Vernon, California is a town just five miles South of the center of Los Angeles and near another town that has been infamous for government fraud investigations and arrests.

On a map Vernon may be hard to find because it seems to be just a few empty industrial-looking streets in a giant maze. Despite being near the center of LA, however, it is recorded with a population of about 100 people who host about 1,800 companies with 50,000 workers generating a quarter-billion in annual revenue on a property tax base of four billion. It officially is the smallest incorporated city in the state, while being at the center of one of the largest cities.

That introduction should give you some clue to where I am going with this story. Vernon appears to be on its way to be known as another unfortunate example of corruption and misrepresentation. An audit of the California Public Employees’ Retirement System (CalPERS) has uncovered that many of the Vernon officials found and exploited loopholes in how retirement was calculated.

CalPERS is taking steps to cut the retirement benefit of former City Administrator Bruce Malkenhorst Sr. from $45,073 per month to $9,654 per month, following an audit CalPERS completed in April 2012.

The press release from CalPERS is a bit vague in describing the exploits. Take this sentence for example, which emphasizes that documentation is required to prove a retirement calculation is justified.

Of the numerous positions Malkenhorst Sr. performed simultaneously at the City of Vernon, the City Clerk position was the only position that had a publicly available pay rate for a single position, and which did not constitute pay for duties in addition to normal duties, or overtime.

The problem is not just that documentation was missing. That obviously will trip up any audit. A really interesting problem is related to the phrase “performed simultaneously”. Guess how many jobs/hours the accused Vernon official was trying to cash in.

The audit said Vernon failed to substantiate the number of hours worked by Malkenhorst, who at one point held 10 different positions in city government and earned as much as $911,000 in 2006.

You can read the audit itself to really get details but from what I’ve read the Vernon officials figured out that in a small town you could stack together an unlikely, or even impossible, record of work and still submit it for retirement calculation. It obviously doesn’t help if controlling funds and dispursing them is within that set of ten jobs held by one person. Any government income reported above a certain threshold will surely raise an automatic pension flag now, not to mention a flag for lack of independence.

Other loopholes cited in the audit include paying people who were inelligible, declaring the legal profession a high-risk job, and massively increasing pay just before the cut-off for calculating retirement (e.g. spiking the rate to inflate the average). While messing with the numbers used to calculate retirement benefits, officials also are accused of underreporting.

[The audit] also criticized the city for not reporting Fresch’s full compensation, which reached as high as $1.65 million in 2008. Fresch, who succeeded Malkenhorst as Vernon’s top administrator, has remained a special [legal] consultant to Vernon over the last year at a rate of $525 an hour…

Basically the town’s records had no data integrity, which was noticed by investigative journalists after the Bell scandal. It seems that neither state funds, nor other government funds, would be caught up in the CalPERS pension scandal for Vernon employees. Nontheless, it will be interesting to see now how the city will reform itself and form a relationship with external and independent audits.

Like a false republic, which Americans often make fun of as a problem overseas, the lack of an independent electorate makes the options seem limited. By agreeing to change led by the state, it so far has been able to avoid un-incorporation measures. But it obviously has a long way to go, based on the details in an opinion piece in the LA Times:

Vernon has never made any pretense of normal governance. Founded as a family fiefdom, it has remained so for a century. John Leonis, Vernon’s co-founder, served 45 years on its City Council. His grandson, Leonis Mahlberg, served 53. If any real-life entity reflects the cynical manipulation of public institutions portrayed in the iconic movie “Chinatown,” it is Vernon. The hereditary dons of the Vernon council serve for decades, jetting off on lavish “trade missions” to Asia, Europe and elsewhere at public expense. They ruthlessly suppress even the shadow of dissent, and rigorously control who is allowed to live in nearly every dwelling in the city. Bruce V. Malkenhorst at one time served simultaneously as Vernon’s city manager, finance director, city clerk, redevelopment director, treasurer and chief of light and power, drawing the highest salary of any public official in California. After 33 years as city administrator, he passed the job to his son, Bruce V. Malkenhorst Jr.

As part of the reform the state could perhaps turn it into an educational theme park. Imagine a sign that said “Welcome to Cleptocracy World”.

…generally associated with corrupt forms of authoritarian governments, particularly dictatorships, oligarchies, military juntas, or some other forms of autocratic and nepotist government in which no outside oversight is possible, due to the ability of the kleptocrat(s) to personally control both the supply of public funds and the means of determining their disbursal…most common in third world countries…

…or as found in America, particuarly around LA.