Starting to Add Up

Last week members of the League of Chicago Theatres were wondering how its auditing firm since 1997, Pandolfi, Topolski, Weiss & Company, could have over-looked an al-leged embezzle-ment of $200,000 by a longtime league employ-ee. Annual au-dits of a company’s books aren’t designed to uncover fraudulent activity; that’s the responsibility of ma-nagement. But last June one of Pandolfi’s former clients, the town of Cicero, filed an accounting malpractice lawsuit in Cook County Circuit Court alleging that the firm’s substandard performance permitted an insurance admin-istration company to walk away with $13 million from the town’s coffers between 1992 and 1996. The suit seeks damages of more than $13 million from Pandolfi, alleging that it failed to audit the town’s books “in conformance with generally accepted accounting principles…and generally accepted government auditing standards.”

The town recently emerged victorious from a suit filed in 1997 against Specialty Risk Consultants, Inc., the company that former Cicero president Henry Klosak had hired five years earlier to administer the town’s health-insurance coverage. According to the town’s attorney, Daniel J. Kubasiak, Specialty Risk and various subcontractors engaged in an “elaborate scheme to defraud the town of monies.” The court awarded Cicero a judgment of more than $104 million, though Kubasiak isn’t sure how much his client will actually be able to collect from Specialty Risk and its officers. The suit against Pandolfi alleges that the firm failed to “sufficiently test” Specialty Risk’s records to determine whether its expenses were accurate and reasonable, whether its transfer of money to subcontractors was legal or authorized by its contract, or whether its cash holdings on behalf of the town each year were accurate.

Pandolfi has filed a motion to dismiss the suit, arguing that the town government knew about the fraud by February 1997 and that the two-year statute of limitations specified by state law had expired by the time the town filed suit against Pandolfi in June 1999 (a hearing is set for March 17). The motion also notes that in 1993 the firm made a series of recommendations to the town, urging that it keep closer tabs on its outside consultants. Peter Cunningham, a spokesperson for Pandolfi, says this is the first malpractice suit in its 23-year history. Paul Stepusin, a partner at Pandolfi, refused to comment on the lawsuit, saying it would be unethical for him to discuss a client’s affairs (though Kubasiak points out that the town ceased to be a client of Pandolfi when it filed suit against the firm).

Marj Halperin, executive director for the League of Chicago Theatres, retained Pandolfi as the league’s auditor of record shortly after assuming her position on January 1, 1997. She says she lost confidence in the league’s previous auditor, Morris D. Ziegler & Company, because a reaudit of the league’s books had uncovered a $72,000 shortfall just before she arrived. Both she and the Pandolfi firm have worked for the Daley administration, but Halperin says she chose Pandolfi because the firm offered to do the audit for less than Ziegler had charged. “I was looking to cut costs any way I could because of the unexpected deficit,” notes Halperin. She says she had no knowledge of the malpractice suit against Pandolfi until it was brought to her attention last week. “But I have read a lot about the manage-ment of the town of Cicero,” she adds. Kelly Leonard, presi-dent of the league’s board of directors, says that Pandolfi’s auditors are the only accountants who’ve examined the league’s finan-cial records in the wake of the al-leged embezzle-ment scheme, but he didn’t rule out the possibility that another firm might be called in at some point.

Courting the Royal George

The Royal George Theatre Center may have a new owner within 60 days. New Yorker Mitchell Maxwell, a film and theater producer and an associate of Royal George manager Alan Schuster, has confirmed that he’s interested in purchasing the theater and office complex from Philadelphia-based Reading Entertainment Group. He and Schuster have comanaged three off-Broadway theaters–the Minetta Lane, the Union Square, and the Orpheum–though Maxwell says he ended that arrangement in March 1999 to concentrate on producing plays and films. His New York theater productions include David Mamet’s Oleanna, the musical Angry Housewives, the recent Broadway revival of Damn Yankees, and the current run of Donald Marguiles’s Dinner With Friends, a show Maxwell would like to bring here if he acquires the Royal George. He says the theater’s main stage could comfortably accommodate many of his shows.

If Maxwell is successful in his bid, he’ll become the venue’s third owner in the past two years. Reading, which mostly operates movie theaters, purchased the Royal George from local producer Robert Perkins and New York-based Jujamcyn Theatres in September 1998. Like Schuster, the front man for the Reading organization, Maxwell would be a newcomer to Chicago theater, and while the Royal George main stage has been dark for long stretches over the past decade, he argues that a long-running hit can easily make up for the lean times. He also says he’d act quickly to reopen the restaurant space that’s part of the complex, which was never a priority for Schuster. Maxwell was in the restaurant business before becoming a producer, and he currently owns a New York restaurant called Arlo’s. At press time Schuster was away on business and could not be reached for comment, but Reading is believed to have paid $4 million for the Royal George.

Art accompanying story in printed newspaper (not available in this archive): illustration/Carl Kock.