California City in Distress, Files Suit Against Auditor

Wracked with debt and forced to sell off property to pay its employees, California's King City has filed suit against its former auditor, Moss, Levy & Hartzheim of Santa Maria, the Monterey Herald reported.

The city's nearly seven-year relationship with its auditors fell apart after a formal investigation found a “total systems failure.” The city council voted three weeks ago in a closed session to file suit in Monterey County Superior Court.

The suit alleges that the firm failed to provide competent accounting and auditing services, failed to identify and report unauthorized or improper transactions and failed to advise city officials about deficiencies in the city's accounting practices and internal controls, the Herald reported.

Ron Levy, a partner in the accounting firm, told the Herald that he was surprised to learn of the litigation. He denied all the allegations, adding that the firm had never been sued before.

Levy told the Herald he was not personally involved in the city's audit so he could not answer specific questions. He would not identify the firm's staff members involved with the audit.

"If there's a suit out, I really can't talk about things like this," he said.

In a 2002 contract addressed to former King City Treasurer Roberto Moreno, Levy wrote that the firm would “inform you of any material errors that come to our attention and we will inform you of any fraudulent financial reporting or misappropriation of assets that comes to our attention,” the Herald reported.

The firm has been hired by more than a dozen counties and cities in California, including Seaside, Capitola, Paso Robles, Tracy, El Segundo and the Santa Cruz County Regional Transportation Commission, the Herald reported.

King City Mayor John Myers told the Herald that he could not comment on the suit, but said it is part of the city's attempt to recoup its financial losses, which have led to the sale of city property and the reduction of employee hours and pay.

Meanwhile, the city is still waiting for a decision from the U.S. 6th District Court of Appeals in San Jose with hopes it will be awarded a $4.4 million deposit made with Community Bank of Monterey in conjunction with the city's failed Town Square development project. The $4.4 million is roughly equivalent to the city's general fund this year, the Herald reported.

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