Compton audit uncovers illegal contracting, outlandish council expenditures
Compton city officials did not abide by standard, established contracting protocols, and thus may have to face the music for criminal noncompliance
California State Controller’s office. Photo source: Yelp/Monu K.
State Controller’s audit of the City of Compton reveals neither city officials nor the council complied with city contracting requirements
Herewith, continues the Compton Herald examination of the State Controller’s audit review of the City of Compton, to inform the tax-paying citizenry how, and where millions of dollars in City finances may have been squandered over multiple years.
In our previous installment, we revealed that the state controller determined that the city suffered from a deficit fund balance in the General Fund, that council members salary compensation was in excess of the amount allowed by the City Charter, and generally a failure by the city to exercise oversight over its financial and operational activities.
Former two-time Mayor Omar Bradley was charged with the misappropriation of a city business card to the tune of $7,500. For that, he was prosecuted and convicted in 2004 and incarcerated. What has occurred since Bradley’s terms in office make his crime appear forgivable. What the current city leadership has committed goes far beyond Bradley’s misdoings.
The city’s mishandling, bungling, and side-stepping of standard governing practices and protocols would be laughable if they were not so abominable. The magnitude of the city’s misdeeds appears criminally liable. But that’s reserved for a future installment.
The state controller noted that on Sept. 15, 2015, Mayor Brown adjusted her salary to $600 per month, and, Galvan, Zurita, Sharif, and McCoy followed suit a month after Brown’s actions, dropping their recompense to $600 to comply with the Charter. However, council members continued to receive their monthly car and phone allowances, increasing their total compensation over the amount allowed by the City Charter, for which there was no oversight or monitoring of city credit card use.
The controller also noted that on Dec. 31, 2015, the mayor and council members received additional salaries of $7,475 labeled as “Other Earnings,” which effectively amounted to an unofficial late Christmas bonus for all intents and purposes, as the city was unable to provide documentation to justify the additional money.
In fairness to the mayor and council members, money for necessary expenses is one thing; but the unchecked spending of city resources for which the council could not provide substantiation is inexcusable.
The most scathing example of lack of city’s failure to implement basic internal controls in its cash receipt process, resulting in a loss of millions of dollars badly needed by the city, involved former deputy treasurer Salvador Galvan, who was sentenced to 42 months in federal prison on charges of embezzlement of more than $3.7 million of city funds from May 2010 through December 2016.
Galvan held his position for more than 20 years. His primary responsibilities included the verification of daily collections to the Cashier Count Report and completion of the bank deposit process. According to a forensic audit report, dated March 2017, Galvan was able to obscure his embezzlement activities for more than six years, skimming small amounts daily by duplicating and falsifying bank deposit slips, while presenting accurate documents for recording in the city’s accounting system.
City management failed to closely monitor the city’s bank accounts and compare what was being recorded in the city’s accounting system to what was actually being deposited in the bank.
The controller determined that given the city’s continuing budget deficit, city management should have maintained rigorous internal controls over cash handling and reconciliation processes.
Galvan must have thought his boss, Douglas Sanders, and co-workers were stupid. For more than six years of theft, that’s the way he made them look. He bought an expensive car, remodeled his home, paid for expensive dental work for his wife — also a city employee — and bought expensive gifts for the office.
On a $60,000 city salary, it is amazing no one in the treasurer’s office suspected Galvan of embezzling city coffers for better than half a decade to the tune of millions. Galvan was prosecuted and convicted but got off lightly. On Nov. 3, 2017, he was sentenced to 42 months in federal prison — tantamount to a slap on the wrist given the magnitude of the crime.
The sentence is not commensurate with the amount of money stolen, notably if the comparison is made to $7,500 in city funds misappropriated by former mayor Omar Bradley.
Outlandish city budget
The state controller also found it suspecting that council expenditures are substantially higher when compared to most of the other charter cities of comparable size in area and population within Los Angeles County, such as Burbank, for instance.
Compton’s budget for the period examined was approximately 300 percent greater than most charter cities. The city’s budget is especially suspect when compared to Burbank, a city in Los Angeles County of 104,447 residents, home to such tourist attractions as Universal, Walt Disney, and Warner Bros. Studios; the Martial Arts History Museum, The Falcon Theatre, Magnolia Park vintage shopping center, the Empire Center, a slew of chic clubs and dining spots, and a host of other attractions along bustling Sunset Boulevard.
That Compton pales, by comparison, is no revelation and to rate the city by Burbank standards would be unfair. But, what is surprising: Why is Compton’s official budget 300 percent greater than Burbank’s?
The controller concluded in its findings that the city council ignores its established budgets. In fiscal years 2015-16 and 2016-17, city officials overspent Compton’s approved budget by $223,734 in each period. That negligence to control spending further increased the city’s General Fund deficit.
Unlawful city contracting
Another glaring example of a lack of Administrative and Internal Accounting Controls cited by the controller involved the city’s contracting process from July 1, 2013, through June 30, 2016.
During that period, the controller found that neither city officials nor the council complied with the city contracting requirements. Purchases and contracts for supplies, services, and equipment that exceed $25,000 must be made with a written contract and a written purchase order to the lowest responsible bidder.
City officials made numerous questionable decisions by not following the contract process. The controller identified numerous contracts and transactions that raised questions about the reasonableness and proper usage of public funds. Specifically, here’s what the controller found:
Contracted services were not subjected to competitive bidding, a state law mandate, and the city extended existing contracts without completing a competitive bidding process.
For one contractor in particular — Ron’s Maintenance, Inc., on Oct. 27, 2015, the council adopted Resolution No. 24,248 authorizing the city manager to enter into a multi-year agreement with the firm for city-wide catch basin cleaning services.
The city manager entered into a new two-year contract agreement with Ron’s Maintenance, Inc. at $154,836 per fiscal year. The new contract extended a contract that ended June 30, 2015, two additional years to June 30, 2017.
The city has consecutively renewed its contract with Ron’s Maintenance, Inc., since Jan. 23, 2010, and paid a total of $946,178 between July 1, 2011, and June 30, 2017 (averaged $157,000 per year for the 6-year period).
The current administration is only accountable for four years of this time period — between June 2013 and 2017.
The city’s initial contract with Ron’s Maintenance, Inc. shows that the proposal and contract negotiating process excluded other contractors from bidding on the project. Additionally, the state controller’s review of documents suggests that the city did not consider exploring other options or seek bids from other companies. As such, the city failed to comply with the open bidding process as mandated by its contracting requirements.
The errant contracting policy was not only limited to Ron’s Maintenance, Inc. The malpractice was wanton.
According to the controller, the city failed to obtain competitive bids for the following additional contracts:
- All-Star Interpreting Services, June 8, 2014 — $35,000
- I All-Star Interpreting Services, July 28, 2015 — $35,000
- Evan Brooks Associates Consultant, Jan. 13, 2015 — $56,100
- Traffic Engineering Services, Sept. 1, 2015 — $40,000
- New West Landscaping, May 21, 2013 — $25,000
- Landscaping Services, Oct. 14, 2014 — $18,000
- Urban Graffiti Enterprises, Inc., May 21, 2013 — $25,000
- Willdan Financial Services, Feb. 25, 2014 — $62,260
The total amount of these expenditures that were contracted without competitive bidding amounted to $296,360.
Violation of contracting requirements
On May 18, 2014, the City Council amended an existing contract by increasing the scope of work and compensation by $454,980, to a total amount of $654,980 — an increase of 227 percent. In addition, on Nov. 16, 2015, the city council extended the contract for another year.
The controller found that the city amended this contract without completing the competitive bidding process, failing to comply with purchasing procedures and contracting requirements by the City of Compton Administrative and Internal Accounting Controls.
None of the documents the controller reviewed provided evidence that city officials conducted a competitive bidding process or considered exploring any other options. The controller further determined the contract extension is not fair and equitable to the city and its residents.
As such, city officials violated the city’s contracting requirements.
Failing to seek competitive bidding encourages the tendency toward corruption — such as accepting illegal financial kickbacks to assure that a particular company receives the contract at the behest of competing companies. The practice goes to fraud, favoritism, and extravagance.
Competitive bidding is a means of preventing political graft and corruption because the public nature of the process discourages fraud, favoritism, and extravagance. The integrity of the process is a central goal of competitive bidding. If a public official or employee is later found to have had an interest in a public contract, the agreement is void and unenforceable, and the interested parties may be subject to criminal prosecution.
To provide bidders with an opportunity to bid competitively on the same work, state law mandates that the appropriate public authorities must adopt plans and specifications that definitely set the extent and type of the work to be done and the materials to be furnished. The public entity itself must prepare these plans and specifications, and it must provide all prospective bidders with the same specifications from which to prepare their bids. The specifications must not be drafted so as to restrict bidding to a single bidder unless it is clearly essential to the public interest to do so.
Additionally, the controller found that the city approved contract change orders in violation of the California Public Contract Code. The city approved a change order in the amount of $1.7 million to cover additional work for a city-wide traffic signal upgrade project. The change order expanded the scope of work to include additional “potholing” repairs as a result of an underground utility survey.
This change order represents a 36 percent increase over the original contract amount of $4.9 million. The change order was approved by the city on March 17, 2015, but work was completed before the change order was approved.
The city adopted the California Public Contract Code as its law governing contract awards relating to street works, and also adopted the Green Book’s Standard Specifications for Public Works Construction (Green Book) for construction standard practices, which are widely accepted. City management asserted that the 36 percent increase of the contract through a change order was legal and had been approved by the city manager.
City management further explained that the change order included major “potholing” repairs because the original contract had not included that work. The controller noted, however, that a change order should cover increased costs only within the original project scope. The additional improvements were not within the scope of the original contract, raising serious concerns and issues relative to the city’s compliance with the California Public Contract Code.
The controller determined that the city failed to comply with its contracting requirements when it approved the change order.
The city’s Financial Policies and Procedures Manual (Section 9.6) references the California Public Contract Code, section 20455, which states that changes to the original contract should not exceed $150,000.
By extending project scope through change orders, the city repeatedly circumvented the bidding process. Change orders that alter project scope or exceed $150,000 should be awarded only after competitive bidding, which did not occur.
According to the controller, contracts not competitively bid as required by the Public Contracts Code are void as a matter of law. Moreover, Public Contract Code section 20163 states that “[e]very person who willfully violates the provision of this section is guilty of a misdemeanor.”
All responsible parties appeared to rely on the Public Works director’s recommendations without seeking any input from legal counsel. As a result of the city’s violation of the Public Contract Code, reimbursement of its state and federal projects may be disallowed.
According to the state controller, Compton city officials did not abide by the standard, established protocols for contracting, and thus may have to face the music for criminal noncompliance.
That will have to be determined by the L.A. County District Attorney, as it pertains to criminal liability and specifically “why” among Compton city officials.
The Compton Herald’s review of the City of Compton special audit by the California State Controller continues.