Audit Reveals Misspending in Riot Recovery Program : Business: Many recipients either spent grants improperly or got duplicate aid and failed to reimburse the city. But the agency’s director says flaws have been fixed.

More than half of the $2.6 million that a city agency gave businesses for repairs after the 1992 riots was either spent improperly or not repaid as promised, or may have duplicated payments made by private insurance and other government agencies, an audit has found.

A complete assessment of the Community Redevelopment Agency program has not been possible, since a review of the 95 businesses given grants is continuing.

But the case of one grant recipient that received $70,000 has already been referred to the city attorney’s office for a possible fraud prosecution.

City Controller Rick Tuttle reviewed the agency’s internal audit and declared its efforts to correct problems “lousy.” In a letter to the CRA, Tuttle said his office was so concerned that it might seek to take over financial oversight duties for the semi-independent city agency.

A separate CRA audit reviewed a private security company hired to patrol parts of Hollywood, finding that the firm failed to provide the level of patrols promised and then overbilled the city $24,769. Tuttle again criticized the agency for not holding its employees accountable for failing to adequately monitor the contract.

Redevelopment Agency Administrator Ed Avila responded angrily to Tuttle’s comments, saying that his organization had rooted out the irregularities itself and is following up aggressively.

“The fact is, we have moved way ahead on this and been very responsive,” Avila said. “In the normal scheme of things around City Hall you wouldn’t have audits like this for two or three years. I don’t know what (Tuttle’s) motivation is. Maybe it is slow this time of year over there.”

The Emergency Rehabilitation Grant Program was established by the redevelopment agency and City Council just days after the riots. Money was to be provided to reopen damaged businesses as quickly as possible. Although the money provided was described as grants, business people were told they would have to repay the money if they subsequently received payments for the same work from insurance or other government agencies.

Grants totaling $2.6 million were made to 95 businesses.

“This was a new and innovative program,” Avila said. “Because of our ability to react very quickly, we were able to open up 95 businesses within days of their applications.

“When you move quickly, you take the chance and risk that there may be some irregularities,” he added. “With most government programs, the complaint is you can’t get them to respond at all. . . . For the most part, these grants worked as intended.”

But according to the CRA’s own audit completed in December, not all the money was spent as the recipients said it would be.

One business spent its funds on rent rather than repairs, others made improvements at locations not described in their grant applications and some bought equipment that was not to be found when CRA auditors came calling. A total of more than $200,000 was “overpaid” for these purposes.

The audit also found that the riot victims later received $328,000 from insurance and the federal Small Business Administration for the same improvements that the CRA had already funded. That money, however, has not been repaid to the city.

Further, the CRA found that nearly $1 million in additional insurance payments and small business grants went to the businesses. But not enough information has been provided by the businesses or their benefactors to know if the money went for the same purposes as the city grants. If it did, the city would be entitled to further reimbursements.

Tuttle said the CRA has known for months that money was owed to it and failed to demand repayment in speedy fashion. But Avila said the CRA will fervently pursue the money it is owed.

In the second internal audit, the CRA found that a private security firm hired to patrol Hollywood Boulevard and adjacent streets has overbilled the city almost $25,000 and not provided the level of service it promised.

While the amount of overbilling has been deducted from the CRA’s ongoing contract with Patriot Security, the audit and a subsequent review by the controller’s office paint a troubling picture of a program once touted as a model for increasing police services in Los Angeles.

Last June, the CRA unveiled the one-year, $750,000 contract with Patriot Security as a way of bringing more safety to Hollywood and stemming its exodus of tourists.

While officials at the company could not be reached Friday, the audit says they acknowledged the overbilling had occurred after reviewing records.