ORANGE COUNTY IN BANKRUPTCY : County Gives Contract to Firm It Might Sue

Orange County officials may yet decide to sue an accounting firm for its alleged role in the bankruptcy, but the Board of Supervisors on Tuesday approved a $316,000 contract with the company to finish work on a court system data base.

County Counsel Terry C. Andrus told the board that detailed language in the contract would reserve the county’s option to sue KPMG Peat Marwick, one of the nation’s top accounting firms.

“I wouldn’t support it unless that language is in there,” Board Chairman Gaddi H. Vasquez said of the contract before it was unanimously approved by the supervisors.

County officials contend that Peat Marwick’s independent audits of the treasurer’s office failed to contain warnings about risky financial investments that led to the county’s bankruptcy. The company contends that its audits were intended to review the investment portfolio, not investment policies.

Removing Peat Marwick from the data base project would set it back at least six months and could cost the county nearly $1 million, factors the board cited as it reluctantly approved the contract.

Since 1988, Peat Marwick has been involved with creating a central data base linking the county’s five municipal courts. The system is 70% completed, and will ultimately link up with the district attorney’s office, the Sheriff’s Department and the state Department of Motor Vehicles.

When completed, the system will provide better services for Orange County residents and improve communication between various law enforcement agencies, said Robert B. Kuehl, executive officer of Central Orange County Municipal Court.

The system would allow South County residents, for example, to use their local court when paying a traffic ticket that was handed out in Santa Ana, Kuehl said. Currently, residents must pay traffic tickets in the court jurisdiction where the ticket was issued.

The system will also give law enforcement officials access to critical information in the field, Kuehl said. Currently, law enforcement officials sometimes are left in the dark about outstanding warrants or other legal action because they do not have that information when making routine traffic stops, Kuehl said.

“As far as we can tell, it would be the largest municipal court traffic system in the state,” Kuehl said. “We have been very pleased with the work they have done or us.”

But the county’s bankruptcy lawyers have not been completely happy with the work of KPMG Peat Marwick and have eyed the accounting firm as a potential “deep pocket” defendant.

County Auditor-Controller Steve E. Lewis has said he made a special request that Peat Marwick take a closer look at the investment portfolio in its 1993 and 1994 audits, but that the audits failed to do so. A final report was due in December, 1994, but never surfaced. The county declared bankruptcy Dec. 6 after the investment pool lost nearly $1.7 billion.

Peat Marwick officials say they stand by their work for the county and contend the final report was stalled after it was placed on hold by county officials.