Hercules audit slams city's accounting practices

HERCULES, Calif. (KGO) -- The City of Hercules is still reeling over the way public money was spent by those running city hall not too long ago. And though many of those politicians are now gone, on Wednesday a new state audit, which focused on the way the city used and spent redevelopment money, shed some light on Hercules' questionable spending and accounting practices.

$50 million dollars. Where did it go? The state controller just released the findings of two city audits which attempt to answer that very question.

"It's frustrating for us," resident Craig Stokes said. Like most small business owners, Stokes says he's careful to watch every penny he makes, "It was a really hard couple of years from our second and third year in."

That's why the findings of two state audits, calling into question nearly $50 million in charges to redevelopment funds, is so frustrating. The mismanagement by city leaders almost pushed Hercules over a financial cliff, taking Stokes and his business along with it.

"Everybody starts to say, 'oh God, bankrupt?' and so they start holding their wallet real close to their body and nobody's out spending money," Stokes said.

The state audits cover the period from July 2005 through June 2010. The biggest red flag was the use of credit cards and property transfers used with money targeted for redevelopment. The auditor accuses the former city manager of "engaging in questionable business practices." Those activities are now the subject of several lawsuits filed on behalf of the city.

But the damage may have been done. City services have been placed into jeopardy; everything from the public library to the police force were under the microscope and reviewed for severe cost-cutting measures. The city has had to stop development of some projects and sell some real estate to settle debts.

"What we are now, is in cleanup mode," said new City Manager Steven Duran. He's been on the job less than a year, "The community swept out the old city council and they're all new. They've been doing a great job, they've been focusing on finances as the number one thing."

And there has been progress. A Caltrans audit performed after this state audit showed that the council was capable of handling state and federal funds in excess of $10 million to fund a new Amtrak station.

"If an auditor came in to audit our books today, they'd be able to find everything and they'd be able to see that we're doing things the way that we should be doing," Duran said.

This new city council has even won community support at the ballot box. 70 percent of voters approved a half-cent sales tax that is expected to generate thousands of dollars in new revenue, taking them on the path to fiscal solvency.

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