The office of Los Angeles City Controller Laura Chick on Thursday issued a critical indictment of the financial state of the Entertainment Industry Development Corp. in a 63-page audit of the film-permitting agency. The audit, which blamed the EIDC's executive committee, its management team, and the Los Angeles City Attorney's Office for neglecting fiscal oversight, called for the city to immediately re-open negotiations with the film-permitting agency to alter its current contract.
The most damning aspect of the audit was the itemized list of marketing expenditures of the EIDC and Cody Cluff, its former president. Cluff remains at the center of a criminal investigation by the Los Angeles County District Attorney's Office, which initially raided EIDC Hollywood offices and Cluff's homes in September.
Expenditures listed in the audit, which covered a two-year period, include:
• $357,743 spent for tickets to sporting events and concerts;
• $24,840 spent on gifts, cigars, and liquor;
• $57,198 spent on the combined membership dues to Staples Center in Los Angeles, Grand Havana Room in Beverly Hills, Via Verde Country Club in San Dimas, Calif., and World Gym and Yoga;
• $138,729 spent on the Sundance Film Festival;
• $152,869 spent on contributions and donations;
• $69,024 spent on the Association of Independent Commercial Producers Show;
• $91,207 for business meetings; and
• $60,090 spent on an independent film festival.
Citing a lack of written fiscal policies and procedures, detailed budgets and inadequate documentation, the audit said the EIDC had an almost $1 million deficit in working capital as of June 30, 2001, and a cash deficit of $736,217. As for the EIDC's financial state for the year ending June 30, 2002, "we believe that the deficit may have worsened due to higher expenditures in fiscal year 2002 and the commitment of over $500,000 for legal and administrative expenses in fiscal year 2003."
The firm of Thompson, Cobb, Bazilio & Associates conducted the audit for the two fiscal years ending June 30, 2001, and June 30, 2002. The audit was completed Feb. 14.
"This is an ambush," said Cluff's attorney Mark Werksman, who was notified of the audit results at a two-hour meeting last Thursday morning. "We were not provided an opportunity to review, evaluate, and respond. This clearly is an effort to embarrass the EIDC to make political hay. If they were serious, they would have given us a chance to review the conclusion and make comments and have some input. This is a political hatchet job."
Asked about the expenditures, Werksman said: "These numbers have to be put in context; you can make a number look bad or good in a vacuum. This is what a thriving enterprise does to maintain relationships and to entertain those who they deal with. If you have to spend $1 million to generate $100 million in business for this community, then where is the problem? Let's keep this in perspective; this isn't running a grocery store."
The audit did, however, say that since the formation of the EIDC, the film-permitting process has been simplified, and relations with the local film industry have improved. "Our telephone interviews with a sample of industry and community stake holders indicate that EIDC is widely supported by those who conduct business directly with EIDC," the report said. Recommendations in the audit include establishing written fiscal policies and procedures and submission of a detailed budget estimate, future evaluation of the "reasonableness" of marketing expenditures, establishment of procedures for selecting and paying consultants, the revision of current accounting methods, the institution by the city of a standard rate scale for its departments, and a standardized billing procedure by the city. The audit also said that the EIDC could improve its process of notifying neighborhoods of upcoming filming projects.
The audit's analysis indicates that if the EIDC were to eliminate all nonessential promotional and other non-permit-related expenditures, the EIDC would generate reserves of $380,000 annually, thereby reducing its current deficit during the next several years.
EIDC interim president Lindsley Parsons Jr. referred calls to Keith Comrie, former chief administrative officer of Los Angeles, who has been serving as an outside consultant. Comrie had been briefed on the report and said that the executive committee had in the past few months addressed most of the recommendations made within the audit.
Comrie also was at odds with the audit's findings. "Their report is full of conflict, and it was just not professionally done," he said. Comrie said the EIDC has $2.7 million in cash, that all of the EIDC's bills are paid up through December, and that the agency has reduced expenditures by $1 million a year. "Financially we think we have righted the ship," he said. And as for the golf and cigar club memberships, Comrie said, "If there was some overspending, then it is not happening now."
A spokeswoman for the Los Angeles County District Attorney's Office had not yet reviewed the audit.
The results of an internal fiscal and structural audit conducted by the firm KPMG are expected in June.