An audit (pdf) by the State Controller’s office has found “serious and pervasive deficiencies” in how the Southern California city of West Covina (pop. 106,000) handles its finances. “In effect, controls are non-existent.”

Former Controller and now State Treasurer John Chiang began the audit last September at the request of the city, which has been wracked for years by political turmoil and allegations of mismanagement and malfeasance. Before he got started, Chiang noted large declines in West Covina’s reserves and $30 million in “extraordinary losses” related to its former redevelopment agency.

Chiang’s successor, Betty Yee, discovered a lot more. The audit covered two years, 2011-12 and 2012-13, and found that 72 of the city’s 79 accounting controls were inadequate. That sounds kind of dry and bookkeeperish. But the upshot is the city did things that make budgeting a challenge.

They counted $9.3 million in property taxes in 2011-12 when the real number was $23.3 million. That year, they reported $9.2 million in sales tax when the real number was $13.2 million. City expenditures were $91.8 million, not the reported $75.8 million. The story was the same the next year. Expenditures were understated $9.8 million and sales tax $4.2 million.

The audit found questionable hiring practices and insufficient documentation of city credit-card use, travel expenses, meals and miscellaneous expenses.   

The controller also found that the city awarded or extended big contracts without competitive bidding. In one instance, a waste management contract was extended through 2037 that included an annual donation from the contractor for the city’s SWAT team, Fourth of July celebration and summer concert series.

In another, a street-repair job already awarded by the city was nearly doubled in size to include the street of the city councilman who requested it. The work was done with a simple change order, rather than letting it out for bid as a separate project. The city manager and the city council signed off on the deal.

That was probably illegal, Controller Yee, the state’s chief fiscal officer, said in a statement. But the statute of limitations ran out on the city’s misdeeds 12 months after they committed them, which “makes no sense.” She said the Legislature needed to change the law “if we expect to ferret out fraud and prevent willful abuses of state law and taxpayer dollars.”

There has been no indication that lawmakers are unaware of the law and its consequences.

–Ken Broder

To Learn More:

State Audit Finds "Serious and Pervasive Deficiencies" in West Covina Finances (by Stephanie K. Baer, San Gabriel Valley Tribune)

Audit Finds Massive Financial Mismanagement in West Covina (by Richard Winton, Los Angeles Times)

Audit: City of West Covina (California State Controller) (pdf)