Hawaiian Gardens Mayor Charges Fiscal Cover-Up

Mayor Kathleen M. Navejas, deluged with calls from residents who fear the city may be near bankruptcy, this week accused three past administrators of covering up the city’s financial woes over the past five years.

One day after The Times reported that spending for the past two years had outpaced general fund revenue by $1.78 million, Navejas and City Administrator Darwin G. Pichetto released a series of annual management reports dating back to 1982 in which auditors criticized the city’s accounting and bookkeeping procedures.

In releasing the reports Monday, Navejas said she hoped to show residents of this 1-square-mile city that the City Council did not bring on the current fiscal troubles by overspending.

The council has been struggling to draft a balanced budget for fiscal year 1988-89. The budget is two months overdue. Members are considering across-the-board cuts in city-sponsored programs and a potential wage freeze to bring proposed spending into line with the $3.1 million in expected revenue for this fiscal year.

‘We Are Bankrupt’

City Councilman Donald E. Schultze contends that Hawaiian Garden’s municipal coffers are so depleted that “we are bankrupt.”

Navejas charged that Arthur Harris, Douglas Dunlap and Charles E. Bryant--the former administrators who received the management reports--did not tell the City Council about the auditor’s yearly findings of sloppy accounting controls, poor staff training and unrecorded paying out of funds.

As a result, past councils approved a variety of expensive programs without realizing that city funds were dangerously low, Navejas said.

“We never saw” the reports written by the city’s former auditor, the Los Angeles-based firm of Frazer & Torbet, Navejas said. “They didn’t let (the council) know how bad things were. We didn’t even know they (the reports) existed.”

Agreed With Charge

However, Schultze and former Councilman Richard Vineyard said that although the management reports were not formally submitted to the council, all members were aware of their existence.

“I saw (the reports) before,” Vineyard said. “I’ve been aware of our situation for a number of years.”

Bryant, who resigned as administrator in December after disagreements with Navejas and other council members, said he did not withhold the reports from the council. He confirmed, however, that he did not offer them to council members for study.

“Those reports are meant to be for the eyes of the administrator,” said Bryant, now a private financial consultant. “They could be shown to the council, but they don’t have to be shared.”

Dunlap and Harris could not be reached for comment.

Sought Reports

When Pichetto became redevelopment director last September, he searched for the management reports but could not find them in city files. So, along with Navejas and then Mayor Rosalie M. Sher, he requested and obtained copies from the auditors. Pichetto became city administrator in June.

Navejas said that the reports were not released until this week because city officials heeded a standard warning that the auditors wrote at the end of each report: “This letter is intended solely for the information of the city’s management, (and) it is not to be referred to or presented to anyone outside the city because of the possibility of misunderstanding by other persons.”

But Navejas decided to “come out with this” in the hope that the reports will “explain the problems we’ve been having.”

The auditing firm does not direct the administrators to withhold information from council members. “I was surprised they were not available” for the council’s review, Pichetto said.

Among other things, the reports state that at times, cash receipts and disbursements were not properly documented, employees’ pay increases were not supported by signed authorizations and the Redevelopment Agency’s bank account had not been balanced for the fiscal year ending June, 30, 1986.

The reports also suggest that the city’s financial dilemma is not new. In 1983, for instance, the auditor urged that $472,786 in Redevelopment Agency funds be transferred to the general fund to cover “the current deficit,” according to a report dated Nov. 17, 1983.

“We are dealing with a problem that has been covered up for a long time,” Navejas said.

Bryant, in a telephone interview from San Francisco, said that he feared Navejas would eventually release the documents, ignoring the warning that they might be misconstrued. Acknowledging the financial problems outlined in the reports, Bryant said the comments in the reports were meant to be taken as “positive criticism.”

Special Audit

Partly because of the management reports, Pichetto recently requested a special audit of the city’s financial statements. The resulting financial review showed that last year the city tapped its general fund for $982,110 more than it received in revenue, Pichetto reported late last week. The year before, spending had exceeded revenue by $806,297.

Pichetto has called for a review of financial statements for the past 10 years “to find out why the city has been operating on a yearly shortfall.”

As a result of of overspending, the city’s reserve fund, which two years ago was reported to be $1.2 million, now has $340,000, Pichetto said.

But Schultze said that the most recent statement from the Local Agency Investment Fund, which handles the city’s accounts, shows that the general fund is depleted, with the only money left already allocated for special projects.

Pichetto declined to say how much of the $340,000 is earmarked for special projects and therefore not available for general city expenses. But he said that the city is “on a firm footing,” and should resolve its current budgetary problems by next week.

“This will be a new beginning for the city,” said Pichetto. “When the budget is completed, this work will not be ended, our work has just begun.” Pichetto, along with financial consultant Dudley Lang, has drafted new accounting guidelines that include strict spending limits until the city’s reserve fund is replenished.

“I’ll begin to feel comfortable when we have at least $500,000,” Pichetto said.

Meanwhile, the City Council is expected to complete its preliminary budget deliberations by early next week. The final draft will then be debated in a public hearing before the council votes on approval.

Cut Expenditures

On Monday, the council managed to reduce proposed expenditures to within about $200,000 of a balanced budget.

The council trimmed various projects from the Public Works Department, including suspending all sidewalk maintenance.

About $4.4-million of initial spending proposals were also reduced by shifting some projects and salaries to the wealthier Redevelopment Agency, which has $2 million in reserve.

The council decided not to give up the Skyknight helicopter surveillance service provided by the Los Angeles County Sheriff’s Department.

But it is considering no longer paying the Sheriff’s Department to have a deputy patrol the city exclusively around the clock--instead, the deputy would patrol eight hours a day.

Next week, the council is expected to tackle the politically sensitive task of cutting expenditures from the popular Recreation Department.

Although no layoffs are anticipated, the council is expected to put a freeze on the hiring of employees.