Costa Mesa’s longtime auditor is in hot water, and the heat was just turned up.
The state has filed disciplinary charges against the Irvine-based accounting firm Mayer Hoffman McCann for “repeated acts of negligence” and inadequate documentation during a 2009 audit of the city of Bell. Eight Bell officials are now facing criminal charges for allegedly awarding themselves exorbitant salaries and misusing more than $6 million in public funds.
The firm, to which Costa Mesa recently awarded another three-year auditing contract, now faces up to $1 million in fines and could lose its accounting license.
Costa Mesa is far from alone in contracting with Mayer Hoffman McCann. In fact, the firm has been considered one of the top government auditors in Southern California and prepared financial reports in recent years for the Orange County Fire Authority and 10 cities in Orange County, according to The Orange County Register.
Among the other cities mentioned by the Register were: Orange, Brea, Fountain Valley, Garden Grove, Laguna Beach, Mission Viejo, Newport Beach, Rancho Santa Margarita and Seal Beach. Brea and Garden Grove terminated their contracts with the firm, the paper reported.
But given Costa Mesa’s unprecedented outsourcing plan and the City Council’s battles with the employees union, special attention has been paid to the city’s financial health.
Councilman Steve Mensinger says he’s concerned about the most recent charges against the firm. “Clearly it’s troubling,” said Mensinger, who voted with the rest of the council on May 15 to approve the contract. He plans to “look at options” with the city’s top manager this week.
A Mayer Hoffman McCann representative didn’t return messages seeking comment, but a company spokeswoman told the Los Angeles Times that “the firm is working really hard to make sure what happened in Bell doesn’t happen again.”
The California Board of Accountancy’s disciplinary action comes after a state review found that Mayer Hoffman McCann failed to adhere to 13 of 17 fieldwork auditing standards in its work for Bell, including those designed to flag fraud risks.
The firm “appears to have been a rubber stamp rather than a responsible auditor committed to providing the public with the transparency and accountability that could have prevented the mismanagement of the city’s finances by Bell officials,” state Controller John Chiang asserted in a statement during December 2010.
The recent disciplinary charges were first reported last week by the Times.
The repercussions to Mayer Hoffman McCann could also extend beyond discipline from the state. Current officials in Bell are considering a lawsuit against the firm, the Times reported.
“People have been quick to blame the residents for the deep-rooted corruption, but the reality is that the agencies in place to prevent corruption, like this audit firm, continually ignored red flags,” Bell Mayor Ali Saleh told the newspaper. “These agencies should not only share the responsibility but the financial burden as well.”
Mayer Hoffman McCann has been Costa Mesa’s auditor since 1991. When city staff recommended this month that Costa Mesa sign another auditing contract, their report didn’t elaborate on what the firm learned from its trouble with Bell.
“While the firm was also the audit firm for the City of Bell, their management has implemented many additional internal control measures to further tighten the audit process,” the report’s only reference to Bell.
And among the criteria Costa Mesa used to recommend Mayer Hoffman McCann was “recent experience” in providing similar services “for other public agencies.”
City CEO Tom Hatch didn’t return a message seeking comment.
Costa Mesa approved the new Mayer Hoffman McCann contract on a 4-0 vote earlier this month. Councilman Gary Monahan abstained because he’s a client of the firm, he said.
When asked by Councilwoman Wendy Leece about Mayer Hoffman McCann’s experience in Bell, city Finance Director Bobby Young said the firm has learned from it and was recommended after a thorough review process. The company would rotate its auditors in Costa Mesa to keep a fresh set of eyes on the city’s books, he added.
Under the agreement’s terms, Costa Mesa may cancel its contract with Mayer Hoffman McCann at any time. If Costa Mesa changes firms, the most likely replacement would be Irvine-based White Nelson Diehl Evans, which city staff ranked second in their evaluation of proposals.
You can reach Nick Gerda at ngerda@gmail.com, and follow him on Twitter: twitter.com/nicholasgerda.