$4.2 MILLION OUTRAGE DWP AUDIT FINDS UNEXPECTEDLY LARGE OVERBILLING FOR P.R.

Byline: Rick Orlov Staff Writer

City Controller Laura Chick issued a scathing audit Tuesday of the Department of Water and Power, accusing a major downtown public relations firm of overbilling taxpayers by a staggering $4.2 million - far more than the audit was expected to find.

The amount represents more than $1 in every six that the firm, Fleishman- Hillard, charged the monopoly utility for advice since 1998 under its controversial $3 million-a-year contract.

Standing in a courtyard overlooking City Hall, Chick said the seven- month audit raises serious new questions about the lax oversight provided by DWP officials and Mayor James Hahn's office.

Auditors found ``unsubstantiated, unsupported and questionable'' costs - ``some of the worst tomfoolery I've ever seen,'' she said.

``What my audit found are millions of dollars in bills that boggle the mind and defy common sense. Fleishman-Hillard treated the ratepayers of Los Angeles like a cash cow, milking them for millions.''

Chick said she had no evidence that Fleishman-Hillard, whose executives contributed heavily to Hahn and other political campaigns, engaged in ``pay-to-play'' schemes to get the DWP contract. But she did question whether the firm provided ``pro bono political advice'' to Hahn and others while it was overbilling the DWP.

Fleishman-Hillard executives challenged the audit's findings. They offered to have a mediator resolve the issue, although they acknowledged that their own internal audit showed there was about $650,000 worth of time improperly billed to the DWP.

City Attorney Rocky Delgadillo has filed a lawsuit against the firm and its former general manager, Douglas R. Dowie, who has denied wrongdoing.

``We are offering to have this entire dispute with the city immediately submitted to neutral mediation,'' said Richard Kline, senior partner in the firm's Los Angeles office. ``We strongly disagree with the vast majority of the controller's report.''

Chick defended her audit.

``If Fleishman-Hillard is sincere about wanting to restore its good name, it should immediately reimburse the city ... I think it's time for them to cut the games. They made a lot of money from us and I think we're being kind to them. If they are as good a P.R. firm as I thought they were, they will just pay this money and get it done with.''

In the 39-page report, auditors concluded that the company billed the city for some 5,000 working hours that were not initially recorded by employees on time sheets, although some hours were added later.

Specifically, she said her auditors found that the firm had submitted bills totaling $1.13 million for unsupported labor costs; $1.18 million for costs not in compliance with the contract terms; $488,000 in unallowable overhead costs; $744,000 in unallowed commissions for negotiating with third parties; and $314,000 in subcontractor markup costs.

Chick said blame for the contract extends from DWP management to City Hall.

``There's plenty of blame to go around,'' Chick said. ``The city of Los Angeles needs to ask hard questions before it gives contracts like this. There's lots of lessons to be learned.''

While DWP management was responsible for overseeing the contract, Chick said it was up to the mayor and other city officials to make sure such contracts are warranted.

``It's up to the leadership of this city,'' Chick said. ``One way is to make sure that you don't give contracts to political fund-raisers and from whom you get pro bono political advice.''

Kline acknowledged that the firm has been cooperating with county and federal authorities investigating corruption at City Hall in the wake of a series of pay-to-play allegations.

``We have been working with the controller's office, the district attorney and U.S. attorney on this,'' Kline said. ``We will pay back anything we believe was improperly billed, but we don't think the controller reviewed any of our documents.''

The city began contracting with Fleishman-Hillard in 1998, when the DWP was threatened by statewide deregulation and then-Mayor Richard Riordan and then-DWP General Manager David Freeman sought outside advice.

Although the city eventually decided to remain out of the deregulation market, Chick said the city received valuable advice and that she - then a member of the City Council - supported the $3-million-a-year contract.

However, since becoming controller in 2001, Chick said, she has focused on the DWP's contracting procedures and became alarmed over bills sent to her for promotional events in the utility's Green Power program that were organized through Fleishman-Hillard.

Attention to the contract and Fleishman-Hillard's role in city politics has grown in recent months as an offshoot from the separate inquiries into whether there is a pay-to-play operation in which firms feel compelled to make political contributions to win city business or are shut out of city business for refusing to contribute.

The firm was one of the first to support the mayor in fighting secession by the San Fernando Valley and, for years, has been one of the sponsors of the mayor's holiday party for reporters.

Delgadillo issued a statement saying he would review Chick's audit and seek full recovery of any losses.

Hahn sent a letter to Delgadillo urging him to seek full reimbursement.

``Sorry isn't good enough,'' he wrote.

``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.''

It was partly due to the controversy over the Fleishman-Hillard contract that Hahn ordered an end to all contracts with outside consultants dealing with public relations.

The company, which also had smaller contracts at the Airport and Harbor departments, has said it will no longer be involved in local government operations and was allowing all its contracts to expire.

Dowie, the former general manager who is on administrative leave from his duties heading up the firm's Los Angeles office, said in a court filing Monday that he and his employees followed the terms of the contract with the DWP.

Fleishman-Hillard officials also released a 13-page response the firm had sent to Chick questioning her audit's findings, saying she was making demands that were outside the contract and ignoring other aspects.

Kline said one area was questioning time for specific employees who had not been mentioned in the original contract. All work to be performed was outlined in written reports to DWP officials and authorized by them for payment, Kline said.

Freeman and David Wiggs, who is retiring at the end of this month as DWP general manager, did not return phone calls.

Rick Orlov, [phone]

rick.orlov(at)dailynews.com

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Photo:

City Controller Laura Chick rails against public relations firm Fleishman-Hillard during a press conference on DWP audit findings near City Hall in downtown Los Angeles on Tuesday.

Evan Yee/Staff Photographer