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Audit: PR Firm Overcharged DWP by $4.2 Million
Public relations firm Fleishman-Hillard overcharged the Los Angeles Department of Water and Power by $4.2 million through "unsubstantiated, unsupported and questionable" billings, the city controller charged in an audit released today.
Controller Laura Chick said she has turned the findings over to federal and local prosecutors who are investigating the contract, as well as City Atty. Rocky Delgadillo, who has sued Fleishman-Hillard seeking reimbursement for alleged overbillings.
"What my audit found are millions of dollars in bills that boggle the mind and defy common sense," Chick said. "Fleishman-Hillard treated the ratepayers of Los Angeles like a cash cow, milking them for millions."
Fleishman-Hillard disagreed with most of the audit findings, but offered to submit to mediation to work out a settlement
Richard Kline, regional president of the firm, acknowledged for the first time today that some of the submitted bills were not supported by documentation, but said that activity was found by the audit to amount to $652,457 over six years.
"It appears time was added to the LA DWP billing that cannot be supported," Kline said. "We reported this to representatives of the controller's office, and we have been working with the U.S. attorney and district attorney since July to fully understand what happened."
Chick and Delgadillo rebuffed the idea of mediation and called on the firm to immediately repay the entire $4.2 million.
The city sued Fleishman-Hillard after The Times reported in July that seven former employees of the firm said they were encouraged or directed to inflate bills to the municipal utility. Some of the former employees said bogus billings sometimes totaled $30,000 per month.
The audit touched off a political firestorm at City Hall today, with Mayor James K. Hahn and his foes each pointing their fingers at one another for being responsible.
Chick and others said some of the responsibility for the problem rests with Hahn, who is ultimately in charge of making sure city contracts are legitimate and who had close ties to Fleishman-Hillard.
The firm and employees donated $131,200 to local races and initiatives since 1998, including $15,000 to Hahn's 2002 anti-Valley secession campaign.
In addition, the firm provided pro bono public relations advice to the mayor's office worth tens of thousands of dollars, according to city records.
"Contracting with the city isn't a way to pay back people who have helped you with fundraising," Chick said. "Getting a contract with the city isn't a way to get pro bono political advice."
Councilman Jack Weiss and others questioned how Fleishman-Hillard could have gotten away with overbilling on such a large scale.
"It is certainly suspicious that this contractor, among all others, was given such lax oversight at a time when the firm was intimately involved in the political life of the mayor," Weiss said. "I don't know what is more alarming, the overbillings or the neglect of the Hahn administration that allowed them to occur."
Hahn responded to the audit by sending a letter to Delgadillo that took a hard line with the public relations firm, saying an apology is not enough.
"Any wrongdoing by Fleishman-Hillard must result in full compensation for the taxpayers of Los Angeles, an appropriate punishment for any abuse of public funds and a deterrent to future abuse," Hahn wrote.
When asked about the criticism from Chick, Hahn spokesman Yusef K. Robb said the controller shares some responsibility.
"This contract was awarded under the Riordan administration and Laura Chick cut the checks for Fleishman all the way through," Robb said. "Laura Chick has accepted [campaign] checks from Fleishman-Hillard."
Before she was elected as city controller in 2001, Chick served on the City Council that approved the original Fleishman-Hillard contract in 1998.
The controller said today that the original contract was justified because the state Legislature in 1998 was considering changing the law to allow private utilities to begin competing with the DWP for its 3.8 million customers in Los Angeles.
But, she said, the threat of competition passed, yet the $3 million-per-year contract went on.
Chick's office looked at $24 million in billings by the firm to the DWP during the last five years and found $1.1 million in unsupported labor costs, the same amount in billings not complying with the contract, $488,000 in unallowable billings to cover the cost of billing the city, $744,000 in unallowable sponsor commission payments, and questionable markups by subcontractors of $314,000.