MTA Probes Firm’s Billing Practices

After retreating behind closed doors, the Metropolitan Transportation Authority board was told Thursday that auditors are examining whether a major engineering firm on the Metro Rail subway may have billed both the transit agency and the Alameda Corridor project for the same questionable overhead expenses.

County Supervisor Yvonne Brathwaite Burke, vice chairwoman of the MTA and a member of the Alameda Corridor Transportation Authority, said auditors have “very recently started looking at the issue of double billing.”

The disclosure that MTA auditors are probing possible double billing by Daniel, Mann, Johnson & Mendenhall came as board members demanded answers to questions raised in a scathing audit report issued by the agency’s inspector general.

In that report, auditors concluded that the Daniel, Mann firm overcharged the MTA by $2.1 million, primarily by improperly charging the transit agency for overhead expenses in its Washington, New York, Baltimore, Hawaii, Denver and Phoenix offices.

A spokeswoman for the Los Angeles-based engineering firm flatly denied that there was any overbilling and called the suggestion of double billing “outrageous.”

But MTA board members meeting in executive session demanded to know why the agency failed to take action to recoup the $2.1 million identified by the auditors. They also wanted to know who on the MTA staff agreed to a contract amendment limiting the ability to audit future overhead charges.

MTA Chief Executive Julian Burke was directed to report back to the board within 30 days on who was responsible and whether they are still employed by the transit agency.

“They want the CEO to go back and find out who OKd these things and why did they OKd it,” said MTA board member James Cragin. “We don’t want this thing to happen again.”

Supervisor Zev Yaroslavsky said the audit once again raises questions about why the MTA has been “more responsive to the contractors than the taxpayers.”

Yaroslavsky said the audit shows that the Daniel, Mann firm “fights a lot harder than the MTA has fought” on the issue of overhead expenses. “The bottom line is how do you charge two agencies in the same city for overhead? It sounds like double billing,” he said. “It’s not the kind of thing the average person would get away with.”

But firm spokeswoman Alexandria Spencer said the “allegation is totally erroneous.” She said the engineering firm’s practice of allocating overhead expenses is in full compliance with federal standards.

When the issue of overhead charged to the MTA first arose in 1996, Spencer said the engineering firm had two outside companies review its accounting practices and both found “there was no merit to the MTA’s audit findings.”

In addition to being a major partner in the engineering consortium that has overseen design of the subway and light rail lines, Daniel, Mann, Johnson & Mendenhall is playing a leading role in the design of the Alameda Corridor, a $2-billion rail link from the county’s ports to freight yards near downtown Los Angeles.

The new audit will examine how the Alameda Corridor’s engineering team spent $8.5 million for design work. It is the first such review of the project, which is entering the crucial stages of negotiations with construction companies.

The board listened politely but took no action as Los Angeles Councilman Richard Alarcon demanded that the MTA provide up to $9.7 million to assist merchants and offset the negative impacts of subway construction along Lankershim Boulevard.

When Alarcon said the MTA should provide the kind of financial assistance that Hollywood merchants received, Burke replied that the Hollywood program “almost certainly didn’t work.” But he said he would continue discussions with the councilman on the North Hollywood issue.

Board members directed Burke to continue studying the possibility of spinning off some of the MTA’s bus lines into newly created transit agencies or existing municipal operators.

And they told the transit chief to assess the likelihood that the MTA would receive additional highway and transit funds through 2010 from a variety of sources, including a massive highway and mass transit bill passed by Congress.

Board member Larry Zarian cautioned his colleagues about getting too optimistic about potential revenues. If that happens, he said, “we’re going to be a joke again as we have in the past.”

After a long discussion, the board delayed for three months a final decision on whether to proceed with installing high-tech toilets outside eight of its rail stations and two bus transfer points. The program would be paid for with proceeds from new advertising on MTA properties.

The board also voted in closed session to pay $2.2 million to settle separate lawsuits filed by two bicyclists who were hit by MTA buses.