Los Angeles Times

State again questions city of Industry’s fiscal conduct

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

- 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.
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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