ORANGE COUNTY IN BANKRUPTCY : Auditor Again Comes Under Fire During Hearing on Budget Cuts : Criticism: Officials ask why county should have faith in Steve E. Lewis, who has resisted pressure to step down. He reiterates a defense of his record.

Already under pressure to resign, Auditor-Controller Steve E. Lewis was hammered anew Wednesday as officials suggested the county stop using his office to perform audits.

“Why should this board and the people of the county have any faith in your auditing capabilities?” Board of Supervisors Chairman Gaddi H. Vasquez asked during the second of three grueling days of budget hearings.

Lewis, who was complaining to the board about cuts to his budget, was repeatedly criticized for not discovering the risks in former County Treasurer-Tax Collector Robert L. Citron’s investment pool, whose stunning plunge last year triggered the county’s unprecedented bankruptcy filing.

“It’s not the best-kept secret that I am at issue with Mr. Lewis in having him continue to provide audit overview of any operation of the county,” said Chief Executive Officer William J. Popejoy, who had urged Lewis to resign last month.

“I just think that Steve, unfortunately, has not done his job or he was involved in things that he has not disclosed,” Popejoy said. “I don’t know which, but something didn’t go right.”

Lewis, an elected official, defended his job performance and called the attack “a political situation” in which he is being made a scapegoat. “The auditor’s office has done excellent work for this county,” he said.

Lewis warned the board that the proposed $1.7 million in cuts to his $6-million budget would affect his ability to perform audits. That in turn could lead to an increase in fraud, theft and misappropriations in county government, he said.

Popejoy has ordered Lewis to shrink his staff by more than 20%, from 465 to 371.

Supervisor Roger R. Stanton--the most vitriolic critic of the auditor--suggested that the board and Popejoy look into the possibility of bypassing Lewis’ office in the future and using only outside auditors.

Shortly after the Dec. 6 bankruptcy, Lewis was praised for having issued at least two audits that warned of mismanagement, potential illegalities and lack of internal controls in the treasurer’s office.

But Lewis soon came under fire when accountants discovered accounting “irregularities” that allowed Citron to transfer securities among pool investors and skim other investors’ interest earnings into county-held accounts.

“Mr. Lewis has talked about red flags he has raised along the way, but I must confess that I’ve gone through the audit reports and I don’t see the red flags,” Popejoy said. “I don’t even see caution flags.”

Later in the daylong hearing, interim Treasurer Thomas E. Daxon proposed a plan that would “eliminate a layer of management” while creating an ombudsman position in the treasurer’s office to guard against a repeat of problems in the investment pool.

“This quality-control officer would allow for better oversight,” Daxon told supervisors. “I think the creation of this position would make the cuts more palatable in terms of public service.”

Daxon, who will leave county service Friday, told supervisors that reducing his department’s budget from $2.9 million to $1.8 million will require the elimination of 10 positions, leaving the office with 81 employees. He warned that the cuts would result in a slowdown in processing cash and a slower response in getting information for the public.

Daxon and Lewis were among a dozen department heads who paraded past the board to explain the impending impact of the massive cutbacks Popejoy proposed last week.

Because of the bankruptcy, the county must hack the planned $463-million budget to $275 million next year, a 41% cut. Officials estimate the cuts will force 1,040 layoffs and eliminate 563 more jobs, weakening programs and slowing services throughout the county.

Throughout the day, Stanton grilled each department head over the number of positions to be eliminated. He said all vacant positions should be chopped, and that the department head should return to the board for approval later if the position needed to be reinstated.

Causing the biggest stir was a proposal to shut down the Frank R. Bowerman Landfill, saving $10 million. Overall, Integrated Waste Management Department Director Murry S. Cable plans to cut his staff by 20% and reduce his budget from $151.1 million to $77.3 million.

Members of the county’s Waste Management Commission complained that they were not privy to the Bowerman proposal before it was made public, but Cable told the supervisors that Popejoy instructed him to keep it under wraps.

“I wanted to accelerate the process,” Popejoy explained. “I’m sorry if it offended the commission.”

County Counsel Terry C. Andrus--who is also scheduled to step down soon--said the layoff of eight attorneys and six clerical workers will reduce by 50% the legal services his office can provide for various county departments.

Andrus said the county bankruptcy and litigation connected to it will increase the workload for the smaller staff. The office wrote 345 legal opinions in 1994.

“We are up to the challenge, if you are,” Andrus told the supervisors. “The legal challenges facing the county are complex and they aren’t going to diminish.”

Human Resources Director Russ Patton also warned of potential legal problems, as cutbacks force the elimination of the county’s five-member affirmative-action staff, which handled 250 discrimination complaints last year.

Patton said other personnel would pick up the affirmative-action staff’s responsibilities, but he noted that the current workers each has at least five years’ experience.

“This could result in some potentially serious legal consequences for the county,” said Patton.

Supervisor Marian Bergeson cautioned against “eliminating the expertise.”

“You run a tremendous risk of noncompliance,” she noted. “It could cost us a lot more than we could be saving.”

Environmental Management Agency chief Michael M. Ruane told supervisors that the cutbacks leave him unable to pay the county’s planning commissioners. He noted that in other counties, the board has doubled as a planning commission to save money.

The commission currently has an annual budget of $60,000, half of which goes to stipends and expenses for members.

Bergeson said stipends for all county commissions should be reviewed, and suggested that some of the panels should meet quarterly instead of monthly to save money.

The supervisors also presented their proposed budgets, saying they strived to make significant cuts and lead by example.

Before the bankruptcy, each board office had a budget of more than $500,000. Next year, each supervisor plans to spend less than $400,000.

Also Wednesday, the first of two confirmation hearings for the likely appointment of John M.W. Moorlach as the county’s next treasurer-tax collector took place before a crowd of about 20 people.

A five-member panel, one appointed by each supervisor, adopted a list of qualifications for the job, including: an undergraduate degree in accounting, finance, or economics from an accredited college; a minimum of 10 years experience in finance, accounting, investment brokerage-banking, law, or economics, and at least four years of in a managerial position.

At least one member of the panel, Supervisor Jim Silva’s appointee William Mawhorter, said he was not ready to immediately recommend Moorlach’s appointment as the new treasurer-tax collector.

“I commend the courage of Mr. Moorlach,” Mawhorter said. “But that is not part of the qualifications for the job.”

Mawhorter said that regardless of the emotion running in favor of appointing Moorlach, “Mr. Silva does not want this to be a rubber-stamping process.”

Moorlach ran unsuccessfully last June against Citron. Moorlach is credited with being the first to warn of Citron’s risky investment strategies.

At 5:30 p.m. today, Moorlach is expected to appear at the second hearing. He can then answer questions from the public.

The confirmation hearings were presented as a compromise between the immediate appointment sought by Moorlach’s supporters and a lengthy nationwide search favored by Popejoy.