Audit Finds Pension Report Errors : Accounting: The earnings of up to 268 city employees may have been over-reported, resulting in an overpayment of benefits.

An audit of Culver City pension funds has found “pervasive” mistakes in the way payroll data is reported, possibly resulting in inflated benefits for hundreds of city retirees.

A report from the State Controller’s Office said that the city may have over-reported the earnings of as many as 268 employees to the agency that administers its pension, the state Public Employees Retirement System, or PERS. Because pension benefits are based in part on earnings, these retirees may be drawing more money out of the system than they should. The report says the errors may go back to 1982.

Culver City’s head accountant, Mark Ambrozich, said the report was in error when it stated that as many as 268 retirees may be affected by the improperly added earnings. He added that the city corrected the mistakes soon after auditors pointed them out.

Culver City was one of eight cities targeted by the State Controller’s Office for an audit of PERS payroll reporting practices. Beverly Hills was also audited, but the report’s most serious criticism of that city’s payroll reporting was not keeping track of six part-time employees’ hours. The employees had worked enough hours that their pension status should have been affected.

PERS is the nation’s largest public pension system, with 1,200 city and government agency members throughout California. The audits were prompted by allegations last year of pension fraud at the American River Fire Protection District in Sacramento County.

The other cities audited were Manhattan Beach, Torrance, Anaheim, Bellflower, Hawthorne and Huntington Beach. The eight cities were chosen because they base their pension benefits on what the employee earned in the final year of service, rather than taking an average of the last three years. PERS administrators said this formula was the most easily abused.

According to the report, which was mailed to cities last week, six out of eight of the cities had “substantial instances” in which pension reporting laws were violated.

The report criticized four cities for inflating final-year salaries for high-level officials by granting raises and bonuses.

In Manhattan Beach, for example, the report cited an instance of what State Controller Gray Davis termed “pension-spiking” that allowed former City Manager Dave Thompson to retire with a pension of $139,000 per year--$50,000 more than he earned while on the job. Before he retired, he received a $5,000 bonus, a $105,000 payment for unused sick and vacation days and other benefits that pushed his final-year compensation to $230,000. Manhattan Beach city officials said last month that they had cut Thompson’s pension by $60,000 after determining that it violated PERS regulations.

The report found similar instances in Torrance, Anaheim and Huntington Beach.

In a press conference Tuesday, Davis called for criminal and civil penalties for those who inflate pensions.

“Our findings suggest that wherever control weaknesses exist, they are exploited,” he said in a statement released by his office. “It’s time to shut down the fat cats ripping off public pension funds and protect the solvency of these funds for retirees who have paid their dues.”

Davis proposed legislation that would make inflating pensions a crime punishable by one year in jail and a $5,000 fine.

In Culver City, auditors did not find inflated earnings for a few select individuals. Instead, it uncovered consistent errors in the reporting system for all employees, which was probably due to unfamiliarity with PERS laws, the report said.

City-paid benefits that should not have been reported as earnings were routinely included as earnings, the report said. The benefits included city contributions to deferred compensation plans, city-paid PERS contributions and money paid for vacation time that was not taken.

Les Lombardo, an audit supervisor with the State Controller’s Office, said Culver City’s problems were no less serious than those of the cities where benefits were intentionally inflated.

“Because of these pervasive problems with their overall system,” Lombardo said, “we just don’t have the reliability we need. We consider that to be serious. It’s the unknown that we find troubling.”

Culver City accountant Ambrozich disputed the report’s assertion that up to 268 retirees going back to 1982 may be affected. Most retirees didn’t meet conditions to receive the benefits, he said. Retirees had to serve a certain number of years to become vested in the pension system and become eligible to receive city contributions. Pay for unused vacation was a recently added feature in the latest round of labor contract negotiations.

“It was really only a small group that was affected,” Ambrozich said.

In Beverly Hills, auditors found that five part-time employees worked enough hours to be eligible for PERS benefits but did not receive them. Also, one retired employee was working enough hours to warrant a change in PERS status.

The city’s computer software has been modified to better track hours of part-time employees, said Donald Oblander, director of finance administration for Beverly Hills.

Among the eight cities, Beverly Hills “was generally thought of as the one that had the fewest problems,” said Edd Fong, media spokesman for the controller’s office. Hawthorne also had relatively few problems.

The report does not accuse any city of criminal intent. It does recommend that PERS recalculate pension benefits in instances where mistakes were discovered and decide whether the money should be repaid.

It also recommends that PERS step up training on pension laws and create an auditing department.

Most important, the report alerted officials to the possibility of widespread abuses of the state pension fund, which could result in underfinanced benefits for future generations.

“There is nothing to indicate that these problems do not exist in the 1,200 other agencies that have contracted with PERS,” the report said.