Sanitation Bureau Audit Finds Payroll Fraud

A highly critical audit has found evidence of possibly widespread payroll fraud and other costly mismanagement in Los Angeles’ huge trash collection and sewage treatment agency, City Controller Rick Tuttle said Friday.

The abuses and weaknesses in the fiscal controls of the $170-million-a-year Bureau of Sanitation are “the most serious we have seen in six years” of auditing city agencies, Tuttle said.

At one point, payroll records sought by auditors at a garbage truck yard in South Los Angeles were burned in an office fire shortly before auditors arrived, the report said. Fire officials said the incident was “the result of arson,” according to the audit. Evidence of fraudulently billed overtime was found when auditors managed to reconstruct the records.

At least one employee involved in the payroll irregularities has been criminally convicted and fired, three others were fired or retired and several matters have been referred to the Los Angeles Police Department for investigation, the audit said. Names of the employees were not immediately available and Police Department officials familiar with the investigations were not available for comment late Friday.

Anna Sklar, a Bureau of Sanitation spokeswoman, said department officials would not comment because they had not had a chance to evaluate the audit.

The extent of potential losses to the city is impossible to estimate, said Jim Armstrong, the controller’s director of auditing. But an examination of nearly $690,000 in overtime charges found that 22% of the payments were either unauthorized or improperly documented. Auditors recently found that some overtime billing problems persisted even after sanitation officials assured Tuttle’s office that corrective steps had been taken.

Tuttle said that because of the gravity of the problems he will personally present his concerns and the need for action to the city Board of Public Works within two weeks. “The difficulties we believe go right to the management level,” Tuttle said.

Armstrong added, “We don’t want sanitation officials to focus on just one or two people” who have been dismissed or convicted. “It’s a possible widespread problem.”

The audit said irregularities were found in eight of 18 of the bureau divisions, and employees received compensation for overtime not worked. In addition, time taken off for illness, vacations and other paid leaves were not recorded and deducted from workers accrued balances.

Tuttle said that in many cases overtime was approved by line supervisors but lacked required authorizations from higher-level managers--allowing several instances of collusion and fraud.

“It tells me the systems are bad and that people knew it and took advantage of it,” said Armstrong, noting that problems were found in both garbage collection and the Hyperion sewage treatment facility in Playa del Rey.

Inadequate controls on overtime payments were not the only problem. Auditors observed a payroll supervisor and a senior clerk watching television at their desks during office hours--an indication of “laxity in the work area.”

Also, the industrial sewage treatment division showed a “lack of assertiveness” in collecting on past due bills for firms. More than half of the 74 accounts audited were more than a year delinquent. Collection efforts were slow in many cases and no effort to revoke waste-water dumping permits was made on long overdue accounts, the auditors said.

The division reported 387 delinquent accounts and more than $1.3 million in payments due, but it had no central system to track how much in arrears various firms were, auditors said.

The audit outlines a series of corrective measures. Tuttle said he will conduct additional periodic audits to ensure that the problems are corrected.