Maverick County Solid Waste Authority Faces Possible Bond Problems and Fails to Comply with Texas Public Investment Act
By: Jose G. Landa, Copyright 2015, Eagle Pass Business Journal, Inc.
The Maverick County Solid Waste Authority (MCSWA) Board of Directors held a meeting on Thursday, February 26, 2015, at Commissioners Courtroom in the Maverick County Courthouse in Eagle Pass, Texas, addressing several important agenda subjects including possible Surety Bond non-compliance due to lack of audits for 2012 and 2013 and Texas Public Investment Act non-compliance issues.
The MCSWA is an instrumentality of the County of Maverick and operates its Maverick County Landfill on FM 1021 (El Indio Highway) near El Indio, Texas. The MCSWA operates under its own Board of Directors.
Among the agenda items tackled was Agenda Item No.5 which called for the discussion and possible action on the requirements from the Surety Company regarding the renewal of the performance bond for financials of the Maverick County Landfill.
A performance bond, also known as a contract bond, is a surety bond issued by an insurance company or a bank to guarantee satisfactory completion of a project by a contractor.
During the course of the meeting, MCSWA Legal Counsel Earl Herring stated that “at this point there is an issue with the bond writer for TCEQ (Texas Commission on Environmental Quality.” “There are discrepancies from the initial. I understand those are minor issues regarding expiration dates and unexpired dates,” said Legal Counsel Herring to the MCSWA Board of Directors.
The surety company has stated that it will be very difficult to renew the bond without the MCSWA 2012 and 2013 audits in place, stated MCSWA representatives. “Based on the information received, it is essential that we (MCSWA) get these audits to them as soon as possible because we have to update the bond writer at the end of March 2015,” said Herring.
MCSWA contracted with Martinez Rosario & Company, LLP of San Antonio, Texas to do its audits for 2012, 2013, and 2014. Martinez Rosario & Company, LLP also is doing the audits for Maverick County. According to the February 26th MCSWA Board meeting, the 2012 and 2013 Audits of MCSWA have not been completed by Martinez Rosario & Company, LLP and approved by the MCSWA Board of Directors as of this meeting, causing possible problems with the Maverick County Landfill’s surety bond company regarding the $4 Million surety bond backing up the Maverick County Landfill.
MCSWA Board President Rolando Jasso asked Herring to clarify the situation and if all that the MCSWA needed for the surety bond company was to provide them with their audits for 2012 and 2013. “Yes. That’s what the information said,” said Chris Evans of Hejl, Lee & Associates.
“As far as the health of the operation certainly they have the information they need to see that we are very healthy. I don’t know why they would question that,” stated MCSWA Board member Roberto Mireles.
Evans stated that the audit request for the completed 2012 and 2013 audits was coming directly from the actual surety bond company. “That makes a lot of sense,” said Board member Roberto Mireles.
Jaime Rodriguez was asked in regards to the health of the MCSWA operation and if their is anything specific that was needed. ”I talked to Mr. Pointdexter (Surety One) and he stated that it is very hard for any organization to stress the health of any organization you have without any financial documents,” said Jaime Rodriguez.
“ In TCEQ’s part it is hard to take a bond of $4 Million which is what the bond is in place for. Last year we did it with bank statements, which was all that was provided to them to show the health of the organization. However, with the lack of audited financial statements it is very hard for any organization to see any solvency within it,” said Jaime Rodriguez.
Rodriguez emphasized that the Surety Company has been requesting the MCSWA financial statements and audits for 2012 and 2013. “I have told Mr. Mike Castillo (General Manager of MCSWA) about the issue and it has always come back to the audits,” said Jaime Rodriguez.
Rodriguez then stated that he had been present during a December 17, 2014 Maverick County Commissioners Court meeting and that Milo Martinez of Rosario, Martinez and Company, LLP had stated that they had presented the MCSWA a formal draft of the 2012 audit.
Rodriguez then explained the importance of the outstanding MCSWA audits of 2012 and 2013 and that if they had been turned in it should have already been presented to the MCSWA Board of Directors for review and approval.
MCSWA Board President Rolando Jasso stated that he has not seen any formal draft of the MCSWA 2012 audit. “I never saw it. I don’t have it,” said Board President Jasso.
“It is very important to get them in as soon as possible,” said Jaime Rodriguez.
The MCSWA Board of Directors and representatives discussed and concurred that the appropriate action immediately needed to alleviate the surety bond company’s concerns and request for proof of financial solvency of the Maverick County Landfill is to review and approve the 2012, 2013 and 2014 audits as soon as possible, and provide these audits to the surety company.
Legal Counsel Earl Herring intervened and stated that he had just spoken to Mr. Pointdexter from Surety One and that he had assured him that the MCSWA would not be left without a performance bond. “He will not leave the authority (MCSWA) without a bond and that he will conduct business whether they have to switch from another bonding company or not. His concern is that a bonding company cannot continue and continue without the proper financials. That was his assurance,” said Herring.
The MCSWA Board of Directors continued with Agenda Item No.6 calling for status reports on the MCSWA 2012, 2013 and 2014 audits by Milo Martinez of Rosario, Martinez and Company LLP.
“Mr. Martinez before you begin, I think you have seen the sense of urgency that we require the final audit reports for 2012 and 2013 fiscal years, you do understand that?”, said Board President Jasso.
“As you know, time is of the essence. We have the bond update at the end of March 2015. I don’t know you personally, this is nothing personal, and this is business that we are talking about and I get a sense of frustration and urgency why these things aren’t completed. So we members of the Board (MCSWA) feel the same way,” added President Jasso to Martinez.
Board member Roberto Mireles stated that he had the same sentiments and concerns. “There is a sense of urgency that we take care of this matter because as you can see by the information provided,” said Mireles.
MCSWA Board of Director Bennie Rodriguez echoed the Board’s sentiments concerning the outstanding MCSWA audits and that time was of the essence. “We’ve been in business a long time and sometimes I’ve quoted a price to somebody and sometime the market goes up. And I have to eat my words but I have to keep to my word to what I have quoted. And I think we have the same here with what you have provided because we’ve heard a lot of excuses of why it hasn’t been done. But I think we’re past that point and something needs to be done so I hope that you have something for us that says this is it,” Board member Rodriguez to Martinez.
CPA Milo Martinez said the concern was understandable and then began a presentation on the issue. “What you have before you is a final draft. We are ready to go to press and sign it and get you reports. We just need what you call is a representation letter for each year. If approved, we will finalize,” said Martinez to the MCSWA Board.
“I’m glad to report that this year (2012), last year (2011) was a qualified opinion, this year (2012) is a unqualified or clean opinion, which is where you want to be. One of the issues that were dragging it out, we had some concerns on revenues, whether all the revenue had gotten booked,” said Martinez. Martinez noted that those concerns had gotten cleared up.
Martinez stated that his firm had followed government auditing standards and there were other reports that had been issued including a look at interim controls of financial reporting, which are used to operate the Maverick County Landfill.
“In both of the years there were some difficulties because the change-over and issues with the prior landfill manager and who was keeping the books. And County Auditor and we went back over there and all of that had to be basically be re-performed by the County Auditor’s office in March of 2013 and there was a year and a half of that,” said Martinez. Martinez noted the poor financial reporting and controls previously done by the past Landfill Manager (Hector Daniel Chavez, Jr.), causing Maverick County Auditor Fidencio Ortiz and his staff to have to reconstruct much of the financial reporting and bookkeeping not properly done by the past Landfill Manager and staff.
Martinez stated that was one of the reasons they had done more work. “We checked things very thoroughly. We did have some adjustments,” said Martinez.
Martinez continued and stated that they did find an item which they consider a material weakness. “The control over the financial reporting process, there were excessive amounts of journal entries. It makes it more difficult for the auditor. It makes the auditor to have to look at things much harder and my understanding is that the software being used won’t allow them to enter the checks after the fact they can only do it through journal entries,” added Martinez.
Martinez stated that they had also found one cash account that had been closed but had not been reconciled and was still sitting on the MCSWA books.
“Over all we feel there had to be a tightening up of controls. Probably that has occurred but we were looking at the environment during the year that was audited. There was a lot of turmoil in 2012 and in 2013 and it got better,” added Martinez.
“We had to do more and it took the extra effort. And in material weaknesses if the controls are not tightened something significant to your finances can be missed that would require to be adjusted,” said Martinez to the MCSWA Board.
Martinez then advised the MCSWA Board that the MCSWA was not in compliance with the laws and regulations of the Texas Public Investment Act, which is required of all public entities handling public investment funds. “It requires certain standard reports, an Investment Officer be named, training held for that Investment Officer so they can be periodically certified. None of that has been going on just because you had a lot of changeover. Basically, these comments cover both years 2012 and 2013,” advised Martinez the MCSWA Board. Martinez noted that the MCSWA needed to remedy these deficiencies and non-compliance with the Texas Public Investment Act.
Martinez stated that findings from the previous year 2011 had been cleared and that the audits were complete and ready to be turned over.
Martinez presented the 2013 MCSWA audit to the Board, which he pointed out certain issues including payroll and time sheet incorrect items. ”My understanding is that the Treasurer’s Office (Rito J. Valdez, III) is preparing your payroll and he is preparing for the whole county. But you just need to make sure that what they prepare needs to be reviewed and approved, that it matches time sheets, induction forms and things that are coming out. We are recommending here that control be tightened up so those are all cleaner,” warned Martinez.
Martinez stated that in the expenditures and accounts payable of the 2013 MCSWA Audit there had been some adjustments “There were even some invoices that no one was aware of because they came in during 2014,” said Martinez to the Board.
“Obviously because of what happened as far as the fraudulent or embezzlement type of things with the money, we are recommending, and you may have already done, that as far as insurance coverage for your personnel,” advised Martinez.
Martinez was referring to the corruption and theft of funds incurred by the MCSWA, which resulted in the indictment and guilty plea of its former Maverick County Landfill Manager Hector Daniel Chavez, Jr. to theft of government funds in a joint FBI and Texas Rangers investigation concerning corruption in Maverick County. Former MCSWA General Manager Hector Daniel Chavez, Jr. received a sentence of 65 months in federal prison, three years of Community Supervised Release, 800 Hours of Community Service, pay restitution of $201,052.71, and a $100 Special Assessment fee on February 24, 2015 by U.S. District Judge Alia Moses.
Martinez noted that the MCSWA 2013 Audit will be turned over with an unmodified opinion. An unmodified opinion is an opinion where the auditor expresses an opinion that financial statements are presented, in all material respects, in accordance with applicable financial reporting framework.
Martinez added that currently they are working on the 2014 MCSWA Audit and should be completed by the end of April, 2015.
The MCSWA Board concurred and requested that Legal Counsel Earl Herring follow up with the surety company to assure them that everything is being done to complete and approve the outstanding 2012 and 2013 MCSWA Audits.
The MCSWA Board of Directors agreed to schedule a special meeting on Tuesday, March 3, 2015 to receive, review, and approve the outstanding MCSWA Audits for 2012 and 2013 from Martinez Rosario & Company, LLP.
MCSWA Board of Directors present at the February 26th meeting were President Rolando Jasso, Roberto Mireles, and Benjamin Rodriguez while Board members Enrique Montalvo and Michael Luna were absent.
EDITOR’S NOTE: The MCSWA Board of Trustees resolved the Bond Surety requirements and concerns on Tuesday, March 3, 2015, at a special meeting wherein Martinez Rosario & Company, LLP presented the completed 2012 and 2013 Audits which were unanimously approved by the Board. This approval will resolve the Surety Bond concerns involving the previous lack of completed 2012 and 2013 Audits for MCSWA.
