Orange Officials Will Review City Oversight Policy

ORANGE —  One day after revealing that they suspect the misappropriation of public funds by their private trash hauler and recycling company, city officials said they will review oversight procedures but insisted they have always had adequate controls in place.

“Certainly, we will look at all of the policies and procedures that surround this,” said Councilman Mark Murphy. “I’m always concerned that we maximize the oversight we have. It’s the internal controls that spotted this potential problem in the first place. Thankfully, we have these controls.”

Thursday, city officials said they, in conjunction with Orange police and the Orange County district attorney’s office, have been investigating Orange Disposal Services Inc., which has held the exclusive contract to haul trash from the city for 40 years. Also being scrutinized are the accounts of Orange Disposal’s subsidiary, Orange Resource Recovery Systems, which handles the city’s recycling.

The investigation, which has been underway for several months, centers on the Hambarian family, owners of both companies. Court documents and city officials suggest that the Hambarians may have improperly used for private investments some public funds set aside to pay county dumping fees.

Court documents state that the city also suspects that money due the city from recycled materials may have been taken by a member of the Hambarian family for personal use.

The Hambarians have refused to comment on the investigation.

The city’s losses could exceed $1 million, according to one city official.

Under the agreement between the city and the Hambarians’ companies, the Hambarians had signature authority over one account that held public money that was supposed to pay the county landfill fees.

They also had control over the proceeds of the sale of recycled materials--plastics, aluminum cans, newsprint--that are culled from the city’s trash.

Each year, the companies were obligated to send the city financial statements, prepared by a certified public accountant, which would determine the city’s 90% share of the recycling proceeds, and whether there was a balance in the landfill fee account that was due the city.

This arrangement was necessary so the hauler could pay the “gate-fees” at the landfill, and cover other expenses, said City Manager David L. Rudat.

Court records show that the auditor hired by the two companies to prepare the financial statements tipped off the city in late 1996, saying he was concerned about record keeping procedures.

The city learned earlier this year that the problem could go beyond shoddy records and hired its own independent auditor to investigate the possibility of fraud or misappropriation of funds.

Officials in the city have been tight-lipped about details of the case and council members only learned of the investigation earlier this week in a closed-door session.

“We were asked not to make statements because of the continuing investigation,” said Mayor Joanne Coontz. “We do not have the details ourselves, and we would not want to jeopardize the investigation.”

Rudat said Friday that the city will review their procedures for overseeing the private companies, the only ones in the city that have had access and control of public funds. As of Thursday, city officials now need to sign checks from those accounts.

The city relies on the integrity of the certified public accountant preparing the financial statements, which by law must follow accepted accounting procedures, Rudat said.

In this case, officials noted some red flags in the accountant’s opinion and in subsequent comments accompanying the report, he said.

“We have oversight of it,” he added. “We do not audit the independent auditing firm hired by the company as a normal practice. You could spend hundreds of thousands of dollars checking out auditors who are supposed to be adhering to these standards. . . . To comment any further on the scope of the audit, or the communications, would be inappropriate at this time.”

Rudat added that the city has had a new management team in place for about two years that has tightened up control of all the city’s finances.

“There has been a great deal of improvement in accountability in the last couple of years,” he said.