AGENDA TITLE:
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Receive Presentation and Report from Hoslett Forensics on the Forensic Accounting Audit of the City’s Utility Deposit Account, Procurement Card Charges, and Amazon Account Purchases (IS - BUD)
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MEETING DATE:
April 15, 2026
PREPARED BY:
Jennelle Baker, Budget Manager
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RECOMMENDED ACTION:
Receive presentation and report from Hoslett Forensics on the forensic accounting audit of the City’s Utility Customer Deposit account, procurement card (CAL-Card) charges, and Amazon account purchases.
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BACKGROUND INFORMATION:
On September 3, 2025, the City Council approved a contract with Hoslett Forensics to perform accounting audit services. This contract was initiated following a July 16, 2025, closed session update from Financial Assessor Kevin Harper, who had been retained by outside legal counsel to investigate allegations of financial mismanagement.
During the open session report out from closed session on July 16, 2025, Mr. Harper indicated that no fraudulent activity was identified. However, he recommended that the Utility Deposit and Holding Account undergo further analysis and reconciliation. In addition, he advised a more detailed review of CAL-Card and Amazon Business account transactions to ensure compliance with established City policies.
Pursuant to Council direction, Hoslett Forensics was engaged to conduct a comprehensive review of the Utility Deposit and Holding Account, as well as CAL-Card and Amazon Business transactions. Hoslett Forensics was granted full access to the City’s financial system (Tyler Munis), the U.S. Bank CAL-Card portal, and the Amazon Business account. As part of the audit, Mr. Hoslett spent two weeks onsite in the Finance Department, meeting with Revenue, Accounting, and Budget Managers, along with other Finance staff.
Hoslett Forensics has completed its review and prepared a report (Attachment 1) and presentation (Attachment 2) for City Council consideration. Key highlights from the audit report are summarized below:
Utility Customer Deposit Account
A presentation to the City Council on April 1, 2025, and a report issued by Baker Tilly dated April 28, 2025, identified discrepancies between the Utility Account balance and the General Ledger ranging from $701,322 to $1,200,000. However, Hoslett Forensics determined that these amounts were significantly overstated due to flawed methodologies.
The City Council was presented with a calculated difference of approximately $1.2 million between the “Deposit Holding Account Fund Balance” of $1.68 million and “Total Deposits” of $482,000. This calculation was based on a methodology that estimated total deposits using the number of new customers over a one-year period multiplied by the average deposit amount. This approach is fundamentally flawed, as it fails to account for deposits held longer than one year, including No ID deposits and accounts with late payment histories.
The Baker Tilly report identified two primary concerns:
(1) a discrepancy of $701,322 between the Utility Account and the General Ledger; and
(2) the conclusion that a significant portion of deposits should be returned to customers, suggesting the automated deposit refund system was not functioning properly.
However, the Hoslett Forensics’ findings indication that the methodology used to calculate the $701,323 variance between the Utility Deposit Account ($842,321) and the General Ledger ($1,543,644) is materially flawed for the following reasons:
• Incomplete population of accounts: The analysis excluded customer accounts established prior to January 1, 2019, many of which still maintain active deposits (e.g., due to late payments or No ID requirements). This omission accounts for approximately $488,000 of the discrepancy. In total, the City maintains approximately 6,600 deposit accounts, compared to the 2,760 accounts included in the Baker Tilly analysis.
• Timing differences: The analysis compared data from different periods, using a report generated in March 2025 against a General Ledger balance from June 2024. Deposits refunded between these dates were excluded, overstating the discrepancy by approximately $201,000.
After correcting for these issues, the actual adjustment required to reconcile the accounts is approximately $67,000. This variance is primarily attributable to clerical data entry errors (such as incorrect date inputs) and manual adjustments within the Utility Account.
Additionally, the automated system for refunding customer deposits is functioning as intended, with approximately 50 to 60 refunds processed monthly. Remaining discrepancies are related to historical manual entries that had not been reconciled in prior years. Hoslett Forensics is currently working with the City’s Revenue Division to implement monthly reconciliation procedures and strengthened internal controls to prevent similar issues in the future.
Cal Card Testing
The City’s Accounts Payable Division conducted detailed testing of CAL-Card transactions over a five-year period and identified potential policy violations totaling approximately $8,625. These included unapproved meals or meals exceeding daily limits (approximately 50%), unapproved travel or flight/seat upgrades (approximately 25%), and other personal or unapproved purchases (approximately 25%).
The City processes approximately $2,250,000 annually through CAL-Card transactions. A significant portion of the identified charges has since been reimbursed, and procedural changes have been implemented to prevent or reduce future occurrences.
Hoslett Forensics performed additional testing and did not identify any further unauthorized or non-City-related charges.
Amazon Charges Testing
Amazon Business purchases, which are processed through CAL-Cards, were reviewed in conjunction with the CAL-Card testing. The City identified minor issues consistent with those noted above.
Hoslett Forensics conducted additional testing and found no additional unauthorized or non-City-related charges. Furthermore, the City has worked with its Amazon Business representative to strengthen controls by limiting payment methods exclusively to City-issued CAL-Cards. The option for purchases using personal credit cards has been eliminated.
Discussion and Direction
For Council discussion and direction, Hoslett Forensics is recommending establishing an ongoing internal audit function that is consistent with a June 6, 2025, report by Moss Adams which first recommended the implementation of such a function to better identify and mitigate financial risks. Staff concurs with this recommendation and further recommends utilizing an external firm to conduct regular audits of financial processes to enhance transparency and reduce the risk of fraudulent activity. Should Council agree and provide direction to staff, a proposed agreement will be brought forward for consideration at a future Council meeting.
FISCAL IMPACT:
Not applicable.
FUNDING AVAILABLE:
Not applicable.