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Miami votes to sue auditing firm

Published Oct. 2, 2005

The Miami City Commission has voted to sue the accounting firm of Deloitte & Touche for helping create the fiscal crisis that pushed the city to the brink of disaster last year.

Had the auditors done their job right, the city contends, they would have discovered that Miami was in a state of financial emergency as early as 1990.

"Wall Street would have raised the alarm much earlier," said City Manager Ed Marquez. "And the city would have changed its ways."

As Miami's outside auditor, Deloitte was responsible for making sure the city was on solid financial ground. But from 1989 through 1995 the auditors missed "the true financial condition of the city," contends attorney Thomas Tew, whose law firm will handle the case for the city.

Miami is seeking more than $87-million in damages. If successful, Tew's firm will earn a maximum of $2.4-million.

Deloitte, in a statement issued Saturday, defended its accounting practices and said the company did nothing wrong. "The planned suit against Deloitte is the latest attempt by the city to get around its own lack of political will to take action in response to known deficiencies that the city now inexplicably claims it failed to see," the firm said.

The case focuses on the way the auditors handled the city's proprietary funds, which included enterprises that were supposed to function like businesses and be self-supporting through fees.

Most of the enterprises, such as the convention center and solid-waste department, lost money. From 1985 through 1995, the enterprise funds lost $58-million, according to Deloitte's numbers.

Under state law, a city cannot end the year with a general fund deficit or without a balanced budget. But proprietary funds, which were audited by Deloitte under an accounting method different from the rest of the city's books, can be in the red. Many cities use similar accounting practices.

The city's new auditors, Peat Marwick, used an accounting method that showed the city's financial problems more clearly. In its 1996 audit report, Peat Warwick reported that the city's general fund had a $21.8-million deficit.

In a statement Friday, Deloitte questioned Carollo's motives for scheduling the meeting right before the election Tuesday. He is challenged by former Mayor Xavier Suarez, who contends the city was never in financial emergency.

"The only political thing about this is that Deloitte would like to have a mayor that says there is no deficit so they would be faced with no lawsuit," Carollo said. "If we wanted to play politics, we would have filed this lawsuit a long time ago."