounting to continue with the current general ledger, so we decided … to just start over with the accounting as of July 1, 2021.”

Matulich said they rolled over audited balances from 2020-21 into a new general ledger, and the team began reviewing and posting more than 30,000 transactions.

“It was a lot of work. But that speaks to how bad it was: that it was actually faster to do it completely from scratch than to try to work with what was in there,” he said. “Another benefit was that it maximized our understanding of all the financial transactions over the past two years.”

During the process, they also established new, sound accounting procedures and internal controls, which they used to train the staff and are currently in use. In addition, they created a template for posting prior-year transactions that the temporary accountants are now using.

Matulich said more work remains, such as reconciling the full monthly balance sheet.

“But there are no opening balances right now because we’re three years behind in the general ledger,” he said. “But we’ve laid the groundwork for all of that, and we’re ready to hit the ground running as soon as we get caught up.”

Other Accomplishments

Matulich also highlighted other accomplishments resulting from the financial cleanup over the past 15 months.

As of December 2023, they began presenting financial reports to the Finance Committee and the board. They drafted and passed a balanced operating budget for the current fiscal year of 2024-25, even though the prior year had more than a $300,000 operating loss. They also prepared and presented a balanced operating budget for 2025-26.

They also identified about 200 water meters that weren’t communicating with the billing system and implemented a solution to improve reading accuracy.

In addition, the team discovered 40 homes that had never been set up with a CSD billing account, one of them for as long as 14 months.

“We set up a payment plan to bring those accounts current, and it has been highly successful,” he said.

The district has taken the first steps to transition to Cassell’s full-service accounting software, which does fund accounting. This software will eliminate all the “legacy workarounds” that previously caused so many issues.

Although he didn’t mention it, Matulich took over management of the Security Department after Security Supervisor Kelly Benitez resigned in February 2024. He and General Manager Mimi Morris implemented changes that enable the district to provide 24-hour coverage on patrol and at the gates. Matulich also proposed increasing the barcode sticker fee to help fund additional personnel needed to maintain full coverage.

Other Business

In other committee business, Matulich reported that the district had an operating loss of $132,000 during the current fiscal year, primarily due to two unexpected repairs and unanticipated legal fees. He also reviewed the proposed fiscal year 2025-26 budget, which has increased since last month due to a rise in the Water and Wastewater Reserve fees, from $14 to $16 per month.

Matulich also presented the proposed $4.97 million Capital Improvement Project budget, which outlines projects to be funded from reserves in the coming year. It includes $300,000 for a contract with Water Systems Consulting to perform additional work related to the draft Integrated Water Master Plan. Operations Director Eric Houston said the list doesn’t include funding for replacing pipes in Murieta Village because the project is still in the survey process and won’t be ready for implementation next year.

Matulich and Houston also discussed strategies to reduce the district’s insurance costs. Morris added that staff would explore securing goats to graze the dry grass around the Water Treatment Plant to help create a defensible space against wildland fire.