An audit of the city agency that governs Los Angeles’ neighborhood councils has exposed an ongoing pattern of lax financial oversight, virtually non-existent enforcement policies and a dearth of personnel to conduct proper supervision of its 89 grassroots advisory councils.

City Controller Wendy Greuel announced the results of the audit, which was requested by BongHwan Kim, general manger of the Department of Neighborhood Empowerment (DONE), January 12th.

In a letter to Mayor Antonio Villariagosa, City Attorney Carmen Trutanich and the Los Angeles City Council, Greuel urged them to reexamine DONE’s role with regard to the neighborhood councils and how it can be improved.

“At the request of DONE, my office recently conducted an audit which examined how the department oversees neighborhood council expenditures,” Greuel wrote. “The findings showed that, while engagement and activism have grown, there has been a systematic failure of accounting and fiscal oversight of the neighborhood councils by DONE.”

Kim, who took over the department in 2008, said similar findings were detailed during a 2006 audit by then-City Controller Laura Chick, so he was aware of a large part of the recent probe’s results.

“We knew about a lot of this stuff. We knew that we could not monitor neighborhood council spending because we can’t keep up with the payment process,” Kim explained in an interview with The Argonaut.

Kim said his department has seen a drastic cutback in personnel that was ordered by the mayor and City Council last year, and a shortage of employees has contributed to DONE’s inability to enforce, monitor and oversee the advisory councils’ spending and financial reporting practices. While he accepted the results of the audit and acknowledged that the department was deficient in many areas, Kim feels that the reductions to his agency’s staff are a part of the ongoing problems at DONE.

“A large part of our problems are related to staffing and funding,” he said.

Mark Redick, president of the Del Rey Neighborhood Council, faults the city government for much of the ongoing problems the beleaguered agency that oversees neighborhood councils is facing.

“(The audit) underscores the fact that (DONE) was put together very haphazardly,” said Redick. “It exposes inefficiency in the city as a whole.”

Greuel, who stepped down from the City Council last year due to term limits, noted that while the number of neighborhood councils has increased over the last decade, DONE has not kept pace with its responsibilities of managing the local councils.

“There are always challenges as an organization grows. However, DONE appears ill-equipped to manage its current responsibilities,” Greuel stated in her audit report. “The department does not have the proper personnel in place to provide the fiscal oversight that could help prevent the waste of taxpayer funds detailed in the audit.

“The City Council and mayor need to take a long, hard look during the upcoming budget hearings, and evaluate and redefine DONE’s role,” she recommended.

Kim said he asked for the audit to demonstrate that his department wants to be as transparent as possible.

“I thought that it was the best thing to do,” said DONE’s general manager. “We need the city departments and neighborhood councils to help us fix our problems.”

Greuel’s report has sparked discussion among various neighborhood councils, as well as 11th District City Councilman Bill Rosendahl. Among the topics of debate are if the audit’s findings will change the perceptions of the local councils or DONE, and what steps each council can take to ensure ethical behavior.

Rosendahl said he has spoken with Greuel about the audit and was dismayed to learn of the alleged improprieties, as well as the lack of enforcement at DONE.

“I question what they have been doing in terms of guidance and detailed oversight,” the councilman said.

Steve Donell, treasurer of the Neighborhood Council of Westchester—Playa, sees the audit results as proof that the problems at DONE are myriad.

“Not only has the most recent audit found that DONE has very lax supervision and control over how it implements and enforces its own rules, but it is clear that it is negligent itself,” Donell said. “Specifically, it did not know about an account it was holding that contained a significant amount of cash, and it is months behind on performing audits for numerous neighborhood councils.”

Donell was referring to two of the results of Greuel’s findings regarding a bank account with $160,000 that the agency was unaware of and that DONE lags behind on enforcing its mandate that neighborhood councils submit quarterly expenditure reports.

Currently, DONE is behind in reviewing 364 of these statements, according to the audit. Twenty-four councils are at least four quarters behind in submitting their financial statements.

In addition, a $5.6-million discrepancy between the amount of money the agency thought it had in its coffers and the figure that was actually available was discovered. Neighborhood councils have also not submitted paperwork for credit card purchases totaling $880,000. In 2008-09, 62 percent violated DONE’s policy of “splitting” credit card purchases to avoid requesting approval from DONE or had a cash advance violation, the audit found.

While these violations and alleged misappropriations are grounded in financial procedures, they are a violation of ethical standards as well. That is another area that DONE is working on, said Kim.

The Argonaut reported last August that less than 30 percent of neighborhood councils citywide had completed mandatory ethics training. The Venice Neighborhood Council passed a resolution a month prior to the story to prohibit board members from voting on financial matters until ethics training was completed.

DONE has no policy of sanctioning members that violate the ethics policy, but Kim said he supports the action the Venice council took.

“Our commission is going to be discussing consequences for not taking ethics training,” he said, adding that now over 50 percent of neighborhood council members have passed their ethics mandate. “One idea is to withhold those who have not taken the training from voting.”

Sharon Commins, first vice president of the Mar Vista Community Council, feels that tougher sanctions are critical to having ethical members.

“(DONE) should suspend members who have not completed the ethics training from voting on neighborhood council issues until the requirement is completed,” Commins asserted. “Ethics training is part of the responsibility of the volunteer job.”

In November, The Argonaut reported that the Del Rey, Venice and Mar Vista councils had passed their conflict of interest requirements. Linda Lucks, vice president of the Venice council, feels that neighborhood councils should shoulder some of the responsibility of being ethical.

“(The audit) tars the councils that are conducting themselves in an ethical manner with a bad image and could give members of the City Council who don’t like the neighborhood council system an opportunity to try and cut our funding,” Lucks noted.

Neighborhood councils saw their annual city funding decrease last year from $50,000 to $45,000 as the city continues to grapple with its multi-million dollar budget deficit.

“It’s time that each neighborhood council take the responsibility to police themselves,” said Lucks. “I’m afraid those that don’t are going to make it harder for the rest of us that are acting responsibly.”

Greuel concurs.

“If the neighborhood council movement is to continue to thrive and grow, a fiscal overhaul must be instituted, particularly at DONE, but also by neighborhood councils,” she said.

Donell, who was recently elected co-president of the Los Angeles/Orange County Chapter of the California Receivers Forum, believes stronger sanctions and a system of checks and balances could help alleviate some of the fiscal problems with neighborhood councils. But he also thinks that DONE has a lot of internal work to do.

“If abuse and misuse of funds are discovered early enough, and if appropriate measures are taken — including but not limited to suspension of neighborhood council funding, DONE ordered removal of a treasurer and/or criminal prosecution — these isolated incidents would likely be avoided in the future.

“However,” he cautioned, “the single biggest challenge that neighborhood councils face with DONE is an inconsistent, illogical and arbitrary approach to oversight and enforcement. Once DONE can act in a consistent and accountable manner, I think that the vast majority of identified irregularities would cease.”

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