DWP Audit Results Mixed

A state audit Wednesday found that the practice of transferring surpluses from the Los Angeles Department of Water and Power to the city’s general fund was legal, but criticized the department for lax controls over contracts, expenditures and personnel records.

State Sen. Richard Alarcon (D-Sun Valley), a candidate for mayor, contended that the transfer of $657 million since 2001 violated the City Charter, among other laws. Alarcon, who pressed the Joint Legislative Audit Committee to request the audit, said it was illegal for DWP officials to call the money surplus while raising water rates by 11%.

The state auditor, however, said the department “followed the requirements of the City Charter and the terms and conditions of its bond debt.”

Alarcon said the audit failed to deal with the issue of whether there is a surplus so he plans to move forward with a lawsuit filed by his constituents.

But DWP Board Chairman Dominick Rubalcava said he had expected the audit findings because Alarcon’s challenge lacked merit.

“It’s been done consistently that way since the 1920s,” Rubalcava said of the transfers. “When Alarcon was on the City Council, he always supported them.”

State Auditor Elaine M. Howle found that 38 other electric utilities in the United States transfer surplus funds to city general funds.

However, state officials said the DWP was not following the rules for other operations.

The agency failed to follow competitive bidding requirements on two of 12 contracts examined by auditors, they said, and violated rules requiring board approval of extensions on five other contracts worth $150,000.

Auditors found that the department paid nearly $150,000 a year to the same video equipment vendor for five years without going to the board for approval, as required.

Similar criticisms were made in a report by City Controller Laura Chick in 2003. On Wednesday, Chick said: “The issues raised in this state audit are echoes of what I have found and what I have been trying to change during the last three years.”

The review also found that unauthorized workers were approving payments on invoices, managers were failing to adopt policies on abuse of agency credit cards, and the city was improperly maintaining personnel files on hiring and promotions.

Auditors identified 358 potential violations of policy in credit-card use. Violations included splitting purchases to circumvent charge limits, buying non-allowed items, and purchasing products already available through existing contracts.

The audit said officials are aware of the violations but have not acted “to ensure that the violations are not repeated.”

Rubalcava said the DWP has recognized the need to tighten procedures on contracts and purchasing, and now sends contracts through a board subcommittee.

“We have been working very hard on that,” he said, “and there have been some significant changes.”