Agency Run by Sanchez Again Under Review

A nonprofit agency run by Los Angeles City Council candidate Corinne Sanchez is under review for allegedly overcharging as much as $276,000 for rents, the latest in a series of financial disputes with the city.

The administrative review could result in an order for El Proyecto del Barrio to pay back some or all of the money to the city, said Barker Khorasanee, finance director for the city Community Development Department.

“We have an issue with them that we are working to resolve,” Khorasanee said.

Two earlier disputes involved more than $70,000 in payments to El Proyecto del Barrio that were classified as unallowable and unauthorized. In one of those cases, the city sued El Proyecto for $48,000, and the agency is still repaying some of those funds, according to court records.

Since January, Sanchez has been on unpaid leave of absence as president and chief executive officer of El Proyecto del Barrio to run in the April 13 election to fill the northeast San Fernando Valley’s 7th District Council seat. She is viewed as a front-runner in the race.

In her campaign, Sanchez has touted her experience running the nonprofit agency, which receives nearly $10 million annually in federal, state, county and city grants to provide job training, drug rehabilitation and health services in the San Fernando Valley.

While receiving plaudits from city officials for providing badly needed services to the Valley’s poor, El Proyecto del Barrio has run afoul of city three times since 1994, records show.

Sanchez said some problems are bound to crop up in an agency that provides so many different kinds of services with a multimillion-dollar budget.

“It was unintentional,” she said of the rent issue. “No one knew [about the rules].”

Sanchez said she hopes issues can be reconciled to reduce any potential liability.

“It’s something they are working on as we speak,” she said. “That’s a lot of money. We could never just pay it off at once. We don’t have that kind of money [lying] around.”

Khorasanee, who oversees city contracts with 400 nonprofit agencies, said there is no evidence that the overcharging was intentional. He said it is common for nonprofit agencies to fail to understand and comply with complex and cumbersome federal and city rules.

“Many agencies have the same problems,” he said. “A lot of them are not well-versed in this area.”

The latest case involves the amount billed by El Proyecto to a job-training program operated out of the agency’s Arleta office building. Federal rules prohibit agencies from charging full-market lease payments for buildings they own, limiting charges to depreciation equal to no more than 3% of the building’s value, Khorasanee said.

City auditors discovered that for the last five years, El Proyecto has been billing the job-training program for full fair-market rent for use of a portion of the building owned by El Proyecto--an amount equal to about 13% of market value. The difference during the last five years totals $276,000.

“That is the maximum possible liability,” Khorasanee said. City accountants are waiting for detailed financial records from the agency.

“We had been submitting it like this for five years and nobody said anything,” said Lorraine Gutierrez, acting CEO of El Proyecto.

In 1994, the city sued Sanchez’s agency over $48,308 in government funds allegedly spent on unallowable and unauthorized expenses, according to court records. The money was part of $63,621 disallowed in a U.S. Department of Labor audit done in 1993 for contracts awarded five years earlier.

At issue was El Proyecto’s handling of a three-year, $5.2-million contract to use federal funds to provide job training for 1,220 adults and teenagers.

The agency “breached its contract by failing to maintain fiscal controls and records” and “by spending $48,308 on unallowable and unauthorized expenses,” said the city lawsuit, filed Aug. 29, 1994. Khorasanee said the disallowed costs were provided by El Proyecto to employers for hiring people who were not eligible for job training.

Under the program administered by El Proyecto, federal funds channeled through the city pay half the salary of workers who have been hired and are being trained by private employers. Some trainees failed to meet a requirement to enter unsubsidized employment after their stint in the program, some failed to hold unsubsidized employment for at least 30 days and others were already employed when they entered the program, which made them ineligible.

The city, which manages the federal job-training funds, dropped its lawsuit against El Proyecto when the agency agreed to pay back the money.

“We have a very good relationship with the city, and we try to resolve issues whenever possible,” Sanchez said.

Khorasanee said the agency’s general overall performance has been good on grants during the last 20 years. The latest administrative review is pending and no decision has been reached on whether or how much money may have to be repaid, he said.

Ken Worthen, chairman of the board at El Proyecto, said that even before these specific cases, the board was considering a new management structure to accommodate the growth from a $500,000 annual agency to one with a $10-million budget.

“We’re having to have someone come in and take a look at whether we have the best accounting practices,” Worthen said.