LA City Department Misplaces $5.6 Million

Steve Boren · #1 (**permalink**) 02.06.10, 09:43 AM

City Department Misplaces $5.6 Million
Audit Finds 'Systematic Failure' by Dept. of Neighborhood Empowerment

The city department tasked with overseeing 89 Neighborhood Councils has misplaced $5.6 million and doesn't know where to find it.

An exhaustive audit of the Department of Neighborhood Empowerment (DONE) also found a forgotten bank account containing $160,000.

This is "a systematic failure of accounting and fiscal oversight," according to a scathing city audit released Jan 12. And, since establishment of the Neighborhood Council system in 1999, DONE has never reconciled its financial accounts. Please click here to view audit, and here for video.

"The audit rightly points out that management was lax in enforcing existing policies and procedures. Some of the findings should have been acted upon earlier. As the General Manager of this Department, I am responsible for ensuring that the program is running properly," said DONE General Manager BongHwan Kim in an email.

Reports of misused taxpayer money first appeared exclusively in The Chatsworth Roundup in September. At the time, Kim admitted that there might be as much as $100,000 embezzled from the Council system. Presidents or treasurers of as many as nine Neighborhood Councils (NC) were under investigation. Since then, the amount has grown to $276,000 and officers from six Neighborhood Councils have been charged with felonies, according to the audit. For details, click here.

For example, in 2008, one Neighborhood Council chairman/treasurer was arrested for stealing $30,000, in part by making withdrawals of city funds at the Normandie Casino ATM over a three-year period. For details, click here.

And a community activist who had a felony conviction was arrested on suspicion of misappropriating $85,000 in city funds while serving as chairman of his Neighborhood Council. Prosecutors allege he bought money orders and made a series of cash withdrawals and credit card purchases that were not authorized. They also say he spent some of the group's money on travel and to hire his daughter. For details, click here.

"Since I've been general manager I've tried to take ownership of the problem and deal with it," Kim told the Daily News. "But, part of the problem is the (city employee hiring) freeze, and we simply do not have the right personnel to fix the problem."

Controller Wendy Greuel, whose office conducted the first audit of DONE since 2006, found that many of the

recommendations in the previous audit were never acted upon, leading to escalating fiscal problems.

"With staff cutbacks at DONE, there is no reason to believe that the backlog of financial paperwork will be reduced. And, with the city's worsening financial crisis, there is no reason to believe DONE will be given the resources to accomplish the recommendations of the audit," said Judith Daniels, president of the Chatsworth Neighborhood Council.

The audit revealed that DONE failed to reconcile its books with official city records, which "has resulted in a $5.6 million discrepancy between total available cash per the city's records and total rollover amounts for NCs."

Greuel's audit also found that DONE:

-- failed to review 364 quarterly statements submitted as of August 2009;
-- failed to enforce a requirement that Neighborhood Councils submit financial reports;
-- failed to review Neighborhood Councils' annual budgets;
-- failed to make sure that Neighborhood Councils stay within their credit card limits;
-- failed to provide oversight of Neighborhood Councils' cash advances;
-- failed to assess how or for what Neighborhood Councils can spend their money;
-- failed to follow up on $880,000 in purchases by Neighborhood Councils that have not submitted quarterly reports within the required timeframes;
-- failed to follow up on approximately $45,000 in cash withdrawals that did not comply with DONE's policies; and
-- failed to act on 79 credit card purchases totaling more than $124,000 made by 39 NCs which appear to have been split into multiple charges to circumvent the card's $1,000 spending limit.

The audit also found that in spot-checks of 14 NC, five were unable to account for 27 pieces of equipment purchased with taxpayer money.

DONE General Manager Kim, who requested the audit, said the NC program has been "under-resourced and inconsistently managed since its inception in 2002."

Kim has been in charge of the Department since March of 2007. He is responsible for overall management of the

Department, including development of budget, strategic planning, programs and services, policies, personnel and constituent relations, according to a city publicity release.

"I have instructed the accounting staff to embark on a complete forensic accounting for each and every NC since program inception. It is estimated that it will take existing Department staff 2 months (including overtime) to complete this major task," Kim said.

"We will be announcing shortly, new policies and procedures around such things as standardized budgets and tracking, fingerprinting of treasurers, reduction or elimination of petty cash, returning incomplete payment requests, required Board approval of expenditures (including consequences), etc.," Kim said in the email.
City Councilman Paul Krekorian, who chairs the City Council's Education and Neighborhoods Committee, promised a quick review of the audit, especially in light of the city's financial problems.
"DONE has had a 40 percent reduction in its budget over the past several years," Krekorian told the Daily News. "We need to look at how the Department can restructure to serve the needs of these citizen volunteers."
"We need to put in checks and balances to ensure that doesn't happen again," Greuel told the Los Angeles Times.
"Dishonesty and mistakes are not unique to the Neighborhood Council system," Chatsworth NC President Daniels said. "How many city Departments have the exact same issues with their spending? I believe that the good that has come out of Neighborhood Councils far outweighs the small number of Councils that have financial problems. But, of course, that doesn't negate the need for better rules and oversight.

"Honest people will be honest. Dishonest people will find a way to get around whatever rules you impose. There have been suggestions over the years that NC board members be required to have more ethics training. You can't force ethics into the head of a person who doesn't care about ethics or honesty," she said.

Neighborhood Councils were established in 1999 under the city's new Charter to enable local residents to have greater impact on city operations from the grassroots level. Each Council was allocated $50,000 annually for local projects until the current fiscal year, when the amount was reduced to $45,000. Unspent funds can be rolled over for up to three years.