California Controller Audit Slams Past Spending Practices by Ex-Cudahy Officials

Mayor Chris Garcia and Councilman Jack Guerrero during last weeks meeting of the Cudahy City Council. HMG Photo by Pete Parker

By Brian Hews

A much anticipated audit report on the dealing of past city officials in the City of Cudahy by California State Controller John Chiang has determined that the city opened itself up to “massive fraud” since city officials had “virtually no internal control to prevent misuse of taxpayer dollars.”

Chiang released the entire audit early Tuesday morning to members of the media and public on his web site and through electronic email.

The Controller identified during the period between July 2010 and June 2012 “questionable leave pay, violations of the City’s contract code, uncontrolled credit card spending and mismanaged state grant funds.”

Chiang and his staff of auditors also reviewed redevelopment asset transfers and ordered $22.7 million in redevelopment assets to be returned to the successor agency.

“These audits found that the city’s prior leaders displayed little regard for fundamental accounting and fiscal management practices necessary to promote transparency and protect taxpayer dollars,” Chiang told Hews Media Group-Community Newspaper in a statement.

“Very few controls or checks and balances existed to guard against corruption, abuse, and fiscal mismanagement. The few rules that did exist were not followed, and questionable spending was rampant.”

Chiang and his officers called for an “internal control audit” late in 2013 year at the request of the Cudahy’s new management, and provided draft copies of the report to the City in February.  The audit was made public for the first time on Tuesday.

Former Cudahy officials had “almost a complete lack of internal controls,” the audit stressed.

Auditors determined that of the 79 basic standards of internal controls, only eight were used in the City.

Some of the major red flags that were raised in state officials dealt with “questionable leave pay for some City officials,” as well as violations of the City’s contract codes.

“Some contracts were awarded and extended without adequate records or City Council approval, while others allowed the City to be regularly over-billed,” the audit claimed.

Former Cudahy officials also racked up credit card charges, with the Controller calling it “uncontrolled credit card spending.”

“Some City American Express credit cards were spent beyond their limits, while others were used to purchase excessive travel, meals and entertainment,” the audit determined.

Also, past Cudahy City Council meetings were not recorded correctly, budgets were submitted and adopted months into the fiscal year, and state grants were mismanaged requiring the city to return the money.

It was also learned that city of Cudahy bank accounts were not reconciled, while the City’s General Fund balance continued to dwindle annually.

The Controller’s office also called into question past expenses racked up for political lobbying activities. “Although the City paid fees to a lobbying firm for several years, the original contract could not be found nor could any record of what services were provided,” the audit concluded.

The Controller also reviewed the records of Cudahy’s now-defunct redevelopment agency (RDA) for the period of January 1, 2011 through January 31, 2012. The agency transferred more than $26.5 million in assets before it dissolved in January 2012. The Controller found that the majority of those transfers are unallowable under State law. He has ordered $22.7 million in redevelopment assets – including $21 million from the City’s Economic Development Corporation – be returned to the RDA’s successor agency for proper disposition by the oversight board.

The Controller praised the current Cudahy officials, including the five new members of the city council for their “cooperation in uncovering the problems identified in the audits and for their commitment to implementing the recommendations.”

“Sweeping problems under the rug is not a solution for fiscal mismanagement,” said Chiang. ”

“Cudahy leaders deserve credit for wanting an independent review of their internal controls and for moving quickly to address the major gaps in the prior administration’s accounting and management practices,” the Controller added.

The City of Cudahy is located in southeastern Los Angeles County. The City covers a total area of 1.23 square miles and is bordered by the cities of Bell on the north, Bell Gardens on the east, South Gate on the south and southwest, and Huntington Park on the west.

Cudahy is the second smallest City in Los Angeles County but with one of the highest population densities of any incorporated City in the United States. Cudahy is populated predominantly by Latino immigrants and has a population of 23,805 as of the 2010 U.S. Census.

Three past Cudahy city officials were arrested and accused of accepting bribes from a confidential FBI informant who posed as the owner of a medical marijuana dispensary.

Former Councilmember Osvaldo Conde, former Mayor David Silva and ex-Code Enforcement were all convicted in the case. Silva was sentenced to a year in prison, and Conde was given a three year sentence.

Mayor Chris Garcia told HMG-CN in an exclusive interview on Tuesday that “in the municipal election of March 2013 I along with my other reform colleagues were elected by our community to clean up the deficiencies in city hall.”

“We all knew coming into this that it wasn’t going to be easy and it wasn’t going to be pretty, but we needed a starting point to restore our community’s trust. We’ve inherited a decade of serious financial problems and internal control deficiencies that were before our time,” Garcia said.

“The only way to get to that starting point was to have a truly authoritative and independent forensic audit that only the state controller was uniquely positioned to address,” Garcia continued.

“We called for this forensic report, we agree with the findings of this report, we are well aware of the deficiencies and as part of the policies and procedures we will ensure that we are able to get to the rubrics to where the city is above average. I thank the state controller for their efforts and I can now say I feel vindicated for all the hard work leading up to this moment in time in our city’s history,” said Garcia.

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