Airport Agency Challenges Audit Critical of Its Practices

Airport officials have challenged the accuracy of an audit by City Controller Laura Chick that found an “absence of good business practices” at the city’s airport department.

In a sharply worded response obtained Wednesday by The Times through a public records request, officials of Los Angeles World Airports wrote that they had found several major errors in Chick’s 51-page audit. Officials asserted that the errors called into question the integrity of the entire document.

“We were flabbergasted that a paid consultant could have come up with a report so obviously at variance with the facts,” Paul Haney, an airport spokesman, said in an interview. “Even after having had the opportunity to correct their errors, they failed to do so.”

Among the objections, airport officials wrote that the audit overstated by more than $13 million the amount of money the city had lost on leases at Van Nuys Airport and that it based some findings on a transaction that had never occurred.

A spokesman for Chick’s office said that the controller hadn’t seen the airport department’s response and wouldn’t comment until she had read the document.

The audit, conducted for Chick’s office by the Sacramento-based firm Sjoberg Evashenk, prompted the City Council to question how the airport awards contracts and whether it shows preferential treatment to companies that make campaign contributions.

At a news conference accompanying her release of the audit in December, Chick said she had uncovered “potential illegal acts” and asked local, federal and state law enforcement agencies to investigate. The controller has refused to elaborate on the acts or to say who had allegedly been involved.

The city’s airport department addressed the allegations for the first time in its formal response, saying that “no evidence was found of any wrongdoing” in the audit itself.

“It must be pointed out that the audit report does not identify any instances of abuse, fraud or the violation of any city, state or federal contracting rule or regulation,” airport officials wrote.

In a three-page cover letter accompanying the airport department’s response, Kim Day, the agency’s interim executive director, said she was pleased that Chick’s office had found her agency in compliance with city laws.

“Our detailed review of the report confirmed our preliminary assessment” -- that the review had found Los Angeles World Airports in compliance with regulations that govern contracts and leases, Day wrote.

The audit found that the airport agency lacked a formal process for evaluating and selecting bids on lucrative contracts and did not keep adequate records documenting decisions to hire one firm over another.

By not documenting its reasons for choosing a particular company, the airport agency risked awarding contracts to less-qualified firms, or not receiving the best prices on concessions or leases, auditors wrote. It also risked losing federal grant money by not complying with federal standards on how to award airport contracts, the report said.

The audit also found that some leases at Van Nuys Airport were more than a decade old, and that the airport department’s failure to renegotiate leases to reflect fair market value had led to a potential loss of $15.6 million from 1990 to 2003. If the leases aren’t updated, the airport could lose an estimated $4 million annually, the report concluded.

In addition to Van Nuys, the city operates Los Angeles International Airport, Ontario International Airport and Palmdale Airport.

The city’s airport agency said in its response that it agreed with some of the audit’s findings and that it would update its policies on documentation of contract proceedings and retaining these documents.

But Day questioned whether the report’s findings were based on sound methodology. Sjoberg Evashenk’s review was inconsistent with the audit’s goal of evaluating contracts issued over the last three years, she wrote. Instead, nearly half of the 25 contracts reviewed by auditors predate that period, with several going back almost a decade, Day said.

In addition, Day wrote, the sample size of 25 contracts used by auditors was too small to support the findings that the airport’s contracting process was poorly managed and did not adequately represent the 1,128 contracts that the airport issued in the last three years.

In its response, the airport department also said the audit failed to take into consideration several factors that prevented officials from renegotiating leases at Van Nuys Airport. Those include a city noise ordinance that tenants argue harms their business and reduces the fair market value of their leases, airport officials wrote.

In addition, a master plan for the airport that would help set rental rates is stalled at City Hall. Consequently, the city’s airport agency and an association representing tenants at Van Nuys Airport have spent a decade arguing over lease prices. During that time, the Van Nuys Airport Assn. and the city’s airport department have hired outside firms to conduct several competing appraisals of leases at the 730-acre facility.

Day said information from these competing appraisals had been included in documents that airport officials provided to auditors before the audit was released. Officials hoped to rebut a finding that their failure to renegotiate leases at Van Nuys Airport had led to a potential loss of $15.6 million from 1990 to 2003. The agency estimates that the actual loss is about $2.3 million and says that the revenue will be collected retroactively when new leases are put in place.

Day said she expected Chick’s office to correct the audit to reflect the airport department’s response and to release a revised copy to Mayor James K. Hahn and the City Council.