A week after a report by the state controller labeled the independent audits of Bell a “rubber stamp,” several cities are questioning their relationship with the well-known accounting firm responsible for the work.
Officials in Riverside decided last week not to include Mayer Hoffman McCann among firms it has asked to submit proposals for a new auditing contract, even though the firm was the city’s auditor for the last five years.
Officials at CalPERS, the retirement fund for state and many municipal employees, are reviewing the report’s findings. CalPERS, which has paid Mayer Hoffman $1.8 million since 2005, has given the firm no new work since the controller began his investigation.
The problems the controller found with the Bell audit are leading state officials to consider regulations to more stringently monitor independent auditors, who certify that the books of a city, county, special district or other government agency are legitimate.
“I’m sure it’s not unique,” Controller John Chiang said of the Bell findings.
Garin Casaleggio, a spokesman for Chiang, said the office is looking at solutions such as having a list of approved firms and rotating them out of a city after five years, similar to how school districts operate.
Cities and counties hire their own auditors. The controller, who has done audits that helped expose alleged corruption in Bell, was asked to look at the city’s books by Bell’s interim chief administrative officer. Otherwise, the office has little authority over city finances.
“Clearly, if we want do a deeper dive, we’re going to have to have additional authority to make sure we don’t have a revisit of the Bell tragedy,” Chiang said. “We should have it or somebody should have it to make sure we don’t have improper fiscal acts repeated.”
Chiang’s report found that Mayer Hoffman failed to comply with fieldwork auditing standards during its last audit in Bell, which was for the 2008-09 fiscal year. The report said that if the firm had met the standards, it would have uncovered some of the problems in Bell, where eight current and former officials have been charged with corruption. Mayer Hoffman found no problems.
“MHM appears to have been a rubber-stamp rather than a responsible auditor committed to providing the public with the transparency and accountability that could have prevented the mismanagement of the city’s finances by Bell officials,” Chiang said in a news release that accompanied the report.
Mayer Hoffman strongly disputed the controller’s findings, saying there was “a massive scheme of collusion that reached through every layer of city government to undermine the audit process and deceive the auditors.”
Joe Crivelli, a spokesman for Mayer Hoffman, said a handful of customers at most have dropped the firm. “We’re encouraging all our clients in communications to read our response and see there is truly another side to the story and to make their own judgments,” he said.
Mayer Hoffman has about 150 municipal clients nationwide, most of them in California. According to its website, it also works for a number of federal agencies, including the General Services Administration, the Department of Labor and the Centers for Medicare and Medicaid Services.
Several cities said they will review their decision to employ the firm.
Costa Mesa Mayor Gary Monahan said he planned to take the matter up with the city manager. “There were obviously some problems in Bell,” he said. “From a perception standpoint, it’s not good. That just raises questions.”
In Burbank, which paid the accounting firm close to $600,000 over the last five years, spokesman Keith Sterling said Chiang’s findings concerned officials there.
“This is another set of eyes that we rely on,” he said. “Now that there are questions being brought up about this other set of eyes, we need to take a look at it,” he said.
Officials at the California Board of Accountancy, which regulates the profession in the state, said it had begun an investigation into Mayer Hoffman’s work in Bell before the controller’s report was released.
Board officials could not recall discipline ever being given out because of an auditor’s poor job reviewing a government entity.
The average investigation takes six to 18 months, said Lauren Hersh, spokeswoman for the board. Discipline ranges from mandating that someone take additional classes to imposing a fine or revoking the license.
Hersh said that although a state hiring freeze and budget cuts have slowed the board’s work, “we are making this a priority.”