Long Beach City Council at odds over audit response

With a Nov. 11 deadline to respond to a scathing draft audit into the city’s finances and questionable payout practices quickly approaching, the City Council has yet to agree on how to reply to the state's findings.

Council Vice President John Bendo called for a special meeting on Oct. 11, where he, along with council President Anissa Moore and Councilman Scott Mandel, voted to rescind the city’s initial response to the audit issued by State Comptroller Tom DiNapoli’s office in August, with some members saying they had not had a chance to review or approve the city report. Council members Anthony Eramo and Chumi Diamond were not present.

Bendo and Mandel have been pushing to hire outside legal counsel to pen a response to the state’s findings; the state had informed the council that it had until Nov. 11 to respond formally to the preliminary report, which found, in part that the city had overpaid 10 current and former non-union employees more than $500,000 in separation payouts — including former City Manager Jack Schnirman — and noted that the city had failed to take corrective action in response to two prior audits in 1992 and 1996, which found questionable leave payments that were inconsistent with city code — 30 percent of unused sick days and 50 vacation days — or contracts. The state recommended that the city recoup any overpayments identified in its report.

A resolution to hire outside legal council — or any action related to the audit — was not listed on the agenda for Wednesday’s City Council meeting. In a Nov. 1 Facebook post, Bendo said that little progress had been made.

“Precious time has been, and continues to be, lost, with a response due to the state comptroller by November 11,” Bendo said. “We are continuing to try and push the process forward. To date, council members Diamond and Eramo have been included in the process, but have failed to weigh in. We look forward to having Councilwoman Moore join us in moving forward with independent outside legal counsel.”

A spokeswoman for DiNapoli’s office declined to comment, but said that the state expected the council to meet the deadline it requested.

The city’s response stated, in part, that union and non-union employees — including police, fire and Civil Service Employees Association workers — received $3.1 million in questionable separation payments and “drawdowns” over the past decade and that attempting to recoup such funds would present significant legal challenges, which city officials claimed DiNapoli’s office overlooked and did not address in the audit.

Two criminal investigations into the city’s practices, at the county and federal levels, are continuing.

Bendo and Mandel pushed to the rescind that initial response, saying that council members were excluded from the process, part of an attempt by city officials, they claimed, to control the outcome of the state’s final report.

Both cited a conflict of interest, saying that an outside attorney, former federal prosecutor Anthony Capozzolo, who wrote the response — hired more than a year ago, under former Acting City Manager Mike Tangney, to represent the city amid the criminal investigation — was retained at a rate of $450 per hour without their knowledge and was working with some of the employees who received payouts that are now the subject of investigation. The city has strongly denied any conflicts and maintained that the response did not require council approval.

Moore, meanwhile, said that the city’s response was limited in its scope and did not address the city’s overall finances — the state audit also found that the city also mismanaged funds, resulting in operating deficits totaling $8.5 million over the past four years. She also said that while Capozzolo cited payouts dating back more than a decade, the state audit only reviewed the 2017-18 fiscal year.

At the special meeting, Bendo, Mandel and Moore — all Democrats — said they were not in a position to respond to both the audit or Capozzolo’s findings without first retaining outside legal counsel to analyze the reports. But as of Tuesday, it was unclear if those efforts had  moved forward. The council did not respond to a Nov. 1 email from the Herald seeking comment.

“There was a law firm that council members Moore, Mandel and I agreed upon,” Bendo said on Facebook, referring to a proposed measure in September to hire attorney John Gross of the firm Ingerman Smith LLP that was scrapped because it lacked enough votes to pass. “Councilwoman Moore signed a retainer with them, and work was ready to commence. Shortly thereafter, Councilwoman Moore then decided to withdraw her support from that law firm. Since that time, Councilman Mandel and I have been trying to find another law firm and to get a third council member to agree to hire outside counsel. We spoke with one law firm, but they were unable to take the case. We are currently talking to another law firm and are trying to set up a meeting with members of the council to see if we can get a third council member on board.”

In an interview with Herald editors on Oct. 4, Moore said that she wanted to hire outside legal counsel specializing in recouping overpayments to employees, but maintained that Gross was not qualified.

City officials said that Moore did not have the authority to sign such an agreement. The initial attempt to hire Gross also drew criticism from some non-union staff at City Hall who are attempting to unionize, saying that Gross is also representing the city in that ongoing labor relations case and that Mandel had a conflict of interest by attempting to hire Ingerman Smith, a firm he worked with 16 years ago. Mandel denied any conflicts.

According to emails obtained by the Herald, on Oct. 18, Moore recommended two accounting firms the city could hire to respond to the report or simply accept the findings of the draft audit. If the council must select an attorney, she recommended Bee Ready Fishbein Hatter & Donovan LLP for the firm’s municipal expertise.

Bendo, however, responded in an Oct. 21 email saying that that firm was unacceptable because of its ties to the Nassau County Republican Party. He said that Ingerman Smith would provide its services at a reduced rate — less than half of what Capozzolo charged the city — was familiar with the issues and could provide impartial legal advice.

“We need to be taking the politics out of this issue, not adding to it,” Bendo wrote.

Moore — who is seeking re-election on the Republican line Tuesday as part of a bipartisan coalition slate — responded to Bendo’s Facebook remarks in her own post, and claimed that he failed to include “all the facts.” She said she ultimately did not agree to retain Ingerman Smith because the firm does not specialize in municipal law.

"It is true that I did not agree to move forward with Ingerman Smith," she wrote. “Due to the serious nature of this process, I believe that it is in the city’s best interest to hire a bipartisan firm specializing in municipal law. Second, I spoke with several individuals that possess a background in municipal law. They all strongly recommended the following: That the City of Long Beach consider using an audit/accounting firms to respond to the report and … that we simply reply that we accept the findings as discussed and then work on the corrective plan over the next 90 days. I shared this with the entire council via official communication. My suggestions were not accepted.”

Moore added that on Oct. 31, Bendo informed the council that the law firm Hogan Lovells would not take the case, and that Farrell Fritz was suggested.

“There were only three council members that responded and stated availability,” she wrote. “Anissa Moore was one of them. Party politics has no place in local government.”