Transit Corridor Funds Said to Be Focus of Probe

The chief financial officer for the $2-billion Alameda Corridor project was replaced recently after $3 million in government funds was found in her personal bank account, according to sources familiar with an internal investigation into the matter.

The affair has raised concerns about inadequate financial management and possible illegality within the huge rail project.

Sources, who requested anonymity, said the Los Angeles County district attorney’s office and the Alameda Corridor Transportation Authority are investigating the transaction, trying to determine what happened.

In addition, the Los Angeles city controller’s office on Thursday called for creation of an independent audit committee to oversee how the corridor agency spends and accounts for its funds. Currently, the agency’s expenditures of state and federal money are audited by those entities at intervals.

The corridor authority is responsible for building a 20-mile rail and truck route along Alameda Street that will better link the county’s ports with transcontinental freight yards near downtown Los Angeles.

The corridor--one of the nation’s largest public works projects--is run by a joint powers agreement involving the ports and cities of Los Angeles and Long Beach.

Sources close to the corridor authority investigation said Nancy Schafer, a certified public accountant, was replaced in mid-March, several weeks after $3 million in project funds turned up in her account at Bank of America.

Bank officials became suspicious of the Feb. 22 transfer and quickly contacted the corridor authority, which conducted an internal review, the sources said.

As chief financial officer for the rail project, Schafer was responsible for managing hundreds of millions in funds raised from the county’s ports, state and federal governments, bond purchasers and the county Metropolitan Transportation Authority.

The sources said Schafer administered corridor accounts using a hand-held computer, which also contained the number of her personal bank account.

Schafer, the sources said, also may have made large transfers of corridor funds without proper authority or an agency co-signer, common financial controls to prevent abuse or mismanagement.

Schafer could not be reached for comment Thursday. Sources said she has denied any wrongdoing, claiming the $3-million transfer was caused by a computer glitch that moved corridor funds into her own account by mistake.

After the transfer was discovered, sources familiar with the corridor investigation said, the money was promptly returned to the corridor authority.

Corridor officials declined Thursday to discuss Schafer’s departure. However, they defended the project itself as well-run, and said appropriate accounting procedures are in place.

“The agency’s financial condition is certainly 100% A-1,” said James C. Hankla, the chief executive officer for the corridor authority. “Not a dime has been directed to anything other than the lawful purposes of the project.”

During the agency’s internal review, the sources said, Schafer threatened to sue the corridor authority, prompting several confidential board meetings over the last two months. Joseph Burton, the corridor’s general counsel, said Thursday that Schafer has not filed a claim against the agency.

Schafer, who was officially an employee of the Port of Long Beach, started work with the corridor project in July 1997. She left the employ of the port on March 15, sources said.

Joyce Kaneda replaced Schafer, but she resigned from the agency this month. Hankla said Kaneda took a job in Orange County and that she was hired with the understanding that she would be leaving in a few months.

Ken Phipps has assumed the vacant position on an acting basis. Hankla said the corridor agency is searching for a permanent chief financial officer.

Sources said the district attorney’s office is still trying to determine whether there is any basis for criminal charges against Schafer. In addition, the corridor agency is preparing a report on the investigation, which has yet to be released.

Long Beach City Auditor Gary L. Burroughs also has completed an audit related to the allegations concerning Schafer’s actions, but he declined to release the review because it deals with a personnel matter. Under state law, certain information about government personnel is confidential.

The rapid turnover of chief financial officers prompted Los Angeles City Controller Rick Tuttle on Thursday to request an independent audit committee for the corridor agency.

The changes in a key position come at a time when the agency is poised to spend hundreds of millions to build the main portions of the project, including a 10-mile section of concrete trench containing two rail lines.

Tuttle declined to discuss the Schafer situation. In general, he said his office is concerned that internal financial controls at the corridor agency are either inadequate or have not been functioning as intended.

Tuttle Suggests ‘Strong Oversight’

The city controller said he hopes the audit committee can be established in time to consider the corridor’s pending report, which will address financial controls, among other things. The report may be released in 30 days.

“There are a tremendous number of people around the authority who are in the private sector and have it in mind to do what’s best for themselves or their stockholders,” Tuttle said, referring to corridor contractors. “It is important for the public interest to have strong oversight that will act as a countervailing force against the natural tendencies of private sector operations.”

Tuttle sent a letter to the corridor authority’s board asking the agency to consider the committee as a way to ensure the proper expenditure of public funds.

“In light of the magnitude of this project, the recent quick turnover in top financial management positions, the structure of the organization, and the massive increase in funds for the project, it is imperative we act at once . . .” Tuttle wrote.

In the past, the corridor authority has resisted proposals for independent monitors, such as an inspector general’s office. Last year, agency officials opposed a bill by state Sen. Tom Hayden (D-Los Angeles) that would have created such an oversight body. The measure was defeated.

Corridor officials said the project is already scrutinized by various federal, state and local agencies, including the U.S. departments of Labor and Transportation, Caltrans and MTA auditors. They also said the agency’s books have been open to the city auditors of Los Angeles and Long Beach.

Tuttle’s request “proceeds from several premises, which are not founded in fact,” Hankla said. “Any problems identified over time have been promptly addressed and will never be problems again.”

Board members for the corridor either could not be reached for comment or referred all inquiries to Hankla. However, board member George Murchison, who is also a Long Beach harbor commissioner, defended the overall operation of the corridor authority.

“I am comfortable with the current management that is in place at ACTA,” he said. “As an accountant by profession, I feel that the financial information I am presented with on a monthly basis is correct and allows me to make decisions.”