California controller seeks more power, staff to examine city finances

State auditors say they have received dozens of reports suggesting that the kind of mismanagement and fraud found in Bell may be occurring elsewhere in the state and that they want new authority to launch investigations into possible wrongdoing.

State Controller John Chiang is in discussions with Gov. Jerry Brown to give Chiang’s office added legal tools and more staff to dig into the finances of cities and other municipal agencies, officials said at a legislative hearing Tuesday.

Walter Barnes, chief of special projects for the controller’s office, said his staff has received more than 50 tips about potential financial irregularities and other alleged misconduct in cities, counties and special districts. The tips suggest that “Bell may not be entirely unique,” Barnes said.

Some of the reports suggested criminal actions that are best handled by local prosecutors, Barnes said. But in other cases, he added, the controller wants to probe allegations that public funds have been misspent.

“These are ones where it looks like a county or a city has done something that violates state law,” Barnes said. “We are taking it seriously.”

Having the controller regularly launch audits of municipal books would create a new layer of oversight for cities. The controller’s office can currently perform audits to look at misspending of state or federal funds but has very limited authority to examine how cities spend their own money.

Cities are required to have outside auditors review their books. But with Bell, the firm that performed its audits acted as a “rubber-stamp” and missed warning signs that could have uncovered the city’s problems, Chiang’s investigators reported last month. Similar criticism has been leveled at the outside auditors in other scandal-tainted cities.

Chiang was able to conduct audits of Bell’s finances — disclosing numerous illegalities — only because city officials invited him in after widespread public outrage erupted at the enormous salaries of officials there.

Chiang’s review of Bell’s financial records concluded that the city had charged property owners and businesses more than $6 million in improper taxes and fees and had placed $23.5 million in bond funds in a checking account that paid no interest, costing the city about $1.7 million in potential earnings, for reasons that remain undetermined. L.A. County prosecutors last year charged eight current and former Bell officials with public corruption.

Chiang’s office is looking at possible audits of two or three local government agencies, Barnes said.

Barnes did not name them, but several governments have been under scrutiny amid the Bell scandal. Two of Bell’s neighbors, Maywood and Vernon, are subjects of investigations. The state attorney general is examining hefty compensation given to top Vernon officials, including nearly $1.6 million paid to former City Administrator Eric Fresch. Federal and state investigators are looking into public corruption allegations in Maywood.

Officials from the controller’s office said they have also reviewed financial records of Modoc County in Northern California, finding that officials there improperly used money restricted to schools for other purposes. The controller also concluded that an internal audit by the county had failed to find the financial problems.

In addition to seeking authority to look at spending of local funds, Chiang has been talking to Brown about getting more staff for his office. The controller each year receives about 2,000 reports from cities and other agencies detailing aspects of their spending and, with only three auditors to review them, has a backlog of six months to a year, officials said.

Evan Westrup, a spokesman for the governor, said Brown was reviewing Chiang’s request.

State lawmakers, many of whom have served in local government, expressed support for having the controller review the books of other cities.

“The most telling statement that you made here today is that there are more Bells out there, and I have no doubt about that,” said Assemblyman Steven Bradford (D-Gardena). He said 13 years in local government had convinced him that there are other cities where managers or councils are “asleep at the wheel,” allowing abuses to take place.

“What happened in Bell led to an enormous erosion in the public’s confidence in government,’” added Assemblyman Ben Hueso (D-Logan Heights).

Some cities have given too much power to city managers, said Assemblyman Chris Norby (R-Fullerton), a former councilman and member of the Orange County Board of Supervisors.

“The problem is it isolates power in the form of one person, who is, after, all a human being,” Norby said.

In Bell the center of the scandal was former City Administrator Robert Rizzo, who was set to earn more than $1.5 million in salary and benefits in 2010.

Pedro Carrillo, who was brought in as an interim city administrator for Bell after the scandal broke, told the lawmakers that his office had taken steps to address many of the financial problems identified by Chiang’s office in four separate audits.

patrick.mcgreevy@latimes.com