*CORRECTION

The June 13th story about Fleishman-Hillard, “Software No Fix for Billing Fraud,” misstated the charges against Doug Dowie, former general manager of the public relations firm’s Los Angeles office. The indictment against Dowie alleges that he conspired to cause another unnamed individual to fraudulently increase the bills on a contract with the Department of Water & Power.

How was Fleishman-Hillard Inc. executive Doug Dowie supposed to have over-billed clients, considering that the giant P.R. firm uses sophisticated software to track precisely how many minutes and hours its employees are putting in for their clients?

Easy Dowie, according to an indictment handed down by federal prosecutors, overbilled L.A.’s Department of Water & Power and other clients by making hand-written corrections onto electronically-derived billing worksheets.

So much for sophisticated software.

While billing programs are commonly used by professional services firms, the indictment affirms what has been an open industry secret: these systems do little to stop fraud, and many are not even designed to do so.

“The computer program is basically allowing you to more efficiently manage data. That’s all it does,” said Richard Kline, Fleishman’s current regional president, senior partner and Los Angeles general manager. “It should help you accurately compile that data, but it doesn’t have any impact on the ability to manage the accuracy of the data itself.”

It’s a problem that goes to the heart of hourly billing, which has been an accepted practice for legal, accounting and public relations services since the 1960s. That system is designed to fairly value the services of creative and intellectual-driven firms whose productivity cannot be measured by the number of products sold. But it has long lent itself to questions about inflated or fraudulent billing.

Professionals have been known to bill each client separate invoices for the same work done by the same person. They also have been known to bill a half-hour rate for a six-minute phone call, or bill a 25-hour day.

“Almost everyone who hires professionals by the hour has had experiences where they felt they were cheated,” said John Toothman, president of The Devil’s Advocate, an Alexandria, Va.-based legal fees management and consulting firm. “It’s a hard thing to prove, but I don’t think it’s uncommon.”

Widespread problem


The American Bar Association found in a 2002 report that billable hours had “reached unreasonably high levels” and that in some circumstances a lawyer will simply “make it up,” often under pressure to report higher numbers.

Many of those software systems, which vary from Intuit Inc.’s QuickBooks to Oracle Corp.’s enterprise management programs, allow firms to track work from employees all over the country and deliver invoices to clients more accurately and quickly. But they fail to reveal inflated bills because they were never designed for that.

“The software, from the agency’s standpoint, makes it easier to manage their process and then look back and say, ‘How much did we really put in on this individual client?'” said Ross Goldberg, president of Kevin/Ross Public Relations in Westlake Village. “But you are still relying upon the integrity of the individual who is filling out the time sheets.”

In most software programs, employees log their time and type of work into the computer, which calculates variable rates for each task. Usually, the computer tracks the employee’s entire work, not just a single project.

Also available are programs that improve accuracy, such as timers that keep track of billable time. Tests have been proposed that would ensure someone does not bill for more than 24 hours in a day; others would send e-mail alerts to clients if the billable hours become excessive.

But Toothman said there is little demand for such programs among P.R. professionals and others, “if their career, their livelihood, the roof over their head and their kids’ braces is at stake.”

Others maintain that software programs are not infallible and that firm executives and managers need the flexibility to change the billing sheets created by the programs.

“Someone could have inadvertently put down the wrong code for a particular task, or the wrong code for a client, or a client could be accidentally billed for work done on another client,” said Ron Rogers, chief executive of Rogers & Associates. “There’s a human aspect in there.”

Fleishman-Hillard


In the case of Fleishman-Hillard, billing clerks at the firm’s St. Louis headquarters created draft worksheets based on electronic timesheets filled out by the Los Angeles employees on the DWP project, according to the indictment. The worksheets, which were created at the end of each month, included employee names, a description of the work, hours and dates worked, employee bill rates, the total amount billed for each employee and the total amount billed for all the employees on that particular job.

The worksheets then were sent electronically from the billing department in St. Louis to Los Angeles, where the account manager and head of the department reviewed them and wrote corrections to billing rates and billing codes.

It was at that point, before the corrected timesheets were returned to St. Louis, that prosecutors charge Dowie and John Stodder, who was in charge of the public affairs practice group, with padding invoices on the DWP contract by adding hours.

In one instance in January 2003, Dowie is alleged to have asked Stodder if he could “pad” the DWP bill by $30,000. Stodder, who reported directly to Dowie, told him that $30,000 was “more than the system could bear.” But another co-conspirator, who was unnamed in the indictment, told Stodder they could “slip through another $15k without incurring too much more scrutiny.”

Dowie and Stodder, who left the firm earlier this year, have pleaded not guilty to the charges. Last week, a third executive, Steve Sugerman, pleaded guilty to wire fraud and is assisting in the investigation. Last month, Fleishman-Hillard, without admitting wrongdoing, agreed to pay $5.7 million to settle a civil lawsuit brought by the city, accusing it of overbilling the DWP and other departments.

Kline said the computer system would never have caught the alleged billing fraud, given how it was done. “It’s really the only way to do it,” he said. “The accounting function is merely a numbers and somewhat clerical function.

There’s no way an accounting clerk would know that.”

Fleishman-Hillard has no plans to make changes to its software system or the computer system that calculates the bills. But the firm is requiring employees to personally certify their timesheets. It also requires that a minimum of three signatures appear on every billing worksheet, including that of Kline’s for any Los Angeles projects.

“Any tool is only as good as the person who’s implementing it,” said Catherine Bension, chief executive of Select Resources International, a Santa Monica-based consultant for marketers. “You can have all the tools in the world. If you’re not using them appropriately, you have a problem.”