Discovery of $43 million prompts city oversight of ‘special funds’

Following the discovery of nearly $43 million that accumulated unnoticed for 17 years in a Transportation Department account, Los Angeles City Councilman Paul Krekorian called Tuesday for more transparency for other so-called special funds that he said could have similar issues.

At Krekorian’s urging, the city’s budget office is compiling a list of the city’s hundreds of special funds, along with the purpose and cash balance of each. His other motions, which include asking the city controller to release an annual report on such funds, will fundamentally change the way the accounts are managed and examined, officials said.

“I don’t want to give the impression that … there may anywhere near the types of funds found at DOT,” Krekorian said at a Budget and Finance Committee meeting. But, he said, it’s important to have a system to “track these dollars.”

City departments use the funds to keep grants from mixing with other city money. In theory, the city allocates money to an account so a department has cash to start a project. Once the grant arrives, the department reimburses the city.

But from 1995 to 2011, including during years when there were cuts to basic services, the city was reimbursed from the transportation grant fund only twice, according to a council memo. The overlooked $42.6 million has now been included in next year’s budget.

An additional $43.4 million found in the Transportation Department fund will go back to an account for Proposition C, a half-cent sales tax for transportation projects in Los Angeles County.

The City Council does not currently have access to any information about the special funds, Krekorian said. Responsibility for maintaining the account and making sure the city is reimbursed lies with an individual department, City Administrative Officer Miguel Santana said.

Other funds that would warrant an examination include funds for street services; cultural affairs; and the library, recreation and parks fund, Santana said Tuesday.

When the administrative office wants information about a special fund, it goes through the controller’s office, Santana said. He added that departments can access only their own data.

Controller Wendy Greuel, who is running for mayor, said her office is auditing about 600 special funds but had not yet looked at the transportation grant fund. She now plans to put the audit “on the front burner,” a campaign spokeswoman said.

[Updated 2:12 p.m. PDT May 15: “To suggest that the council does not have access to this information about the Special Funds is to suggest that the CAO does not keep them informed,” Greuel spokeswoman Shannon Murphy said in an email Tuesday. She said Greuel had repeatedly called on departments to ensure they were properly processing reimbursements.]

A city department official familiar with the special funds said listing each amount and purpose is a start, but won’t necessarily reveal anything out of the ordinary.

The Transportation Department discovery required a forensic-level analysis, a council memo said, including a manual examination of 11,000 transactions made over 17 years.

Councilman Mitch Englander asked the Transportation Department to report next month on how $42.6 million accumulated without anyone noticing.

Santana has said the department’s failure to see the nearly $43 million seemed to be the result of inadequate technology and — after auditors took early retirement during budget cuts — a lack of institutional knowledge.

[For the Record, 2:12 p.m. PDT May 15: An earlier version of this online post stated the controller’s office was partially responsible for maintenance of and reimbursements from special funds. While the controller’s office can audit the funds, maintenance is at the department level.]

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