Audit Alleges Cover-Up on City Deposits

City Treasurer Leonard Rittenberg placed $2 million of public funds in a bank that employed Mayor Tom Bradley as an adviser and then sought to cover up the fact that the deposit decision had been made without a mandated competitive bidding procedure, according to a city audit released Thursday.

The audit found that Rittenberg’s office created--”after the fact”--a document that showed a number of banks purportedly vying for the deposits but offering a rate of return below that of Far East National Bank. One bank official, identified in the document as a bidder, told auditors that he was on medical leave at the time.

City Requirement

Rittenberg, according to the audit, had also informed the City Council that the deposit had been bid upon, a city requirement intended to avoid preferential treatment and ensure that taxpayers are not cheated.

Conducted by the city administrative office, the audit also revealed that the treasurer’s office violated competitive bidding procedures in depositing hundreds of millions of dollars in several other banks. The majority of the deposits were directed to Gibraltar Savings and Loan after Bradley personally invested $100,000 in the ailing thrift through bonds that were unavailable to the general public.

Other institutions, according to the audit, were not afforded similar preferential treatment.

Rittenberg, 57, who was appointed by Bradley to the politically obscure, non-elective post two years ago, could not be reached for comment.

Rittenberg serves at the mayor’s pleasure. But he could appeal any disciplinary action undertaken against him, including dismissal from his $83,415-a-year post, to the Civil Service Commission.

The audit of the treasurer’s office is an outgrowth of a scandal involving Bradley’s personal finances and investments that has enveloped the mayor and his Administration this year. The audit was ordered by a City Council committee after revelations that Bradley received $18,000 as an adviser to Far East at a time when it was doing business with the city.

Bradley, who has refunded the money, has said that he did not know the city was doing business with Far East when he took the job--a contention that has been apparently contradicted by public documents.

The audit report does not address one of the central questions hanging over the fifth-term mayor: Did he use his official clout to steer business to the bank, which admittedly hired him for his influence and stature?

Wrongdoing Denied

Rittenberg has denied being influenced by Bradley, and the mayor has denied any wrongdoing.

The $2 million was placed with Far East on the same day that Bradley called the treasurer to inquire about deposits with the bank, whose president had earlier informed the mayor that he would like more business from the city.

City Administrative Officer Keith Comrie said in an interview that his auditors did not turn up any evidence in their study that linked the mayor to the treasurer’s alleged cover-up. He said his staff was unable to determine the motivation for the conduct of Rittenberg and two subordinates.

“It’s hard to figure out why they would do that,” Comrie said, adding that his staff had been provided with insufficient answers. “They are going to have to answer a lot of questions.”

In his report, Comrie said: “We found that on March 22, 1989, two $1-million time deposits were placed with Far East National Bank without competitive bid as required by written policy. Bids from other banks contacted after-the-fact create a false impression that Far East won as a result of competitive bid. Despite knowing this had occurred, the treasurer later certified to the City Council that all investment activities for that month were in accordance with the competitive process.”

After Comrie’s audit report was released Thursday afternoon, Bradley sent a letter to City Atty. James K. Hahn and personnel chief John J. Driscoll asking them to investigate whether the “irregularities” discovered by the auditors “constitute violations of city rules . . . or state laws.”

Upset by Report

Although the mayor was unavailable for comment, a senior aide remarked that the report “blew me right out of the water.”

City Councilman Zev Yaroslavsky, chairman of the powerful Finance and Revenue Committee, which oversees the treasurer’s operations and ordered the review, said:

“This fundamentally brings into question the credibility and integrity of the treasurer and his office. . . . I’m personally very disillusioned by the discrepancies between what the treasurer told the the council and what is in this report. . . . My confidence in the treasurer’s office is fundamentally shattered.”

Yaroslavsky said he will summon Rittenberg and his senior aides before his committee to answer the audit charges. He said the evidence in the report “suggests bid rigging.”

Said the councilman: “I don’t see how the status quo can be maintained for another day. This situation cannot be allowed to continue.”

City Council President John Ferraro joined Yaroslavsky in calling for immediate hearings.

“You would think these were professional people running (the treasurer’s) operation,” Ferraro said. “But it looks like it was being run like a candy store . . . they had good policies, they just didn’t adhere to them.”

It was unclear Thursday whether any of the audit findings represent possible criminal conduct. Comrie said the information that his staff uncovered has been provided to the Los Angeles Police Department and the city attorney’s office, both of which are conducting investigations into the allegations surrounding the mayor’s personal financial dealings.

City attorney spokesman Mike Qualls said Thursday that the audit contains “indications of questionable practices that may have personnel policy implications (but) that may not rise to violations of law.”

Qualls, however, did not rule out the possibility of more serious action.

The auditors reported that the treasurer’s effort to create the impression that bids had been solicited on Far East deposits was uncovered during calls to the banks listed on the document.

According to Ed Corser, who supervised the audit, one bank official said that he had been on sick leave at the time; others said that they had not bid on government deposits at that time. When confronted by auditors with this information, Rittenberg and a subordinate acknowledged that a decision to place the deposits with Far East had been without competitive bids.

Corser said the two men offered what he described as “implausible and contradictory” explanations.

The audit report also revealed a number of allegedly irregular practices involving deposits in other financial institutions, particularly Gibraltar Savings and Loan. Contrary to city policy, the report asserted, these lenders in some cases were told what competitors had bid.

“I was frequently told the high bid,” the audit quoted a Gibraltar official as telling investigators. The thrift official told the auditors that he was informed that the deposits would go to Gibraltar if he could top the current high bid by a specified percentage.

The city employee responsible for placing the deposits denied ever engaging in this practice, according to the report.

Comrie noted in the report: “Selective negotiation of bids, especially when contrary to announced policy, create an environment for possible manipulation and preferential treatment. This, of course, is not fair to all the bidders and can cost the city money. . . .”

City auditors also said they were made suspicious when it was discovered that six bid sheets involving Gibraltar deposits had been altered with white ink commonly used to blot out and correct typing mistakes. Significantly, the report noted, the so-called white-out in some cases had allowed for Gibraltar’s bid to be lowered, but not so much that it lost out in the competition to be the highest entry.

Comrie said the employee who made the alterations attributed it to “sloppiness.”

However, the audit report stated, “The treasurer has told us that errors should be lined-out to show what was changed and for what reason.”

Times staff writer Tracy Wood contributed to this story.