L.A. Controller Urges City to Strengthen Oversight of IT Contracts After $3.5 Million Fraud

LOS ANGELES — L.A. Controller Ron Galperin today released a report urging the City to better protect against fraud in information technology (IT) contracts. His report stems from an investigation that discovered a small number of Los Angeles Dept. of Building and Safety (LADBS) employees in the Technology Services Bureau created fake invoices and falsified receipts from IT contractors, and paid contractors for work that was never delivered. The alleged fraud amounted to more than $3.5 million, most of which has been retrieved.

Galperin’s report notes that, over the course of three years, LADBS made close to $38 million in purchases, many of which lack written justification, and employees racked up millions of dollars in overtime costs without proper supervision. Galperin concluded that LADBS needs stronger internal policies to prevent waste and fraud, but also saw a bigger issue at play — the City needs to strengthen its oversight of all IT contracts.

“The City should adopt policies to prevent fraud and mismanagement from impacting our information technology contracts,” said Controller Galperin. “The dishonesty of a few employees does not define how well the City serves residents, but these incidents make clear that we need to improve our internal operations and restore public trust.”

Widely reported in the media in 2018, the alleged fraud at LADBS involved employees who doled out millions to an IT firm for services and products that weren’t delivered. Another employee paid a fictitious consulting firm tens of thousands of dollars for IT consulting work that never happened. The City Attorney and District Attorney are in the midst of investigations, and LADBS is working with Galperin to tighten up internal oversight mechanisms.

Galperin’s report recommends these changes:

  • Require background checks for all LABDS employees with access to sensitive information and assure that outside business activities get reported to prevent conflicts of interest.
  • Enhance LADBS management and policies to ensure accountability by clarifying that personal consulting services can’t be included in IT commodity contracts.
  • Make all departments report annually to the City Council about their IT contracts.
  • Obligate contractors to report City employees to the Controller’s office and Ethics Commission if they seek bribes or kickbacks.
  • Notify the City’s IT oversight committee of all projects expected to cost more than a million dollars.

Read the full report here.

Follow L.A. Controller Ron Galperin at @LAController on Twitter, Facebook and Instagram.