U.S. Probes County Quake Fund Claim : Recovery: Officials say Health Services Department may have improperly tried to get over $1 million for equipment and furniture at two Valley health facilities.

As part of a broad probe into potential wrongdoing in the Northridge earthquake recovery effort, federal authorities are investigating whether the Los Angeles County Department of Health Services improperly tried to get more than $1 million in quake repair money for medical equipment and furniture at a health center that has since been demolished, The Times has learned.

The Federal Emergency Management Agency also is questioning whether cracks and other damage at County-USC Medical Center’s psychiatric hospital were the result of last year’s Northridge earthquake--as the county has claimed--or were caused by prior earthquakes or general wear and tear, county officials said Monday.

According to federal and county officials, the beleaguered Health Services Department--struggling to come to terms with an unprecedented budget deficit--has been under investigation for various applications for earthquake funds for at least a year.

In recent months, investigators from FEMA’s Office of Inspector General have demanded cartons of documentation from county health services officials regarding the demolition of what was once the San Fernando Valley’s largest public health center, the Mid-Valley Comprehensive Health Center in Van Nuys. The federal officials are questioning whether the center needed to be torn down after the quake, and whether the county paid the lowest possible price for the demolition work, according to Frank Binch, who is overseeing the Health Services Department’s earthquake recovery efforts.

The Inspector General, FEMA’s independent law enforcement arm, also is trying to determine whether the county was justified in applying for as much as $1.2 million to replace furniture and medical equipment at Mid-Valley and a smaller clinic, the San Fernando Health Center, Binch said. “My staff has spent significant amounts of time with the IG staff,” he said. “They have been involved heavily with us for months.”

Federal authorities stressed that the current investigations by the FEMA Inspector General’s special agents--and even FEMA’s general concern over the psychiatric hospital damages--go far beyond the much-publicized squabbles between the federal disaster agency and the county and state over the extent of needed earthquake repairs.

In that policy dispute, FEMA has rejected hundreds of millions of dollars in claims submitted by the county and other government entities. It contends that the applicants are unfairly seeking as much money as possible to rebuild hospitals and other structures instead of accepting what is needed to repair them to pre-disaster conditions.

Dispute With FEMA

The local entities, including Los Angeles County, argue that FEMA wants to pay less than what is required by state law to rebuild the structures to a level that is both safe and up to current building and earthquake codes. Those disputes involve more than $4 billion in aid requests for more than 800 structures.

But, authorities said, those disputes involve administrative differences and divergent interpretations of regulations and policies concerning the federal role in disaster recovery, not potentially fraudulent applications for federal aid.

Binch confirmed that FEMA has asked for “a massive amount of documentation to show how much equipment we lost” at Mid-Valley. The five-story facility was condemned in March, 1994, although three inspections deemed it safe enough to be used as a medical command post during post-disaster relief efforts. The county offered inventory lists to show the lost equipment, Binch said, but FEMA special agents have said they want photographic evidence.

“They want to be satisfied that the things we are claiming are really losses we sustained,” Binch said. “The IG wants to be satisfied to a ridiculous certainty that the equipment was there [in the health center].” County officials have set up a makeshift replacement health center, while they seek FEMA funding.

Binch said the Inspector General is not investigating the request for $64.2 million to replace the County-USC Psychiatric Hospital, but that other FEMA officials are raising new questions about it. The free-standing psychiatric hospital had been listed among the buildings the county had hoped to demolish as part of an overall plan for replacing the facility even before the earthquake hit. “They said, ‘Why should you be after our money when you were planning on demolishing them anyway?’ ” Binch said. “And my answer to them has been and continues to be, ‘The Board of Supervisors has not authorized the funding for that replacement.’ ” He said the request for earthquake repair money was legitimate as long as the building was in operation, with no specific plans to shut it down.

FEMA so far has rejected the county’s application for funds to replace the psychiatric hospital, saying all that is needed is about $1 million for non-structural repairs, and the county has appealed.

But now more serious concerns have been raised, according to Binch and others.

During walk-throughs of the condemned building in recent weeks, FEMA officials began questioning whether large cracks in the walls were from prior disasters, or even from wear and tear.

Tipsters from the county’s work force also have contacted federal inspectors, alleging that the county is trying to have the federal disaster recovery agency pay for damages that already existed before the quake, county officials said.

Binch criticized what he described as “heavy-handed” tactics by federal authorities in conducting their investigations. He suggested that any points of disagreement between the county and the federal government could be attributed to honest mistakes, not fraud.

“I don’t think we have anything to hide,” Binch said. “There ain’t no fraud.”

‘Serious’ Allegations

FEMA officials had little comment on the investigations, except to confirm that they are trying to determine whether the county and other unnamed local government entities have improperly asked the federal government to pay potentially hundreds of millions of dollars to fix damages that were not the result of the January, 1994, temblor.

“We have received a number of allegations from state and county employees, former and current--and not only them--about possible misuse of funds,” said one top-level federal authority central to the investigations. “Was there criminal intent? Was it a way to divert money for other purposes? What was the money used for?

“It is serious,” he said of the investigations. “We take it seriously.”

FEMA’s Inspector General’s office has been probing general allegations of fraud in the overall earthquake recovery effort for more than a year, with help from the U.S. attorney’s office in Los Angeles. Several of those ongoing probes involved undisclosed government entities.

Although federal prosecutors and their own investigators are working closely with FEMA on some of the investigations, that does not necessarily mean criminal indictments are being considered, authorities said, especially if any violations are found to be unintentional. The penalties could range from administrative sanctions and denial of aid to criminal charges of fraud and misappropriation of federal money, said FEMA’s assistant inspector general for investigations, Paul Lillis.

Binch and Al Tizani, a county Chief Administrative Office liaison to FEMA on the earthquake repair efforts, confirmed that FEMA has questioned some of the repair requests at County-USC. But both said those concerns came as FEMA engineers reviewed the county’s appeal of its $65-million aid request, and were not turned up by the Inspector General’s staff.

“FEMA said these [cracks] had been repaired already so how could they have been from the Northridge quake? They must be from pre-existing damage,” Binch said, adding that FEMA has yet to notify the county of its final determination.

“Is FEMA questioning some of this, yes. Is the IG questioning that [the County-USC Psychiatric Hospital request] as a matter of fraud, the answer is no,” Binch said. “Both the [FEMA] field office and the IG demanded a lot of documentation. Both have raised issues regarding potential fraud. In the case of IG, it was with respect to Mid-Valley. In the case of FEMA, it has been with Olive View and County-USC. There are occasional accusations of wrongdoing by both.”

Binch said that FEMA made similar accusations about possible wrongdoing at Olive View Medical Center in Sylmar last year, but that the county ultimately was vindicated. Those accusations, and threats of criminal charges, he said, came not from the IG criminal investigators, but from regular FEMA officials who had become suspicious.

Claims Delayed

As with the current County-USC inquiry, he said, “They felt we were trying to claim for buildings that were damaged and paid for in prior disasters. We did extensive analysis to satisfy FEMA that this was not the case.”

Ultimately, he said, FEMA dropped the accusations, but not before holding up processing of claims for $80 million in earthquake repairs to older buildings on the hospital campus. The county did find one claim that was duplicative of prior damages, Binch said, but that was only about $35,000 and the claim was withdrawn.

“The tactics that have been used have been heavy-handed, more so than from any [other] agency I have ever dealt with in my career,” Binch said. “I would urge you to withhold any judgment until we can get the evidence on the table.

“At Olive View, FEMA told us . . . it looked like fraud and that they were going to identify culpable individuals in criminal wrongdoing. . . . When all was said and done, everyone made nice to each other. FEMA said, ‘Let’s pretend this didn’t happen.’ ”

FEMA officials had no comment Monday on the Olive View investigation.