The California Board of Accountancy has placed Mayer Hoffman McCann on probation for two years and has suspended its corporate license fir six months. In addition, they will be required to pay an administrative penalty of $300, 000.
The accounting firm must also undergo a peer review that will specifically focus
on its governmental audit practice in California.
“Accusation No. AC-2012-17 alleges that the respondent (Mayer Hoffman) is
subject to disciplinary action in that respondent committed
repeated acts of negligence on more than one occasion
in the 2009 audit of the city of Bell and the Bell
Community Redevelopment Agency that
departed from professional standards,” the board wrote in its report.
“The accusation further
alleges that respondent is subject to disciplinary action in
that respondent insufficiently documented its audit for Bell
and the Bell Community Redevelopment Agency for the year ending June 30, 2009.”
On Dec. 10, 2010, the News reported that Mayer Hoffman had a three year contract with Culver City to audit its municipal finances as well as it redevelopment agency beginning in 2007.
The contract with the Culver City Redevelopment Agency totaled $274, 200 for consultant services for three fiscal years, which includes a one-time $16,800 audit services fee.
A 2010 report issued by the state Senate Office of Oversight and Outcomes report on redevelopment agencies questioned the legality some of Culver City’s affordable housing expenditures and noted that despite having over $22 million in its housing fund over a 13-year period, it built only four affordable housing units.
The probe examined a dozen redevelopment agencies and found an array of reporting errors by these agencies, including the lack of reporting of redevelopment annual reports.
“A couple of the 12 redevelopment agencies that we examined spent money in 2007-08 in ways that appear to fall outside of the law,” the document noted, and Culver City is named as one of those cities.
That same year, the Culver City Redevelopment Agency’s low to moderate income housing fund took in nearly $5 million in property tax money, the highest of any of the 12 agencies selected at random and held a total of $22.1 million. Yet from the oversight office found that during a 13-year period, beginning in 1995 and ending in 2008, Culver City reported only four new units of affordable housing.
“Given the amount of money at its command, the Culver City Redevelopment Agency has done relatively little to create new spaces for low to moderate income people to live,” the report stated.
Culver City officials chose not to offer the beleaguered firm a new contract in 2011, after the agreement expired.
Once a prestigious accounting and auditing company Mayer Hoffman was hired by the Bell City Council several years ago to conduct its municipal and redevelopment agency audits. After it was discovered that four of the five ex-Bell councilmembers where making six figure salaries in 2010, a criminal investigation was opened by then District Atty. Steve Cooley.
The subsequent investigation uncovered a pattern of malfeasance and the ex-councilmembers and the former city administrator, Robert Rizzo, who some say is the mastermind of a scheme to pad their salaries, will go on trial later this month.
Law enforcement authorities allege that Rizzo and the council conspired to enrich themselves through illegal towing of automobiles, charging exorbitant and questionable legal fees to businesses owners and levying some of the highest property rates to its residents in the state.
“I would have hoped to see more because some things you can put a monetary value on but on other things you can’t,” responded former Culver City Treasurer Crystal Alexander when asked her thoughts about the fine and suspension. “If you’re a resident of Bell, look what this has done. They haven’t gotten any services and will have to pay more taxes.
“The part that’s hard to put a value on and that will likely take a lot of time to rebuild is the trust,” Alexander continued. “The sanctions and the monetary penalties for an audit company that takes away the public trust in their government is something that is hard to put a price tag on.”
The accounting firm admitted that it had “insufficiently documented its audit for Bell and the Community Bell Redevelopment Agency for the year ending June 30, 2009,” according to state records.
Mayer Hoffman also acknowledged that its auditors “committed numerous acts of negligence on more than one occasion in the 2009 Bell audit for Bell and the Bell Community Redevelopment Agency that department from professional standards,” according to accounting board records obtained by the News.
The acts of negligence included failure to respond properly to risk assessments, not documenting performances of “certain minimum procedures to comply with compliance testing requirements” and its negligence in determining whether the city or the redevelopment agency had complied with current laws and regulations that could have a material effect on Bell’s operations, among other things.
A number of Culver City officials, from finance, budgeting and a council audit committee representative, interviewed representatives from other cities that had employed Mayer Hoffman prior to hiring the audit firm.
“We appreciate the professionalism and input of the representatives of the California Board of Accountancy throughout their investigation,” said Mayer Hoffman President William Hancock in a statement. “We have taken the events at Bell and the findings of the very seriously, and we have used this as an opportunity to renew our commitment to high-quality audit services.
“We have also undergone two independent examinations covering our California city and municipal audit practice, each of which has concluded that we are in compliance with audit quality control standards,” Hancock added. “In short, we have emerged as a better firm, committed to serving the public interest and our California clients.”
Alexander said much of the responsibility to make sure private accounting and audit firms have the requisite expertise in municipal audits lies with department heads and city leaders who are in charge of the city’s finances.
Audit experts with whom the News spoke with said firms like Mayer Hoffman do not always use their front line auditors when they work in smaller cities.
Alexander, who has worked in finance in both the private and public sectors, said on occasion auditors hired by a municipality are unfamiliar with certain accounting procedures that an agency utilizes. “You’re actually educating the auditors if you’re on staff on new revenue sources,” she said.
The former treasurer related an experience with an auditing firm whose auditors where unaware of a particular revenue source critical to correctly auditing the Department of Transportation, where Alexander was working. “We hired them for their expertise in transportation finance auditing and they didn’t know anything about (the revenue source),” she recalled. “From what we know about the totality of what’s been reported on in Bell, could they have had the kind of staff that could tell ‘newbie’ auditors what they should be doing?” she asked.
This is why, she added, that city councils should be always attentive to what is transpiring among those in charge of accurately reporting and computing a city’s finances. “And it’s important to that the city manager and chief financial officer are setting the right tone and that you have the right kind of people in the finance department,” she said.
Jerry Fulwood was Culver City’s city manager when Mayer Hoffman was hired.
