Council Spreads the Blame : Members Frustrated Over Irregularities in Investment Practices

A day after backing off from a leading role in the investigation of Mayor Tom Bradley, Los Angeles City Council members Wednesday showed no reluctance to point fingers at the city treasurer, other officials and themselves for not correcting irregularities in city investment practices identified three years ago.

In an unusually testy session, frustrated council members variously blamed City Treasurer Leonard Rittenberg, City Controller Rick Tuttle and city administrative office auditors for not following through on a 1986 audit that warned of inadequate procedures and shoddy record-keeping in the treasurer’s office.

“Why hasn’t anybody around here been doing the job?” fumed Councilman Joel Wachs.

‘Get Act Together’

“This city has to get its act together and monitor all its departments and agencies,” said Councilwoman Gloria Molina.

Some of the treasurer’s office problems highlighted in the 1986 audit, including failing to document competitive bidding on city investments, were not corrected, officials acknowledged Wednesday. And those practices now figure prominently in the ongoing probe of Bradley’s business dealings.

Recent revelations that the treasurer’s office ignored its own investment policies, invested city funds without competitive bids and bungled attempts to cover-up questionable activities have added to the intrigue over Bradley’s personal business dealings.

Central to the investigation is whether the mayor’s role as a paid adviser to Far East National Bank helped the bank get city deposits, some without competitive bids. Bradley and Treasurer Rittenberg have denied doing anything improper.

The 3-year-old audit by the city administrative office found the treasurer’s unit had no written procedures for documenting investments and that key competitive bid information was missing. “On one occasion, when we inquired about the absence of the bid sheets to support (investments),” the audit said, “the investment officer explained that when his unit is very busy, he and his staff may not have time to either retain the slips showing quotations or to fill out the bid sheet.”

Strong Recommedation

The auditors “strongly” recommended that “written evidence be retained for all investment decisions (because) compliance with procedures must be assured.” The auditors called for new written procedures and expanded annual audits by the city controller’s office to ensure compliance and proper documentation.

However, it took the City Council more than a year to approve the recommendations and the city treasurer several months more to write new procedures. The city controller still has not completed his first audit to ensure compliance with the procedures.

Council members Molina and Nate Holden attacked the chief administrative office, saying it had not followed through to ensure the recommendations were implemented. “The watchdog is really not watching,” Molina said.

Wachs expressed disbelief that the city controller had not completed his audit. “The CAO better look at the controller to find out why it is taking him three years,” he said.

Point to Treasurer

But Councilman Zev Yaroslavsky and C. Edward Corser, the CAO’s chief of management audits, said the primary responsibility for following up on council-approved recommendations, rested with treasurer Rittenberg.

In this case, at least, no one seemed to be blaming the mayor for not following up on the audit recommendations and Deputy Mayor Michael Gage gladly pointed out the responsibility rested with the city controller and the council.

A spokesman for Rittenberg declined to comment. City Controller Tuttle has said his office has been working on the follow-up audit for 13 months and it will be completed in a month. He said he could not begin the audit until June, 1988, but did not explain why it has taken more than a year to complete.

Councilwoman Joan Milke Flores noted that the council itself did not move swiftly in approving a corrective plan. “None of us have clean hands in this,” she said.

Bank Transaction

Among the recent revelations, treasurer officials shed new light on a Far East bank transaction that occurred while Bradley was serving as the bank’s only paid adviser. Three months after Bradley joined Far East’s advisory committee, a $1-million certificate of deposit was placed with the bank on March 21, 1988, even though another institution, Gibraltar Savings & Loan, submitted a bid to pay the city more interest. Far East paid 7% interest, while Gibraltar’s bid was 7.1%.

In addition, officials approved the unusual use of municipal bonds as collateral for the deposit, according to testimony before the council’s Finance and Revenue Committee. Handwritten on the sheet of paper used to record bids from various financial institutions was the notation, “Leonard and Bill say that is O.K.”

The notation apparently indicated that Rittenberg and chief investment officer William T. Hoss had approved the matter. Hoss left on vacation before the committee hearings ended and has indicated he will retire within the next few weeks after 38 years with the city.

Another treasurer’s office employee, George W. Sehlmeyer, testified that Hoss later urged him to alter the 1988 bid sheet. Sehlmeyer said Hoss wanted him to write an explanation on the sheet saying Gibraltar did not get the deposit because it had “no collateral” to back up the transaction. Sehlmeyer said he refused.

Sehlmeyer also has accused Hoss of instigating a 1989 cover-up within the treasurer’s office to obliterate the words “per the mayor” from a bid sheet and to change a document to show that the $2 million in deposits had been made through competitive bidding when, in fact, they had not.