DA: Auditors missed records at Oxnard
The audit firm that signed off on Oxnard’s financial recordkeeping is the same firm that audited the city of Bell and drew a scathing report from the State Controller’s office for malfeasance that auditors should have caught.
Mayer Hoffman McCann, the auditing arm of CBIZ, has acted as Oxnard’s auditor since at least 2005. The city’s financial records came under fire on April 18 when the Ventura County District Attorney’s office wrapped up a year-long corruption probe of Oxnard.
Investigators said they uncovered unsavory behavior among top city officials — lavish dinners in Manhattan, overstays in luxury hotels and flights on a businessman’s private jet — but didn’t have the evidence they needed to press charges. The invest cited “significant deficiencies in Oxnard city recordkeeping systems, policies and procedures, resulting in the city’s failure to accurately track and control the expenditure of taxpayer funds.”
Mayer Hoffman McCann, or MHM, signed off on those procedures and controls, as well as those in the city of Bell, whose excessive pay to top managers spurred statewide reform efforts. MHM did not return multiple emails or phone calls to several of its offices requesting comment for this story. (While MHM’s parent, CBIZ, has an office in Oxnard, the office was not involved in auditing Bell or Oxnard.)
The California Board of Accountancy, which regulates accountants in California, says it has not taken any disciplinary action against MHM. The company hired an outside auditor to review its practices in California in 2011 and passed the review. Moreover, public finance experts say that competent auditors could have missed the misbehavior of Oxnard’s public officials because the amounts of money involved are smaller than the tests are designed to detect.
MHM’s Irvine office was the audit firm for the city of Bell, whose former City Manger Robert Rizzo is fighting corruption charges after drawing a salary of nearly $800,000 a year in the working class city of 37,000. State Controller John Chiang’s office said in December 2010 that the Irvine branch of MHM failed to follow 13 of 17 applicable field work standards — including payroll review standards.
“MHM appears to have been a rubberstamp 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,” Chiang said in a statement at the time.
In response, MHM hired an outside firm, Carr, Riggs & Ingram of Gainesville, Fla., to evaluate its California government auditing operations. The auditor would only confirm that MHM’s practices for the fiscal year ending October, 2010 complied with nationally recognized accounting standards.
In Oxnard, which was audited by MHM’s Bakersfield office, the district attorney’s report outlined the trouble investigators had gathering evidence because of the city’s poor recordkeeping and expense tracking. On a number of occasions, City Manager Ed Sotelo paid for group meals on a city credit card. “For example, one travel form revealed that on Thursday, Nov. 15, 2007, Sotelo paid $688.54 for a dinner. The following evening, he paid $764.40 for another dinner. Sotelo’s travel form did not detail who else was present for these meals, nor did the receipts Sotelo submitted to the city,” the report reads.
Investigators also found that although Oxnard’s policies prohibit officials from using city credit cards for personal expenditures, Sotelo violated that rule on one travel form “because he reduced the amount the city was obligated to reimburse him by simply noting on the form $500 for unspecified ‘personal costs.’ Without requiring the official to itemize individual personal purchases and their cost, it is impossible to audit the expenditure for accuracy,” the report reads. Sotelo also had several expense forms filled out by assistants and turned them in without his signature. Sotelo’s attorney could not be reached for comment by press time.
Such practices aren’t allowed in the city of Ventura, said Assistant Chief Financial Officer Rudy Livingston. There, public officials must submit travel expense estimates ahead of time for approval and then submit an explanation to finance officials if the expenses vary from the approved estimates, which are drawn from IRS tables for per diem dining expenses. Livingston said that when he took two staff members to dinner at a recent conference, he listed them on his expense reports.
In the wake of the district attorney’s report, Oxnard officials released a statement saying that the city had tightened its credit card policy and reduced the number of employees who hold cards. It also said that it had created new travel reimbursement rules and sought training from the Fair Political Practices Commission to address concerns raised about gifts to public officials. “As we move forward, our ongoing efforts will be to focus our attention on providing services to our residents and maintaining the city’s fiscal stability,” the unsigned statement reads. “This includes the implementation of policies and procedures to ensure the transparency our residents demand and deserve.”
Livingston, himself a former auditor, also said that competent auditors legitimately could have missed the problems with Oxnard’s recordkeeping that led to abuse. Auditors typically only test a few records systems at a time, and can only spot check a few of the hundreds of thousands of documents a city generates per year. He said that for a city the size of Oxnard, auditors typically only look for problems that could lead to large discrepancies – potentially $150,000 to $200,000 a year in a city with a budget of $368 million. “The issue here is materiality. It isn’t inconceivable that the problems could have been missed,” Livingston said. “The auditors are not looking at 100 percent of the documentation.”