San Bernardino creditors cast doubt on credibility of plan due May 30

By Kali Hays

New York, March 25 – The City of San Bernardino, Calif., creditors Ambac Assurance Corp. and Erste Europaische Pfandbrief- und Kommunalkreditbank AG questioned the city’s ability to file a plan of adjustment by the current May 30 deadline as it lacks current financial data, according to a status conference report filed Wednesday with the U.S. Bankruptcy Court for the Central District of California.

The city is auditing its financial records but has dismissed its finance director and lacks currently audited financial statements for the last 33 months.

According to the creditors’ report, the city is suffering from “a lack of internal controls,” “limited record keeping” and “staff turnover” drawing a “remarkably similar” parallel to the “events leading to the city’s bankruptcy filing and the current state of affairs.”

“According to the city’s current auditors, these issues may make it impossible to complete the audits to be incorporated in the city’s plan of adjustment that must be filed by May 30. If the auditors are correct, the plan filed on May 30th will not be grounded in reliable financial data and will be of highly questionable value,” the report stated.

“Moreover, in order to compose a confirmable plan of adjustment, the city must not only ascertain its current fiscal picture, but also project it well into the future. Without a solid footing in audited financial data, particularly the 2013-2014 audited financials, the plan of adjustment due in two months may amount to nothing more than a pro forma plan, filed to meet the court’s deadline, but completely divorced from the realities of the city’s fiscal situation.”

The creditors went on to claim that the city “can no longer cite its dire fiscal condition as an excuse for ignoring these problems” and said that its “failure to institute robust financial recordkeeping protocols is difficult to understand given how long is has enjoyed bankruptcy protection,” according to the report.

In light of the city’s alleged condition, the creditors asked that that court “inquire” as to when the city will complete its audit and the reliability of the financial projections, the reason for the delay in auditing its financials for “the last two fiscal years,” why the city has not corrected its “accounting and recordkeeping problems” and how it intends to implement “corrective action” and how it intends to file a “credible” plan by the current deadline.

City representatives could not be immediately reached for comment.

A status conference is scheduled for March 26.

San Bernardino filed for bankruptcy on Aug. 1, 2012. The Chapter 9 case number is 12-28006.

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