ALAMEDA, Calif. — The auditor of Bell’s financial reports failed to follow many generally accepted fieldwork audit standards, according to a review published Tuesday by California Controller John Chiang.

The previously obscure city in Los Angeles County was thrust into the spotlight in the summer by press reports it was paying its city administrator at the time, Robert Rizzo, about $800,000 a year.

The fallout since then has included civil and criminal charges against Rizzo, four City Council members, and other members of the city’s management team. They are accused of misappropriating millions of dollars from the city of 40,000.

The controller’s review criticizes auditors Mayer Hoffman McCann PC, which certified the city’s financial statements for the year ending June 30, 2009.

“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.

The firm issued a statement disagreeing with the controller’s findings and claiming it was victimized, too.

The firm’s accountants conducted at least 17 different audit procedures designed to address the risk of fraud, and Bell employees misrepresented and gave false audit evidence at every step, according to MHM president Bill Hancock.

“This collusion to evade our audit procedures was not limited to one or a few city officials, but rather was conceived and executed in concert by individuals at all levels of city government, including those who themselves were responsible for the design and implementation of the city’s internal controls and fraud prevention policies,” Hancock said.

MHM has been Bell’s independent auditor since 2006, when it bought Conrad and Associates LLP, which had performed audits for the city since 1994.

Chiang said his office’s review found that MHM did not adequately seek out documentation to support the city’s claims. The controller’s review cites a taxable $35 million lease-revenue bond, placed with Dexia, used to finance a land deal with a railroad. 

The land deal fell apart under a legal challenge, leaving Bell with the debt but without the revenue to support it. According to the controller, MHM’s working papers did not show any analysis or record of the issue and its financial effects, nor did the papers say why the city extended the bond maturity date a year. That extended date was reached in November.

Bell continues to negotiate with Dexia about the bonds, Jamie Casso, the interim city attorney, said in a phone interview Wednesday.

The city is dealing with more pressing issues before it turns its attention to hiring a firm for another certified annual financial report, Casso said.

“Dealing with all the other issues,” he said. “That’s been the focus.”

A recall election in March is expected to bring four new members onto the council to replace those facing criminal and civil charges.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.