Municipal Courts Lack Safeguards, Run Risk of Fraud

From time to time, over more than two years, Assistant Chief Deputy Clerk Michael La Motte strolled out of the Pomona Municipal Courthouse with thousands of dollars in cash tucked into a sports bag.

The Los Angeles County sheriff’s deputies guarding the courthouse didn’t notice the theft. Nor did the county auditor, who was sent to the Pomona court to examine the handling of funds.

La Motte was caught only after a subordinate happened upon a minor discrepancy in the court’s books. La Motte resigned and was arrested a year later. He pleaded no contest last month to a felony charge of misappropriation of funds.

The theft has opened a window on Los Angeles County’s vast and diverse Municipal Court system and how it handles the huge sums that pass through its coffers daily.

A Times examination of dozens of audits and interviews with administrators, county and state officials reveals that for years the county’s Municipal Court system has lacked key safeguards against fraud, exposing millions of dollars of public funds to the risk of embezzlement.

Many of these flaws were identified by administrators and auditors years before La Motte stole what prosecutors say amounted to about $240,000, but were not addressed until after the case became public.

Since then, officials have scrambled to shore up the fraying financial structure of the municipal courts, but several glaring weaknesses remain:

* Many court employees lack basic training in accounting and say they do not understand why they perform essential financial procedures, according to county documents.

* Only a single field auditor is assigned part-time to monitor all of the 24 Municipal Court districts. The auditor is also responsible for the Superior Court and half a dozen other large county agencies.

* At several courthouses, multiple financial tasks are performed by a single individual--an arrangement experts say greatly increases the risk of embezzlement.

* Despite months of work by auditors and court staff, key accounts remained unbalanced at eight courts at the start of the year, meaning that at any given time hundreds of thousands of dollars cannot be accounted for.

The La Motte case served for many as a call to address these fundamental flaws in the decentralized Municipal Court system.

“That was the straw that broke the camel’s back,” said county Supervisor Mike Antonovich. “The structure is broken.”

Still, court administrators say they have fixed many of the weaknesses found in recent months by auditors and continue to share ideas on how to beef up their financial controls.

These court administrators point to factors beyond their control as the cause for some of the deep-seated problems. They say that years of budget cutbacks and the county’s current hiring freeze have forced them to combine job responsibilities and left them unable to create new positions to safeguard their money, while dozens of new laws and regulations have increased their workload.

But Los Angeles County’s Municipal Court problems appear even more fundamental and long-standing.

Unlike most counties, which have one or two central municipal courts to handle mundane but big-money tasks such as collecting traffic and parking fines, Los Angeles County has 24 independent districts--and some of them have multiple courthouses.

Although they share a computer system to track cases, each of the districts develops its own procedures for collecting fines, depositing money and allocating staff. Such administrative independence can create additional dangers for fraud, experts say.

“The courts are kind of balkanized in the sense that each one does its own thing, [and as a result] you run a greater risk,” said Robert W. Tobin, an analyst with the National Center for State Courts.

Tobin emphasized that centralized courts, like the county’s Superior Court system, also run their own risks for fraud. That was demonstrated in December, when it was revealed that the Los Angeles district attorney’s office was investigating a Superior Court accountant who officials allege either transferred $1.2 million into the wrong account or stole the money.

But Tobin said that in some isolated courthouses, “you have a very good opportunity to establish your own local culture.”

That description certainly applies to Pomona Municipal Court, which one county source described as “Peyton Place East.”

The auditor-controller’s office in early 1993 did a special audit of the Pomona court. But it wasn’t investigating La Motte. It was probing his boss, Court Administrator Jennifer Wenger.

Wenger said that money was so desperately needed to fund staff that she used extra court funds to pay temporary workers. She stopped using those funds to pay for staff, and county officials concluded she did nothing illegal.

Meanwhile, La Motte was using the court’s cash to buy a Palm Springs condominium and a new Mazda Miata, according to his attorney, John Murphy.

Here, according to prosecutors and court officials, is how it worked: La Motte would stop by the mail room, where only one clerk opened mail, and take checks written by cities to reimburse the court for processing parking violations. Later, he would swap the checks for cash, telling the cashier he would deposit the cash in the court’s bank account.

Instead, he took it for himself.

For a while, prosecutors say, it was the perfect crime.

Having one employee open mail is a violation of basic accounting practices, according to a special review of the court by the county auditor-controller’s office. La Motte both balanced the court’s books and issued receipts for money he said he would deposit. In addition, he headed the auditing division.

According to the auditor-controller’s review, these problems were reported in an audit two years ago but were never fixed. Part of the problem, the review noted, is that La Motte was one of the officials assigned to fix the flaws.

The theft allegedly ended in September 1995, when a bookkeeper happened to balance the court’s books one day and noticed they were $7,700 short of cash. La Motte immediately confessed his years of embezzlement to Wenger and resigned, prosecutors say.

After a yearlong investigation by the district attorney’s office, La Motte was arrested in August. He remains in County Jail on $360,000 bail and will be sentenced Feb. 28. He faces up to eight years in state prison.

“His goal now is to make as much restitution for the loss as he can make,” said attorney Murphy. He said La Motte has sold his car and condominium and will give the money to the county.

Wenger said she has fixed the weaknesses that allowed La Motte to get away with theft. “It is like a mint [now],” she said.

But it’s hard for the county’s auditor-controller to give all courts the same attention it gave Pomona.

The auditor-controller’s office has only one field auditor assigned to both the municipal and superior courts. That auditor is also responsible for the sheriff’s and coroner’s departments, public defender, alternate public defender and county counsel’s offices, public libraries and harbors and beaches.

Most of the financial oversight of the municipal courts comes from private auditing companies, which are contracted to conduct simple financial audits of each court every two years as required by state law. These contract audits are not designed to evaluate financial management procedures.

During the last two-year interval, the state funding for these audits was cut, so no audits were conducted on most of the municipal courts between 1992 and 1996.

Dominic Polimeni, administrator of the Alhambra Municipal Court for 22 years until he retired this year, says the audits are essentially useless. “There is no follow-up,” he said. “It is like telling a kid to do something and then he says OK. If you don’t follow up, it isn’t going to get done.”

Since La Motte’s theft came to light, the auditor-controller’s office has made the rounds among the courts to check internal controls.

“We found some areas that needed to be corrected,” said deputy auditor-controller Tyler McCauley.

A review of both the county’s and private audits of the courts shows numerous replications of the Pomona problems. Although the city of Los Angeles’ Municipal Court, the largest in the county, received generally good reviews, many of the smaller and mid-size courts had troubling weaknesses.

In nine courthouses, there was not a full recording of daily collections of checks and cash. In at least nine courthouses, the auditor found that common accounting standards were not being met, because tasks that should have been separate were merged. Three courthouses did not change the combinations on their safes when employees left; in one 1994 examination of the Beverly Hills Municipal Court, the auditor found checks and cash left on clerks’ desks.

The worries of auditing officials are succinctly captured in a note left on a copy of an audit of the Citrus Municipal District, next to a section describing how checks and cash recorded on the cash register were not always balanced with the day’s totals.

“Like Pomona’s last report,” the note said.

Auditors found that the Citrus court did not receive copies of deposit statements from its bank. This weakness, mirroring Pomona’s, was noted on an audit four years earlier but not corrected, according to county documents.

In a written statement released through Municipal Judge Dan Oki, Citrus Court Administrator Mary Betschart said these and most other identified problems have been fixed--though staffing shortages do occasionally delay daily recording of money received, a complaint echoed across the county.

Another chronic problem is balancing trust funds. These are accounts containing millions of dollars that each court will eventually distribute elsewhere. Money in these accounts includes bail, and revenues from tickets to be shared with other jurisdictions.

Administrators have for years complained that the auditor-controller’s office has not helped them balance these funds. As of this March, 14 districts had unbalanced trust funds.

At that point, a new supervisor took responsibility for managing the audits of the municipal courts and directed the one field auditor to help the districts balance their trust funds. Nine months later, nine courthouses still had unbalanced trust accounts.

Most of the trust accounts had not been balanced since 1987, when the county changed procedures.

One such account is Beverly Hills’.

In March, auditors found that the Beverly Hills trust account was about $1 million out of balance. They have since brought that down to under $250,000, and say the figures represent surplus money in Beverly Hills’ account, which they say is less worrisome.

Beverly Hills Court Administrator Joe Padilla, who joined the staff this fall, said the account was unbalanced because the court’s bookkeepers lacked the training to perform the complex task.

That is not unusual.

A report by the auditor-controller’s office concluded that most court staff lack formal accounting training. “Accounting staff indicated that they do not necessarily understand why they are performing certain accounting procedures, or how to [balance] the trust accounts,” the review concluded.

In the next few years, the structure of the county’s municipal courts will change dramatically. Already, courts on the Westside are studying how to consolidate into a larger judicial district. On the 1998 state ballot will be an initiative to allow county municipal and superior courts to merge. And by 1999, municipal courts will be required by state law to coordinate much of their administration with one another.

And administrators say they are addressing the problem. “The courts have been very diligent in coming up with internal controls,” said Jessica Lee, administrator of the Rio Hondo Municipal Court and chairwoman of the county’s association of trial court administrators.

Still, in the wake of the La Motte case, some officials are weighing larger reforms. Wenger has floated the idea of privatizing the financial side of the courts, a suggestion Antonovich said he supports.

The idea is attractive to others too.

Oki, the Citrus municipal judge, said: “If it saves money for the county, I’m in favor of it. The majority of judges and officers would much prefer to handle cases, not cash.”