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Money Matters

NEIGHBORHOOD POLITICS-The City Controller is the elected paymaster, auditor, and chief accounting officer for the City of Los Angeles.

Controller Ron Galperin oversees a team of more than 160 employees who conduct independent audits, manage the City’s payroll and spending, report on the City’s finances, pursue fraud and waste, and work to create a more transparent, accountable and modern city for residents. 

Audits 

Audits are one of the critical responsibilities of the Office of the Controller. Audits determine if existing controls in City departments are adequate, gauge whether departments are operating efficiently and effectively, and ensure that revenues and expenditures are properly recorded in conformance with applicable laws and regulations. 

Financial-related audits determine whether financial information is presented in accordance with established or stated criteria, and whether the internal control structure over financial reporting and safeguarding of City assets is suitably designed and implemented to ensure their objectives. 

These audits include routine payroll observations and reviews of departmental bank accounts as well as other audits requested by the City Council on an as-needed basis, such as vendor reviews on selected contracts. 

City auditors recommend improvements that promote efficiency and effectiveness of City operations that save taxpayer dollars. 

Boring stuff? Perhaps not. 

The 2017-18 fiscal year saw the most-ever audits at 22, while only 12 were expected during the fiscal year that ends this month. 

This decline was due in part to the implementation of a City Charter update which granted the Controller the power to conduct performance audits of City departments, allowing a deeper examination of departmental effectiveness. 

While the financial data was useful (and formed the basis for his innovative Control Panel the Controller recognized there was important information that was not reflected in these audits. 

Performance audits can review the effectiveness and efficiency of departments and their funds and, in a number of cases, have resulted in large savings for the City. 

One four-year audit of the Street Damage Restoration Fees led to increasing income for the City from $7 million to $70 million. 

A recent audit of the HHH funds took nine months to complete while a financial audit would have been completed in a few weeks. 

But would a simple financial audit have found what the HHH performance audit found? 

The $1.2 billion bond issue which promised taxpayers 10,000 or more units of supportive housing for homeless Angelenos? 

None of these units have opened. And while all the funds have now been allocated, the Controller says it’s likely that they will result in only 5,873 units of supportive housing, plus another 1,767 units for managers and affordable housing. If the costs don’t escalate further. 

The audit also found that developers are spending 40% of their construction budgets (norm is about 25%) on soft costs such as consultant fees, permitting, and financing. 

With a median construction cost of $531,373 and with some units exceeding $700,000. 

These performance audits can provide the City’s citizens with better information, but they come at a price in time and effort. 

But with the potential to generate revenue such as resulted from investigating the Street Damage Restoration Fees, the Controller should double down and add people to his Waste, Fraud and Abuse unit. 

Establishing an Audit Task Force with community members as well as representatives from the Controller’s office, City Council, and the Mayor’s office could help the Controller prioritize where he can best use the extra time and effort of a performance audit and when he can safely use a financial audit. 

He can safely use the latter for fast moving programs and ensuring fiscal accountability throughout the City, while performance audits can be reserved for explorations of complex issues, departmental effectiveness and address areas which have high cash flows over their day-to-day operation. 

Potential targets could include the Councilmembers’ discretionary funds and the revenues from the Sunshine Canyon Landfill. 

Special Funds 

Over the past few years, the Office of the Controller has been doing significant work on the City’s various Special Funds. 

Two years ago, the Controller released a report calling on the City to reform the way it handles the more than 700 special funds that hold $4 billion of the City’s money. Special funds are used for particular projects or purposes, like creating parks, building bridges, and constructing affordable housing. The balances of these funds make up roughly half of the City’s treasury, yet nearly 600 special funds are not included in the yearly budget. 

One example is the Cultural Affairs Department which receives 1% of commercial construction costs for its Art Fund. The Controller was successfully able to remove the original mandate that the funds had to be spent within one block of the construction project and some sums were distributed for use in each Council District. Nevertheless, the Cultural Affairs Department still has $10 million unspent in its Art Fund. 

While a number of the Special Funds are necessary and some are used efficiently, many are not. The Controller should pursue legislation establishing automatic sunset provisions on any new Special Fund. 

Furthermore, the City should mandate annual reviews and assist Departments in freeing up more of the existing Special Funds. 

Oversight 

The Budget Advocates’ White Paper released earlier this year was titled Radical Transparency for a reason. All Angelenos can understand the fiscal impact of the pandemic, but the City’s problems did not start there. 

It started with structural deficits where the City consistently spent more money than it took in and was compounded by the omission of increases from last year’s labor agreements with the economic impact of the pandemic only being the icing on the cake. 

The City needs transparency and oversight, both of which are integral parts of wise budgeting and financial tracking and are squarely in the Controller’s court. We wish him well. 

The above is based on a meeting Budget Advocates had with the Controller and two of his senior staff on October 25, 2020 and updated with recent events.

 

(Liz Amsden is a member of the Budget Advocates, an elected, all volunteer, independent advisory body charged with making constructive recommendations to the Mayor and the City Council regarding the Budget, and to City Departments on ways to improve their operations, and with obtaining input, updating and educating all Angelenos on the City’s fiscal management.) Prepped for CityWatch by Linda Abrams.