DuPage Water Commission's financial fix hits $2 million

Consultants, multi-million-dollar loans, additional staff, extra lawyers and a special audit helped the DuPage Water Commission regain its financial footing.

But that financial stability came with a $2 million price tag that taxpayers are having to cover. A detailed breakdown of those additional costs were provided by the commission at the request of the Daily Herald.

And there may be additional costs still to come, which worries some politicians and watchdog groups.

Commissioners say they've instituted a number of financial safeguards to prevent the fiduciary irresponsibility that caused the agency to accidentally spend its $69 million reserve fund. They contend the ancillary costs associated with "righting the ship" were necessary in order to prevent further financial ruin.

"I think we moved prudently and in an expedient manner, and we had to because of the gravity of the situation we were in," said commissioner Don Zeilenga, who acted as the agency's financial point man following the discovery of the reserve fund's depletion late last year.

Accounting mistakes led the commission to believe it had $40 million more in its reserves than actually existed, according to a forensic audit that was conducted in the wake of the commission's discovery. The report placed blame for the financial missteps on the commission's fired financial administrator, the general manager, treasurer and the 13-member commission.

The audit report essentially stated that no one ever bothered to reconcile bank statements against the commission's erroneous internal financial reports.

To fix the problem, the commission brought in a new financial administration team that has so far cost $81,600 more than what had been budgeted for those same services. The commission took out $70 million in loans to refill its coffers and pay its bills, but those carry interest costs of $1,375,000 in their first year. The commission is talking about extending the loans - likely at a higher interest rate - which will add more to the ultimate cost of the fiscal cleanup.

Those loans came with $10,000 in advisory fees split evenly between two consultants and $39,000 in legal fees to a single law firm as well.

Another $368,763.07 was billed by another law firm and an auditing company for the forensic audit that determined how the financial mistakes were made.

The commission had to pay General Manager Bob Martin $119,474.64 upon his resignation, which was the combination of six months salary and accrued vacation. The commission also will have to pay $8,830.08 for Martin's health insurance coverage for a year.

An aborted 2009 audit cost taxpayers $41,000 and another $43,750 went to a new firm that will redo last year's audit.

Tack on another $1,750 a month for the past four months that Terry McGhee has received for becoming interim general manager and that brings the total cost of the fiscal fix to $2,094,417.79 so far.

"It's still money that went down a toilet," said Commissioner Larry Hartwig. "There's no way of sugarcoating that. It's something that shouldn't have happened, but the appropriate actions were taken. I think we're moving in the right direction."

Members of DuPage United, a local civic advocacy group made up of religious organizations and nonprofit agencies, remain concerned that commissioners aren't heeding the recommendations of the forensic audit report.

"We think more could be done to be sure that ship stays righted," said Debbie Fulks, co-chairman of the organization's steering committee. "We're more worried about going forward than what has happened in the past."

DuPage United is seeking to have county Auditor Bob Grogan's office play a larger role in the financial oversight of the commission in the future. There is some debate about whether that is legal.

"It's going to cost money, but his rates are going to be more reasonable compared to the kinds of expenses that have been incurred," Fulks said.

For their part, commissioners say they have been swift to put many of the recommendations of the forensic audit into place. A study was performed to show how "modest" incremental increases to the water rate over 15 years can make up the misspent reserves. Financial reports provide more detailed accounting. All commissioners, instead of just three or four, are now part of the commission's financial oversight committee. The commissioners also point to the $3 million shaved off this year's proposed operating budget. Much of that came from a reduction in planned maintenance costs. The maintenance programs could be deferred without creating any safety issues, officials said.

"There was a conscious effort among the commissioners to put extra scrutiny on this year's budget," Zeilenga said. "Those cuts are going to continue forward and offset the interest costs."

However, that $3 million figure doesn't represent any actual savings over the previous year's expenses. According to the commission's budget documents on its website, operating costs are expected to be up more than $12 million over last year. That increase is mainly due to an anticipated $10 million spike in water distribution costs. Commission officials said that gap was created because water sales were well below last year's budgeted amount.

But commissioners contend the budget cuts equate to real savings to taxpayers.

"The fact that we were able to make some reductions in the budget made the spending for the crisis a little more palatable," said commissioner Bill Murphy.