We’ve relayed in the past that the auditing firm Mayer Hoffman McCann was facing quite a bit of scrutiny for giving the city of Bell a clean bill of health despite the many instances of corruption that have now come to light. And while CalPERS cut ties with the firm, other local governments that have used the outfit for auditing purposes have been awaiting the results of an audit conducted by the State Controller’s office. Well, that audit has been released and it doesn’t exactly redeem the performance of the firm. State Controller John Chiang’s office reviewed Mayer Hoffman McCann’s (MHM) audits of Bell and its redevelopment agency and concluded that generally accepted auditing standards were not followed. Chiang stated that “MHM appears to have been a rubberstamp 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. Had MHM fully complied with the 17 applicable fieldwork standards, it would have led them to identify some – if not all – of the problems my office has uncovered since August.” The results of the controller’s review have been eagerly anticipated and the 153-page review will ultimately be forwarded to the state Board of Accountancy. In a press release about the review, the following was revealed:
“This review of MHM’s work found that the firm failed to fully comply with 13 of the 17 applicable fieldwork auditing standards. In particular, the firm’s auditors complied in varying degrees with fieldwork standards regarding audit documentation and evidence, risk of fraud, and litigation, and their conclusions were not supported by their working papers. MHM has worked as Bell’s independent auditor since 2006, when it bought the City’s previous audit firm, Conrad and Associates LLP. Conrad and Associates had performed audits for the City since 1994. This review focused on the working papers behind MHM’s latest audit of the City and redevelopment agency’s 2008-09 financial statements. A copy of the review has been submitted to the California State Board of Accountancy. At the firm’s request, nearly all communications during the course of the review went through MHM’s attorneys. The Controller’s review found that the firm did not adequately look for documentation and evidence to support the city’s records, did not document the reason for deficit balances, management’s plans for dealing with the financial conditions, or the adverse effect of deficit balances.”
Mayer Hoffman is reportedly disputing the findings of the review. You can read the full report here.