Audit Faults Lavish EIDC

Los Angeles city officials failed to properly monitor their contract with the Entertainment Industry Development Corp., which racked up lavish expenses including more than $357,000 for sporting events and concerts and $16,000 for country club and gym memberships, according to an audit released Thursday by the city controller.

In the most detailed public accounting yet of spending by the nonprofit agency, Controller Laura Chick said the city shares some of the blame for $1.2 million in questionable expenses she identified.

“The city was lax in its monitoring and the EIDC board was lax in its oversight,” Chick said. “No one was minding the store and when that happens, funny stuff can occur.”

The lavish spending contributed to the EIDC running up a $981,578 deficit by mid-2001, according to the audit, which was conducted for Chick by the private accounting firm of Thompson, Cobb, Bazilio & Associates. The agency has since cut spending by $1 million and is back on solid financial ground, officials said.

The EIDC is under criminal investigation by the district attorney’s office for possible misuse of public funds. Executive Director Cody Cluff resigned in December under pressure.

Chick said that some of the expenses her audit discovered were “unreasonable and inappropriate,” adding, “It wrenched my gut and it took my breath away when I saw that list.”

City and county officials created the EIDC in 1995 to streamline the film permitting process and then essentially walked away, creating an environment in which agency officials were able to treat permit fees they collected like their own personal bank accounts, Chick said.

The spending questioned by auditors over a two-year period ending in June 2002 included:

* Tickets to sporting events and concerts costing $357,743.

* Travel expenses for EIDC officials, including Cluff attending the Sundance Film Festival, costing $138,729.

* Gifts, cigars and liquor totaling $24,840.

* Limousine service billed at $22,253.

* Dues and membership of $20,675 for the Grand Havana Room, a Beverly Hills cigar club.

The audit also challenged $82,700 in political contributions. “In the absence of internal checks and balances over spending decisions, many EIDC expenditures appear abusive to the prudent person,” the audit said.

Many expenses, including cigars and sports and concert tickets, were listed by the agency as “promotional expenses.”

Mark Werksman, an attorney for Cluff, said his client was not given adequate time to review and respond to the audit findings before they were made public. “It’s not an audit. It’s an ambush,” he said.

Werksman said that many questioned expenses, including those involved in entertaining, appeared to be part of doing the EIDC’s job.

“The EIDC is there to service and cultivate and advance the film industry in Los Angeles, so attending film festivals is an expenditure that is part of that,” he said.

Other expenditures could be considered the perks of an executive job, Werksman said.

However, city officials were troubled by the expenditures.

“Some of these are a gross abuse of those funds and were not necessary to serve the public,” said Councilwoman Wendy Greuel, a member of the EIDC executive board.

Greuel said the audit validated her concerns and the need for reforms already initiated by the agency, including policies to regulate spending.

Mayor James K. Hahn, another EIDC board member, believes that the audit “confirms the need for the actions we are taking to reform the EIDC,” said spokeswoman Julie Wong.

The agency has replaced its president, chief financial officer and legal counsel.