DWP DEAF TO '02 ALARM AGENCY AUDITORS ISSUED WARNING.

Byline: James Nash Staff Writer

Top managers of the Los Angeles Department of Water and Power ignored auditors' warnings about questionable bills submitted by the Fleishman-Hillard public-relations firm years ago - a revelation Wednesday that renewed outrage over the scandal-plagued $24 million contract.

The municipal utility's own auditors raised concerns in 2002 about $330,000 in bills from the politically connected firm, but then-Chief Administrative Officer Frank Salas of the DWP brushed aside the warnings, according to the agency's director of internal auditing.

Salas retired Nov. 1 under pressure about his handling of the Fleishman-Hillard contract for which, City Controller Laura Chick has charged, the firm overbilled the city $4.2 million. Salas did not respond to messages Wednesday seeking comment.

In testimony Wednesday to the City Council Audits and Governmental Efficiency Committee, the DWP's director of internal auditing, Manolo C. Robles, said Salas approved the $330,000 in disputed bills and did not block payment of subsequent bills that also included questionable overhead costs.

The disclosures sparked anger over the $24 million contract between the DWP and Fleishman-Hillard, which had a close working relationship with Mayor James Hahn and his staff, as well as smaller contracts with the Los Angeles World Airports and Harbor departments.

``The question to ask is not whether there was a breakdown in controls; it's who was directing the DWP to continue this contract,'' Chick said.

Hahn, in a letter to the committee, blamed Chick, saying she should have denied payment of Fleishman-Hillard bills that didn't meet her standards instead of calling for ``duplicative bureaucracies'' after the fact - a reference to growing council support for an anti-fraud unit in the Controller's Office.

``A waste, fraud and abuse unit in the Controller's Office seems about as redundant as creating an anti-crime unit within the Police Department,'' wrote Hahn, who once was city controller.

Chick said Hahn was trying to defend an indefensible status quo.

``Mayor Hahn is fighting the work I've been doing to shine a light on what is going on behind closed doors in his administration,'' she said. ``Mayor Hahn has long wanted to put a muzzle on me and the city's employees, but we will not be deterred. We work for the taxpayers of Los Angeles, not the political bosses lurking in the back rooms of City Hall.''

City Council members called for more council oversight of contracts at the Water and Power, Airports and Harbor departments - the so-called proprietary departments that historically have operated with a degree of independence from City Hall while generating billions of dollars in revenue. Council members backed creation of Chick's anti-fraud unit without funding the $175,000 proposed for it in the next six months.

``Whatever its genesis was, (the Fleishman-Hillard contract) morphed into a monster that's out of control, that has no accountability and no respect for the taxpayer,'' said Councilman Antonio Villaraigosa, who is challenging Hahn for mayor in the March election.

Villaraigosa and council members Wendy Greuel and Jack Weiss won the endorsement of the council's Audits and Governmental Efficiency Committee to create a fraud-busting unit under Chick.

The Fleishman-Hillard contract scandal remains the subject of several investigations and a civil lawsuit by City Attorney Rocky Delgadillo.

Chick, whose audits have led to county and federal investigations of possible corruption at City Hall, reported in November that auditors disputed $4.2 million of the $24 million in Fleishman-Hillard bills. Fleishman-Hillard's local president, Richard Kline, said the firm has found $650,000 in questionable bills to the DWP.

Kline said Wednesday that Fleishman-Hillard complied with all DWP directives regarding bills for administrative oversight of the contract. In February 2003, Salas ordered Fleishman-Hillard to stop billing for administrative oversight, but allowed the firm to continue adding surcharges for subcontractors owned by women and minorities, Kline said.

``We followed all of (the DWP's) terms,'' Kline said.

The $330,000 in administrative overhead costs that Salas approved in 2002 represent only a fraction of the disputed bills, but some City Council members said Wednesday that the DWP missed an early chance to correct problems with the public-relations contract.

``The picture that one gets, and the question over all of this, is how does the public get its money's worth from these contracts?'' Weiss asked. ``This is a lot of money we're talking about. These proprietary departments just can't run their contracts on their own without council oversight and scrutiny.''

Enrique Martinez - who served as the DWP's acting general manager from June until Wednesday, when the council's former chief legislative analyst, Ron Deaton, took over the utility - called the Fleishman-Hillard contract an aberration among the more than $900 million in contracts the DWP issues each year.

Martinez said it was unusual for the DWP's top two officials - Salas and David Wiggs, who resigned as general manager effective Nov. 30 - to have direct responsibility for a contract.

``I think this contract does not reflect the day-to-day operations of the department,'' said Martinez, who reverted to his former position as the head of the DWP power system. ``We found a serious flaw in the process.''

James Nash, [phone]

james.nash(at)dailynews.com