Orange Calls for Audit of Policies on Investments : Finance: The City Council, in the wake of the Steven D. Wymer fraud scandal, has rejected a proposal to invest more in low-risk funds.

Responding to the $7-million investment fraud scandal that has shocked the city, the City Council has authorized a detailed audit of the city’s treasury and investment policies and balked at increasing even supposedly safe investments until the audit is complete.

City officials say they hope the review will help spot and repair holes in the city’s money management system while authorities try to unravel the misappropriation scheme allegedly masterminded by Steven D. Wymer of Newport Beach. The audit is expected to cost about $29,000 and take about a month.

The accounting firm of KPMG Peat Marwick and the law firm of Phillips, Hagland, Haddan & Jeffers, the city’s special counsel, will perform the audit.

Councilwoman Joanne Coontz also recommended that the auditors examine the roles of the city’s treasurer and financial director. Coontz said that in light of the Wymer case, both officials and residents need to know who controls the city’s money and investments and who to hold accountable for problems.

The public wants “somebody to blame, and the tendency of everyone is to say they have nothing to do with it,” Coontz said. The city needs to identify the “line of responsibility clearly so everybody knows,” she said.

Wymer, who invested money for many cities including Orange, was charged by the Securities and Exchange Commission in December with swindling dozens of them of at least $113 million.

A federal judge froze Wymer’s assets in December, and authorities discovered that only $4,032 remained of Orange’s $7.1-million investments. The discovery has prompted several Orange County cities, such as Orange, to re-examine their investments and security systems.

After authorizing the audit, the City Council rejected a recommendation from the Finance Department to increase city investments in two low-risk government-run funds: the state-run California Local Agency Investment Fund and the Orange County Investment Fund. Instead, the council approved Coontz’s recommendation to postpone all investments until the audit is done.

Finance Director Ted L. Schoettger told the council that investment limits for the funds had been increased, and the city could increase its total investment in them from about $30 million to about $44 million.

Schoettger advised the council that the investments would yield a high interest and that the funds were among “the safest” possible, but he warned that committing $44 million of the city’s $114-million portfolio to just two funds might be “putting too many eggs in one basket.”

“I don’t think there can ever be an ultimate safeguard against fraud, but I’d feel a lot better if I know that the state treasurer didn’t have someone like Steven Wymer making investments,” Councilman William G. Steiner said.

“I want to be sure we’re not setting ourselves up again for another tremendous fall. I’d rather give up additional yield than have any further risk to our investments.”