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California

City of Industry is about to be slammed again by state for lax financial oversight

INDUSTRY, CALIF. - APR. 28, 2015. Industrial development in the City of Industry abuts residential a
An inquiry by the state controller’s office found that the City of Industry continues to have abysmal oversight of its finances.
(Luis Sinco / Los Angeles Times)

Nearly three years after a scathing state review, the city of Industry remains plagued by gaps in financial oversight and has been unable to justify a host of suspect transactions, according to a draft of a new state report reviewed by The Times.

Officials with the state controller’s office called into question hundreds of thousands of dollars in ATM transactions involving a city venue, dozens of voided checks, nearly $2 million paid to housing contractors “without question or scrutiny,” and massively discounted rents at city-owned homes for city leaders and commissioners, the report shows.

The report also questioned whether renting these homes at far below market rate — at only $600 to $700 a month in an area where similar homes are being rented for up to $3,250 — amounts to violations of state law prohibiting gifts of public funds.

In one instance, the city’s housing agency allowed a “council member and family” to move into a home after spending more than $528,000 remodeling the place, according to the review.

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A city spokesman, Sam Pedroza, said officials are abiding by a request from the state controller’s office not to comment on the report until the state finalizes it.

“We’ll be more than happy to provide comments once they finalize it, which we’re expecting to happen sometime this month,” he said.

A spokesperson for the state controller said the office “does not comment on audit reports until they are issued in their final form.”

The City of Industry — a small municipality in the San Gabriel Valley consisting mostly of industrial businesses and home to fewer than 300 residents — has long been under a cloud of suspicion for its financial dealings and insular government.

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For years, the city government was headed by t then-Mayor Dave Perez, who also owned trash hauling and maintenance companies that racked up millions of dollars a year in contracts with the city, a 2009 Times investigation found.

Of 90 potential voters in the city at the time, about 30 were members of the Perez family or people who lived in properties owned by the family’s investment firm. Many of the remaining voters were city officials or their relatives, or others living in city-owned homes rented at low rates.

An audit years later by KPMG found that Perez’s companies had made a fortune off the city, with contracts valued at more than $326 million. In one example, a Perez company charged six times a competitor’s rate for lawnmower rentals and street-cleaning fees, according to the review. Perez had said his firms’ billings were misrepresented in the review’s findings.

The district attorney’s office launched an inquiry after the Times report, but the mayor was not charged with conflict-of-interest crimes because his companies’ contracts were awarded before he assumed office, a spokeswoman with the district attorney’s office told The Times then.

In 2016, a state controller’s office review discovered that the city paid tens of millions of dollars to contractors without tracking how the money was spent or whether the services were even provided. City officials charged lavish meals, wine tastings, massages, an iPad and a 65-inch television to city credit cards. Of more than $235,000 in credit card expenses, 83% of that amount was deemed questionable.

The state controller’s new report is a follow-up to that 2016 review and found some improvement. There are stronger policies regulating the use of city credit cards, but the city’s “internal control system” is still “mostly inadequate,” according to the draft report, which covers the period from Jan. 29, 2016 to April 12, 2018.

Much of the report focuses on the city’s lack of oversight of contractors on housing and the Industry Hills Expo Center, a 125-acre events venue run by the city.

According to the review, the city handed over total control of the center’s purchasing power and bank account to the company CNC Equestrian, which employs a council member to manage the venue’s accounting.

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City officials blocked the state controller’s office from interviewing the expo center’s staff because they were contractors, not city employees and the city “could not compel them to cooperate,” the report said.

Since 2002, when a city agency took control of the expo center, it has consistently lost money, the report said. Of the 14 transactions reviewed by the state controller’s office, none could be confirmed as legitimate because the city didn’t maintain any of the records, according to the report.

About $480,000 in recorded transactions for ATM cash deposits at the expo center were also found to be questionable, the report said. The state controller’s office found that these transactions were in perfect multiples of $500 or $1,000, which officials said raised questions because normally “funds in ATMs are replenished based on the money withdrawn by users.”

The city did not provide any documentation for the ATM transactions “despite multiple requests,” according to the report.

The city’s housing agency has also consistently operated at a loss, the report said. There were no formal policies on whom to rent to, housing remodeling, or the methodology on determining the extremely low rents. City officials told the state controller’s office that properties are rented to prospective tenants after they submit a letter describing their hardship and need for housing.

A council member’s wife was rented a home after the half-million dollar remodel because she complained that she could no longer climb the stairs and needed a one-story house.

The costs of remodeling a two-bedroom house ballooned to over $788,000, according to the report. The home, which is being rented to a city employee for $700 a month, has only 1,044 square feet of living space.

Because of “severe deficiencies in controls” for managing renovations, the city’s lack of oversight and no apparent methodology for calculating rents, the city’s housing agency ran an annual deficit of nearly $400,000, the report said.

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The controller’s office recommended developing a way to determine fair market value for its rents to offset the losses.

Adam.Elmahrek@latimes.com

@adamelmahrek


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