Apparently acting without City Council approval, Bell spent nearly $95,000 to repay loans that then-City Manager Robert Rizzo made to himself from his retirement accounts, a draft state audit reviewed by The Times shows.
The auditors found no evidence that council members even knew about the repayments, which occurred in 2008 and 2009.
"We found the city's system of internal control to be nonexistent, as all financial activities and transactions revolved around one individual, the former chief administrative officer, who had complete control and discretion over how city funds were used," the auditors wrote.
State law prohibits a city from giving public funds to a person solely for private benefit.
Robert Weisberg, codirector of the Stanford Criminal Justice Center, said that if city funds were used to repay loans without legal basis — as the draft audit alleges — "it would be a pretty classic case of federal wire fraud."
But Rizzo's attorney said his client had done nothing wrong or illegal.
"Mr. Rizzo was paying off his own loans with his own money, he was not using public funds," attorney James Spertus said. "I do know, and I confirmed with Mr. Rizzo, the loans were paid with salary and declared as income on his taxes, and it was done with city approval."
The report, based on a review by state auditors of Bell records, portrays a different picture. "Public funds were used to repay [Rizzo's] personal loans, apparently without authorization," the audit says.
The full audit by Controller John Chiang's office is expected to be released this week. Chiang's office had previously found that Bell illegally overcharged residents and businesses by $5.6 million in various taxes.
The latest findings come as the Los Angeles County district attorney's office and state and federal authorities continue to investigate Bell, where high salaries earned by Rizzo and other top officials have sparked widespread outrage. The Times reported last month that Rizzo was set to earn more than $1.5 million in 2010. Additionally, he gave loans totaling $1.6 million to more than 50 city officials, including himself.
Councilman Luis Artiga, who reviewed portions of the draft audit, said Monday he was outraged by Rizzo's actions.
"This man's intentions were to milk and exploit this community to take advantage of the innocence of this community," Artiga said. He added that he and the rest of the City Council are partly to blame for not better overseeing Rizzo's actions.
Rizzo had borrowed money out of his retirement accounts in 2004 in two $50,000 chunks, according to city records The Times obtained under the California Public Records Act.
Bell had a program that allowed certain city officials to receive loans — a practice that had previously been flagged by state auditors as problematic. Their findings underscore concerns raised by outside experts that Bell had engaged in a highly unusual pattern of city funds being loaned to employees without any public notice or apparent City Council approval.
Documents obtained by The Times last month show that former Assistant City Manager Angela Spaccia received three loans totaling more than $300,000. Lourdes Garcia, the administrative services manager, obtained two loans for $177,500; and Annette Peretz, Bell's director of community services, got a $95,000 loan. The loans were all signed by Rizzo and appeared to be given with vacation and sick pay used as collateral.
Councilmen Artiga and Oscar Hernandez each received a $20,000 loan. Neither reported the loans on financial disclosure forms, which is required under state law.
In addition to the retirement funds, Rizzo received two city loans of $80,000, officials said.
After The Times disclosed the loans, city officials said they were suspending the loan program and were trying to determine how many of the loans were repaid.
L.A. County Dist. Atty. Steve Cooley has said his office is examining whether the various financial transactions in Bell amounted to thefts of public funds. The office is also looking into allegations of voter fraud and whether the high salaries earned by Rizzo and others were legal.
Last week, California Atty. Gen. Jerry Brown filed a lawsuit against current and former Bell city leaders demanding that their pay contracts be nullified and that they pay back some of their salaries and pension benefits. Artiga was not one of those named in the lawsuit and he said he's working with investigators.
Rizzo and other top city officials stepped down in July after the salary scandal broke. City Council members — who were earning nearly $100,000 a year — significantly slashed their pay.
Officials from Chiang's office and Bell Interim City Administrative Officer Pedro Carrillo would not comment on the draft audit.