Absent from City Controller Laura Chick's scathing assessment of the billing practices of public relations firm Fleishman-Hillard Inc. and its apparently cozy relationship with the Hahn administration was any clear indication of who should have been minding the store.
Chick concluded that Fleishman overbilled the city by $4.2 million under contracts with the Department of Water & Power. The audit also said the agency did work for the mayor for which it billed the DWP.
What it did not do was say whether the DWP staff, the commission overseeing the department, her office, the City Council or the mayor should have been monitoring the contract and the billing. It may be that the charter reform effort of the late 1990s created the political equivalent of a Texas Leaguer each body thought the other was on the ball.
"There is enough blame to throw around at all levels," said City Councilwoman Wendy Greuel, chairwoman of the audits and governmental efficiency committee. "But the system itself needs to be adjusted to get into the 21st century of accountability. It's the system, the commission, the council, the mayor it's all of them."
Fleishman started working for the DWP in 1998 and the relationship was extended in 2002 by a council vote.
Former L.A. City Councilwoman Ruth Galanter, head of the commerce, energy and natural resources committee at the time, said that gathering support to review what appeared to be a standard contract was difficult on a 15-member Council that had a majority of new members. Other members, most of whom had been elected within the past year, weren't interested in listening, she said.
What's more, there were few resources to take a thorough look even if the council could be roused.
"There was no reason for anyone to show me the bills," she said. "Nor did I have time to go through the bills. Even the City Controller hires a contractor to do the audits."
Greuel, who was elected to the council in early 2002, admitted she was new to the issues and that "several of us, if we knew what we know now, would never have voted for that contract."
At issue are the $24 million in Fleishman billings to DWP from 1998 until October 2003, with the audit finding in part that DWP paid at least $400,000 to the agency for projects that were only for the benefit of the mayor.
Fleishman officials have said the assessment was incorrect, although they acknowledged they don't have documents to back up $652,457 in billings.
Limits to power
The council's ability to review city contracts was curtailed with the passage of charter reform in 1999. Before the reforms, the council could intervene to amend, approve or cancel a contract at any time. Under Section 245 of the new charter, it now needs 10 votes to consider a contract and a subsequent eight votes to send it back to a department with its suggestions.
The effect of reform was to strengthen the power of the mayor, who appointed the commissions that approved department contracts and the departments' managers.
Asked whether Mayor James Hahn had any responsibility for the Fleishman contract, press deputy Yusef Robb said, "This is a DWP contract. What the mayor did was cancel every PR contract in the city." (In a Nov. 16 letter to City Attorney Rocky Delgadillo, Hahn said he wanted Fleishman to "face the strongest penalties possible if the allegations prove true.")
The council made an effort to exert some control over public relations contracts at DWP in June 2002, but deadlocked 7-7 on a motion to reject the DWP's $2.4 million-per-year contract with the Lee Andrews Group.
Chick, too, defended her role in the oversight of the Fleishman contract. In 2002, she released an audit that criticized the DWP for wasting millions of dollars on its $60 million Green Power and public benefits programs.
In several letters to the council, the mayor and DWP staff that year, she expressed concern about $600,000 for sponsorships and denied payment of the invoices. Following her audit of the program, the DWP instituted several changes that included eliminating "marketing and advertising expenditures," according to a January 2004 letter sent by Chick to Hahn, the council and Delgadillo.
Asked why she did not look more broadly into Fleishman's contract with DWP at that time, Chick wrote in an e-mail, "Since then, I have consistently asked questions about the activities regarding the LADWP's ongoing contract with Fleishman-Hillard."
But even the power of the City Controller is limited.
"You can't expect the controller to read every single work order and analyze it," said Raphael Sonenshein, a political science professor at California State University, Fullerton who helped draft the city's charter reforms. "If you did that, government would grind to a halt. So the controller does audits, and those audits reveal problems, which is what happened in this case."
Tightening the process
In response to the DWP audit, Greuel said she would wanted to see city contracts contain more specific language detailing the pact's obligations and to hold commissioners, who serve as the department's board of directors, more accountable.
Greuel and Councilmembers Jack Weiss and Antonio Villaraigosa, now a mayoral candidate, also introduced a motion earlier this month that would increase the number of internal auditors at the city's largest departments, including DWP, and create an investigative unit within the Controller's office.
On Dec. 1, the audits and governmental efficiency committee headed by Greuel is expected to address several reforms at the first public hearing related to the Fleishman contract and the Chick audit.
Bill Boyarsky, a member of the City Ethics Commission, agreed that the commissioners should be more accountable.
"They're the hands-on people who supervise all these contracts, and they have an obligation to play it straight," he said. "They also have the obligation to resist political pressure from the person who appointed them, the mayor."
In appointing commissioners, the influence of the mayor in city operations has been magnified. It was even more significant in the DWP/Fleishman contract because of the relationship between Hahn and the P.R. firm.
In addition to having a number of former Fleishman staffers on his team, the agency was among Hahn's top campaign contributors.
Under those circumstances, Boyarsky said, Hahn or his staff should have a level of accountability for Fleishman's billing practices at DWP.
"By giving him more power over city government," he said, "the voters also gave him more responsibility over city government."
Chick's recent audit identified $1.2 million in labor costs that did not comply with the contract's terms, $1.1 million in labor costs not supported by documentation, $744,104 in questionable sponsorship commissions, $488,717 in questionable overhead costs, $314,606 in markups by subcontractors and $144,852 in unallowable out-of-pocket expenses, plus other costs.
Federal and county investigators subpoenaed records from Fleishman earlier this year as part of a probe into city contracting practices. In July, several former Fleishman employees told the Los Angeles Times they were directed to inflate bills to clients, including the DWP. Fleishman placed the former general manager of its Los Angeles office, Douglas Dowie, on paid leave while DWP's acting general manager, Frank Salas, who oversaw the Fleishman contract, resigned under pressure.
Delgadillo also filed a civil suit against the company and Dowie for allegedly defrauding the city on $20 million worth of paid invoices. Dowie has denied those allegations.
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