City Audit Mania Heats Up Debate on Privatization

Audit mania has hit Los Angeles City Hall.

Teams of private cost-efficiency experts are probing and challenging many of City Hall’s time-honored systems and sacred cow bureaucracies, with the blessing of Mayor Richard Riordan and the budget whiz kids in his office.

The management consultants and their audits--stacked with data and decorated with charts and graphs--are proving a powerful tool for Riordan’s plans to reinvent city government, and have emerged as key allies of a privatization culture gaining a foothold at City Hall.

Critics, however, view the auditors as reckless hired guns with anti-government biases willing to sacrifice city services on the altar of cost-efficiency. They say some of the audits have produced confused or pie-in-the-sky findings.

“They don’t care about better, only about cheaper,” complained Ken Buzzell, president of the firefighters union, whose members are up in arms about a scathing audit of the Los Angeles Fire Department.

Management audits are not new to City Hall. But the unusual twist now is that Riordan, a multimillionaire businessman, has scrapped a city-run management audit team he believed was not aggressive enough and has turned instead to hot-shot private audit consultants to root out waste at City Hall.

Also new is the furious pace of auditing. Since Riordan took office about two years ago, six management audits have been completed, with 10 more in the works, at a total cost of $3.8 million.

The reports have cost anywhere from $845,000 for an audit of the Harbor Department to a $38,500 review of the city’s out-of-control workers’ compensation system. Despite the costs, “we hope to get far more back in savings than the consultants’ fees,” said City Administrative Officer Keith Comrie, the city’s top fiscal adviser.

The operations that have been put under the audit microscope or are about to be audited include the city’s purchasing, payroll, fleet management and workers’ compensation systems and the departments of water and power, fire, harbor, engineering and community redevelopment and the Board of Public Works.

Yet despite the money, energy and emphasis, some of the new crop of audits revisit and regurgitate cost-cutting proposals previously recommended by the old city-run audit management unit.

For example, a recent audit proposal to turn the workers’ compensation system over to private administrators was originally made by in-house city auditors in 1989. Likewise, a specially commissioned 1994 audit found that the Department of Water and Power had failed to implement the most significant recommendations made in the last performance audit of the department--done only four years earlier.

Riordan Administration officials maintain the latest batch of audit findings are not likely to suffer the same dusty fate as their predecessors--particularly since voters last spring gave the mayor new powers to fire foot-dragging department chiefs.

“If they [prior audits] didn’t see the light of day, that suggests there was a lack of leadership either by the departments or by the political leaders,” said Michael Keeley, the Riordan Administration’s chief operating officer. “This Administration, however, comes at this issue with a pronounced change agenda.”

What the Audits Found

Some of the management audits--which, unlike financial audits, concentrate on performance and efficiencies--have reached conclusions that have led to dramatic changes.

Consider the case of the Department of Water and Power, which became the target of a sweeping management audit late in 1993, after embarrassing reports that it had wasted tens of thousands of dollars on catered food for its managers during a union-led strike.

After a $250,000 review of the huge city-owned utility, Barrington-Wellesley Group Inc. found DWP was ill-equipped to compete with other local utilities and energy suppliers as a new era of utility deregulation approaches and recommended that it slash a staff top-heavy with engineers and mid-level managers by up to 2,900 positions.

“Our report didn’t pull any punches,” said Perry Wheaton, a managing partner of the New Hampshire-based Barrington-Wellesley Group, a consulting firm that specializes in reviewing utilities.

The Barrington-Wellesley audit got results.

First, DWP launched a voluntary buyout program to sharply trim its staff. That program, completed this summer, resulted in the early retirement or resignation of 1,500 employees (although the offer stirred up a controversy after it was discovered that a handful of employees had, in the words of DWP’s chief, “manipulated” the system to maximize their benefits).

Faced with the formidable task of overhauling a utility reared in a monopoly environment, DWP leadership also has embarked on a program to transform its corporate culture so it can survive in a competitive environment.

But consultants have a way of begetting more consultants. And DWP’s five-member board of directors, appointed by Riordan, has picked another outside consulting firm, PSC Energy Corp., founded by Texas billionaire and presidential wanna-be H. Ross Perot, to assist the agency in charting a new course for itself. Under its contract, PSC will earn upward of $14.3 million under a two-year contract.

“PSC is not running the department but they are sitting beside those of us [who] do,” insisted DWP general manager William McCarley.

Another audit report, produced by the Big Six accounting firm of Deloitte Touche LLP at a cost of $250,000, found that inefficiencies in the city’s purchasing system sometimes mean that the paper-shuffling required to buy some supplies costs more than the supplies themselves.

This audit called for a radical streamlining of the city’s purchasing system to pare down the 174 warehouses the city operates and to use far fewer vendors to purchase its supplies and equipment.

If its findings were implemented, Deloitte Touche maintained, the city could save $250 million over five years and slash its warehousing and paper-shuffling bureaucracy by 560 positions.

Again, as at DWP, the job of revolutionizing the purchasing system is so immense the city plans to hire consultants under a new $4 million to $6 million contract to implement the Deloitte-Touche findings.

But the audits--especially those that seek to upset longstanding City Hall practices--have not gone unchallenged.

The Fire Department is aggressively critiquing a recent audit that urged big changes in the department. “We’re not saying this whole thing is just a piece of garbage,” said Assistant Chief Tony Ennis of the audit by David M. Griffith Associates Ltd. “[But] we are going over it with a fine-tooth comb.”

In addition to urging partial privatization of the department’s paramedic service, the Griffith report recommended sending fewer firefighters to a typical structure fire, using civilians to staff the department’s 911 dispatch system (now calls are handled by higher-paid firefighters) and eliminating 55 staff assistant positions.

The department’s reaction to these findings produced some “very difficult talks” between the mayor’s office and Donald O. Manning, who recently retired as fire chief, said Riordan aide Keeley, refusing to elaborate.

The auditors particularly angered the department when they characterized the 55 staff assistants as “drivers” for the brass, a theme that got a rhetorical boost when Riordan dubbed them “chauffeurs.”

Department officials say the staff assistants perform important work and complain that if they had had an opportunity to talk to the consultants before they reached their conclusions, some of the findings might have been scrapped. “This report was done virtually without consultation with the department,” Ennis said.

The mayor’s office has invited the Fire Department, under acting Fire Chief William Bamattre, to rebut the Griffith report.

Meanwhile, the department, acceding to the need for some change, has set aside $100,000 to pay for a closer scrutiny of its dispatching system--by yet another group of outside consultants.

A big audit of the Harbor Department also has inspired grousing--and confusion.

In January, Booz-Allen & Hamilton Inc. proposed cuts to save $9.5 million, including a recommendation that a big share of the port’s maintenance operations be turned over to private contractors.

But in July, when it issued a second report, Booz-Allen dropped the maintenance workers from the hit list and set its sights on privatizing the port’s engineering staff and the port-run Cabrillo Marina for pleasure boats.

“What Booz-Allen found [in the interim] was that out-sourcing maintenance would not save much and that tenant satisfaction with maintenance was high,” said port spokeswoman Julia Nagano.

“They just switched targets to get the numbers they wanted,” complained William McLeish, a port engineer. “The first report said cut 266 jobs, the second report said 269 jobs. It’s an amazing coincidence. It sounds like they came in here with an agenda.”

Some port workers also are angry about the process leading up to the second report, in which Booz-Allen solicited efficiency ideas from panels of employees.

McLeish sat on one of these panels and later signed a letter with the dozen other members of it complaining that their suggestions were ignored or twisted.

“They called the second plan ‘employee-driven,’ ” said Doug Thiessen, another port engineer. “It was a charade.”

Meanwhile, the engineers scoff at cutbacks in their ranks as shortsighted as the port continues to have a long-term construction program. If its in-house engineering staff is gutted, the port may be unable to adequately oversee and manage such construction, putting the port at the mercy of private contractors and engineering consultants, they say.

Faced with angry workers and marina tenants after two rounds of audit proposals, Harbor Commission President Leland Wong is trying to stabilize a feverish situation.

“We’re pulling together senior people at the port to have them meet with the people affected, the tenants, employees and labor groups,” Wong said. “We’re trying to be inclusive. If there’s a better plan, we’re willing to listen and consider it. We probably haven’t done a good job of communicating.”

No cutback plan is set in stone yet, Wong added, noting that the Harbor Commission has only accepted the second Booz-Allen report, not adopted it.

Nevertheless, Wong said the port commission--backed by Riordan--is committed to making the port “run more like a business” and to getting into a stronger competitive position vis-a-vis the neighboring Port of Long Beach.

Privatization Preferred

Privatization is often a preferred cost-efficiency tool for the auditors.

A 1993 consultant’s review found that the city’s system for administering on-the-job injury claims filed by city employees was “well below industry standards” and recommended, for starters, that the city hire a private contractor to catch up with a huge backlog of workers’ compensation claims.

With that study in hand, Councilman Joel Wachs introduced a bolder plan to simply farm out to a private contractor all responsibility for running the city’s workers’ comp system. If handled properly, the payouts--averaging four times those of other cities--could be reduced by millions through closer scrutiny of injury claims.

A more modest plan was later adopted by the City Council, which approved hiring two private contractors, one each to administer claims from fire and police employees, leaving the city staff--bolstered by 20 new employees--to handle claims filed by city civilian employees. The city has set aside $10.6 million to pay the two contractors for their first year’s work.

This year’s audit of the Fire Department, meanwhile, argued that private ambulance services should handle the least urgent calls for emergency medical assistance that are currently handled by the Fire Department’s paramedic teams. That controversial report concluded that privatizing just that portion of the city’s paramedic service could save as much as $8.5 million a year.

At the Harbor Department, the latest Booz-Allen report recommended establishing a private engineering company, staffed and owned by more than 100 engineers now on the city payroll. This new entity would then contract with the port to do its engineering work at a reported savings of $2.2 million to $14.3 million, the audit concluded.

Talk of privatizing city services has fueled suspicions that the consultants come to City Hall with an ax to grind against the public sector. “That’s a bias that’s quite in vogue now,” said Councilwoman Jackie Goldberg, an ally of organized labor.

“It doesn’t take a genius to lower costs by privatizing and paying the workers less and giving them fewer benefits,” said Goldberg, who is chair of the council’s labor relations committee. “But it doesn’t necessarily mean that they will provide better services.”

Goldberg, while not opposed to the outside audit studies per se, sees a bigger role for city employees to play in evaluating, streamlining and improving the services they provide.

Goldberg prefers a model in which labor and management form joint committees to improve their jobs and services. “It may sound bizarre, but we should rely more on the persons who’ve been doing these jobs for a long time to tell us what’s best,” she said. “That only seems like common sense.”

Julie Butcher, spokeswoman for Service Employees International Union, Local 347, agreed, saying: “You don’t need to spend $800,000 to come up with these B.S. reports.”

Butcher points to City Hall success stories where workers--unaided by private management consultants--have devised plans to streamline City Hall operations.

City refuse collectors, for example, have collaborated with management in a plan to eliminate old work rules that enabled faster workers to leave early and still get paid for a full day’s work and slower ones to collect overtime pay. New work rules designed to institute a new team spirit and level out the workload were worked out without any consultant help, said Drew Sones, assistant director of the Bureau of Sanitation.

“We generally know what needs to be done to get more efficient,” Sones said.