Sanitary district audit finds material control weaknesses and a $519,000 misappropriation under investigation

The East Palo Alto Sanitary District’s audited financial statements for the year ending June 30, 2024, were presented to the board and council. The auditor issued an unmodified (clean) opinion on the financial statements while reporting four significant findings that the board must address.

The auditor summarized the findings as material misstatements that required adjustments, a misappropriation of assets involving a manipulated disbursement check that resulted in $519,000 being fraudulently cashed (the matter remains under active investigation), procurement-policy noncompliance and instances where a board member used district funds for travel outside the district’s activities. The auditor explained that auditing standards require reporting of allegations or indicators of fraud to the board and that management had implemented additional controls after the city assumed administrative responsibility on Oct. 1.

Board members pressed the auditor on the terminology used and whether a formal forensic investigation should follow. Members emphasized the seriousness of the findings and the need for timely internal controls, transparency and possible follow-up investigations; the board adopted a resolution accepting the audited financial statements and directing staff to file the reports with the state controller. Public commenters urged careful language and use of the term “alleged” when describing ongoing investigations.