First 5 Panel Seeks Missing Funds

California’s First 5 commission is investigating the apparent disappearance of nearly $3 million in tax money owed to television stations that aired its recent preschool ads, the panel’s chairman said Thursday.

Hector Ramirez, First 5 California Children and Families Commission chairman, also called on the Los Angeles Police Department and the state audit bureau to find out what became of $2.8 million given to the Los Angeles public relations and advertising firm Durazo Communications.

Durazo was supposed to use the money to pay television stations for the airtime.

“What we’re going to be doing is just conducting a full investigation on our own,” Ramirez said.

Gov. Arnold Schwarzenegger appointed Ramirez two weeks ago to replace longtime First 5 chairman Rob Reiner, the Hollywood filmmaker. Reiner resigned amid criticism that he had used the publicly funded ads to build support for a preschool initiative he is championing on the June ballot.

Durazo was a subcontractor to the commission’s main ad firm, GMMB Inc. GMMB learned of the problem when television stations contacted its offices, according to a lawsuit the firm filed Thursday against Durazo and its principals, Daniel R. and Jane F. Durazo, to retrieve the money.

The suit says GMMB confronted the Durazos last Friday. The suit quotes Daniel Durazo as saying his company’s accounting practices were insufficient and the $2.8 million was missing.

GMMB’s suit said it had paid Durazo $30 million in First 5 money dating to its first contract in 2001.

Durazo has done work as a contractor or subcontractor for many private firms and government agencies, listing on its website such clients as Caltrans, the California Department of Health Services, the Los Angeles County Department of Public Works, UC Irvine Medical Center, the U.S. Department of the Treasury and the U.S. Mint.

The firm declined to comment. GMMB executives also would not discuss the matter, and instead issued a statement saying it was suing Durazo.

Ramirez noted that the ads aired in a campaign last winter, “so from the commission’s perspective, we did get what we paid for.”

The monetary dispute, he said, is among GMMB, Durazo and the television stations that have not been paid. But Ramirez raised the possibility that the commission could move to cancel its contract with GMMB.

“My concern is that whomever we do business with has to reflect the highest integrity and the highest level of ethics,” Ramirez said.

Ramirez made the comments as the state auditor begins to investigate the commission’s own financial records.

Legislators called for the audit after it was revealed that the commission spent $23 million on an ad campaign touting the benefits of preschool while Reiner was launching Proposition 82 on the June ballot. The initiative would create a state-funded preschool system.

The ads were produced by GMMB. GMMB worked on Proposition 10, the 1998 initiative pushed by Reiner that created the First 5 commission and raised tobacco taxes by $600 million a year to pay for an array of early childhood programs. Internal First 5 documents show that in recent years, GMMB and the commission intended to use the state-funded media campaign to boost public support for preschool.

In its lawsuit, GMMB says it gave Durazo more than $4 million of the tax money in December and January for buying television time on Spanish-language stations. According to the suit, the $2.8 million is gone.

GMMB’s statement said it notified the Los Angeles district attorney upon learning of the problem, and “immediately informed the First 5 California Children and Families Commission.”

GMMB is a subsidiary of Fleishman-Hillard Inc. In an unrelated matter, former Fleishman employees face federal conspiracy and wire fraud charges involving the Los Angeles Department of Water and Power and other clients.

In pitches to win First 5 contracts in 2001 and again in 2004, GMMB included Durazo as part of its team, citing its history of corporate and government marketing efforts aimed primarily at Latinos.

“The agency is best known for its social marketing expertise in targeting California’s diverse Hispanic community,” GMMB says in its 2004 contract with the commission.

Durazo was founded by Ray Durazo, who was not named in GMMB’s suit. Ray Durazo had done extensive work for California’s state-funded anti-tobacco campaign dating to 1990.

Durazo Communications continues to work on that program as a subcontractor for Rogers Group, which has the main Department of Health Services anti-tobacco contract.

The Rogers Group is also the lead public affairs consultant to the First 5 commission.