City Audit Critical of Treasurer

The city of Los Angeles has overdrawn its accounts twice, totaling $109 million, in recent years and appears to have lost $7.9 million in potential interest earnings by keeping too much cash out of long-term investments, according to an audit by the city controller Friday that blamed management problems in the city treasurer’s office.

City Controller Laura Chick said significant changes are needed to address communication breakdowns and inadequate staffing in the office, which manages $50 billion in cash receipts and disbursements annually, as well as a $5-billion investment portfolio of city funds.

“The problems in the treasurer’s office have been created and exacerbated by politics, policy and personalities,” Chick said, noting that a hiring freeze imposed by the City Council has kept the office from adding the accounting staff needed to manage that much money.

Mayor Antonio Villaraigosa asked the treasurer’s office to provide him with a plan in 30 days that responds to the audit, spokesman Joe Ramallo said.

Treasurer Joya De Foor, who took over the office in 2001, did not return calls for comment, and a representative referred calls to the mayor’s office, to which De Foor reports.

The audit, conducted with the help of private accounting firm blueConsulting Inc., found that inaccurate information from other departments caused the city treasury to be overdrawn twice in the last three years, by $52 million and $57 million. In each case, the treasurer made large and unexpected disbursements.

Rob Wilcox, a controller’s office spokesman, said he was not aware of any penalties incurred for being overdrawn.

The audit also found that during the last two years the treasurer maintained an average daily balance of $998 million in the “core portfolio,” a low-interest liquid account used to cover six months’ worth of bills. That amount is $498 million more than the minimum balance required by city policy.

The treasurer told auditors that maintaining excess money in the core portfolio, rather than placing it in a longer-term, higher interest account, may have benefited the city because of rising interest rates.

“However, based on a comparison of total returns and effective yields -- at market -- of the two portfolios, we believe the treasurer could have earned a significant amount of interest income from reallocating excess funds from the core to the reserve portfolio,” the audit concluded, estimating the lost potential interest earnings at $7.9 million.

Overall, Chick said the treasurer last year earned $154.5 million on about $5 billion in its investment portfolio.

The treasurer’s office has been in a critical spotlight before.

The office was the focus of scandal in 1989 after reports surfaced that then-Treasurer Leonard Rittenberg ordered that $2 million in city tax funds be deposited in Far East National Bank after calls from then-Mayor Tom Bradley on behalf of the bank, which had employed the mayor as an advisor.

Chick said Friday that weak management of the office after Rittenberg left resulted in a failure to keep up with staffing and technology advances.

The controller said the problems were complicated by the treasurer’s “demanding” management style, which was cited by auditors as causing tension in the office and contributing to low morale and an employee turnover rate of 57% since 2003.