New board vows to look into fraud charges
Publication Date: Wednesday Sep 20, 1995

UTILITIES: New board vows to look into fraud charges

Audit, costs are top priorities for E. Palo Alto company

New board members of the small Palo Alto Park Mutual Water Company in East Palo Alto elected officers last week and got down to business in a three-hour meeting.

The board indicated its first priority is to have a financial audit done to gain a better idea of the company's financial position.

"Our reserves are too low," said new board member Paul Sposato, who was elected vice president and secretary Monday. "We know much more about the financial situation than we did a month ago," but need to know more.

"We would prefer to do (the audit) immediately," he added.

As part of that, Sposato said the board also wants to have the water company's books audited for possible fraud.

"There have been unsubstantiated allegations of fraud by the manager and previous board," he said. "We believe it is in the company's interest to put to rest the rumors or ferret out any wrong-doing."

One of the board's first actions last week was to elect John Chavez as its president, Sposato vice president and Debra Turner as treasurer. The three were elected to the board in a court-regulated election in June.

Many customers of the water company, which serves more than 600 households, have been struggling with the company and its manager, Katherine Loudd, for more than a year over financial issues and the deplorable state of the city streets, which the district owns but has not had repaired.

Loudd, who is also a board member, was not at the most recent board meeting because of an illness in her family, Sposato said. Loudd remains an elected member of the board, but her managerial job with the district could be in jeopardy with the new board in power.

Sposato said the new board believes it can reduce expenses and water rates. He said the board needed to look at the company's rate schedule. "It's unclear whether people are being charged appropriate rates," he said.

In terms of reducing expenses, Sposato said the company has been spending 10 percent of its annual budget on lawyers, partly to fend off lawsuits from dissatisfied customers.

Residents served by the district area are charged water rates by lot size. There has been talk of installing water meters in each home, but the board voted against that on Monday night, at least for now, because of the expense.

The condition of the streets is what helped mobilize the challenge to Loudd and the old board. The new board has vowed to move to have the streets fixed.

"The company will proceed to dedicate the streets to the city," Sposato said. "We're working on it, and we'll do it. We clearly will cooperate with the city in any way that we can."

--Don Kazak

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