Sometimes it takes a storm to expose the weak spots of a house — a drafty window, or maybe a hole in the roof.

Such has been the experience for officials trying to repair the damage at the crisis-stricken Housing Authority of the City of Napa and the county-based Napa Valley Housing Authority.

In the wake of the former director of both agencies transferring without authorization about $1.4 million from one agency to the other to cover cost overruns on farmworker camp renovations, officials have been moving quickly to try and patch up what some have called a broken system.

While former city and county housing director Peter Dreier transferred the funds, it was ultimately a lack of systematic checks and balances that allowed him to do so without anyone noticing until months after the money was already spent.

In the wake of Dreier’s resignation, it has become apparent there are gaping holes in the financial security of both housing authorities including:

• A shortage of financial controls on both housing authorities by the city of Napa, the agency charged with the fiscal management of both agencies since 1995

• A lack of spending limits in the construction contracts for both the Calistoga and Mondavi facility renovations

• Insufficient oversight of the finances of both housing authorities by their respective boards and the farmworker housing oversight committee, a volunteer citizen committee appointed to advise the housing agencies on farmworker issues

‘Perfect storm’

Since the deficit surfaced in November, officials from both housing agencies have been operating in triage mode, working to plug the holes in the financial security of the agencies.

The county’s finance department has taken over paying the bills and monitoring the money of the county housing authority, according to county Auditor-Controller Pam Kindig.

Meanwhile, both agencies’ boards have held several special meetings as they explore how to reimburse the now-missing $1.4 million from city housing authority reserves — money often used for repair and maintenance of low-incoming housing facilities and future capital improvement projects.

Napa finance director Jed Christensen recently explained to the Napa City Council that the virtual absence of financial controls over both housing agencies contributed to what he called “a perfect storm” of unauthorized spending.

Neither the city nor county housing authority budgets were entered into the city’s computerized finance tracking system used for the general fund, said Christensen. That opened the door for misspending, but the problem went deeper than that.

The city and county housing funds also were consolidated into the same checking account and the same person — Dreier — oversaw both agencies. That greatly increased the chances that any financial mishandling would go undetected, according to Bob Stern, president of the Center for Governmental Studies, who for years served as legal counsel for California’s Fair Political Practices Commission.

“The inappropriate spending raises the question, should one person be in charge of two funds without any oversight?” Stern asked.

Consolidation of accounts reduces the accounting workload and banking costs for cities. While it’s a fairly common practice among area cities to consolidate the funds of two or more city departments into a single checking account, this set-up is usually safeguarded by computerized tracking of each department’s spending, according to several area city managers.

Christensen has acknowledged a “series of failures” by the finance department allowed Dreier’s unauthorized spending to go unnoticed for more than a year. But he also said a project manager is expected to stick to the agency’s allotted budget or raise a warning flag.

“The project administrator in charge of a project, it’s up to them to keep track of expenditures,” Christensen said.

Dreier has called the transfer of funds “a mistake,” and in mid-December publicly apologized.

The city’s finance staff did not discover the city housing agency was deeply in the red until mid-fall, when they began closing the city’s financial books for fiscal year 2005-06, which ended last June. Only after the finance department discovered the shortfall did Dreier tell the city housing authority board of directors that he had used their agency’s reserves to cover a county housing authority-led project. Three weeks later Dreier resigned from both housing authorities.

Good work, aftershocks

Dreier and members of the county housing authority board and the farmworker housing oversight committee have said while the cost overruns were unfortunate, the money went to the intended cause of providing good quality housing for Napa Valley’s farmworkers for years to come.

“We trust everybody’s intentions were good, but the process was flawed,” said Jennifer Kopp, who has served on the farmworker housing oversight committee and is the executive director of the Napa Valley Grapegrowers.

St. Helena City Councilmember Bonnie Schoch, who serves on both the county housing authority board and the farmworker housing oversight committee, said she and others worry that the financial mismanagement of the farmworker camp renovations could dampen the chances of growers voting to continue taxing themselves $10 an acre to fund the operation of these farmworker facilities.

“That’s why it’s so devastating. If we don’t continue this farmworker housing we’ll be doing a great disservice to the community,” she said. “Before we had these facilities they were sleeping in their cars, on porches, by the river.”

Schoch has said she was dismayed to learn recently that the spending limits often placed on other public contracts were not built into either the Calistoga or the Mondavi contracts.

Deputy County Counsel Krishan Chopra, the attorney who represented the county housing authority over the course of both renovation projects, referred questions to Margaret Woodbury, the attorney recently assigned by the Napa County Counsel’s Office to represent the county housing authority.

Woodbury said it remains unclear whether the contract gave Dreier the power to authorize the overspending, but she confirmed the contracts lacked the spending limits often placed on contracts for public projects.

According to various city managers around the Napa Valley, local municipalities tend to stick to the following rule: a project director can single-handedly authorize overbudget expenditures up to a certain percent — usually up to 10 percent — of the project’s allotted budget. Anything more requires the blessing of a higher authority, such as a city council or a board of supervisors. On the farmworker remodels, the total overage ran the renovations more than 50 percent over budget.

Different members of the county housing authority’s board of directors said they did not inspect the construction contract of either project in much detail. Schoch said she and fellow board members relied on housing authority staff to do so.

“To assume is not a good thing. Sometimes government officials assume the CEO and CFO, all the people are doing the job they’re hired to do, and signing the contract assuming they’re going to stay in the budget and financial controls are in place,” said Schoch.

Schoch said while she’ll be scanning contracts at lot more closely now, it’s not a board or council member’s job to micromanage an agency either.

Yountville councilman and county housing authority board member John Dunbar said like most boards of directors the county housing authority board tended to “rely heavily on staff reports and their expertise.”

“It’s hard for me to know why the board didn’t throw up a red flag earlier in the process,” he said. “We had a significant amount of trust in Peter and his staff. He had a history of quality direction over the housing authority and there wasn’t a reason to be suspicious.”