State auditor's office subpoenas Vernon financial records

State auditor's office subpoenas Vernon financial records

State officials have issued a subpoena to the city of Vernon as part of a wide-ranging probe of the city's finances, officials said.

The probe was requested last year by state Sen. Kevin De Leon (D-Los Angeles) in response to reports in The Times about Vernon's financial problems.

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The state auditor's office rarely uses its subpoena power to compel agencies to provide information, and officials would not release details about what information is being sought.

"I expect Vernon to comply fully and as quickly as possible," De Leon said. "This audit is critical to understanding Vernon's finances and finally cleaning up what has been historically a corrupt and broken system."

The city, which is home to 1,800 businesses and about 100 residents, suffered major losses in recent years in a series of aggressive investments in its energy business. During the same period, several top city officials were paid more than $500,000 a year.

The losses have led to rate increases at Vernon's power utility, which was in the past known for offering among the lowest electricity rates in Los Angeles County. City officials also announced recently that they were considering a parcel tax increase to help close a $16-million budget shortfall for the upcoming fiscal year.

The state audit, which is expected to be released by the end of next month, will cover contract procedures, bond issuances, compensation levels and "any other issues that are significant to the operations and finances of the city," according to a scope and objectives document on the bureau's website.

Fred MacFarlane, a Vernon spokesman, said the city had cooperated fully with the auditor's requests dating back to last year and had given the office "unfettered access" to city files.

"The vast majority of what they requested they in fact already had," MacFarlane said. He declined to elaborate on the subpoenaed material.

Margarita Fernandez, spokeswoman for the Bureau of State Audits, said subpoenaing records is not common, but it has been done before.

In 2011, the state auditor subpoenaed the L.A. County Department of Children and Family Services, seeking special reports on child fatalities afte r L.A. County supervisors refused to comply with an initial request.

"We're working with [Vernon] to resolve these questions," she said.

In April, Vernon was criticized in an audit released by the California Public Employees Retirement System, which found the city had improperly boosted the retirement benefits of nearly two dozen employees, including former City Administrator Bruce Malkenhorst, who made $911,000 in 2006, and his successor, Eric T. Fresch, who was paid $1.6 million in 2008.

The full CalPERS report lists 10 key findings, including incorrectly reporting compensation of City Council members and failing to provide sufficient documentation on pay increases. Most of the problems pertain to top officials in the industrial city, which is just south of downtown Los Angeles.

The audit said Vernon failed to substantiate the number of hours worked by Mal kenhorst, who at one point held 10 different positions in city government. It also questioned the city's decision to sharply increase Malkenhorst's pay through 2002 and then level it off in the years before his retirement. By adjusting his pay, the city may have shielded Malkenhorst from a law that prohibits steep salary increases before retirement, officials said.

sam.allen@latimes.com