Hawaiian Gardens Will Ask Grand Jury to Investigate City's Finances

By JAMES M. GOMEZ

Aug. 28, 1988 12 AM PT

Times Staff Writer

HAWAIIAN GARDENS — City Council members, embroiled in a bitter controversy over the city’s poor fiscal condition, last week agreed to ask a grand jury to investigate the city’s finances for the past five years.

The council’s latest attempt to correct years of allegedly shoddy accounting and bookkeeping practices came after council members unexpectedly canceled a planned budget-balancing session.

At Tuesday’s council meeting, the members voted unanimously to ask the Los Angeles County Grand Jury to review the city’s past financial activities. A letter was being drafted Friday by City Atty. Maurice F. O’Shea.

The council agreed to the action after Terrence M. White, an accountant for the city’s accounting firm, Arthur Young & Co., told the council Tuesday that the city’s “financial records and systems are in considerable disarray.”

The grand jury, at county expense, is authorized to review city and redevelopment finances. If the jury’s investigators find evidence of wrongdoing, they can enlist the aid of the Los Angeles County district attorney.

Audit Deemed Appropriate

Deputy Dist. Atty. Steven Sowders, head of the district attorney’s special investigation division, acknowledged that he was approached last week by city officials interested in legal advice. Sowders said he told the city officials that although there is “insufficient evidence to warrant a criminal investigation” of the city’s financial troubles, “it seems appropriate to audit the city.”

Mayor Kathleen M. Navejas has accused three former city administrators of covering up financial problems. “This has been going on for years and we didn’t know,” she said in a recent interview.

She charged that the three former city heads routinely withheld yearly auditor’s reports that were critical of accounting and bookkeeping procedures. Instead, former administrators Ray Harris, Douglas Dunlap and Charles E. Bryant “painted a rosy picture” of the city’s financial status.

Last week, Navejas released the yearly reports by the city’s former auditing firm, Frazer & Torbet, which cite sloppy accounting controls, poor staff training and unrecorded money transactions. The documents, which were obtained from Frazer & Torbet, had not been shown to council members, she said.

But Bryant, who was city administrator until last December, denied withholding the documents. “I never refused to give them to anybody,” he said. Bryant noted that two years ago, he warned in writing that the council had overspent by $110,000.

Councilman Donald E. Schultze also challenged Navejas’s charges. He said that the fiscal problems are the result of overspending by the council majority on politically popular programs. He said he knew of the management reports and heard warnings by Bryant, Dunlap and Harris that the council was approving programs the city could not afford.

Harris and Dunlap could not be reached for comment.

Fails to See Its Value

Although Navejas said that a grand jury audit would be “a very good solution to the (financial) problem and it will not cost a penny to the city,” political foe Schultze said that “all (the grand jury investigators) are going to tell is that we spent more money than we earned.”

Meanwhile, financial audits released last week vary--sometimes widely--with other published reports of the city’s financial condition.

For instance, the city’s official budget document in 1985 showed that revenues in the previous fiscal year exceeded spending in the general fund by $230,000. But a Frazer & Torbet audit for that fiscal year showed that the city spent $260,000 more than it received.

An audit for fiscal year 1986-87 shows a spending deficit of $806,297, but the city’s published budget document for last year shows a $240,000 surplus.

City Administrator Darwin G. Pichetto earlier reported that spending for the past two years has outpaced general fund revenue by about $1.78 million. The deficit was made up by special one-time revenues, such as the selling of city-owned property, and drawing from the city’s reserve funds, which two years ago hovered at $1.2 million.

The current reserve level, at $340,000, is considered dangerously low because city officials do not know how much of that figure, if any, is available for general fund use. Some officials fear that nearly all the money the city has in reserve is restricted, and therefore not available to pay the city’s bills.

“I don’t know yet how we got to this position,” Pichetto said.

Pichetto and Assistant City Administrator Ronald Downing are continuing to reconstruct the monthly financial activities for the past two years. Pichetto said that efforts are being hampered by a “disarray of accounts that you can’t believe.” He stressed, however, that he has no evidence of wrongdoing.

On Monday, the City Council cut short its fourth scheduled budget-balancing session without taking any action to trim $263,000 from departmental spending proposals. The council has yet to produce a preliminary budget for fiscal 1988-89, which began July 1. Meanwhile, the city is running without a spending plan.

The budget deliberations were canceled after council members met during a closed session called by attorney O’Shea. During that session, according to sources, an argument broke out about how much money the city has left to spend.

Problem of Many Years

Although city officials contend that the current financial problem stems from years of defective record keeping and overspending, an Aug. 15 memo by financial consultant Dudley Lang suggests the city’s 2-year-old computer system may have contributed to the problem because the system “contained many glitches, which resulted in inaccurate reports and accounting.”

“For a two-year period, staff struggled with the programs . . . trying to solve the various problems as they arose,” wrote Lang, who was acting city administrator until Pichetto took the post in early summer.

Meanwhile, the council members voted to put strict limitations on spending. The council approved an expense account policy that, among other things, eliminates all out-of-state travel by council members and restricts council credit card usage.

Pichetto said that the council is scheduled to continue its effort to draft a balanced budget on Sept. 6.

He said that despite the setback from the canceled meeting, he hopes to have a balanced budget ready for approval by the end of next month.

“I’m optimistic,” said Pichetto. “When you hit the bottom, there’s no way to go but up.”