Council members slam city audit firm
COMPTON—Compton City Council members vehemently expressed their displeasure on July 24 after hearing an oral presentation about an incomplete audit report prepared by Mayer Hoffman McCann, which places the city in a difficult financial situation.
The audit firm submitted a disclaimer of opinion to the city and did not complete the 2011 audit.
“The audit gathers evidence that no misstatements exist in a city’s financial reports,” Audit Practice Boss Rich Howard said. “The auditor does not review every single transaction, but uses certain audit standard procedures supporting the opinion that it is free of material misstatements.”
He offered no specific information about the audit, but did recant the timeline leading to the impasse caused by the letter Mayor Eric J. Perrodin sent to State Controller John Chiang, alleging waste, fraud and abuse of public funds in the city, and expressed those concerns during a meeting with a state controller and county representatives earlier this year.
“As required by professional standards we began efforts to acquire the concerns, and ascertain whether they would mean material misstatements in the financial statements,” Howard said. “We sent four emails, six phone calls, and numerous personal requests to members of city management, encouraging the mayor to speak with us.”
Those attempts, he said, were unsuccessful.
“We suggested to the city manager, controller and attorney in February that the city conduct a forensic audit,” Howard said. “The city manager informed us in March that the city would engage another firm and look into the allegations.”
The city had a change of heart, he said, and notified Mayer Hoffman McCann that no forensic audit took place.
“The city manager told us this in June, and asked us to issue our report,” Howard said. “We returned on June 11, and concluded the city’s audit on June 27.”
He referenced deficiencies in the audit, and told the Council that many of the violations appeared on the previous year’s audit.
“We found 25 deficiencies in the city’s compliance with accounting rules,” Howard said.
City Attorney Craig Cornwell said the audit firm did not complete its contractual obligation.
“I believe the city officers allowed access to the actual documentation and information the audit firm requested,” he said. “I answered all the questions about my office. The city and community is left without an opinion of what they saw. The principals that govern you allow your actions in regard to material facts and the firm did that.”
City Manager Howard Duffey asked Howard if the audit firm would sign off on the document after the forensic audit was done.
“I do not know,” Howard said. “That would depend on what facts the fraud audit turned up. We will offer a forensic auditor work documents, but our business with Compton is over.”
Councilwoman Lillie Dobson does not think the audit firm deserves payment.
“We expect payment,” Howard said.
The largest concern Councilman Willie Jones had was the firm’s lack of due diligence, he said, and the presentation left him with a feeling that Mayer Hoffman McCann only offered an alibi for its actions.
“The city manager asked if the audit firm contacted the state controller’s office about the allegations in Perrodin’s letter, and you said no,” Jones said. “He also asked if the firm contacted Los Angeles County and you said no again. I do not understand why the audit firm did not find out the concerns from the state and county.”
The group felt they should engage Perrodin about the allegations, Howard said, and that was the best and only course of action.
“We did perform procedures, and we met with the city manager and suggested alternatives,” he said.
The firm has a checkered past, Perrodin said. “It rubberstamped Bell, with all its troubles, for years. The state fined them significantly. When they got word that I sent a letter to the state controller they, in my opinion, became concerned that they would be held accountable by the state again because they signed off on a previous audit. That is why they bailed out on us. Many other cities got rid of that firm.”
The city needs a forensic audit, Duffey said, because there is no other way it can move forward.
“The forensic audit can cost as much as $200,000,” he said.
The resignation letter submitted by the audit firm was unprofessional, Duffey said, and should have provided viable options the city could pursue.
“I understand why you did not complete the audit,” he said. “It is unfortunate that you understand the devastating financial impact this has on the city, and you moved forward anyway.”
Howard refused to answer questions from The Bulletin after the presentation.
The next City Council meeting is on Tuesday, Sept. 4.