Bloomberg News

California Controller Finds ‘Fiscal Abuse’ in Montebello Audit

December 30, 2011

Dec. 29 (Bloomberg) -- State auditors, capping a year of reviews, found signs of “fiscal abuse” including pension spiking and lax internal financial controls in the Southern California city of Montebello, Controller John Chiang said.

The report found flaws in financial integrity and ethics, competence and management of the community of 62,500 people, located 11 miles (18 kilometers) southeast of downtown Los Angeles, according to a statement.

Montebello is among several California cities where politicians and administrators have been accused or convicted of financial abuses, including Bell, where the city manager was paid almost $800,000 annually. After audits in 2010 revealed unlawful spending and illegal property taxes in Bell, Chiang said his office was flooded with requests for reviews of more than 200 local governments in the state.

“While the roots of Montebello’s problems are different from Bell’s, they both share the common trouble of having little or, at times, no accountability in their spending of public dollars,” Chiang said the statement.

September audits of Montebello’s gas-tax fund and redevelopment agency revealed $31 million in “questionable” spending, loans and transfers, including a business lunch at Chuck E. Cheese’s, a restaurant chain known for hosting children’s parties.

Of 74 control measures reviewed, only eight were considered adequate, according to a statement from the controller.

Fired and Rehired

Montebello’s City Council terminated a city manager in 2007, allowed him to continue to collect $10,930 in monthly salary and rehired him in 2008 with a 49 percent increase in pay, according to the controller’s report. Chiang has asked the California Public Employees’ Retirement System to look into the matter.

“This could be a large case of pension spiking,” he said in the statement, referring to a method of inflating future retirement payments by manipulating overtime, unused vacation and special compensation.

The city was recently made aware of two “off-the-books” bank accounts for its redevelopment agency, the report said.

Chiang also found Montebello inappropriately reported $2 million of bonus payments and awarded engineering contracts that should have been bid for competitively.

“There were four city administrator turnovers in five years and four city council recalls,” said Larry Kosmont, the interim city administrator who’s been working since May to turn around Montebello’s finances.

“I saw Bell as having an absolute march to corruption every day,” he said in an interview. “In Montebello, it was more ineptitude and poor leadership than absolute corruption.”

The city said it concurred with the controller’s findings in a response attached to the report.

--With assistance from Will Daley in New York. Editors: Pete Young, Paul Tighe

To contact the reporter on this story: Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net


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