Council Orders Reforms by City Treasurer : Procedures Tightened but No Outside Audit Planned

In the wake of dramatic revelations about practices in the city treasurer’s office, the Los Angeles City Council on Wednesday adopted a series of reforms to tighten procedures and increase oversight of the office responsible for investing $2 billion of the taxpayers’ money.

The council, after disclosures last month about a treasurer’s office attempt to cover up the circumstances under which a bank that paid Mayor Tom Bradley as an adviser got $2 million in city deposits, ordered Treasurer Leonard Rittenberg to establish clear, written procedures.

Meanwhile, a special council committee overseeing the city attorney’s investigation into possible conflicts of interest in the mayor’s financial dealings was told it had no authority to hire an outside prosecutor for the inquiry. Deputy City Atty. Anthony Alperin and Chief Legislative Analyst William McCarley on Wednesday told the Ad Hoc Committee on Governmental Ethics that the City Charter bars the council from hiring outside counsel without the city attorney’s permission and puts most disciplinary duties solely with the mayor.

City Atty. James K. Hahn has said he would not approve hiring a special counsel. Faced with limited alternatives, the council committee decided to proceed with a proposal to hire consultants to review Hahn’s work when his investigation is completed next month.

As for the treasurer’s office, the council moved quickly to make changes.

Complaining that the treasurer’s office has “been making up the rules as they went along,” Councilman Zev Yaroslavsky said the office’s practice of having unwritten policies and not following them “is a formula for corruption.” The council voted to have the city administrative office oversee the treasurer’s office for the next six months. But it stopped short of bringing in a private auditor as proposed shortly after four days of dramatic hearings revealed details about a “whited-out” reference to the mayor and rigged “bid sheets” for the deposits in March that went to Far East National Bank.

Variety of Reforms

Among the reforms ordered by the council are:

* Detailed procedures for the treasurer for taking competitive bids and awarding deposits;

* Submission of detailed policies, subject to council approval, for minority-owned businesses;

* City administrative office review of all investments for at least six months to ensure that procedures are being strictly followed.

Yaroslavsky said the city administrative office would act as the “eyes and ears” of the council during the six-month monitoring period. “We want somebody who will see that things we are asking you to do get done,” Yaroslavsky told Rittenberg.

Effect on Investments

Rittenberg responded that, while he agreed in spirit with the reforms, he worried that too much oversight and overly strict regulation could diminish the increasing returns he has been earning on the city’s huge investment portfolio.

“I don’t know what eyes and ears will do except slow us down,” Rittenberg said. “The performance of the treasurer’s office has improved dramatically since February. . . . The more eyes and ears we have is going to limit that.”

Yaroslavsky shot back: “It would have been a good idea to have somebody in there last March 22 to slow you down a bit.” That was the date Rittenberg ordered the $2 million deposited in Far East after getting an inquiry from Bradley. The treasurer’s office then attempted to cover up the fact that no competitive bids were taken.

‘We wouldn’t be sitting here today” if that incident had not occurred, Yaroslavsky said.

Bradley was paid $18,000 as an adviser to Far East during all of 1988. He has said he did not realize during that time that the bank did business with the city and learned about it only in March of this year, when bank Chairman Henry Hwang called him. The mayor has said that his March 22 inquiry to Rittenberg was to determine whether the city had a relationship with the bank and was not meant to pressure Rittenberg. Bradley returned the advisory fee.

Recommendations on Hold

Also Wednesday, the city Personnel Department told the council that it will delay making any recommendations on disciplinary actions for the treasurer’s office staff until the city attorney and the Police Department complete their investigations into Bradley’s possible conflicts of interest in this and other financial dealings.

In the council hearing last month, it was revealed that someone on the treasurer’s staff attempted to cover up with correction ink a notation on the deposit in Far East that read “per the mayor.”

After a critical report by the city administrative office was released before the hearings last month, the mayor asked the Personnel Department to recommend any disciplinary actions it deemed appropriate.

John Driscoll, general manager of the city Personnel Department, said Wednesday that the outcome of the investigations could “influence dramatically any recommendation we make” on how to discipline the treasurer’s office staff.

Councilwoman Joan Milke Flores argued that there is already sufficient evidence of problems in the treasurer’s office and in Rittenberg’s management to justify some personnel changes.

But the majority of the council appeared to favor leaving things as they are for now.

Call for Outside Audit

Earlier, Councilman Richard Alatorre had recommended hiring a private accounting firm to oversee the treasurer’s office. But council members Nate Holden and Gloria Molina objected to that as a waste of taxpayer money and an abdication of the city’s responsibility to police its own affairs.

City Administrative Officer Keith B. Comrie said that his office could conduct the routine auditing but noted that there might be “higher public confidence in” an outside firm.

After a two-hour debate, the council agreed to leave the matter in the city administrative officer’s hands for now. Only Councilman Ernani Bernardi dissented in the 11-1 vote on this and other reforms.

The investment guidelines require that all bids be recorded in writing and time-stamped before deposits are made, that at least three bids be taken, that equal treatment be given in selecting banks that are invited to bid on city funds and that the eligibility of banks to receive city funds be reviewed annually.

Additionally, the council ordered the treasurer to prepare a study on the benefits and drawbacks of competitive bidding versus negotiated bidding for deposits and to recommend appropriate changes.