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Montebello may face insolvency if it doesn't close budget deficit


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  • Montebello may face insolvency if it doesn't close budget deficit

    Montebello faces possible insolvency in the coming months if it cannot close a gaping budget deficit and has consulted with bankruptcy attorneys to weigh available options, according to a memo obtained by The Times.

    The memo, written last week to the City Council by Montebello's departing city manager, also said the city could face the potential of "bond default or other difficulties" if it does not repay the $17 million it borrowed from its redevelopment agency by June 30.

    Additionally, the city is struggling with cash flow. If it cannot get a loan by September, "the functions of local government [could] shut down," according to the memo Peter Cosentini sent to the council.

    The latest fiscal blow comes as Montebello is grappling with the announcement that state Controller John Chiang will perform a rare outside audit of the city's finances amid evidence that the city has produced false or inaccurate financial reports dating back several years.

    Montebello has been the subject of several outside probes, including investigations by the Los Angeles County district attorney's office into what happened with two "off-the-books" city bank accounts that more than $1 million moved through in the last 12 years.

    Next week, council members will vote on whether to issue subpoenas to a bank to get more information on what happened to nearly $1 million in one of the suspect accounts that officials said went to a local restaurant developer, Hank Attina.

    The city agreed to give Attina a $1-million loan, but, according to the council agenda, officials now are questioning whether he was paid $2 million instead, with some of the funds moving through the off-the-books account.

    "We don't know if it's the same money or if it's double," said the city's police chief, Kevin McClure, who recently was appointed as the city's spokesman.

    In a phone interview Friday afternoon, Attina said he only got the amount — just over $1 million — approved by the council, and not $2 million. He criticized Cosentini, saying that he was engaging in a "fishing expedition."

    "He's going to find out we did not receive this money, and it really damages people's reputations when you make reckless accusations like this," Attina said. "Once everything comes out, it'll show we only received what the city allocated for us to receive."

    Montebello has reached the fiscal brink after years of infighting and destabilizing recall elections. The city also has a history of questionable accounting practices, according to the controller's office and local officials.

    On Friday, city officials could not even agree on the size of the city's deficit or on how much money the city's general fund owes to its redevelopment agency.

    Montebello took the unusual — and some say potentially illegal — step of borrowing money from its redevelopment agency last year to keep the city afloat.

    In his memo, Cosentini said the loan was for $17.3 million. Councilman Bill Molinari said he thought it was $14 million. Councilwoman Christina Cortez put the total at closer to $19 million.

    "We can't even agree on the numbers in front of us," Cortez said. "How can we move forward?"

    Whatever the figure, McClure said the city will be forced to make major layoffs and cuts in services if it cannot get a loan to cover the debt.

    He said the city has many new leaders, including most of the council members, and that they are trying to solve problems left by previous officials.

    "There's stuff being uncovered," McClure said. "These aren't the problem-makers. They're the problem-uncoverers."

    The state controller has accused Montebello of dragging its feet in turning in financial reports. McClure said one of the reasons was that incoming Montebello officials had no confidence in the city's past financial record-keeping and did not want to turn in wrong information.

    "The way they moved money was not up to today's standards," McClure said.

    The Montebello police chief said he is in contact with L.A. County prosecutors in case any allegations of criminal wrongdoing come up.

    Councilman Molinari added that Montebello's financial situation was "critical," but not because of any "sinister plot." He said the struggling economy and other past decisions that were wrongheaded but not necessarily illegal played a role. He said the council has voted to hire an independent forensic auditor.

    "If there are problems, we want to know what they are, and we're taking steps every day to correct them," Molinari said. "We've been self-policing ourselves."

    City officials have consulted with bankruptcy attorneys to consider possible options, according to a memo by the departing city manager that was obtained by the Los Angeles Times.
    Facts do not cease to exist because they are ignored. -- Aldous Huxley
    Two things are infinite: the universe and human stupidity. -- Albert Einstein

  • #2
    Bell part duex


    • #3
      Probably not as corrupt as Bell.
      Facts do not cease to exist because they are ignored. -- Aldous Huxley
      Two things are infinite: the universe and human stupidity. -- Albert Einstein


      • #4
        Auditor warned Montebello of `significant deficiencies' in 2009

        04/22/2011 11:25:38 PM PDT

        MONTEBELLO - An independent auditor warned Montebello in 2009 about what the firm considered "significant deficiencies" in the city's handling of federal money, capital improvement funds and accounting practices, this newspaper has learned.

        The audit, conducted by Diehl, Evans & Co. LLP, cited a half-dozen significant deficiencies in city accounting practices. Among them were loose control of cash, oversight and record keeping.

        Despite that audit, former Montebello Councilwoman Kathy Salazar said Friday she could not find fault with the city's accounting practices.

        "Well, I know two or three years in a row we got an award for best practices in the finance department," Salazar said.

        Montebello won an "certificate of achievement for excellence in financial reporting" from the Government Finance Officers Association of the United States and Canada in 2007, 2008 and 2009.

        Bell won the same award in 2005 and 2008. The District Attorney's Office charged six officials in that city last year with felony counts of misappropriating public funds.

        Representatives with the Government Finance Officers Association of the United States and Canada did not return calls for comment. It costs cities between $290 and $2,190 to apply for the award, according to the association's website.

        State Controller John Chiang took the unusual step Thursday of announcing he will audit Montebello's finances, saying he believes city financial reports submitted in the past are "false, incomplete or incorrect."

        A unit of the Los Angeles County District Attorney's Office that specializes in prosecuting corrupt politicians also is investigating two off-the-book bank accounts city staffers discovered earlier this year.

        The unit's head prosecutor said once the controller's audit is finished, he will inspect it for evidence of criminal wrongdoing and determine if any additional investigation is necessary.

        "If it appears someone has stolen money, then certainly we would look at it," said Deputy District Attorney Dave Demerjian, head of the Public Integrity Division.

        Among the deficiencies cited two years ago by Diehl, Evans & Co., was the city's habit of transferring money from its capital improvement fund to cover shortfalls in the operating budget.

        "As a result the city has incurred substantial excesses of expenditures over revenue resulting in a significant transfer of resources from the Capital Improvement Fund to balance the General Fund," the 2009 audit read.

        Unidentified city staff responded by saying the budget is a "work in progress" and that adjustments would be made.

        The audit also found problems with the city's cash controls, stating differences between its general ledger and bank statements that needed timely resolutions and "bank reconciliation" documents that were not dated.

        "During our review of the monthly bank reconciliations, we could not verify the timeliness of the bank reconciliation preparation because they were not dated. We also noted that the bank reconciliations were not dated," according to the audit.

        Unidentified city staff responded in the audit by stating the delay in reconciliation was caused by a "new financial system."

        Councilman Bill Molinari said he never saw the 2009 audit, but he blamed the auditor for failing to identify problems with the city's accounting practices earlier.

        "I'm looking at these things that should have been brought up by the auditors in the past, and I'm disappointed it wasn't," Molinari said.

        Molinari said he's bothered by the notion there's a "conspiracy" afoot. He ascribed the city's crisis to "incompetence" rather than criminal wrongdoing.

        Diehl, Evans & Co. did not return calls for comment on Friday.

        The audit would be the firm's last in Montebello.

        It was replaced by Eadie and Payne LLP, which audited the city last year. An employee said Friday the company would not comment on its audit or the city.

        Molinari said the new firm has done a better job of finding flaws in city finances.

        "This firm is doing an excellent job of bringing up these deficiencies," Molinari said.

        Molinari blamed former staff at the city for the problems.

        "Much of it has happened under the watch of the previous finance director and the one before him, (who) died," Molinari said. "So it's difficult to hold them accountable."

        Read more:
        Facts do not cease to exist because they are ignored. -- Aldous Huxley
        Two things are infinite: the universe and human stupidity. -- Albert Einstein


        • #5
          Don't be surprised if Compton follows suit. They have a $33 Million deficit, and the hole is getting deeper every day.


          • #6
            Originally posted by RLRay View Post
            Don't be surprised if Compton follows suit. They have a $33 Million deficit, and the hole is getting deeper every day.
            I wouldn't be surprised, just like the state taking over the school district awhile back and El Camino taking the college....


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