Orange Officials for Year Didn’t Act on Warning

An auditor told the city public works director in early 1996 that he could not locate money from the sale of recycled material that belonged to the city, yet officials failed to take any action for more than a year, according to documents released Thursday.

In a strongly worded letter, auditor Steven V. Nakada told Public Works Director Harry W. Thomas that files were deliberately kept from him, money that should have been deposited into company bank accounts wasn’t, and that his audit was impeded “because of unsatisfactory cooperation from the [recycling company] staff.”

Nakada’s warning to Thomas, dated Feb. 6, 1996, was among 1,500 pages of documents released by city officials under a California Public Records Act request by The Times.

City Manager David L. Rudat acknowledged at a news conference following release of the documents that he and other city officials should have acted on Nakada’s letter far sooner than April 1997, when Orange police launched a criminal investigation of Orange Resource Recovery Systems Inc.

However, Rudat said he never saw Nakada’s letter, although a handwritten notation indicates it was routed to him. He said he wasn’t apprised of Nakada’s concerns until they were discussed at a staff meeting in October 1996.

“I don’t recall seeing it, so I don’t know if my name or the c.c. on there came in a timely fashion at the time of the memo or if my name was put on it and sent over in October,” Rudat said. “I don’t know.”

Rudat spoke at the news conference to answer questions about the documents that were released.

“We don’t have the time or ability to review every single document that comes across our desk,” added City Atty. David A. De Berry, who, along with Police Lt. Ed Tunstall, joined Rudat at the news conference.

The three officials declined repeatedly to answer questions about what staff members did after learning that city funds may have been misappropriated at Orange Resource Recovery Systems Inc., which is owned by Sam and Alyce Hambarian and their sons, Michael, Donald and Jeffery.

“Who did what when is part of the criminal investigation,” said Tunstall.

Rudat did elaborate on a May 1996 police inquiry he asked for after Michael Hambarian, the chief operating officer of Orange Disposal Services Inc., the city’s trash hauler, stormed into his office because of a rumor making the rounds in the trash-hauling industry.

Hambarian complained that a city employee may have spread gossip that he was the focus of a police investigation for fraud and that Rudat should find out who the employee was and discipline the person.

Rudat said Thursday he was more concerned about the possibility that Hambarian had been the victim of slander than he was about the allegations of fraud.

“I [did] not want the city to find itself in a libelous situation and be subject to a lawsuit,” Rudat said.

Asked why he didn’t call Thomas or any other public works employee to ask whether the rumor had any substance, Rudat said he didn’t check it out “because I didn’t know.”

“The [police] captain [who investigated it] was apprised,” Rudat said. “I asked him to follow up on it.”

But a three-page memo by Capt. E.J. Hernandez makes it clear that Rudat only asked police to “investigate the origins of the rumor.”

Rudat explained, “My state of mind was much different [then] than it is today.”

Even after Nakada provided another strong warning to the city about irregularities with the recycling company’s books in April 1996, the Hambarians asked the city to help the company obtain new, automated equipment for their recycling company.

At one point, the Hambarians suggested the city participate in a $17-million expansion of the firm.

Until late last year, Rudat insisted, Nakada’s concerns about the recycling company accounts never reached him. The City Council, he said, wasn’t informed until he wrote them a carefully worded memo last Jan. 27 that makes no reference to possible financial irregularities.

“At the time we thought there might be criminal activity, it was very important to keep that as secret as we could,” Rudat said, explaining his circumspect memo to council members.

The police opened a criminal investigation after the accounting firm of Arthur Andersen verified what Nakada had earlier suspected. In the time since, two informants have told police that as much as $6 million may have been misappropriated.

Despite the recent disclosures, officials insisted that Orange residents may still be better off having the Hambarian family collect and recycle their trash.

“I think it’s a sweetheart deal for the ratepayers, proven through low rates,” Rudat said.