Bell's auditors should have spotted most of the alleged corruption, state controller finds

The state controller’s office Tuesday issued a scathing review of the work performed by Bell’s outside auditor, saying that most of the alleged corruption in the Los Angeles County city would have been identified earlier had the firm done its job.

The long-awaited audit said Mayer Hoffman McCann repeatedly failed to follow basic fieldwork practices when it audited the city’s books.

Mayer Hoffman McCann “appears to have been a rubber stamp rather than a responsible auditor committed to providing the public with the transparency and accountability that could have prevented the mismanagement of the city’s finances by Bell officials,” state Controller John Chiang said in a news release.

The 153-page review said that Mayer Hoffman did not look hard enough for documentation and evidence to support city records.

Chiang’s office said it was forwarding the review to the state Board of Accountancy for possible disciplinary action.

The review notes that the auditing firm disputes the findings.

Chiang’s report is the latest critical look at a city that has been enveloped by scandal since The Times revealed the enormous salaries paid to administrators and part-time politicians in one of Los Angeles County’s poorest cities.

Bell is now teetering on the edge of insolvency and may have to take drastic steps such as disbanding its police department to balance the city’s finances. The Times has reported that Rizzo also loaned city money to co-workers, council members and businesses and urged police and code enforcement officers to increase city revenue by aggressively citing motorists, residents and business owners.

The controller’s office found that the city had overcharged property owners and businesses more than $6 million in fees and had mysteriously placed $23.5 million in bond funds into a checking account that paid no interest, costing the city about $1.7 million in potential earnings.

In September, Chiang’s office said Mayer Hoffman McCann should have noticed the glaring lack of internal controls in Bell. Chiang’s report said Rizzo appeared to have complete control of all financial transactions and activity in the city.

Hallye Jordan, a spokeswoman for Chiang, said at the time that state auditors were baffled by “how a CPA firm could miss the abuses the controller's office found, and found rather quickly.”

Bell was not the only city with auditing problems. A Times review of state and local records found that the independent audits cities are required to obtain frequently fail to uncover fraud and mismanagement.

Many cities hit with corruption or mismanagement allegations over the past decade, including San Diego, Compton and South Gate, received clean audits, even in cases where officials later were sent to prison.

When firms provide negative audits, they risk being replaced. In the case of Victorville, for instance, the new auditors gave the city a clean rating after the previous auditor found numerous problems.

-- Jeff Gottlieb

Comments

[Willie]

Public records confirm that Bell's Auditors, Mayer Hoffman and McCann, have audited the Pechanga Tribal Government for the last four years and have cleared the tribe to receive Federal Grants and operate the Pechanga Casino. The State Board of Accountancy should take a look at their work on the Pechanga Tribal Government. Governmental Regulators, IRS and Customers of the Casino and the tribal members should be anxious to confirm that Tribal leaders are not doing what the Bell City Fathers have done. Indian Gaming is a ripe target for financial abuses and should not be allowed to use second-rate auditors.

[Jason Paananen]

It is hard not to notice how the LA Times keeps tooting its own horn about its part in this saga, but it doesn't quite measure up when it comes to writing a complete article. First, how long ago was this last audit conducted? How often do cities get audited? Does this auditing company audit other cities? If so, what were the results in those audits?
Come on Gottlieb, get with it.
As far as this company is concerned, the fact that they only MIGHT be held accountable for not doing their job shows you that it does pay to be lazy and unproductive.

[Corruption was Endemic]

What exactly were Pedro Carrillo's responsibilities at the City of Bell prior to the scandal being publicized?

[J. Priest]

Does anyone doubt that the "outside accounting firm" was in on the graft?

[Dan Mariscal]

This raises a lot of questions about other auditors, who audit municipalities, and their focus on retaining future employment. In fact, some of this kind of spotlight of accountability should be on the auditors who are employed by the City of Los Angeles. There's just too much talk, discussion and consideration of LA bankruptcy to just let this fiscal fiasco ride. How is it that the LA taxpayers are paying more, yet getting less services? For a pictorial view of what is happening to our City check out lacityworkers.com, click on blogs and got to "more cost, less service". It's time to wake the people up.

[Balanor]

The California State Controller's offfice is so quick and sharp that they continue to hold hundreds of thousands of dollars in unclaimed assets because they cannot find owners like:
1.City and County of Los Angeles
2. US Treasury
3, IRS
4. Marvin Gaye(nona gaye, Marvin Gaye JR) who passed away 3 decades ago.
5. Nat and Maria Cole (as well as Natalie Cole)
6. Michael Jackson of Encino(includes 2 safe deposit boxes)
7. Aretha Franklin(over 700 unclaimed assets on her alone)
8. City of Bell (search above url for "city of " to get all cities in California.
9. The list goes on...check any name especially urs...check hospitals, churches and foundations.

Any dogg can find these owner, but the Calif State Controllers office doesn't seem to have a clue.

[James Andrews]

Does the State Controller believe he should have spotted the corruption and fraud at CalPERS. The Controller sits on the CalPERS Board specifically to represent the people and as a constitutional financial officer should have not rubber stamped the dismal performance of that Board??

[monkey feet]

in regards to the city of victorville, that new firm that gave a clean audit opinion was also Mayer Hoffman McCann.

[Bob in Berkeley]

Far too many auditors are more concerned about receiving their fee than informing the "owners" (in this case the taxpayers of Bell) about unethical or even illegal practices of the "management" or "Board of Directors" that hired them to review finances. No nice audit opinion - no return engagement.

On a related note, the New York Times ran an opinion piece today on the ethics of Ernst & Young, the auditors of Lehman Brothers, who gave Lehman Brothers an unqualified opinion on their financials, which could have misled investors, as E&Y KNEW that Lehman Bros. were deliberately misstating their assets:
----------------------------------------------------------

"The New York attorney general, Andrew Cuomo, is preparing to file a civil lawsuit against the accounting firm Ernst & Young, accusing it of misleading investors about Lehman Brothers, which collapsed in September 2008. The lawsuit would be the first major action by a regulator against an accounting firm in connection with a central player in the financial crisis."

"Ernst & Young was severely criticized in a report issued in March by a court-appointed examiner, which concluded that it permitted Lehman to hide as much as $50 billion off its balance sheet to reduce its debt levels temporarily."

"The Sarbanes-Oxley Act of 2002 was supposed to deal with the failure of accounting firms to scrutinize their clients' bookkeeping practices. Why hasn't that been sufficient? Are other kinds of oversight needed?"

http://www.nytimes.com/roomfordebate/2010/12/20/how-to-make-auditors-more-accountable?hp

[Y Hoo]

Why can't the Bell city recover money from the crooks? And even the Audit firm may be libel for not doing their job.

[David Theiss]

Rubber-stamping the client's financial statements is a public accounting firm's job! Otherwise, how in the world would they get another engagement if they issued a qualified--or god forbid--adverse opinion? There's the world according to the AICPA, FASB, SEC, and the Justice Department--and there's the real world in which these firms operate--investors, taxpayers and the public be damned.

[RICK]

IF this is the same auditor that does tribal casinos like Pechanga, one of the largest in the state, wouldn't or couldn't that affect how much the state gets from their gaming operation?

Their ads promised us that they'd help balance our budget.... how's that working out?