California seeks discipline for Bell’s auditing firm

The state filed disciplinary proceedings Thursday against a prominent accounting firm that failed to detect any financial irregularities in Bell, where former city leaders now stand accused of looting the town’s treasury as it teetered on the edge of bankruptcy

Mayer Hoffman McCann, which audited the books for dozens of cities in California, could be fined $1 million and lose its license to practice in the state. The firm has asked for a hearing before an administrative law judge.

The accusation by the Board of Accountancy follows a December report from the state controller that excoriated Mayer Hoffman’s work in Bell, calling its audits little more than a “rubber-stamp.” The auditing firm repeatedly gave a clean bill of fiscal health to Bell, where eight former city leaders now face public corruption charges.

Lauren Hersh, spokeswoman for the board, said individual auditors could also be disciplined, but that would have to occur under a separate accusation

The 13-page accusation charges the firm with repeated instances of negligence and lack of documentation for the year ending June 30, 2009, the year the board chose to examine.

“Obviously, we hope this is the next and final step in resolving the Bell matter,” said Joe Crivelli, a spokeswoman for Mayer Hoffman. “The firm is working really hard to make sure what happened in Bell doesn’t happen again.”

The accusation could provide Bell ammunition if it moves forward with a lawsuit against the auditing firm.

“People have been quick to blame the residents for the deep-rooted corruption, but the reality is that the agencies in place to prevent corruption, like this audit firm, continually ignored red flags,” Bell Mayor Ali Saleh said. “These agencies should not only share the responsibility but the financial burden as well.”

When his office released its report, Controller John Chiang said that if Mayer Hoffman had followed fieldwork auditing standards, “it would have led them to identify some — if not all — of the problems.”

Following published reports in The Times, the controller found that Bell had overcharged residents and businesses more than $6 million in taxes and fees and that city officials had placed $23.5 million in bond funds in a non-interest-bearing checking account. Those were among the problems auditors could have caught, experts have said.

As a result of scandals in Bell and other cities, Chiang and Assemblyman Richardo Lara (D-Bell Gardens) have sponsored a bill strengthening the audit process. The bill passed the Assembly and is before the Senate Governance and Finance Committee.

A Times review found that many cities plagued by public corruption or mismanagement, such as San Diego, Compton and South Gate, received clean audits, even in cases in which public officials were later sent to prison. And about one-fourth of the state’s municipal redevelopment agencies fail to file annual reports, as the law requires.

jeff.gottlieb@latimes.com