$2 Million in Belmont Overbilling Is Alleged

The top auditor of the Los Angeles school system said Tuesday that his investigation into the Belmont Learning Complex has found more than $2 million in overbilling and that millions more could be unearthed.

Don Mullinax, head of internal audits and the special investigations unit of the Los Angeles Unified School District, said the overbilling was discovered in just the most recent payment demands, representing only a fraction of the invoices on the $200-million project.

“I am astonished that companies could even attempt to overbill the school district at the time we had an investigation going,” he said.

Concluding the second part of his inquiry into the Belmont fiasco, Mullinax blamed poor accounting controls both within the district and on the part of outside consultants for allowing the hemorrhage of funds.

Mullinax recommended that the district consider suing its auditing firm, Ernst & Young, and that it file another lawsuit against its former law firm, O’Melveny & Myers.

He also, for the first time, squarely laid responsibility for Belmont on Dominic Shambra, the tough-talking former head of the district’s office of planning development, which was created to spearhead joint construction projects with outside contractors.

Unlike Mullinax’s first report on Belmont, released in September, this one did not recommend new employee discipline. It added details to the public record, such as the amount of overbilling suspected so far, but did not break substantial new ground.

Responding to the report, Chief Operating Officer Howard Miller said he had demoted the district’s chief financial officer and recommended that the board fire Ernst & Young.

“Our intention is to drive a stake through the heart of the culture that produced these results,” Miller said.

Mullinax said he referred information to three federal, state and local prosecuting agencies for investigation of possible illegal activity. He declined to specify any individuals or companies, however.

Ernst & Young’s L.A. office referred calls Tuesday to a New York spokesman, who was not available.

The school board is already suing O’Melveny based on allegations in Mullinax’s first report, which said the firm failed to properly advise the district on handling environmental cleanup at the project site.

On Tuesday, Mullinax alleged that O’Melveny partner David Cartwright gave district employees bad advice by encouraging them to relax their accounting controls over Belmont subcontractors.

“Because the overall construction price is substantially controlled by the guaranteed maximum price feature, there is less reason for the district to perform intensive review of the invoice documentation. . . ,” Cartwright said in a 1998 memo to district staff. Mullinax attached a copy of the memo to his report.

O’Melveny & Myers released a statement Tuesday calling the allegations “completely wrong” and saying the investigators misunderstood the memo and the Belmont contract.

Regarding Shambra, the report said that he pushed the Belmont project forward without a clear budget and that he kept information about environmental problems out of applications for state funds. The report quoted him as saying that including such information “would not be a smart political move and could jeopardize the application.”

Mullinax said: “He didn’t have a structure where he had to submit a budget. He just paid the bills.”

Shambra attacked the report as replete with error and innuendo.

He said he put no environmental contingency in the application for state funds because the state had announced that it was no longer funding environmental cleanups. He conceded weaknesses in the budgeting procedures but said he was only following district procedures.

“That’s not anyone’s fault, Shambra said. “That’s the way the system was. In retrospect, it’s probably wrong.”

Shambra was one of 14 district employees Mullinax accused in his September report of failing to exercise proper oversight of the project. Several of them, including general counsel Richard K. Mason and Chief Administrative Officer David Koch, have left the district. Several others face potential discipline.

Shambra, who retired nearly two years ago, before the disclosures about the environmental problems that led to the Belmont investigation, faces no discipline, however.

Roger Carrick, an attorney who worked on Mullinax’s report, said he expected Shambra’s punishment to be the cloud over his name.

The new report also accused two project management firms of failing to protect the district’s interests.

It said Hamscomb Inc. and Daniel, Mann, Johnson & Mendenhall, both hired to monitor the accuracy and appropriateness of work and expenditures, failed to meet their mandate. Their failure allowed subcontractors to bill for work they had not yet completed, the report found.

A spokesman for Daniel, Mann denied that the firm was responsible for project management, and Hamscomb declined to comment.

In related actions Tuesday, the school board:

* Voted unanimously to have the U.S. Army Corps of Engineers be a project manager for safety and technology projects and new school construction, including the selection of campus sites. The total cost of the agreement is $1.2 million through March 31.

* Hired two law firms to represent the district in the O’Melveny litigation. Girardi & Keese of Los Angeles and Cotchett, Pitre & Simon of San Francisco will serve as co-counsels. Thomas Girardi has represented plaintiffs in cases that resulted in large judgments against Pacific Gas & Electric and Lockheed. Joseph Cotchett was lead counsel in the class action suit that ended in a $1.75-billion verdict against Lincoln Savings & Loan.

* Postponed a decision on whether to ask the Army Corps to study the cost of completing Belmont. Miller said he was withdrawing the recommendation due to concerns about a potential conflict of interest involving Secretary of the Army Louis Caldera. Caldera was formerly a lawyer at O’Melveny and supported the Belmont project when a member of the Legislature representing L.A.

In a statement, Caldera said he had no “knowledge or involvement” in the negotiations between the corps and the district. Miller said he would retain an ethics expert to analyze whether Caldera’s Army post poses a conflict.

* TWIN PROTESTS

Students urge Belmont completion; teachers seek raises. B3