Preliminary reports from two financial studies of the Entertainment Industry Development Corp. show that the film-permitting agency's finances are so poorly organized that one of the top accounting firms in the nation cannot certify its findings.
Among the concerns of auditors is that the EIDC may have mixed several funds together, including city and county funds and job training and education grant money from the state.
"You have an agency whose finances are in disarray," said county Supervisor Zev Yaroslavsky, who is also a member of the EIDC's executive committee. "Their finances aren't handled as well as average citizens handle their checkbooks, who could at least look and see what their bank balance is."
EIDC consultant Keith Comrie noted that the accounting firm KPMG, which is conducting a full financial and management audit of the EIDC, said the funds "are all lumped together."
"It's not adequate for a corporation of that size," said Comrie, who was hired by the EIDC's executive committee to manage the audit. "It's pretty significant that one of the four biggest accounting firms in the country says that they cannot rely on the information they have available to them and that they need help."
The EIDC, which has an annual budget of about $5 million, had one accountant and two support people in its accounting office.
KMPG's preliminary findings were underscored Thursday by City Controller Laura Chick and City Atty. Rocky Delgadillo in a letter to Mayor James K. Hahn and members of the City Council. Chick and Delgadillo said "the EIDC has commingled various sources of funds," and made four recommendations of action -- all of which the EIDC executive committee implemented several weeks ago.
For example, Chick and Delgadillo said EIDC should "halt all spending not related to day-to-day operations until a clear financial picture is established." Comrie said that by having done so, the EIDC has saved at least $300,000 in personnel costs to date.
The EIDC, which coordinates film permits for the city and county, has been under investigation by the L.A. County district attorney's office for alleged misuse of corporate funds through extravagant spending and political contributions to elected officials -- 19 of whom were members of the EIDC board.
Cody Cluff, who served as the company's president and is also being investigated by the district attorney, resigned under pressure on Dec. 23. Cluff is a former accountant.
Comrie said that Cluff's expenditures are separate issues from EIDC's accounting problems. "They have documentation for the expenses" of Cluff, Comrie said.
Cluff's attorney, Mark Werksman, said that his client will be vindicated. "He denies any commingling of funds and has always denied it," Werksman said. "There is an auditing process that's being done, and Mr. Cluff is cooperating completely. The audit will show that Cody Cluff never did anything improper with funds."
Chick and Delgadillo's letter outlines other areas of concern. They note that the EIDC ended fiscal 2001 with a deficit of about $1 million. They also said that the EIDC has not provided the city with a 2003 budget per the conditions of its contract with the city.
The EIDC budget has traditionally been approved at the annual board meeting, which usually takes place in January. However, this year no budget has been submitted and the annual board meeting has not taken place.
The deficit, according to Chick and Delgadillo's letter, "is particularly troubling because the EIDC reimburses Los Angeles County approximately $150,000 and the city approximately $3 million for services provided each year." They said those reimbursements "could be at risk."
City Councilwoman Wendy Greuel, who is also a member of the EIDC's executive committee, said Chick's information is consistent with that given to the executive committee members by KPMG.
"We need to make sure that the city and county get reimbursed," Greuel said.