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Marketing Firm Wrongly Billed Caltrans $644,000, Audit Says

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<i> From Associated Press</i>

A marketing firm billed the state for hundreds of thousands of dollars that covered such unauthorized items as employee raises, skiing, golf, football tickets, holiday parties and a $6,000 dinner for Atty. Gen. Dan Lungren, Caltrans auditors say.

The company, Pacific West Communications Group, challenged most of the audit’s findings. The company said the state changed the terms of its contracts without notice and failed to conduct audits in a timely way.

Department of Transportation audits of Pacific West, which provided marketing, information, advertising and research services for rideshare and traffic management programs, identified $644,365 in unauthorized payments during 1994-95 on contracts totaling about $13.3 million.

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“Our position is that we believe that the audits are correct and complete. We believe that the audits have identified charges that have not been substantiated, and we are working to make sure that the firm reimburses the taxpayers,” Caltrans spokesman Jim Drago said.

The disputed payments originally totaled more than $927,000. However, the figures were later reduced by more than $300,000 after meetings between state auditors and Pacific West representatives, according to the auditors’ reports. The auditors also said some expenditures did not comply with federal guidelines. Negotiations are underway between Pacific West and the state to settle the remaining payments.

The state also said subcontractors’ costs were not audited. “However, we may audit the subcontractors at a later date. . . . We are not expressing an opinion on the allowability of the subcontractors’ costs,” Caltrans auditor Steve Castillo said.

A copy of the May 28 reports, accompanied by the written responses of the company and extensive financial data, were obtained by Associated Press.

Pacific West, a 9-year-old advertising company, is the largest environmental and transportation consulting firm in California, and the sixth-largest in the nation, company President Stephen Tobia said.

During the period covered by the audits, the executive vice president of Los Angeles-based Pacific West was Rick Davis, former executive director of the California Republican Party. Davis served in the administration of former Gov. George Deukmejian, and has close ties to Gov. Pete Wilson’s administration. Davis recently left Pacific West.

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Also at Pacific West as senior vice president was Dan Schnur, Wilson’s former communications director and presidential campaign spokesman. Schnur also served as a spokesman for the state Republican Party. Schnur is no longer with the company full time, but remains a consultant.

Despite the presence of Davis and Schnur, Tobia said political connections did not play a role in Pacific West’s ability to obtain state contracts from a Republican administration, and noted that his firm employs former staffers from Democratic government officials.

He said the Caltrans contracts were negotiated without Davis or Schnur’s involvement.

“These connections have never, ever given me one piece of business in the political arena,” Tobia said. “I have a list of every government contract that we have ever gone after, and our track record is 33%. Those are political connections?”

Several Transportation Department sources, who spoke on condition of anonymity, said the audit was the subject of controversy for months within Caltrans. Sources contend that Wilson loyalists, fearing embarrassment to the administration, tried to discourage the auditors.

In particular, they said, Chief Deputy Director Andrew Poat, the No. 2 man at Caltrans and a Wilson appointee, was critical of the audit as it unfolded. Poat, a longtime Wilson political worker, served Wilson in the U.S. Senate, then worked as the governor’s deputy Cabinet secretary.

Poat was traveling Thursday and was not available for comment.

Tobia said no one at Caltrans sought to halt the audits.

“Pac/West did not receive prior written approval for the hourly increases they gave their employees. In addition, the biggest difference of $117,093 relates to a salary increase for the owner, Steve Tobia. We consider Steve Tobia’s hourly rate increase from $75 per hour to $120 per hour excessive and unreasonable, especially because he awarded himself the raise only 1 1/2 months into the contract,” Castillo wrote.

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Tobia said the state was informed properly of salary increases and pay rates, and that Caltrans unilaterally reduced the company’s level of overhead--the level of costs and expenses for which it could be reimbursed--by 20%.

Pacific West, in letters to Caltrans, acknowledged that mistakes may have occurred, but said the majority of reimbursements were legitimate.

The audit and accompanying material were sprinkled with examples of contested spending, including payments for entertainment and meals.

Caltrans’ auditors rejected about $100,000 in claims for meal and entertainment expenses the company justified, in part, to improve employee morale and for business development.

The audit showed that Pacific West had the state pick up the tab for a 1994 New Year’s Eve party, in which billings included $4,755 to rent china, silver and glassware, and $500 per hour for valet service.

A check of $45,414 worth of transactions showed that only “$1,880, or 4.1%, of the cost tested were properly documented and allowable,” auditors said.

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Pacific West withdrew its request for reimbursement for $5,934.49 that was spent on a business development dinner for Lungren.

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