State again ques­tions city of In­dus­try’s fis­cal con­duct

A new re­view finds many sus­pi­cious trans­ac­tions and a lack of over­sight.

Los Angeles Times - - CALIFORNIA - By Adam Elmahrek

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 the 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.

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

For years, the city gov­ern­ment was headed by thenMayor 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 street­clean­ing fees, ac­cord­ing to the re­view. Perez had said his firms’ billings were mis­rep­re­sented in the re­view’s find­ings.

The district at­tor­ney’s of­fice be­gan 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 65inch 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 the 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.

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 the 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 a 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.

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

Luis Sinco Los An­ge­les Times

THE CITY of In­dus­try in the San Gabriel Val­ley con­sists mostly of in­dus­trial busi­nesses and is home to fewer than 300 res­i­dents. It abuts the cities of La Puente, fore­ground, and Ha­cienda Heights, back­ground.

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