How City Responded to $6.4 Million Embezzlement Scandal with Task Force, Oversight, and New Internal Controls

Published : Friday, March 9, 2018 | 6:59 AM

Three defendants – one the accused ringleader, a former pastor and City employee – will be in court Friday for a pre-trial hearing in a financial scandal that shook Pasadena City Hall in 2014.

The case triggered a rapid response from Pasadena government officials, who implemented a far-ranging review of the City’s financial procedures and a buildup of internal controls. So far, City officials say the changes are producing reassuring results.

“The Internal Audit division within the City Manager’s Office has completed and continues to perform ongoing operational and policy related audits of virtually everything we do,” said Lisa Derderian, Pasadena’s Interim Public Information Officer. “They help to ensure that we are safeguarding the City the best that we can while still performing the expected level of service.”

Derderian recalled that the timing of the discovery of the fraud at the City’s Department of Public Works coincided with the implementation of a new “enterprise resource planning system” for all financial accounting systems.

“We changed the way payments are requested, reviewed, approved and released,” she said. “We changed how we manage vendors and contracts. We changed who is responsible for various divisions and personnel within the process. We implemented new policies and procedures.”

The primary actor accused in the embezzlement scandal, Danny Wooten, 55, was a management analyst at the Public Works Department.The embezzlement scheme as alleged came to light after City employees noticed accounting irregularities in May 2014.

Further investigation by the Los Angeles District Attorney’s Office revealed Wooten had allegedly submitted over 290 falsified invoices for the Underground Utility Program which the department administered, siphoning about $6.4 million from the City’s coffers between 2003 and 2014.

Wooten was arrested on December 30, 2014 along with Tyrone Collins, now 59, and Melody Jenkins, 50. They have been in custody ever since.

Collins owned Collins electric, and allegedly received more than $2 million in illegal payments from Wooten, and Jenkins allegedly received more than $40,000 in City funds from Wooten.

Former Pasadena Mayor Bill Bogaard said “supervisorial breakdown” is partly to blame for the accused embezzlers getting paid without proper verification.

“I think there might have been a degree of complacency in that particular chain of command that led to the problem, but as far as I’m aware, there were no other problems that were similar nature,” Bogaard said.

Bogaard recalled the financial breach was “a tremendous disappointment.”

“There are many, many transactions every day and I was reassured as the matter was examined that there were no other incidents like that. In the least, this was an exception – an unfortunate and embarrassing exception – but it was not something that was yesterday’s systemic breakdown,” Bogaard remembers.

Shortly after the discovery and arrest of the suspects, in early 2015, Bogaard initiated the formation of a Task Force on Financial Administration and Internal Control and charged it with making recommendations to the City Council and the City Manager in response to the embezzlement.

The Task Force was chaired by Pasadena lawyer and broadcast executive Doug Kranwinkle. In September 2015, the Task Force submitted its initial findings to the City Council recommending the creation of a citizen’s audit advisory committee. The report said complacency and shortcuts were partly to blame for allowing the scheme to continue for more than a decade.

“There were in fact processes in place that should have stopped the embezzlement in its early stages,” Kranwinkle wrote in the Task Force report. “But a climate of complacency appears to have developed and the processes were at best disregarded. Perhaps what is most troubling about the embezzlement is not the aggregate amount taken but that it continued for over 11 years.”

Recalling the steps the City has taken in response to the scandal, Kranwinkle said he’s glad the case is beginning to move forward “after a very long time.”

More than three years have passed since Wooten, Collins and Jenkins were arrested.

Kranwinkle says he’s also glad some of the changes his Task Force recommended are being put in place.

“They’ve implemented quite a number of them and I recognize that because I do sit on the Rose Bowl Operating Company Board,” Kranwinkle said. “The City, I think, was quite diligent moving forward.”

Derderian said the City has since hired a Certified Public Accountant firm to complete a comprehensive citywide fraud risk assessment, and City departments are implementing recommended changes from this assessment.

“We will never be able to fully prevent something from happening in the future, but we constantly review processes and procedures to try and improve upon the systems and ensure the systems are working and being adhered to,” Derderian said.

Pasadena received a $5 million payment from its insurance carrier in January 2016 as settlement of a claim the City filed regarding the embezzlement. The amount was about 85 percent of the money allegedly stolen.

What became of the fund that Wooten allegedly raided?

“The Underground Program is still in place and it is now being managed by the Department of Water and Power,” Derderian said.

“As a result of the embezzlement, one of the objectives was to obtain input from the community to determine the future of the program. From there, PWP will make a recommendation to the City Council for review and approval.”

Ricardo Santiago, Public Information Officer for the Los Angeles County District Attorney’s office, said Friday’s hearing for Wooten, Collins and Jenkins was to start at 8:30 a.m. at Department 102 of the Clara Shortridge Foltz Criminal Justice Center in downtown Los Angeles.

Santiago said the judge could decide on a date for the start of the formal trial at Friday’s pretrial hearing.

 

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