By Gary Walker

The audit firm that was used by the city of Bell, which is engulfed in financial scandal, has been under contract with Culver City for professional financial auditing services for the last three fiscal years, the News has learned.

Mayer Hoffman McCann, a certified public accounting firm with 35 office nationwide, is under scrutiny by state officials for its role in the auditing of Bell’s questionable financial transactions, which were exposed this summer by the Los Angeles Times when it was discovered that the Bell City Council and its city manager Robert Rizzo were earning hundreds of thousands of dollars in salaries and benefits.

The firm vouched for the beleaguered city’s financial reporting for several years, giving it “a clean bill of fiscal health” while Rizzo and Bell’s elected officials raised taxes illegally, gave each other lavish salaries, charged businesses extravagant fees and overcharged residents for other services.

Culver City first employed Mayer Hoffman for financial auditing services of its redevelopment agency beginning in 2008 and the company remains under contract through the fiscal year 2010-11.

The audit company has a contract with the Culver City Redevelopment Agency for $274, 200 for consultant services for three fiscal years, which includes a one-time $16,800 audit services fee. City Manager Jerry Fulwood, who retired last year, signed the contract for the Redevelopment Agency.

Culver City is one of 12 cities cited in a state oversight report on audit irregularities of redevelopment agencies and possible misuses of their housing funds expenditures. Many auditors hired by redevelopment agencies to audit them often not apprise state authorities that some cities did not file annual reports, which the oversight report calls “a major violation.”

The state Senate Office of Oversight and Outcomes report on redevelopment agencies also questions the legality some of Culver City’s affordable housing expenditures and notes that despite having over $22 million in its housing fund over a 13-year period, it built only four affordable housing units.

State Controller John Chiang has decried a lack of internal financial controls in Bell, which auditors are hired to prevent. “We found the city of Bell's administrative and internal accounting control system to be, in effect, nonexistent, as all financial activities and transactions revolved around one individual - the former chief administrative officer - who apparently had complete control,” states a report from Chiang’s office.

Charles Deen, a certified public accountant, thinks Culver City’s elected leaders should be open to an outside probe by Chiang. “ As a CPA and based upon what I have read about the city of Bell audit failure, I think that our City Council should welcome an audit by the state controller's office in place of the audit firm that itself in being actively investigated,” Deen told the News.

Lawrence Kalbers, Ph.D., the director of the Center for Accounting Ethics, Governance and the Public Interest at Loyola Marymount University in Westchester, says cities should not take the oversight report lightly. “The failure of so many municipal redevelopment agencies to file annual audit reports is a real red flag. If auditors are not noting these problems, what else are they not finding or reporting?” Kalbers asked.

“It raises a question about the diligence or competence of the CPA firms that are conducting many of these municipal audits. In the case of Mayer Hoffman, the firm has peer reviews for its non-public audit practice through a program with the American Institute of Certified Public Accountants,” Kalbers continued. “It is still in question whether this has been sufficient oversight of Mayer Hoffman McCann, but there could be many small CPA firms in California that have no requirements for peer reviews.”

The audit firm stands behind their work in Bell and other cities.

“We believe that our team, which has the benefit of over 50 years of collective municipal auditing experience and included several of our most experienced and highly regarded municipal auditors, conducted its work at the highest levels of professionalism,” Mayer Hoffman President Bill Hancock said in a statement last month. “We stand by our work in the city of Bell and in over 100 cities and municipal entities nationwide.”

Kalbers pointed out that Mayer Hoffman also worked for the city of Victorville and gave them a clean audit last June, but a separate report identified seven significant deficiencies in internal controls over financial reporting. An accounting firm that worked on Victoville’s finances the previous year found similar problems to those in Bell, concluding that the city “had not maintained adequate internal control and accounting records.”

“(The accounting firm) Caporicci & Larson concluded that there were material weaknesses in internal controls over financial reporting to the extent that they could not rely on the financial statements through other audit procedures,” the LMU professor said.

One state agency has decided to no longer retain Mayer Hoffman’s services. Officials from the California Public Employees Retirement System announced Dec. 1 that they are parting ways with the beleaguered audit company.

“They're just not giving them any new work," CalPERS spokesman Brad Pacheco said on Dec 1.

Deen feels that Culver City’s leaders should follow CalPERS’ example. “Our City Council should face-up to the potential consequences of certain Redevelopment Agency expenditures that may have been improper during the Fulwood administration,” Deen, a former Parks and Recreation commissioner said. “This situation cries out for a second opinion by engaging a new audit firm or letting the state do it. “Accordingly, I do not support the current retention of Mayer Hoffman.”

Kalbers reiterated that city and state legislatures should be taking a serious look at the poor track record of these municipal audits.

“While additional regulations may not be necessary, additional practices and procedures for oversight and accountability may be needed,” he suggested. “Municipalities should be proactive in retaining or selecting auditors, with a transparent process in place that will give confidence to the taxpayers that competent and diligent auditors are being used.”

Deen said he believes that peer review is important for accounting firms, but should not be the central focus regarding Culver employing the same auditor as Bell. “The central question is the pending investigation of Mayer Hoffman and its audit failure at Bell and potentially Culver City,” he said.

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