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Orange County to be back in the black.

In mid-May, a federal judge approved a plan for Orange County, California, which had declared bankruptcy in December 1994, to emerge from bankruptcy protection by the end of June. The earlier-than-expected announcement of the turnaround was a triumph for the county's CPA treasurer, who had wanted to save the county from fiscal disaster but was only able to pick up the pieces afterward.

Months before the crash, John M. W. Moorlach, CPA, had argued during an unsuccessful campaign for county treasurer that the county's fiscal policies were excessively risky. (See "Be Skeptical, Dig for Facts, Orange County CPA Urges," JofA, Mar. 95, page 14.) The county had, in fact, invested heavily in derivatives that provided high returns but were imprudently volatile. But, in March 1995, several months after the resignation of the man who defeated him, Moorlach found himself in the treasurer's office anyway, appointed by the county's board of supervisors. (Moorlach subsequently was elected treasurer in 1996 for a two-year term.) What has Moorlach been up to since then?

A new ball game

"We've made this a completely different shop from what it was. We mitigated more than 30 internal control weaknesses identified by Arthur Andersen. We developed a three-volume policy and procedures manual, and ensure segregation of duties--all this should satisfy not only any auditor but any bond trader as well," Moorlach told the Journal. The county now has an investment committee, and since it did not have a large staff, it engaged finance interns from local colleges to help provide investment data.

The $3 billion managed by the country is governed by a very conservative investment policy statement, according to Moorlach. "Basically, it's a money market investment pool. We try to anticipate what the Federal Reserve will do, and we've been pretty accurate. We've gotten a lot of satisfaction from our work," he said. Moorlach is a big believer in marking the portfolio to market, an approach he's pleased to see the Governmental Accounting Standards Board pursuing.

"I want to get this office running like a watch before I leave," he said. "We're still implementing changes-- when we're done, I want to enjoy seeing the process working efficiently and properly."

The county's ultimate fiscal fate also will depend, however, on the outcome of its lawsuits against both its former investment banker, Merrill Lynch & Co., and its former outside auditor, KPMG Peat Marwick, both of which are denying the county's allegations. In June, Orange County also filed five suits against various former advisers as well as Standard & Poor's bond-rating agency and the Student Loan Marketing Association (Sallie Mae).

These new defendants are also denying all wrongdoing.
COPYRIGHT 1996 American Institute of CPA's
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Copyright 1996, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Publication:Journal of Accountancy
Article Type:Brief Article
Date:Aug 1, 1996
Words:438
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