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State audit berates City of Industry accounting controls and questions employee charges

State audit berates City of Industry accounting controls and questions employee charges
A sign identifies the City Of Industry on an overhead railroad track on Hacienda Boulevard. (Los Angeles Times)

The City of Industry has "effectively non-existent" accounting controls that paid tens of millions of dollars to city contractors without keeping track of how the money was spent and what services were provided, according to a state audit released Thursday.

City officials charged expensive meals, wine tastings, massages, an iPad and a 65-inch television to city credit cards, the audit found. Auditors discovered a record of one meal that cost $560.

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Auditors criticized city leaders for failing to provide proper oversight over the city's finances and raised questions about how they spent public money.

Over an eight-year period, the City Council met for an average of 18 minutes per meeting and unanimously approved all resolutions and ordinances but one.

"This is the most recent in a series of reviews performed by my auditors showing a disturbing pattern of weak fiscal controls in a handful of cities," Controller Betty Yee said in a statement.

City of Industry officials said the audit identified many of the same issues that a new group of city leaders is trying to fix. As part of an ongoing government-reform process, the city has reviewed each of its contracts, hired an independent auditor, recalled all fuel and credit cards from city officials and staff and analyzed contractor invoices to make sure the city isn't being improperly charged.

"Our city is under new leadership, and the new City Council has made clear their commitment to adopt best practices, increased transparency, and reforms to serve our residents, businesses and the regional environment," City Manager Paul Philips said in an emailed statement.

The state audit, along with a Los Angeles County District Attorney's investigation, was spurred by a city-commissioned KPMG financial review last summer that found that companies owned by former City of Industry Mayor David Perez and his family were paid $326 million in city contracts over two decades. Auditors found that Perez's company, Zerep Management, had reaped huge profits from the city without providing complete documentation, charging six times as much as a competitor for street-cleaning services, and had collected $28 million for vehicle and equipment rentals over 11 years — enough to buy several fleets of the same vehicles.

After Perez stepped down in 2012, the city — led by then-City Manager Kevin Radecki — terminated its contract with Zerep (Perez spelled backward) and sued the Perez family last year, alleging that its companies fraudulently billed the City of Industry for millions of dollars.

An election last June saw three Perez-backed candidates regain a majority on the council. One of the new council's first acts was to fire the attorney who spearheaded the lawsuit against the Perez family. Radecki, the brother of current Councilman Mark Radecki, stepped down as city manager after stating concerns that the new council would fire him for challenging the Perez family's contracts. The lawsuit has stalled.

The City of Industry, which has about 400 residents and about 2,500 companies, previously was investigated for voter fraud, but no charges were filed. A Times analysis of voter-registration records found that 85% of registered voters live at properties owned by either the city or the Perezes. The city's cozy relationship with the former mayor and his family's companies was laid out by a Times investigation in 2009.

The state audit reviewed the city's finances over a two-year period. It found that the city approved contract extensions without considering other bids.

The city paid $12.3 million to Zerep even though invoices didn't properly describe the work provided. The Industry Manufacturers Council reaped $14.7 million in payments for advertising and promotion of the city, but state reviewers couldn't find any documentation of what work was provided.

The city also did not maintain timesheets to track work hours and may have paid employees twice for the same work, the audit said.

Twitter: @frankshyong

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