That’s the sign the auditors should see when they very likely descend on this small city of 65,000 located on the fringe of Los Angeles.
According to the Los Angeles Times, there are financial troubles brewing in Montebello. Off-the-book accounts are part of the problem.
Financial junkies will recall that off-book accounts were at the heart of Enron’s demise.
A key excerpt from the above link states, “The board of directors was not attentive to the nature of the off-books entities created by Enron, nor to their own obligations to monitor those entities once they were approved. ”
Unlike the City of Bell, there have been no allegations of criminal intent, but it sure does smell at least like gross negligence or incompetence, the results of which could be as significant as if a crime were committed.
At a minimum, $900,000 is missing from one of the off-book bank accounts and another has also had withdrawals of an undetermined amount.
Other allegations include transferring CRA monies to cover the general fund and improperly tapping into federal affordable housing funds. In the latter case, the transaction may have been recorded in a deceitful manner.
Montebello reported operating revenue of $37 million in 2009. The suspect transactions could run over $20 million, including a loan of $19 million from the city’s redevelopment agency. Unwinding all of it could force the city into bankruptcy.
Neither the auditors’ opinion nor the management discussion accompanying it hinted at problems. If anything, management’s narrative was rosy and hawked the city’s achievments.
What is also interesting is that Montebello received the Certificate of Achievement for Financial Reporting Excellence for the audited statements issued as of June 2008.
This is the same award that has graced the financial reports of Vallejo, Bell and….the City of Los Angeles.
As I have mentioned before, this award has no place in a financial reporting package. It could lead the average users of the statements to conclude the numbers are reliable when the opposite might be the case.
I wonder if Wendy Greuel has her award framed and hanging in her office?