Former Bell City Administrative Officer Robert Rizzo improperly and perhaps illegally steered more than $700,000 in federal and state money to companies without getting contracts, engaging in competitive bidding or even obtaining necessary City Council approval, according to a state audit released Thursday.
"The fact that [Rizzo] was able to select vendors without proper approval and without competitive bids raises serious questions about possible conflicts of interest, favoritism and other improprieties," the report concludes.
The audit is the state controller's third highly critical financial examination of Bell, each pointing to questionable and potentially illegal activities by Rizzo. The audits also criticize council members for providing almost no oversight of the city's finances and giving Rizzo virtual control of the city treasury.
The small city southeast of downtown Los Angeles has been buffeted by scandal since The Times revealed last summer that while Bell was cutting jobs and raising fees, city leaders had helped themselves to huge salaries, loaned public funds to City Hall staffers, council members and businesses, and increased their future pensions.
Rizzo and seven other current and former Bell leaders have been charged with corruption.
James Spertus, Rizzo's attorney, criticized Controller John Chiang's office, saying he doubted whether the auditors had seen all the information.
"The state controller, more than any other investigating agency, is trying to hold Mr. Rizzo accountable for any conceivable wrong he can identify at the city," Spertus said. He said his client hired outside law firms to review the issues that the controller is now saying Rizzo handled improperly.
Among the companies that received state dollars was an engineering firm owned by the city's then-planning director Dennis Tarango. D & J Engineering was paid nearly $100,000 from an oil recycling grant even though the company did not have a contract for the work. The audit said the payment may have been illegal and, because of Tarango's city job, raises conflict-of-interest questions.
Tarango and Rizzo were once partners in a horse-racing venture.
An audit released in September found that from 1995 until last June, the city paid Tarango's firms more than $10.4 million even though his contract with the city expired in 1997. That audit also questioned the relevance and necessity of the work.
One company mentioned in the 13-page report does not involve federal or state money but was inserted for transparency, state auditors said.
The controller found that from August 2008 through June 2010, on Rizzo's approval, Bell paid Urban Associates Inc. $222,000, even though state auditors found no evidence the company had a contract with the city. The firm's partners include Pedro Carrillo, now Bell's interim city administrator, and the city officials who requested the state audits.
While it's long been known that Carrillo worked for the city under Rizzo, his mention in the audit has the potential to bring even more turmoil to the struggling city.
Lorenzo Velez, the only council member not facing criminal charges, said he will seek to remove Carrillo from his job at the next council meeting. Velez has opposed Carrillo almost since he stepped into the administrator's position.
"Maybe now the rest of the council can see that it is time for us to get someone else," Velez said.
Carrillo was on vacation and did not return calls to his cellphone Thursday.
The controller's office will send copies of its report to the Los Angeles County district attorney, the state attorney general and the U.S. attorney. David Demerjian, who heads the district attorney's Public Integrity Unit, said his office was already looking at all city contracts and probing for evidence of misappropriation of funds, kickbacks and bribes.
Previous audits described Bell as a city with almost no fiscal controls, where the city treasury was placed solely in Rizzo's hands. The audits found that the city repaid $96,000 in loans Rizzo made to himself from his retirement accounts and that Bell charged residents and property owners about $6 million in illegal taxes and fees, and confirmed Times reporting that the city had given about $1.5 million in illegal loans to businesses, employees and council members.
Thursday's audit found that Bell spent at least $710,000 in federal and state money unlawfully, about 36% of such funds the city received from July 2008 through August 2010.
In one instance the city received $185,000 in state park grants for the Bell Community Health and Wellness Center, which the city used to pay an architectural firm for engineering and construction management.
The controller's report found that Rizzo and not the council approved the contract, even though the city's charter stipulates that any expenditure over $25,000 must be approved by the council.
Joseph Smart, a partner at SMS Architects, said in an interview that the firm's contact at the city was Annette Peretz, then-director of community services, and that all through the project she told them the council had approved their payments, proposal, contract and change orders.
"Everything was very straightforward for us," Smart said.
Times staff writer Ruben Vives contributed to this report.