10:00 PM PST on Sunday, December 26, 2010

By ALICIA ROBINSON
The Press-Enterprise

Riverside will change to a new outside auditor after the state controller blamed the Mayer Hoffman McCann firm for failing to find problems when auditing the city of Bell’s finances.

Paul Sundeen, Riverside’s chief financial officer, said in a written statement last week he remains confident in the firm’s work for the city, but “given that the firm’s five year contract with the city is at its end and the controversy at the city of Bell, we will not include them” when seeking proposals for an auditor.

State Controller John Chiang said in a Dec. 21 statement that Mayer Hoffman McCann “failed to follow the majority” of accepted audit standards and should have found at least some of the irregularities his office found when reviewing Bell’s books.

Riverside has used Mayer Hoffman McCann for outside audits for the past five years. The audits have found no major problems.

Concerns arose when city officials learned the firm also gave clean audits to Bell and its work was being reviewed by the state controller’s office.

Mayer Hoffman McCann responded earlier this month by announcing an independent peer review of its work for some government agencies. The firm has not disclosed which audits will be reviewed.

In Riverside, the City Council’s finance committee has asked Sundeen to consider five audit firms and bring the top three to be interviewed by the committee, which will make a recommendation to the full council.

Council members’ questions on the auditor coincide with a requirement in the city charter that officials seek new proposals for an outside auditor every five years. The current auditor could be considered if a different employee were assigned to the city audit.

But as Sundeen describes it, even a properly done audit has limits on what it can reasonably be expected to uncover. He and his staff gave the finance committee a crash course in audits at a Dec. 8 meeting, and they’ll give a similar presentation to the council in January.

To do their work, outside auditors generally inspect financial documents, observe employee performance, review policies and transactions, and check account balances with outside sources like banks where a city’s money is held.

Riverside has an internal audit team that officials said acts as a largely independent department and looks at complaints from residents and city employees.

TOO MANY NUMBERS

One obvious limit of audits is the fact that they can’t look at every transaction in an organization as large as the city, which may make thousands of transactions every month.

Instead, an audit looks at a random sampling; how many transactions get checked in a given department depends on the amount of internal checks and balances, the size of the transactions, and other factors.

“They want to do the right amount of work because they don’t want to lose their license, but they can’t audit everything,” said city Controller Jason Al-Imam. “Sometimes something might go wrong and that just might be an area that they didn’t look at.”

An audit also may only be as good as the numbers it crunches, Sundeen said; it’s the city that is responsible for providing true and correct data, so if city officials chose to hide something, an auditor might not know.

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