Orange County’s Financial Crisis

The Times report (Dec. 17) on the 1993 work of KPMG Peat Marwick LLP for Orange County suggests that failures in financial statement disclosure and financial controls occurred and contributed to the county’s bankruptcy. That is false. What got Orange County into trouble was its investments, not its accounting. In a nutshell, an external financial statement audit does not include giving investment advice or evaluating investment decisions.

Let’s remember the essential facts: An elected official over several years pursued a legal but aggressive and leveraged investment strategy. That strategy produced substantial gains. In recent months, the county’s approach--even more aggressive and more highly leveraged, according to published reports--produced substantial losses.

In 1992, KPMG Peat Marwick was retained to audit the county’s financial statements. Our audit shows that the 1993 financial statements were fairly presented and in accordance with government accounting principles.

Your article asks, implicitly, “How could this be?”

Typically conducted once per year, such an audit determines whether the financial statements prepared by an organization’s officials fairly present the financial status of that organization at a specific point in time. In short, such an audit is concerned with the statements themselves--their fairness and comprehensiveness. An external financial statement audit also looks at financial controls--the organization’s policies and procedures for recording and reporting its transactions in its financial statements. However, the task of assessing the wisdom of entering into the legally permissible transactions reported in such statements lies elsewhere.

In this situation, one of the important services that you can provide the community is to identify with greater clarity the specific roles that various entities, public and private, played in Orange County.

JOHN R. MILLER

National Director, Assurance

Public Services, KPMG Peat Marwick

New York

* Richard Peiser (Commentary, Dec. 15) began his article with the statement: “People outside of Orange County may feel it made its own bed and deserves to lie in it--as the county would be expected to preach if another county went bankrupt.”

Herbert Hoover withheld food needed by the hungry unemployed in 1932 for fear that feeding the hungry would create a perpetual dependent class. Newt Gingrich wants to abolish welfare and bring back orphanages. The views of Hoover and Gingrich are held by many residents of Orange County.

Those who wish to aid Orange County should select a worthy family, city or public agency, and send them money either as a gift or a loan, to tide them over. The awkward, heavy hand of impersonal government should not intrude in what is a matter of neighbor helping neighbor.

ROBERT Q. CUNNINGHAM

San Marino

* What I don’t understand in this whole mess is how it got to be OK for our government to tax us in such excess that they have huge accumulations of cash to invest in stocks and bonds.

PAUL J. MULLIN

Westminster