MOORLACH UPDATE — LOOK BACKS — September 30, 2010


September 28


In the OC Register’s Local section, for the City of Huntington Beach, the headline selected by reporter Jeff Overley was “No go.”      

City Treasurer Shari Freidenrich said this week she will not run for county treasurer and tax collector, a post she had considered seeking for several months.  Freidenrich had been supported by current county Treasurer John Moorlach, who is leaving to run for county supervisor, but said she could “make a bigger public service impact here.”

It was a slow news day over at the LA Times, so David Reyes had some fun with an internal audit report on the Treasurer’s IT division.  The article, “Holes in O.C.’s Coffers — An audit finds that technicians can wire huge sums anywhere. Officials order changes,” will be productive reading for my oldest son, who is now an auditor himself.  On the cynical side, if you want to get something in the press issue a supplemental report, with the word “Confidential” printed on the top, and give it to the Board of Supervisors.  For the accounting wonks, and my son, here is an auditing related article for your files.

Two computer technicians in Orange County’s treasurer-tax collector’s office have authority to wire billions of dollars in county taxpayer money anywhere in the world, according to a confidential audit report.

Although no cash is missing, the audit exposes a weakness in the county’s financial controls, several supervisors said Tuesday.

"You would think we had all the checks and balances needed in place," said Supervisor Tom Wilson, noting that it had been more than 10 years since the county’s $1.64-billion financial collapse. "It appears we have a gap here."

Peter Hughes, internal audit director, reported his findings at Tuesday’s board meeting, but did not make public a confidential supplement that detailed what Hughes called a "material weakness" in the treasurer’s office.

Treasurer-Tax Collector John M.W. Moorlach, who was appointed and then elected after predicting the county’s 1994 bankruptcy, said he was taking the audit seriously, but downplayed the apparent security gap.

He said the treasurer’s office had numerous layers of security, and the employees with access to the accounts were trustworthy.

According to a copy of the supplemental report obtained by The Times, a data systems manager and a systems programmer-analyst have authority to access, make online approval and release funds to "any destination and for any dollar amount up to the available balance in a bank account."

Wells Fargo Bank notified the county that "there are no restrictions on the destination of the wire transfers of funds or the dollar amounts sent out of these accounts as long as the funds are available in the accounts," the audit said. The county has $5.2 billion in its treasury accounts.

Hughes suggested at least 10 ways to correct the problem, which Moorlach has already started implementing.

Even though Moorlach has begun to close the loophole, Supervisor Lou Correa said, "Nobody seems to know how long we had the problem. And now we’re hearing it may take 90 days to fix this, and that doesn’t give me a great peace of mind."

The audit also found that the treasurer’s computer operating system didn’t lock out users after a number of unsuccessful logon attempts, computers were not configured to log off automatically after a period of inactivity, and passwords needed to be lengthened for greater security.

But Moorlach said that if an employee stole funds, the theft would be discovered quickly.

"We have a lot of internal checks and control systems," Moorlach said. "If there was a deviation of our cash balance, we would know it almost immediately."

Moorlach said he and top staff members had taken steps to fix a loophole that he attributed mostly to a software problem with a data systems program used by thousands of commercial clients.

The problems will be solved, in part, when the office upgrades to the latest version of the software, SunGard Quantum Treasury System, Moorlach said.

"We’re writing to the software provider of the changes we need now," Moorlach said, adding that the upgrades were not expected to be completed until late December.

The newer version would require, among other things, dual authorization for wire transfers, preventing one person from adding or making changes to critical information, Moorlach said.

Moorlach acknowledged that the audit found a security opening, but he said he trusted his employees, especially those with access to the county’s treasury accounts.

"Would two information technology people in my department do that? I doubt it," Moorlach said. "We have had in the past a couple of employees who have embezzled, but our staff knows the penalties…. It could happen, but the potential of that happening is remote."

In 1998, a clerk was arrested on suspicion of embezzling $15,795 in property tax payments. Two years later, another clerk was convicted of grand theft after sheriff’s investigators found the clerk had a $60,000 agency check and two property tax checks for $400.

Moorlach met with Supervisor Jim Silva recently to discuss the auditor’s report and what steps Moorlach had taken.

Supervisors instructed Hughes to report monthly about the treasurer’s progress.

September 29


In order to promote Measure G over Measure H during this campaign season, I did a slate mailer.  The concept was unique enough to warrant top-of-the-fold attention in the OC Register’s Local News section in an article by Martin Wisckol, titled “Moorlach election mailer also a fund raiser.”

It even became “Today’s Question:  Is it right for County Treasurer-Tax Collector John Moorlach to put out a political endorsement list?”  (As if many elected officials don’t.)

You’ll be receiving plenty of slate mailers this campaign season, ending on November 2nd , touting one candidate for every office and one position for every proposition and measure on your ballot.  Traditional slate mailer companies place the candidates and ballot measure committees who are usually the first to sign up and can afford the advertising fee.

My idea was not strictly a fundraising attempt; it tried to stay pure to a cause.  It was nice to get some free publicity.

What makes this article more amusing, with the benefit of time, is that Bruce Broadwater would ask me for my endorsement four years later when he ran for Orange County Supervisor in the First District against Assemblyman Lou Correa.

For more irony, it was Bob Citron’s name and title on a campaign envelope on behalf of State Assembly candidate Tom Umberg in 1990, where he would defeat Assemblyman Curt Pringle, that led to me being encouraged to run for County Treasurer in the first place.

                County Treasurer-Tax Collector John Moorlach is going to tell you how to vote.

                For school boards.  For city councils.  For water districts.  For propositions.  And, especially, for two county ballot measures.

                What might not be immediately obvious is that those endorsed paid for the honor.

                Political consultant Frank Caterinicchio came up with the idea in order to fund a mailer in support of Measure G, which Moorlach wrote, and against Measure H, which he opposes.

                The two measures, to be prominently featured on the mailer, offer distinct options on how the county’s tobacco settlement funds should be used.

                Moorlach – who gained broad recognition for his advance warning of the county’s 1994 bankruptcy – says his plan is more fiscally responsible.  Measure H backers say theirs ensures the majority of the money is spent on health care.

                Moorlach brushed aside criticism of his campaign tactic.

                “It’s a crime to be creative?” he said.  He has  veto power over the names on the mailer, and all must share his position on Measures G and H.

                “I see it as a cooperative effort,” he said.  Each candidate in the county has been written a letter inviting them to participate at a cost of 5 cents per household.  The mailer would be zoned – allowing candidates to buy access only to homes in their particular districts.

                Garden Grove Mayor Bruce Broadwater will be passing.

                “It’s a fraud,” said Broadwater, who supports Measure H.  “He’s going to get people to open his mailer just because they think it’s a notice about their tax bill.  And he has a good name.  He was a knight in shining armor, and this is going to tarnish that armor.”

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