PERSPECTIVE-The settlement between the City and the IBEW Local 18 regarding the City Controller’s right to audit the controversial nonprofit trusts represents an important step forward – but only a baby step.
Regardless, we owe Controller Ron Galperin (photo) our full support as he continues to press for further access to the trusts’ records through the courts. God knows he is not receiving much, if any, backing from the City Council. Mayor Garcetti and City Attorney Feuer appear to be the only public voices standing behind him.
The agreement allows an audit of the records for the last five years. It’s an important start in as much as time is against the City. The longer the process is delayed, the more likely key data and documentation could be misplaced or altered. It might already be too late in some instances.
It would ordinarily be spurious to suspect fraud before conducting an audit, assuming the absence of any red flags. However, the stonewalling by union boss Brian D’Arcy represents a bright crimson banner.
After reading through the agreement, I have the following concerns.
The city’s representatives to the Trust Boards will be limited to the General Manager of the DWP and other managers of the utility appointed at the discretion of the GM (Section II.1).
With all due respect to Marcie Edwards, the current GM, she is in a position where she must deal with D’Arcey on a regular basis. In a sense, both of them are in a symbiotic relationship when it comes to directing the personnel and resources of the giant utility - hardly the degree of independence you would want in a board member. Therefore, it is important that Mayor Garcetti have full discretion to appoint people who can cast a fresh set of eyes on the activities related to the trusts, free of the daily pressure D’Arcy is capable of applying.
After the completion of this audit, the five-year period will be off limits for further testing, especially any substantive audit work (Section II.5.11). The agreement states: “..the Controller agrees that he shall not conduct any further audit of the Trusts solely for the five fiscal years covered by this Agreement and shall not cause to be issued or seek to enforce any subpoenas in support of an audit, or otherwise attempt to gain possession, custody or control of any TRUST Documents, for those fiscal years.”
In other words, Galperin gets one shot at it. So, if the City is eventually allowed to audit other years, and a suspicious transaction is uncovered in the course of that audit reflecting on activity in the closed periods, it will be tough luck for Ron. It would make it difficult to connect the dots for a pattern of abuse spread over a long period.
It is also conceivable that D’Arcy could block the city from using data from a closed period to look backward. For example, a single transaction in a recent year that appeared to be reasonable as a one-off event might take on a new meaning if considered in light of an older one.
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Although the agreement uses the term “unfettered access,” nothing is unfettered unless it can be viewed in the full context of events.
Denying the issuance of subpoenas related to the activities of the closed years bestows the same client confidentiality advantages enjoyed by attorneys on the CPAs employed by the trusts. In other words, D’Arcy can claim the equivalent of attorney-client privilege, essentially securing any relevant evidence from the public’s view.
Notwithstanding the above limitations, Ron is capable of making the best from a weak hand. But let’s not put him in a position where he is trying to win at solitaire with only 51 cards.
As I stated earlier, it is important we support him and, equally important we put pressure on our City Council representatives to back Ron publicly - because D’Arcy has proven to be a master at dividing and conquering.
(Paul Hatfield is a CPA and former NC Valley Village board member and treasurer. He blogs at Village to Village and contributes to CityWatch. He can be reached at: [email protected])
–cw
CityWatch
Vol 12 Issue 92
Pub: Nov 14, 2014
