Audit reveals Vernon’s ugly finances, but key player is missing

Throughout their 10-month investigation of the city of Vernon, state auditors were unable to speak with one of the people they believed knew the most about the city’s financial woes: former administrator Eric T. Fresch.

Fresch was widely viewed as the most powerful decision-maker in the city’s government and made as much as $1.6 million. But he managed to avoid a subpoena issued as part of the state’s investigation, state auditor Elaine Howle said. Attorneys for the auditor’s office contacted him repeatedly, and a process server was hired to try to track him down at his home and offices.

But Fresch could not be found.

“I have been state auditor for 12 years, and I have never experienced something like this before,” Howle said. “From our perspective, it’s very suspicious. It’s frustrating for us.... He was someone we really needed to talk to in order to do our job.”

The report, which was released Thursday, painted a dire picture of Vernon’s finances and sharply criticized the city’s contracting and investment decisions during Fresch’s tenure. In some cases, the city could produce no evidence it had conducted a risk assessment of the investments in question, the auditors said.

State Sen. Kevin de Leon (D-Los Angeles), who has been leading an ongoing government reform effort in Vernon and who requested the audit last year, called for prosecutors to investigate Fresch’s dealings in Vernon in a statement released to The Times.

“In light of Mr. Fresch’s evasive behavior, non-reporting, and the lack of clear record-keeping detailing his activities surrounding these major financial dealings, I am going to request that the Los Angeles district attorney conduct a criminal investigation to determine what truly transpired,” De Leon said.

Fresch did not return a message left on his cellphone Thursday.

The audit also addressed the recent reform efforts Vernon launched in response to a disincorporation bill in the state Legislature last year. Vernon has failed to develop policies to implement some of the proposals, the report said, and other measures — like increasing the city’s residential population — still appear to be years away.

Vernon issued a strongly worded response to the report, saying it contained “serious factual errors and mischaracterizations.” The city also challenged the auditor’s suggestion its staff was uncooperative, and said the decision to issue a subpoena was “political and divorced from the facts.”

“The behavior of the auditors has, in fact, often bordered on harassment,” wrote David Schindler, an attorney from the law firm Latham & Watkins LLP, which has represented the city extensively in recent years.

Fred MacFarlane, a spokesman for the city, said the auditor had plenty of time and access to conduct interviews in Vernon, and that it was “not the city’s fault” a meeting with Fresch never occurred.

Fresch, an energy finance lawyer, began advising Vernon as an outside attorney in the 1980s and in 2003 became city attorney. He was the city administrator from 2006 to 2009 and moved into a consultant role in 2009.

As the top executive in Vernon’s government, Fresch commuted to work from his home in the Bay Area, rode in limos and stayed in luxury hotels such as the Ritz Carlton, all on the city’s dime. In 2008, he billed the city for 363 days of work, averaging about 83 hours a week, The Times reported in a 2010 profile.

The audit specifically called into question a contract between the city and Fresch’s law firm, which was one of many city agreements that had no cap on total expenditures. It also noted that Vernon had paid “legally questionable” retirement benefits to some staff members who were classified as safety employees, a designation typically reserved for police and firefighters. Fresch was one of the staffers with such a classification.

But Howle said her staff was most interested in Fresch’s role in several key deals at Vernon’s power utility, including a $400-million natural gas hedge that has proved disastrous for the city. Even Vernon’s own financial advisors pointed to Fresch as the integral city leader in those decisions, Howle said.

She also said the presence of Latham & Watkins made the investigation more difficult, as attorneys sat in on nearly all of the interviews conducted. According to the report, Vernon has paid the firm more than $20 million over the last five years.

sam.allen@latimes.com