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Fleishman-Hillard has blasted a critical audit report from
the Los Angeles Controller released Wednesday that says the
firm overbilled the city by $4.2 million since 1998. F-H has
acknowledged for the first time, however, that it cannot back
up some billing claims regarding its work for the city's Dept.
of Water and Power.
L.A. Controller's
report on F-H |
"Most of the assertions in the document cannot be supported
by the facts," senior partner and L.A. office head Richard
Kline said in a statement. "The report presents preliminary
questions and erroneous assertions to arrive at an inflated
overall estimate of questioned costs."
But the firm said it did make billing mistakes. "It
appears time was added to LADWP billing that cannot be supported,"
Kline said, noting the discrepancies amounted to $652K over
six years.
The audit provides fodder to federal and local authorities
which are investigating the firm. F-H and former L.A. office
head Doug Dowie have been sued by the city attorney for allegedly
overbilling the DWP.
Dowie, who is on paid leave during investigations of the
charges, has submitted a court filing which denies the overbilling
allegations, asks for the sources of those charges, and requests
reimbursement of legal fees.
Following the audit report's release, F-H has offered to
have the dispute submitted to neutral mediation.
The report, conducted by Thompson, Cobb, Bazilio & Assocs.,
Torrance, Calif., claims to have found $1.1 million in unsupported
labor costs, $488K in unallowable charges, $1.2M in billings
not complying with F-H's contract, and $314K in questionable
markups by subcontractors.
"Fleishman-Hillard not only violated the public trust,
they broke the time honored principles of the public relations
profession," Controller Laura Chick wrote in submitting
the final report to Mayor James Hahn, City Atty. Rocky Delgadillo
and the City Council. "[The firm] can begin restoring
the public's trust by responding favorably and expeditiously
to my audit's findings and repay the people of Los Angeles
the $4.2 million rightly owed them."
The L.A. DWP has paid over $24 million for three contracts
with F-H since 1998, when the firm was originally brought
on as the city considered opening its services up to competition.
The City has not paid $490K for November and December 2003
pending further documentation from F-H.
The audit details F-H's billing practices between Los Angeles
and its St. Louis headquarters and said internal controls
are inadequate to prevent discrepancies in billing. The report
says 2,788 more hours were billed than originally recorded
on time sheets.
The report also questioned mark-up costs at subcontractors
for F-H, which included Lee Andrews Group and Imada Wong Group.
LAG president Donna Andrews has not returned a call.
Chick announced the city's audit of F-H's work in early April
after complaints of "wasteful spending" by the DWP,
which was seeking an 18 percent rate hike. The Controller's
PR tactics and pursuit of the F-H contracts issue has led
some PR executives following the case to question whether
politics played into the report's commission and release.
A mayor's race is heating up among several candidates in the
city and Chick is seeking another term.
"Our company will do the right thing and we will emerge
from this situation stronger as a firm," F-H chairman
and CEO John Graham told the Institute for PR at a New York
event last week.
Graham sent out a firmwide e-mail in July outlining several
reforms within F-H, including tightening its time sheet certification
measures, plans to set up a whistle-blower hotline and the
planned hiring of an outside "ethics expert."
Kline said F-H will continue to work with federal and local
officials and reimburse the city when an amount is determined.
"Fleishman-Hillard would never condone this type of activity,"
he said.
Kline told O'Dwyer's morale at the Los Angeles office is
high and several new clients have come on board in the last
six months. He said F-H is waiting on a response to their
request for mediation and execs are looking forward to focusing
more on client work. Kline also noted existing clients have
expressed their support for the firm.
Related items:
L.A.
Controller's audit report (PDF file)
F-H's
media response to report (DOC
file)
Graham
outlines F-H reforms (7/29)...
F-H
reels from contract controversy (7/16)...
Hahn
singles out PR amid broader probe (4/27)...
F-H
pulls plug on L.A. pacts (4/20)...
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