State auditors would be given new power to dig into cities’ financial books to ferret out the kinds of fraud and fiscal abuse alleged in Bell under proposals made Tuesday by state lawmakers.
State Controller John Chiang requested the new authority to address shortcomings in the state’s ability to identify financial irregularities in cities like Bell, where eight current and former city officials have been arrested and charged with misusing funds.
“The city of Bell has been a vivid illustration of the devastation that can occur when there is little accountability over how local dollars are spent in our communities,” Chiang said. “It is time for the state to have a role in making sure sound fiscal management is being practiced at the local level so that all public dollars are protected.”
This is the second wave of Bell-inspired legislation aimed at identifying and preventing oversize salaries, pension abuses and financial mismanagement in cities. Similar measures failed to pass last year but have a better chance this year with more time to debate and refine them.
The state can step in to audit cities, counties or special districts only when annual reports filed by those agencies provide evidence that state or federal funds have been misused, or when the agencies invite state auditors in, Chiang said.
One proposal would expand the controller’s power to perform discretionary audits of how local tax, fee and bond money is spent, according to Sen. Christine Kehoe (D-San Diego), who introduced the bill, SB 186.
“In order to restore the public trust and protect our hard-earned tax dollars, the controller must have greater authority to audit spending,” Kehoe said at a Capitol news conference with Chiang and other legislators.
Other legislation announced Tuesday would allow the state auditor to establish a program to identify and audit any local government agency that the auditor deems to have a “high risk” for waste, fraud, abuse or mismanagement.
The legislation, AB 187 by Assemblyman Ricardo Lara (D-Bell Gardens), was separate from the package endorsed by Chiang.
The bills backed by Chiang would also require cities to file their annual financial reports with the state controller within nine months of the audited period and increase fines when cities file late.
Chiang is also supporting a proposal by Assemblyman Cameron Smyth (R-Santa Clarita) that would establish a committee to create guidelines to make sure the annual city audits use uniform standards. Chiang would also review the quality of audits and publish a list of auditors that are acceptable for use by cities.
Another measure would allow the controller to convene a Local Agency Financial Crisis Intervention Committee to provide assistance to local agencies that seek help in averting or managing a financial crisis. The proposal by Sen. Fran Pavley (D-Agoura Hills) comes as Bell officials are struggling to maintain city services in the wake of allegations that millions of dollars were misspent.
“The state should not wait until a local entity is at risk of complete financial failure before lending assistance,” Pavley said.
Chiang said his office had received about 50 tips about questionable activities in other local agencies, leading the controller to believe that the Bell scandal is “the tip of the iceberg.”