Audits of Two L.A. DWP Nonprofits Turn up the Usual Abuses but No Crime

Friday, May 01, 2015

When was the last time a government audit didn’t turn up non-competitive contract bids, bloated expense reports, overpaid executives, inadequate record-keeping or general pigs-at-the-trough behavior?

Not this time either.

Two audits by the Los Angeles City Controller and the City Administrative Officer (CAO) found a string of things to complain about when they finally got a look at the books of two Department of Water and Power (DWP) nonprofit trusts that focus on health, safety and training in the workplace.

The city and local media have been banging on the DWP Joint Training Institute (JTI) and Joint Safety Institute (JSI) for years to show how they spent $4 million a year over the past decade. The International Brotherhood of Electrical Workers Local 18, the DWP’s largest union, refused to let outsiders look at the books until City Controller Ron Galperin held up last year’s payment.

The ensuing settlement opened the door and both audits were released on Thursday. Neither one alleged any illegal activities at the trusts, which were co-managed by the head of DWP and union leader Brian D’Arcy. DWP General Manager Ron Nichols, who said he was out of the loop on the trusts, abruptly resigned in January 2014.

Galperin’s audit (pdf) said the trust operators “have a cavalier attitude toward the use of public money” and blamed an “environment of lax oversight and inadequate financial controls.” The trusts accumulated an $11.3 million surplus as of June 30, 2014, but can’t document why it wasn’t spent and don’t have a plan for spending it.

The audit showed the trusts’ five administrators averaged $220,000 in salaries, $72,000 more than comparable employees at the state Public Utilities Commission (PUC). Trust employees racked up $421,550 on 19 credit cards for conferences and the like, without any formal policies governing the spending. One administrator charged $30,000 for gasoline over the five-year period studied.

Although the Joint Safety Institute had a rule against paying money to DWP employees, it paid out $560,400 to 110 of them to conduct training courses. The auditors could not find any evidence that the trusts used competitive bidding on contracts with vendors. They found 19 instances where contracts were automatically renewed at expiration.

Despite the controller’s misgivings, the audit pointed out that “disbursements are generally approved by the Board of Trustees . . . and most expenses were supported by underlying invoice documentation.”

The CAO’s audit, conducted by BCA Watson Rice LLP, was kinder to the trusts.

“The Institutes have generally been administered consistent with the direction and requirements established by the Trust documents that created them. The Board of Trustees has provided leadership and direction for the Institutes, and the Institutes have been active in providing the functions and services envisioned when they were created. The Institutes have sponsored training classes with over 56,000 attendees, and been involved in developing numerous safety and training programs and initiatives.”

But the audit had its complaints. The trustees made decisions without any information prior to board meetings. “The Institutes lack any clear assignment of responsibility and accountability” and “policies for procurement of goods and services have not been developed nor adopted.” The trusts’ travel and expense policies are weak. Only two of 32 travel files examined contained advance approval.

D’Arcy and DWP General Manager Marcie Edwards were not too keen on the audits. In a joint statement, cited by the Los Angeles Daily News, they wrote:

“We are greatly concerned . . . that the audit report is littered with accusatory innuendo. . . . While such extensive and burdensome documentation may be appropriate for larger and more complicated organizations, it is neither necessary nor appropriate in small organizations such as these trusts.”

Galperin suggested that the two trusts be combined into one and that they be funded based on need, not a flat rate. Both audits recommended that the trusts be much more transparent about their activities.

–Ken Broder


To Learn More:

DWP Audits Show No-Bid Contracts, Lack of Accountability (by Mike Reicher, Los Angeles Daily News)

Dwp Trusts Paid for Steak Dinners, Trips to Hawaii, Las Vegas, Audits Find (by Jack Dolan, Los Angeles Times)

Head of Los Angeles DWP Abruptly Resigns Under Fire (by Ken Broder, AllGov California)

Results of the Operational and Performance Evaluation of the Joint Safety Institute (JSI) and Joint Training Institute (JTI) Trusts (Miguel A. Santana, Los Angeles City Administrative Officer) (pdf)

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