Late Fees on City’s 1998 Phone Bills Cost $400,000

Taxpayers have been charged more than $400,000 in late fees because the city failed to pay its phone bills on time last year, sparking a bitter round of mutual finger-pointing by Mayor Richard Riordan and the city’s top bureaucrat.

Riordan said the losses are “appalling” and cited the waste in the debate over revision of the city charter.

But Keith Comrie, the city’s chief administrative officer, said Riordan rejected a request for full $20-million funding to pay the bills, leaving the city with only enough budgeted cash to pay for 10 months’ billing out of 12.

“That’s what our phone bill is,” Comrie said. “And the mayor has never given the money so [the city] paid the bills late.”

The late fees were disclosed in an audit that controller Rick Tuttle began when his office noticed “hemorrhaging” of city funds. The total covers 700 monthly accounts the city pays to Pacific Bell.

The city also has accounts with Sprint and GTE, but Tuttle declined Wednesday to say whether late fees have applied to those as well, saying the audit is not yet final.

A late fee of 1.5% of the bill is charged by Pacific Bell whenever bills become more than 30 days past due, according to a spokesman for the company, who declined comment on the city billing, citing confidentiality policies.

“All of our customers are required to pay their bills on time,” said Steve Getzug of Pacific Bell.

The practice of making late payments has been in place at least since 1996, said Information Technology Agency head John Hwang, who has been with the city department 2 1/2 years.

“It’s regrettable, the amount of money,” Hwang said. “It’s surprising that it’s that much.”

The ITA was one of the first departments created by Riordan, who hired Hwang and transferred responsibility for telephone service from the General Services Department to ITA.

“I am appalled that taxpayer dollars are being wasted on clearly avoidable late fees instead of being spent on critical city services,” Riordan said. “City funds should be spent on essential services such as libraries, parks and neighborhoods, not squandered through bureaucratic mismanagement and waste.”

Riordan called on Comrie and Hwang to undertake a series of reforms, including a midyear budget request to cover all of the phone bills, closer monitoring of personal use of city phones and a better system for getting reimbursement from city employees.

Riordan also asked that future phone bills be paid on time.

The mayor cited the snafu as evidence of the need for charter reform to give him more power over city managers.

“This is another glaring example of the need for clear lines of accountability in city government,” Riordan said. “The taxpayers of Los Angeles need to know whom to hold accountable for lapses such as this which cost Angelenos nearly a half-million dollars.”

But Comrie said his own budget staff also told the mayor last year that $20 million was needed to pay the phone bills, but the mayor only budgeted $17 million.

For that reason, Comrie said it is unfair for the mayor to blame bureaucrats and cite the problem as evidence of the need for charter reform.

Comrie said of Riordan, “It’s his decision and his staff’s decision in the budget not to fund it adequately.”

“Part of it has to do with the fact that the appropriation for phone bills has been inadequate,” Hwang said. “We have to spread the money over 12 months when we only have enough money for 10 months.”

He said his office allocates money on a monthly basis. Once the monthly allotment is used up, his agency defers the remaining phone bills until the next month, Hwang said.

Comrie has battled Riordan for months over the mayor’s claim that he needs more power. Comrie has gone to the two charter reform commissions to oppose proposals to give the mayor sole power to fire general managers and dismantle Comrie’s office.

Mayoral spokeswoman Noelia Rodriguez confirmed the budget figures but said the mayor’s office was never told of the consequence of not fully funding the phone services budget.

“ITA never raised a red flag, a concern about penalties associated with making payments late,” Rodriguez said. “It’s the responsibility of the CAO to be on alert for the fiscal impact of budget decisions.

“To suggest that the mayor is responsible for the late fees is passing the buck,” Rodriguez said.

She said it appears the practice of deferring payment on phone bills may date to 1984. If the city paid $400,000 annually in late fees, that could total $6 million over 15 years, she said.

“That’s a lot of police officers, a lot of librarians,” Rodriguez said.

Hwang said his office may question some of the billings by Pacific Bell, but he could not estimate Wednesday by how much he hopes to reduce the late fees.

Auditors found other problems contributing to late payments, including a lack of staff to review and verify phone bills before they are paid.

Tuttle said the audit is ongoing.

“We saw there was hemorrhaging [of money], so we notified them of this one,” Tuttle said.

Riordan said he will hold Hwang responsible for fixing the problem.

“I expect ITA management to do whatever is necessary to rectify this situation and prevent it from happening in the future,” Riordan said.