ALAMEDA, Calif. — The city of Bell mismanaged general obligation bond funds, illegally increased taxes and fees, and engaged in numerous practices that suggest possible intentional abuse and misuse of city funds, according to an audit the California controller’s office released Wednesday.
The audit was released one day after the Los Angeles County district attorney announced the arrests of eight current and former Bell officials on charges of misappropriating more than $5.5 million from the city government.
Bell, a blue-collar community near Los Angeles, has been under scrutiny since the Los Angeles Times revealed in July that city administrator Robert Rizzo was making almost $800,000 a year.
Rizzo was among those arrested Tuesday, along with an assistant city administrator, four sitting City Council members, and two former council members.
Rizzo’s actions were at the center of the controller’s audit, requested by Bell’s interim city administrator, Pedro Carillo, after Rizzo resigned under pressure in July.
“All of the city’s financial activities and transactions evolved around one individual — the former chief administrative officer (CAO) — who for all intents and purposes had complete control and discretion over how city funds were to be used,” the controller’s office reported.
“The city’s purse-strings were tied to only one individual, resulting in a perfect breeding ground for fraudulent, wasteful spending,” Controller John Chiang said in a news release.
Bell’s voters authorized the issuance of $70 million in GO bonds in a 2003 election in which 933 people voted. The city has issued $50 million.
The audit says Bell issued the debt without any documented plan to utilize the proceeds, nor has the $50 million resulted in any visible progress on the sports complex the bonds are supposed to fund.
“No plans for completing or developing the complex were found during the course of the audit,” according the controller’s news release.
The audit found that Rizzo assumed the role of fiscal agent for the proceeds of the city’s $35 million bond sale in 2007, giving him “total control and discretion over how bond funds were to be used.”
The audit found that the 2007 sale “was far in excess of the amount that was needed and thus unnecessarily increased the city’s costs of borrowing,” adding that surplus funds were “inexplicably” deposited in a non-interest-bearing checking account.
The audit also noted that the property tax proceeds for the bonds were not placed in a separate debt service trust account, as specified in the city’s paying agent agreement with the U.S. Bank National Association. Instead, the funds were deposited in Bell’s general fund, artificially inflating its cash balance.
“Under the former CAO’s employment agreement with the city, his salary increases were contingent on a positive cash position in the general fund,” the audit found. “Again, at least in appearance, this practice could be self-serving.”
The controller found the city to have “virtually nonexistent” internal controls, with no evidence of oversight by City Council members, who benefited from loans and additional compensation authorized by Rizzo.
The audit cited dubious loans to city staff and council members, questionable payments to a former city contractor, and the unexplained purchase of a vacant lot from a former Bell mayor. It found that the city improperly raised fees levied in city assessment districts, and used revenue from those districts improperly.
The controller’s office is also working on an audit of Bell’s handling of state and federal funds, due in late October, and in November the controller plans to release its audit of the financial reports certified by the city’s outside accounting firm, Mayer Hoffman McCann PC.
