Chiang Finds More Signs of Fiscal Abuse in Southern California City

December 28, 2011

State Controller John Chiang on Wednesday released his final review of the city of Montebello, alleging possible pension spiking, payroll errors, a loose petty cash drawer, and “systemic problems” in the Southern California city’s internal controls of its finances.

“Lax spending controls and poor bookkeeping contributed greatly to Montebello’s recent fiscal distress,” Chiang said in a statement.

The review found that the city’s practices were not adequate to protect taxpayer dollars in the control areas of financial integrity and ethics, commitment and competence, and management and operations. Of the 74 control measures reviewed, only eight were considered to be adequate. Auditors used standards adopted by the American Institute of Certified Public Accountants in their evaluation of the city.

Some of the largest errors were found in the city’s handling of personnel matters. On April 15, 2007, the city council voted to terminate its city administrator. The administrator contested the termination, was placed on administrative leave and continued to receive a monthly salary of $10,934. On Nov. 2, 2007, he reached a termination settlement agreement with the city, but the human resources office never implemented the settlement agreement, and continued to treat the administrator as a full-time employee, thereby crediting additional time toward his retirement, according to Chiang’s audit.

On Jan. 16, 2008, the city council re-hired the administrator with a 49 percent salary increase. The administrator retired two years later. Chiang’s office alleges this could be a large case of pension spiking, since he was the only official to receive a salary increase of this magnitude and his monthly retirement benefits rose by $4,000. The controller’s office has asked the California Public Employees Retirement System (CalPERS) to look into the matter.

Generally, the controller’s review found a lack of reliability, accuracy, and timeliness in the city’s data. Specifically, the review alleges:

• Differences between bank statement and general ledger amounts
• Unreconciled outstanding checks
• Missing deposit slips for the city transit department
• Untimely recording of corrections to payroll checks
• Bank accounts established for the RDA were not included in that agency’s financial records

This is the final in a series of four reviews the controller will perform for Montebello. The previous reviews, which focused on the city’s redevelopment agency, its gas tax fund, and its use of state and federal dollars, can be found on the controller’s website.

“The objective of this review was to identify the internal problems that destabilized Montebello’s fiscal footing, and provide a roadmap to recovery,” said Chiang. “To its credit, Montebello has embraced the majority of my office’s findings and has agreed to implement the necessary reforms.”

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