AUDIT ASSAILS HEALTH AGENCY.

Byline: David Bloom Daily News Staff Writer

For decades, Los Angeles County public health officials used two supposedly independent foundations to avoid basic county rules on hiring, leasing and spending, while running an array of grant-funded programs, an internal audit shows.

``There appears to be a lack of accountability and direction,'' reads the report by the Health Services Department's audit unit. ``This has resulted in long-standing, continual use of contract agencies to circumvent county policies, procedures, guidelines and contracting processes.''

The audit was prompted by questionable spending and contractual agreements that have come to light in recent months between the county and some of the five agencies that provide hiring assistance to Health Services' public health programs and services division.

The audit found county taxpayers were saddled with overpriced purchases, possibly unnecessary leases, steep overhead charges for work largely done by the county, hazily managed subcontractors and automatic contract renewals with no competitive bids or performance evaluations.

The Board of Supervisors is scheduled to take up a motion today by Gloria Molina and Yvonne Brathwaite Burke designed to eliminate the problems by developing new rules on contracting with such outside agencies.

``We don't have enough oversight,'' said Burke. ``They tell us (the many contracts) are for (meeting) deadlines. But I'm suspicious of any entity made up of former county employees who go over there after taking early retirement.''

The undated but recently completed audit looks at more than $50 million in current or recently expired contracts to provide everything from lead-paint screening and family-planning services to AIDS counseling and tobacco-cessation programs.

The contracts were with five agencies - including the JWCH Institute Inc. and Public Health Foundation Enterprises Inc., which had the bulk of the contracts - about $32 million worth.

JWCH and PHFE are nonprofit foundations with lengthy, intimate connections to the county, the audit found.

Both agencies have numerous current or former county workers on their payrolls, and numerous board members with county connections, as well.

JWCH, originally set up to support a now-closed county hospital, is required by its charter to have only current or former county doctors, dentists and administrators on its board, said JWCH Finance Director Michael Rice.

PHFE draws nine of its 21 board members from county ranks, the audit states. PHFE officials could not be reached for comment despite repeated calls.

Rice defended his organization, saying it provided an efficient, low-cost alternative resulting in high levels of service for county patients.

``If the county could do it for less, without having to give back millions of dollars, then the county would have done it years ago,'' Rice said. ``We're 100 percent above board and will do whatever we can to stay above board.''

Audit unit chief Fred Leaf said there did not appear to be any criminal intent in the many shortcuts that were taken.

The reliance on JWCH and PHFE stemmed from an almost systemwide belief that the independent foundations were virtually county organizations that didn't require the same oversight as other outside organizations with county contracts, he said.

``They view them as almost a quasi-county organization,'' Leaf said. ``They wouldn't deal with them the way they would with IBM or Xerox.''

Director Mark Finucane is trying to reshape the troubled department he took over in January.

Leaf said Finucane named him chairman of a group trying to eliminate the red tape that led public health workers to use the foundations so heavily. ``The new director is real practical about what needs to be done'' to handle grant funds, Leaf said. ``But he wants to make sure everything is rational and justifiable.''

The audit's findings include:

In five of 15 purchases examined, the outside agencies spent more than the county would have, had it purchased from an already approved county vendor. In two cases, worth $28,000, formal bids weren't even sought from vendors.

Administrative overhead charges of 5 percent to 15 percent of a contract's amount were levied in some cases when nothing more was required of the agency than signing checks, or ``providing a payroll service,'' Leaf said.

Numerous contracts were retroactively approved, or services were provided with no contract at all, on the expectation that the county would ``make it up'' later, often through juggling funding provided through other contracts.

The proposed new county rules would limit such personnel contracts to only those services the county can't perform itself. They also would include safeguards against conflicts of interest, reduce overhead charges and require demonstrable cost savings, Burke said.