Banning Council Postpones Decision On Potential Citywide Forensic Audit

The Banning City Council Tuesday postponed making a decision on whether or not to move forward with hiring a firm to conduct citywide forensic investigation services after hearing from the finalists in a special board workshop.

“The city’s goal is to be transparent,” Lincoln Bogard, administrative services director, said at the start of the workshop. “And that is why, when hearing the concerns, we wanted to move forward and offer the opportunity to open up as much as possible to the public, understanding that there is a financial cost to that transparency, but that we are more than willing to go forward.”

The workshop came less than a month after the results of an investigation into Banning Electric Utility (BEU) were presented to the council in open session. That investigation found that “financial mismanagement” was to blame for the department’s negative cash balance.

“The electric utility has had a negative cash balance since 2022, and this deterioration in financial condition was not properly reported to the city council in our view,” Peter Brown, forensic services practice leader for GHJ Advisors, said at the Feb. 28 meeting.

GHJ was not one of three finalists asked to make a presentation to the council for potential citywide forensic investigation services. The finalists were Marsh Minick, P.C., FORVIS, LLP, and BDO USA, P.C.

Marsh Minick is a forensic audit, financial crime and compliance and risk management consultancy firm.

“Our firm specializes in forensic auditing and financial crime investigations, this is all we do,” Melissa Minick, co-founder of Marsh Minick, said. “We don’t do any of the general accounting stuff that your normal annual accounting company may be doing. We will solely focus on potentially looking for fraud, waste, abuse, malfeasance, mismanagement and those sorts of things.”

FORVIS is a public accounting firm that provides assurance, tax and consulting services.

“I do a lot of fraud awareness and prevention training, and usually my introduction to folks is, if you’re meeting me, it’s probably not good news, because I’m usually the person that shows up when there’s a real problem,” Rand Gambrell, managing director at FORVIS, said. “But our team is going to be a multidisciplinary team … so we can help kind of sharpen the pencil and point to where there are real issues that we want to be paying attention to.”

BDO USA is an accounting and advisory firm that delivers assurance, tax, and financial advisory services.

“Where we share a common goal as partners with the city, in terms of this investigation, is to instill confidence,” Sly Atayee, senior manager at BDO USA, said. “We want to enhance the financial controls, we want to give peace of mind, that’s what we’re focused on doing in order to build trust, build confidence for the future and kind of get back to that growth mindset.”

After hearing from each of the firms, the council asked questions about the firms’ experiences being hired to investigate financial fraud, their processes to detect potential fraud, the criteria they would use to evaluate the information gathered and the approach to gathering that information, the primary indicators they would use to identify areas in need of further investigation, their experiences in working with government finances, what they would do if they found fraud or embezzlement and what the city can expect to receive from each of these firms for the price.

Members of the public who spoke at the start of the workshop were split on whether they felt the council should move forward with a citywide forensic audit. 

Those against immediately moving forward cited the cost and what they felt were limited findings of the recently completed BEU audit and the fact that an internal investigation had not yet been completed.

“I think maybe we should take a second look at that, and if something comes up as a red flag in an internal audit that may justify going into a citywide audit, but in rethinking my first thoughts, I think we really can’t afford a six digit expense to find out nothing that we couldn’t find out in our internal audit,” John Hagen, a resident who previously suggested a citywide forensic audit might be needed, said. “So I hope we’re taking steps in the right order instead of just jumping right in and contracting out with an outside agency.”

Those urging the council to move forward cited the information that could be gleaned from a forensic audit to ensure that taxpayer dollars were being used appropriately throughout the city.

“Nobody should fear a forensics audit, you should embrace that, and the fact that you’ve never done one is scary,” Richard Royce said. “They should be done annually or semi-annually just to keep everybody honest and open and transparent to the public that you serve.”

Ultimately, the council voted unanimously to bring the item back at the March 26 meeting for further discussion and possible action after staff tallies the councilmembers’ rankings and makes a recommendation from those rankings.

“If we bring it back to the next meeting, we can still discuss this and have these questions,” Councilmember Sheri Flynn, who made the motion to continue the item to March 26, said. “But you know, right now, we have to get on with the other meeting, and we’re not going to make a decision tonight either way, I don’t think.”

A full recording of the workshop can be found here on the city’s website.