Audit slams Montebello for ‘self-dealing,’ misused funds

An engineering firm at the center of a federal bribery investigation was allowed to award more than $2 million in contracts to itself in one year under an unusual arrangement with the city of Montebello that a state audit found to be questionable.

Montebello hired AAE to serve as its city engineer, with the power to pick outside firms to do various jobs for the city. But state Controller John Chiang's office found that AAE awarded all the work to itself during fiscal year 2010 and then oversaw its own work in a "potential conflict of interest," according to an audit released Tuesday.

Chiang slammed the troubled city for allowing a system that invites "self-dealing, the misuse of taxpayer resources, and the unlawful borrowing of restricted funds."

The findings have significance well beyond Montebello because AAE has done work in dozens of cities across Southern California, including serving as the city engineer for several municipalities including Baldwin Park.

The Times reported in January that federal prosecutors and FBI agents had launched a wide-ranging investigation into bribery allegations involving AAE. A former Maywood official told The Times he twice received envelopes containing thousands of dollars in cash from an AAE executive. The executive hoped to ease the way for new contracts and receive quick payment for existing ones, the ex-official said. Federal sources confirmed that account and that the officials began working undercover for the FBI.

Chiang's audit also found that the city could not support nearly $4 million it charged to its transit fund for administrative costs. And it improperly spent $1,700 to charter buses to take employees to a Dodger game.

City officials could not immediately be reached for comment. They disputed many of the findings in the audit, and in a letter last month accused the controller of stoking "negative media coverage" with past audits that made it difficult for the city to get a loan to keep it from temporarily running out of cash.

The controller was unmoved. In a letter to the city, he said: "This office cannot whitewash, diminish, or delay the release of these findings simply because they are inconvenient truths." He also said that investors may be leery of the city not because "of the disclosure efforts made by this office" but "because of what has been disclosed."

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-- Jessica Garrison

Photo: An audit of the city of Montebello released by state Controller John Chiang details misused funds. Credit: Anne Cusack / Los Angeles Times