DWP Vulnerable to Abuse in Contracts, Audit Finds

A lack of well-defined controls has left the Department of Water and Power vulnerable to widespread abuses in hundreds of millions of dollars worth of outside contracts it grants annually, an independent audit revealed Tuesday.

“It shows that there are some very serious problems over at the DWP,” City Controller Rick Tuttle said of the audit. Tuttle’s suspicions of abuse led him to force the audit last summer.

“There’s a lot of money involved,” he said Tuesday. “The findings cry out for the DWP to tighten its safeguards.”

In its report released Tuesday, Ernst & Young, the consulting firm that performed the audit, said that although “many areas of the contracting process are working well,” there are “significant and critical portions that lacked internal and management controls.”

“We’re not saying there’s any wrongdoing,” Larry Seigel, an Ernst & Young partner, said Tuesday. “We’re saying, instead, that there’s an opportunity for wrongdoing.”

Ernst & Young says in its report that “there are few formal, written policies and procedures which have been documented, agreed to, communicated and enforced throughout the department.”

There is virtually no consistent measurement of performance or errors related to the contracting process, the report adds. “The result is a lack of . . . accountability for missed deadlines, avoidable amendments (to contracts), costly errors or slow payments.”

The auditors say that 80% of the contract administrators interviewed said that they allow contractors to begin working before purchase orders are established, a practice that usually preempts review of the initial work.

Twenty-five of 30 DWP contract administrators interviewed said they would request a contract, recommend who should get it, approve the contractor’s production, review the contractor’s invoices and authorize the payments to the contractor, the auditors say.

“While having contract administrators involved in every stage of the contracting process is efficient, it also makes it easier for the contract administrator to carry out inappropriate activities,” the report says.

Mike Moore, the DWP’s director of communications, said Tuesday that the DWP is “pleased with the audit” and, “in large part, we agree with the suggestions for change. . . .”