Report 2021-802
October 13, 2022

City of Compton
Financial Mismanagement and a Lack of Leadership Have Threatened Compton's Ability to Serve the Public

October 13, 2022
2021-802

The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814

Dear Governor and Legislative Leaders:

The city of Compton (Compton) has struggled for several years to adequately perform many core functions of city government:

  • Many of its streets are in poor condition, and its water wells and related infrastructure are decaying.
  • For more than a decade, it has faced a persistent deficit in its general fund and has failed to produce timely, complete audited financial statements.
  • It has suffered high turnover and ongoing vacancies in key positions for many years.

Since October 2019, our local high-risk dashboard has ranked Compton as the most financially at-risk city in California, and our audit of the city found that financial mismanagement and a lack of leadership have threatened Compton's ability to serve the public.

Compton's deteriorating infrastructure presents health and safety risks to the public and is emblematic of the city's overall troubles. One reason for its infrastructure's state of disrepair is that the city has not updated its plan for prioritizing and funding infrastructure projects since 2014. Compton's financial mismanagement and problematic budgeting practices have also allowed millions of dollars in certain funds to sit idle while the city could have used them for street repairs and water system improvements.

The overarching cause of Compton's challenges has been its inability to hire and retain qualified leaders and staff. In the past six fiscal years, Compton has had six city managers—a position that is critical to a city's effective operation. One likely cause for such turnover is that the city has not consistently used an open and competitive hiring process when selecting individuals to serve in important roles. Compton has also suffered chronic understaffing, and issues related to the city's human resources department have compromised its ability to recruit and retain staff.

The recommendations we present in this report serve as a roadmap for Compton to achieve stability and ensure that the city's leadership can provide essential services to its residents.

Respectfully submitted,

MICHAEL S. TILDEN, CPA
Acting California State Auditor

HIGH-RISK ISSUES

City of Compton, Los Angeles County Risk Designation:  High Risk

ISSUE
Compton's Deteriorating Infrastructure Presents Significant Health and Safety Risks
Compton Has Not Developed an Updated Plan for Prioritizing Its Capital Improvements
Half of Compton's Streets Are in Poor Condition
Compton's Aging Water Infrastructure Threatens the Reliability of Its Water Supply
Despite Numerous Sewage Overflows, the City Has Not Completed Needed Sewer Infrastructure Projects
Financial Mismanagement Has Hampered Compton's Ability to Address Its Infrastructure Needs
Rather Than Address Its Financial Instability, Compton Has Used Funds Dedicated for Specific Purposes to Support Its General Fund
The City Lacks an Adequate Plan for Addressing Its Financial Challenges
The City's Problematic Budgeting Practices Have Prevented Transparency and Left Funds Unspent
By Not Updating Charges for City Services, Compton Has Forgone Potential Revenue
Compton's Inadequate Purchasing Safeguards Increase the Risk of Fraud, Waste, and Abuse
The City Has Struggled to Retain Leadership and Staff
High Turnover and Vacancies in Key Management Positions Have Led to a Lack of Continuity in Compton's Leadership
Compton's Weak Hiring Process Has Not Ensured That Key Staff Are Qualified to Perform Their Duties
Weaknesses in Its Human Resources Department Have Prevented Compton From Filling Vacancies and Retaining Staff
The City Does Not Provide Recurring Training to the City Council on Its Financial and Operational Oversight Responsibilities
Appendices
Appendix AThe State Auditor's Local High-Risk Program
Appendix BScope and Methodology
Agency Response
City of Compton



Risks the City of Compton Faces

The city of Compton (Compton) has struggled for several years to adequately perform many core functions of city government. Compton's past overspending and questionable budgeting have contributed to a debilitating, persistent deficit in its general fund. The city has also failed to produce timely and complete audited financial statements for more than a decade, and it did not issue financial statements at all for several of those years. As a result, since October 2019, we have ranked Compton on our local high-risk dashboard as the most financially at-risk city in California. In the midst of this financial instability, the State Controller's Office reported in 2018 that the city's controls over its finances were virtually nonexistent. In fact, Compton's lack of controls allowed a former deputy treasurer to embezzle $3.7 million from 2010 through 2016. Compton has received hundreds of audit findings from several previous reviews but has yet to resolve many of those issues. For all of these reasons, Compton continues to be at high risk of fraud, waste, and abuse.

Compton's deteriorating infrastructure—which has presented health and safety risks to the public—is emblematic of its struggles. Half of Compton's streets are in poor condition, its water wells and related infrastructure are decaying, and it has not yet completed overdue sewer system upgrades, despite numerous overflows of sewage that have threatened public health and the environment. One reason for Compton's infrastructure disrepair is that it has not updated its citywide capital improvement plan—which should prioritize the city's infrastructure projects and identify their funding sources—since 2014. In part because Compton has left many of its infrastructure needs unaddressed, repairs to its streets, water systems, and sewer systems will likely end up costing the city well over $100 million.

Financial mismanagement has played a significant role in Compton's inability to maintain its infrastructure and perform other key functions. After depleting its general fund reserve balance in fiscal year 2008–09, Compton supported its general fund by borrowing heavily from other funds, such as its water and sewer funds—nearly $29 million of which the general fund has yet to repay. This borrowing has limited the resources available for needed infrastructure projects. Moreover, the city's problematic budgeting practices have allowed millions of dollars in certain funds to sit idle while Compton's infrastructure deteriorates. For example, because it has not appropriately monitored its unspent revenue, Compton has accumulated balances of about $41 million in unspent financial resources, some of which could have been used for street repairs and water system improvements. Compton also has not regularly assessed its charges for city services to ensure that they cover the costs of providing those services, thereby potentially forgoing much-needed revenue. Further, the city's inadequate purchasing and contracting practices have increased the risk of unauthorized or inappropriate spending.

The overarching cause of Compton's numerous challenges, however, has been its struggle to hire and retain qualified leaders and staff. Compton has been plagued by high turnover and ongoing vacancies in key positions for many years. For example, in the past six fiscal years, Compton has had six city managers—a position that is critical to the city's effective operation. Compton's high turnover is likely in part the result of not consistently using an open and competitive hiring process, and it has at times faced consequences for selecting existing city staff members to serve in important roles without considering external candidates. Further, chronic understaffing and inadequately documented processes in the city's human resources department have compromised that department's ability to adequately perform some of its basic functions for recruiting and retaining staff, such as regularly reviewing salaries to ensure that they are competitive and developing effective strategies for advertising open positions. Finally, Compton has not provided its city council—which is ultimately responsible for the city's governance—with recurring training on important topics such as approving budgets and monitoring the city's financial status, even though the council has also experienced significant recent turnover.

Because our audit and previous reviews of Compton have determined that the city's many deficiencies point toward deep structural problems, we have prioritized our recommendations in an effort to ensure that the city addresses core issues first. For example, we believe that prioritizing an open and competitive hiring process, overhauling and fully staffing the city's human resources department, and developing plans for fiscal sustainability and needed infrastructure projects are initial priorities that will significantly improve Compton's operations and financial stability. Our recommendations present a roadmap for the city to achieve stability and ensure that it can provide essential services to its residents. However, if in the next three years Compton still cannot adequately address its long‑standing challenges, we believe it may be necessary for the Legislature to consider implementing ongoing external oversight of the city's finances and operations.