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California leaders announce investigation into missing bond funds

[SAN FRANCISCO] California leaders on Thursday called for an investigation into the disappearance and possible embezzlement of US$1.3 million of bonds by a Bay Area association.

State treasurer John Chiang and Senate president pro tempore Kevin de León announced they would conduct legislative oversight hearings to ensure that government bonds were safe from fraud, abuse, and mismanagement.

The announcement followed the disappearance of nearly US$1.3 million of bond funds held by the Association of Bay Area Government (ABAG), an organisation comprised of nine Bay Area counties and 101 communities, governed by local elected officials, that issues bonds for local governments, nonprofits, and private entities.

The missing bond money was allegedly earmarked for improvements to public parks and streets in downtown San Francisco and was allegedly embezzled by ABAG's director of financial services, according to the State Treasurer.

State controller Betty Yee announced on Thursday her office would conduct an audit of ABAG following the theft allegations, which her office described as "a sophisticated scheme involving illegitimate documents, false identities and deception of the finance authority's board and bank trustees."

The controller's office said it requested from ABAG internal ledgers, contracts, invoices, personnel records, meeting minutes, policies and procedures for the audit, which is scheduled to begin on February 20.

Requests for comment from ABAG were not immediately answered.

California and its local governments issued more than US$700 billion in public debt over the last decade, the state treasurer's office reported. "The ease in which one of ABAG's leaders allegedly fleeced more than a million dollars in bond funds raises concerns regarding whether there are sufficient safeguards at the thousands of State and local agencies which are responsible for nearly three-quarters of a trillion bond dollars," said Mr Chiang in a statement.

Senator Bob Hertzberg (D-Van Nuys), chairman of the Senate Committee on Governance and Finance, will lead the legislative hearings, focused on finding problems and solutions to avoid abuse and waste. "These abuses of the public's trust are shocking and should serve as a wake-up call to local and state governments," said Mr Hertzberg.