Los Angeles officials who were in charge of the city’s $17.5 million job resource center program ignored early red flags and failed to report questionable activity by a contractor that is now facing allegations of conspiracy and embezzlement, according to a scathing report released by the City Controller’s Office today.
A review initiated by Controller Ron Galperin found that Economic and Workforce Development Department officials knew of an alleged scheme in 2010 to inflate job placement numbers at a center run by a longtime contractor, the nonprofit Chicana Service Action Center, but decided not to report the incident to the proper authorities, nor mention it in future contract bidding reviews.
The Chicana Service Action Center had contracted with the city for at least 25 years, and for awhile operated a center in downtown Los Angeles. In 2014, the nonprofit began operating a WorkSource Center facility in Boyle Heights.
Galperin’s report reveals lax oversight and bidding procedures for the city’s 17 WorkSource Centers, which altogether received $17.5 million in public dollars in a recent year.
The controller writes in the report that it is “critical that city officials have an understanding of some of the weaknesses and deficiencies within the city’s selection and monitoring processes that may have allowed the alleged activity to go undetected or un-remediated.”
Los Angeles County canceled its contracts with the nonprofit in 2013, blaming billing and financial problems, but city officials continued to recommend and retain the nonprofit as a WorkSource center operator for another two years.
In 2015, three Chicana Service Action Center executives were charged by the District Attorney’s Office with conspiracy, embezzlement and misappropriation of funds. The specific accusations include falsifying meeting minutes to authorize expenditures, personal use of public funds, faking records and client files, and falsifying the company’s list of board of directors, the controller’s report said. County prosecutors accused the nonprofit of defrauding the county of $8.5 million, according to media reports at the time.
The City Controller’s auditors noted in their review that department officials learned about the Chicana Service Action Center’s alleged fraudulent activity from county investigators as early as 2013, but later in April 2014, following a fresh round of bidding, they still recommended that the nonprofit be awarded a city contract.
The controller’s review found that department officials in 2010 were alerted by a business client of the Chicana Service Action Center-run WorkSource Center of possible questionable client registration practices.
Department officials investigated and “identified inappropriate activities used by CSAC (Chicana Service Action Center) to apparently increase the amount of clients officially reported as being placed into employment after receiving CSAC WSC services,” the controller’s report said.
Officials learned that the nonprofit had allegedly asked the business client to provide a list of employees who were already hired, in order to pass them off as people the WorkSource Center had placed into jobs. Those employees were also given clothing and gas cards in exchange, and the nonprofit submitted the costs of the gifts to the city reimbursement, according to the controller’s report.
The controller’s auditors also learned in their review that economic development officials felt at the time they did not have to report the incident because the gift cards were not reimbursed.
Galperin makes a series of recommendations that includes requiring Economic and Workforce Development Department officials to report “questionable or disallowed costs, financial stability concerns and any official government investigation involving” a WorkSource service center contractor “to the city’s Workforce Development Board when making contracting recommendations.
He also recommended ways to tighten up oversight, including not giving the contractors advance notice and information for client-satisfaction surveys and routine check-ups.
Economic and Workforce Development Department officials said they had not fully read the report and declined to provide an immediate comment.
Galperin said the department is on board with his recommendations and is working with his office to set up a compliance task force.
Galperin said that while the review was “prompted by what’s happened with Chicana Services,” but that “certainly the kind of problems that we have identified because of ineffective oversight, those are problems that apply to all of these service providers and can result in problems with any of them.”
“This (review) in many ways, we hope will be a wake-up call for the city to really properly oversee each and everyone of the service providers,” he said.