SEC Begins Washington Finance Inquiry After City Audits Withheld

The U.S. Securities and Exchange Commission opened an “informal inquiry” into Washington, D.C.’s finances after the city’s finance chief faced scrutiny for failing to disclose internal audits of his agency.

The SEC yesterday asked the chief financial officer for records of internal audits and investigations conducted since the beginning of 2010, the District of Columbia said in a disclosure to investors today.

The federal request follows a city council hearing this month at which officials faulted Chief Financial Officer Natwar Gandhi for not disclosing internal audits documenting failures at the agency. The Washington Post this month reported the audits show security lapses in the tax department since 2007, when an employee was caught embezzling $48 million.

On Oct. 16, the city council approved a measure requiring disclosure of the chief financial officer’s internal audits.

Washington is the second city this month to face a fresh inquiry from the SEC, which has been stepping up its investigations into whether public officials adequately disclose their finances to investors in the $3.7 trillion municipal securities market. The agency on Oct. 11 requested records from San Bernardino, the California city that filed for bankruptcy this year.

David Umansky, a spokesman for the city’s chief financial officer, said the department is complying with the SEC’s request.

“This is an informal inquiry, not an investigation,” Umansky said. “We don’t think there’s any problems with our disclosures, which is what the SEC would be concerned about.”

To contact the reporters on this story: William Selway in Washington at wselway@bloomberg.net;

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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