Audit finds massive financial mismanagement in West Covina

It was a bumbling city that didn't know how much it was collecting or spending. It signed large contracts without proper bidding and hired administrators without vetting their qualifications. Its city manager spent lavishly on meals and arrangements for council members with the city credit card. And it lost $1 million by selling a developer land it wasn't legally allowed to sell.

Those were the findings of a state audit released Thursday that blistered the management of West Covina, whose roiling politics usually make few ripples outside its east San Gabriel Valley boundaries.

City officials quickly endorsed the findings of State Controller Betty T. Yee as a validation of their suspicions that fueled a remaking of the City Council in the 2013 election. “This gives us and the public a blueprint,” said Councilman Mike Spence, who pushed the council to request the audit. “It puts aside all the rumors and plainly sets out the problems.”

Interim City Manager Thomas Mauk, who took the reins in January, conceded that City Hall was in disarray at the time, even though changes had been made to reset its course. Many departments heads had resigned, leaving the agencies without oversight. “Things were let go,” he said.

The audit, covering fiscal years 2011-2012 and 2012-2013, found the city's “administrative and internal accounting control deficiencies to be serious and pervasive; in effect, controls are non-existent.”

Among 19 findings, auditors highlighted as a possible criminal violation a street repair contract that the city nearly doubled without proper bidding to include the street of a council member who requested the work.

The former city manager told auditors he should not have approved it, but did so at the recommendation of the public works director out of a desire “to build team morale” and to placate the director, who had competed against him for the city manager's job.

Both the public works and finance directors, as well as the city manager, have since been replaced.

Auditors did not name the former council member who requested the street work, but identified Kings Crest Drive as the street added to the contract. Ex-Councilman Steve Herfert, who resigned in February after serving on the council since 1990, resides on that street. He did not respond to a call from The Times.

Auditors said the circumstances surrounding the contract could be a criminal misdemeanor under state contracting law.

In a statement to The Times, Yee said the prospect of any prosecution was unlikely because the law provides a one-year statute of limitations, leaving too short a window for auditing to catch abuses.

“It makes no sense that the statute of limitations for violating state and local contracting laws is one year from when the money is spent,” Yee said. “I urge the Legislature to consider a statutory change if we expect to ferret out fraud and prevent willful abuses of state law and taxpayer dollars.”

District attorney spokeswoman Jane Robison said prosecutors have not seen the state audit and do not have any complaints or ongoing investigations involving criminal conduct at West Covina City Hall.

In responding to the audit, city officials concurred with most of its findings and said new procedures were being put in place to set right the city of 106,000.

Mauk, the interim city manager, said the city's reserves have been depleted but that it is not facing insolvency.

“These are excellent audits,” Mauk said. “They give road maps to take further corrective actions that will be presented to the council in August.”

Yee began looking at the city shortly after the 2013 election when a new council majority, along with Assemblyman Roger Hernandez, requested an independent audit.

Without alleging embezzlement, the audit also said the city's lax procedures opened the door to potential theft by allowing the same clerk to post invoices and pay them.

“The clerk would be able to create fictitious vendors and to approve and make payments to them,” the audit said.

The auditors also harshly criticized former city managers and council members for more than $32,000 in questionable charges on city credit cards. The audit highlighted meal expenses of $1,079, $361 and $656 in 2013 for the city manager's dinner meetings with the City Council. Hotel bills included a $4,125 charge at the Renaissance Hotel in Indian Wells for the city manager and council members, with no explanation for the purpose of their stay. The city manager said the expense was for a conference.

The portrait of a city adrift emerged in an aborted deal between the city and a developer who planned to build a five-story commercial condominium office on a city-owned parcel. Opponents of the project sued, leading to a Superior Court decision that the city's offer to sell the land violated both the California Environmental Quality Act and the Surplus Land Act.

The city was assessed $145,000 in legal fees, and faced a $900,000 judgment to the developer for failing to perform on its contract.

The audit also said the city gave up almost $1 million in legal fees after a court assessed them against a former employee who unsuccessfully sued alleging harsh working conditions. The city agreed to waive the fees in exchange for an agreement that the former employee would not appeal.

Mayor Frederick Sykes said the reform campaign is just starting. “There was a culture of, ‘What is in it for me?'” Sykes said of those who previously ran City Hall. “We've got to ensure that doesn't happen again.”

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