Agency Seeks Funds to Pay Late Fees

Under mounting criticism for paying about $400,000 in late fees last year on delinquent phone bills, the city’s Information Technology Agency has asked Mayor Richard Riordan for $5.3 million to cover a multiyear deficit in the account used to pay such bills, officials said Friday.

The city has had to pay late fees because city budget writers have not set aside enough money for phone service, according to John Hwang, the agency’s general manager.

The supplementary funding request Thursday includes $3.2 million to cover phone bills expected through June 30 and $2 million to cover prior-year phone bills carried over for lack of funds, Hwang said.

“This deficit has been carried over from each fiscal year to the next, as an adequate level of annual funding has never been allocated for telephone services,” Hwang said in a letter to Riordan.

“Therefore, each year, ITA has been required to use current year funds to pay off old year bills, reducing the amount available and causing the deficit to grow larger,” Hwang wrote in the letter released Friday.

Pacific Bell charges a fee of 1.5% for any payment overdue more than 30 days.

Riordan plans to review the funding request quickly, but also has demanded that Hwang fix problems in the city accounting system that allowed the city to delay paying bills on time for years.

Aides to the mayor said it appears the city has been paying bills late, and therefore paying late fees, since 1984. If the late payments were $400,000 annually--the estimated shortfall last year--the city could have paid $6 million in unnecessary fees over 15 years, mayoral aides said.

“The mayor’s office is looking at the request [for extra funds] to insure that it will address the budgetary issues relative to the phone bills,” said Deane Leavenworth, a spokesman for the mayor.

“The accounting procedures that contributed to the accrual of these late fees is being rectified immediately,” Leavenworth added.

Even as Hwang was meeting with auditors Friday to get a better handle on the problem, outraged City Council members called for public hearings to find out how the city failed to pay its phone bills on time and what can be done to prevent problems in the future.

“The payment of $400,000 in late fees by the city is an intolerable waste of taxpayer funds and creates an appearance of mismanagement,” Councilman Mike Feuer said in a motion introduced Friday that calls for a report by Hwang to the council’s Budget and Finance Committee.

Councilman Rudy Svorinich Jr., introduced a separate motion calling for a hearing by the council’s Information Technology and General Services Committee on the controversy.

Svorinich said the situation “raises many ‘red flags’ in the city’s bill-paying procedures” and questions the ability of the city to operate “in a cost-efficient manner that presents the least amount of burden on the city budget.”

To address the concerns, the agency sent a memo to council members Friday telling elected officials of their agency’s request for more money but also promising to address problems with handling phone bills.

“ITA is taking immediate steps to improve its internal processing of telephone bills to eliminate the payment of late fees not caused by the lack of sufficient funds,” Hwang said in the memo to council members. Deputy City Controller Tim Lynch said earlier that some bills were not paid on time due to a lack of clerical personnel.

A high-level administrator has been temporarily assigned to oversee the paying of phone bills and more workers and money are being assigned to pay bills through the end of this month, said Joseph Mozingo, the agency’s liaison to the City Council.

The problem was discovered by auditors for the city controller’s office, who estimated the city accrued $420,000 last year in late payments to Pacific Bell after failing to pay phone bills on time.

Agency officials met with the auditors Friday and offered their own estimate that the amount of late fees for last year was approximately $388,000, Mozingo said. That estimate is based on actual documented late payments of $323,000 through October, and an extrapolation for the rest of the year, for which records were not immediately available.

Mozingo said it appears there may also have been some late payments last year on an account with GTE. The amount is still being determined, he said.

Riordan had cited the late payments earlier this week as a reason charter reform commissions should give him more power over city managers.

However, City Administrative Officer Keith Comrie, who has announced plans to retire at the end of March, said the blame lies largely with the mayor for not fully funding the phone services budget.