PR Firm Routinely Overbilled DWP, Former Employees Say

An international public relations firm that had a $3-million-a-year city contract to improve the image of the Los Angeles Department of Water and Power routinely inflated its monthly billings to collect more than it should have, former employees of the firm have told The Times.

The former employees of the local office of Fleishman-Hillard Inc. said they were encouraged -- and sometimes told -- to submit falsified time sheets to the DWP to make as much as possible from the municipal utility, which was considered a “cash cow.”

“It was wrong, unethical and done on a regular basis,” Diana Greenwood, a former Fleishman employee, said of the practice of submitting inflated bills.

“The attitude that was handed down to us was that you get as much as you can because these accounts may dry up tomorrow,” said Greenwood, who quit Fleishman in 1999 after a year. “There was a monthly billing figure that we needed to hit, so if it meant making up stuff, we made up stuff.”

Other former employees, who collectively worked for Fleishman during most of the last nine years, confirmed the practice.

“There was no ambiguity; People were expected to make up hours if we fell short at the end of the month,” said a former executive. “There wasn’t a person there who did not hear it that way. It wasn’t subtle.”

Richard Kline, a senior partner who took over the Los Angeles office in April, said Wednesday that Fleishman does not condone unethical or improper billing practices. He said Fleishman launched an internal investigation after City Controller Laura Chick and other city officials criticized its contract as costly and unnecessary.

The allegations of false billings brought to Fleishman’s attention a week ago by The Times, Kline said, are new and also under review.

“What we believe from what you brought to us is that many of the billing practice allegations ... could have been a misunderstanding of management’s direction,” he said, adding that the firm’s internal review was far from complete.

“If we confirm any of the wrongdoing, we’re going to take appropriate steps. We’ll take very aggressive appropriate steps. It goes directly against our company practice or our company policy to accept or condone misrepresentation of any client billings.”

Kline said employees who have worked on the DWP account have said the allegations are “unfounded and untrue.” Records are still being examined, he said, as the review proceeds. He added that Fleishman’s St. Louis “leadership had no knowledge of any such activity.”

The allegations by Greenwood and six other former employees raise questions of potential fraud in connection with the DWP contract.

“Assuming this is all true ... you are talking about a false-billing scheme where the victim was the city of Los Angeles,” Los Angeles County Dist. Atty. Steve Cooley said after The Times asked him about the allegations last week. “It’s a form of theft.”

Cooley said he intends to open a criminal inquiry.

Two of the former employees said that Douglas R. Dowie, a senior Fleishman executive, was aware of or encouraged the inflated billings. Dowie, a senior vice president and partner of the firm, ran the Los Angeles office for five years until April and is now in charge of building Fleishman’s public relations business statewide. He declined to comment but issued a statement saying, “Fleishman-Hillard is proud of the service it provided the DWP.”

Except for Greenwood, the former employees insisted on anonymity. One said he was seeking to protect a friend who was involved in the false billings. The others requested anonymity because they work in public relations and fear harm to their careers.

The former employees, some of whom did not know each other, gave similar accounts and in three cases provided names of friends or relatives who confirmed that the employees had told them about the alleged misconduct as it was occurring.

The former employees said they had direct knowledge about the irregularities because they saw internal files, were asked to lie on their time sheets or sat in on meetings in which falsifying DWP billings was discussed.

The former employees said not everyone complied with pressure to falsify time sheets, but even those who did not were sometimes told that their time sheets were changed anyway. Most of the former employees could not say how many bogus hours were among the 700 to 1,000 hours monthly that Fleishman typically billed against the DWP contract.

Greenwood estimated that about 20% of the hours she reported for the utility were made up.

Two of the former employees, who worked more recently at Fleishman, said bogus billings sometimes amounted to $30,000 a month. One of them said that was the monthly average.

“The need to increase the hours was communicated pretty bluntly,” the former employee said. “Different people were approached and told how many hours they needed to add. It would be [put] in those words.”

The other former employee, an executive, recalled a specific monthly meeting at which the need to “write up” -- or falsify -- hours amounting to $30,000 from the DWP account was discussed.

“It was an open secret, and that kind of shocked me,” the former executive said. “I mean, if you’re stealing $30,000 ... you’d think you’d keep it quiet. I know I would.”

Kline questioned whether the allegations of false billings were being raised by former employees now working for competitors eager to take business from Fleishman.

Anthony M. Glassman, a libel lawyer retained by Fleishman last week, called the allegations “unfounded accusations by biased sources.” He noted that former employee Greenwood is the daughter of Noel Greenwood, a former Los Angeles Times senior editor who retired in 1993, and questioned whether there was a “relationship” between other former employees and The Times.

Times Managing Editor Dean Baquet said the newspaper’s policy was not to identify sources to whom it has promised confidentiality.

The DWP, the nation’s largest municipal utility, provides water and electricity to 3.8 million residences and businesses in Los Angeles. The department has 8,100 employees and a $3-billion annual budget.

Fleishman’s contract with the DWP became the focus of public controversy in April when City Controller Chick refused to pay the firm’s December and January invoices, citing what she said were questionable charges, such as $50 or more for leaving a telephone message. She launched an audit of the contract, saying the department’s need for outside PR assistance was suspect.

A week later, federal authorities served subpoenas on Fleishman’s St. Louis headquarters as part of a separate ongoing investigation into Los Angeles City Hall contracting practices. The joint county-federal “pay-to-play” probe is examining whether city officials traded lucrative municipal contracts for political donations. No one has been charged and there is no indication that Fleishman is a target of the probe.

Fleishman and its executives are leading political donors to Mayor James K. Hahn and have provided free public relations services to the mayor and other city officials.

In particular, Dowie, a former Marine and onetime managing editor of the Los Angeles Daily News, has been one of the mayor’s chief reelection fundraisers and a member of Hahn’s kitchen cabinet. In all, records show, Fleishman and its employees donated $131,200 to local races and initiatives since 1998, including $15,000 to Hahn’s 2002 anti-Valley secession campaign.

In that same period, Fleishman has grossed more than $25 million from its DWP contract, millions of which were passed on to subcontractors.

Fleishman’s contract has disturbed other city officials, including Councilman Tony Cardenas, who questioned why the DWP needed so much outside help. The utility has its own public relations staff of 23, which includes PR specialists, clerical workers, photographers and graphic artists.

Chick said last week that allegations by the former Fleishman employees were “dismaying” because they underscored her suspicions that government oversight of consulting contracts is so “loosey-goosey that it’s inviting abuse.”

“It confirms my worst fears that there’s game-playing going on as far as consultants being paid,” the city controller said.

Told last week about the allegations of bogus billings, Frank Salas, DWP’s acting general manager, said the charges were “a total surprise to me.” Salas, who is listed on the Fleishman contract as the DWP administrator in charge, said he often left it to his staff to review and sign off on the firm’s monthly billings.

He added that he would check with the utility’s internal auditors to see what recourse DWP might have.

To review Fleishman’s billing practices, The Times obtained more than 1,000 pages of invoices from the DWP that provided hourly summaries of every Fleishman employee working on the account. Greenwood once billed the DWP for an hour and a half of her time, at $160 an hour, for having “conducted search for Academy Award tickets for DWP.”

One employee repeatedly billed the department $180 an hour for having “monitored, formatted and forwarded LADWP and related news clips” to other Fleishman employees. Others commonly billed the DWP for more than $20,000 in services a month, amounts that in several months could have covered the employees’ annual salaries.

Dowie himself billed hundreds of hours of services at up to $425 an hour, many of which were for providing “strategic counsel.” While the billing records customarily state whom he provided such counsel to, some say he provided “strategic counsel” without noting whom he was talking to. In the first six months of 2003, Dowie billed the DWP for $98,599 in services. Once, Dowie billed the DWP $850 for a two-hour “business lunch” with Salas, which didn’t include the cost of the meal.

Interviews and records show that Fleishman maintained close relationships with Salas and some other DWP overseers. For example:

* Fleishman hired a family friend of Salas in late 2002 as he was overseeing an audit that questioned nearly $300,000 in disputed Fleishman billings. Several months after the friend of Salas’ daughter began work at Fleishman, Salas overturned the audit’s finding and allowed Fleishman to keep all but $26,400 of the disputed amount.

Salas acknowledged that he approached Fleishman on behalf of his daughter’s friend but said he “didn’t see a correlation” with his decisions on the audit. “In retrospect, maybe I screwed up, but I certainly didn’t mean it that way,” Salas said. Fleishman officials said they hired the woman over other candidates based on her qualifications.

City Controller Chick said it was inappropriate for any city official such as Salas to ask a contractor for a favor. “It’s bad, bad, bad,” she said.

* Fleishman provided political consulting for Salas’ predecessor as DWP general manager, S. David Freeman, when he made an unsuccessful run for the 41st Assembly seat in Los Angeles County in 2000. Records and interviews show that Fleishman maintained what some of the former employees described as a computer file listing communities and newspaper contacts in the Assembly district. Some were outside DWP’s service area. Photocopies of the file were reviewed by The Times and provided to Fleishman. Kline said the files were not now in the firm’s computer system.

One of the former Fleishman employees, who stumbled across the file, said he also heard Dowie discuss ways to use DWP-paid public relations activities to raise the political profile of Freeman, who remained on the job while running for office.

Billing summaries show that shortly before and after Freeman declared his candidacy, Fleishman charged the DWP for “outreach to local business organizations to interest them in having Freeman as a guest speaker.”

Freeman, who lost the Assembly race, said that, to his knowledge, Fleishman “didn’t lift a finger in that endeavor.” Fleishman officials said they could “find no evidence that Fleishman-Hillard Los Angeles ever performed services billed to DWP associated with Mr. Freeman’s race.”

* Fleishman also subleased office space to the husband of then-DWP Commissioner Mary Leslie during a period in which she voted four times to give Fleishman more than $10 million in agency business. Leslie declined interview requests.

Her husband, Alan Arkatov, a longtime friend of Dowie’s, said the leasing arrangement posed no conflict for his wife because the rent he paid was at or above market price. “There was no special treatment given,” said Arkatov, now president and CEO of a Fleishman rival, Burson-Marsteller Southern California.

Fleishman officials said they gave “no preferential treatment” to Arkatov and charged him rent above their cost.

In April, after the U.S. attorney’s office subpoenaed Fleishman for copies of e-mails between the firm’s employees and city officials over the last several years, Fleishman announced that it was walking away from $3.5 million in public relations contracts with the DWP, as well as with the city’s harbor and airport departments. The DWP pact expired June 30.

Fleishman’s work with the DWP began in 1996, when it was hired as a subcontractor for the utility’s outside advertising agency. DWP later jettisoned that agency and awarded Fleishman its own contract in 1998.

Faced with the prospect of energy deregulation, DWP officials wanted help burnishing the municipal utility’s image as it prepared to compete in an open energy market against more nimble corporate rivals.

As part of its duties, Fleishman arranged for the DWP’s $750,000-a-year corporate sponsorship of the Los Angeles Dodgers and came up with the slogan, flashed behind home plate during televised games from Dodger Stadium, “DWP: We’re the home team, too.”

Former department general manager Freeman said outside help was needed because DWP “didn’t have any name recognition in town.”

Freeman, hired in the mid-1990s by then-Mayor Richard Riordan to make DWP more competitive, said he wanted the utility to be “known out in the community as a good guy.”

That indeed became DWP’s reputation when deregulation spun into California’s energy crisis in 2000. As ratepayers elsewhere in the state felt the bite of escalating electricity bills, DWP customers were basking in relatively low electricity rates made possible through Freeman’s aggressive cost-cutting.

After the energy crisis, the threat of deregulation dimmed, as did the original rationale for hiring an outside public relations firm. But Fleishman continued to bill an average of about $200,000 worth of PR work a month for DWP.

To collect its money, Fleishman had to submit monthly reports explaining how many hours each employee logged on specific DWP-related tasks.

At $150 to $425 an hour, Fleishman employees scanned newspapers for relevant articles, made contacts with reporters, produced internal videos, wrote news releases, arranged speaking engagements, gave strategic advice and set up news conferences.

The firm also billed tens of thousands of dollars in hourly fees for arranging Dodger-related youth batting clinics as part of DWP’s corporate sponsorship of the ball club.

Public affairs experts say there’s wide latitude over how and what services firms like Fleishman can charge their clients, including government agencies. The important thing is that there be an up-front agreement over what is allowable and that hourly billings are “transparent” by showing the actual work done and the actual hours it took.

“Obviously, it’s never appropriate to bill for three hours if you’re doing one hour’s worth of work,” said Paul Holmes, a New York public relations consultant who runs an industry website, www.holmesreport.com.

Yet that’s exactly what happened, according to the seven former Fleishman employees.

One of the former employees said that in the late 1990s, the Los Angeles office was under pressure to increase its business and DWP became the “billing relief valve” for those who couldn’t keep up with the pace.

“If you got to the end of the billing period and you were short, you had to invent things or project forward -- ‘I’m going to do this anyway, so I’ll report it as having been done,’ ” the former employee said.

Diana Greenwood, who spent most of her time helping DWP produce internal videos, said the practice of falsifying time sheets existed when she worked at Fleishman from 1998 to 1999.

Greenwood said it was understood during her time at Fleishman that employees were expected to beef up hours spent on the DWP account.

“It begins with you being told to do it and it lives and breathes throughout the system, because you do feel the obligation to the agency to pad your hours,” said Greenwood, now an independent screenwriter. “The implication is that you better build this up somehow. Yes, it was a huge pressure. Every time you did it, you knew you were doing something wrong.”

Greenwood said, for example, that she might be told to double the time she claimed for a promotional event she attended.

“If I was honest and came back and said it was a two-hour meeting, my direct supervisor might at a later date say to me, ‘Let’s make this four hours,’ ” she said. “This was normal. That’s what was so horrifying to someone like me.”

Greenwood said she was so disgusted with the overbilling that she quit and complained about it to one of her supervisors.

In an interview, her father, Noel Greenwood, the former Times senior editor, said his daughter told him about the inflated billings while she was working at Fleishman.

“She used to scratch her head and wonder what she should do about it,” her father said. “She was very upset about it is my memory.”

Kline said Fleishman could find “no allegations of unethical behavior” in the written report of Greenwood’s exit interview. “Other than recording her own personal time, Diana Greenwood had no responsibility for preparing invoices or billing any clients, including DWP,” Kline said.

One of the former executives said Dowie leaned on people to inflate their billings.

“There was intense pressure to make sure no money was left on the table, so to speak, from the $3-million-a-year contract,” the former executive said. “Doug made it clear that Fleishman-Hillard’s corporate headquarters counted on collecting every penny every month that was provided for under the DWP contract.

“The pressure we felt to make our numbers resulted in Doug routinely walking the halls, asking that employees make up hours, especially at that time each month when St. Louis sent over the first draft of the hours employees had individually claimed,” the former executive said.

“People would be asked to reconsider how much time they had put in and to claim additional hours .... The final bill wasn’t going to go in until the number was right.”

The former executive added: “A number of employees complained about this practice and Doug’s heavy-handed tactics -- even in their exit interviews upon leaving the company. They felt the practice was unethical and, in essence, fraudulent.”

The moment of truth, former employees said, came at the end of each month, when the Los Angeles office would receive a compilation of everyone’s hours from St. Louis headquarters. If the office was below its monthly goal, a call went out to “write up” hours to make up the difference, they said.

Another of the former employees, who worked at Fleishman more recently, said steps were taken to disguise the practice. Billings would be inflated only on legitimate projects, meetings or functions already large or too amorphous to “tip off DWP auditors,” this former employee said.

The billing codes used for the phony hours included those for public affairs counsel and communication strategy; water issues; and media relations. “We could say we made all these media outreach calls and nobody would know,” this former employee said.

The employee added that the order to inflate the bills would “trickle down,” triggering a monthly ritual in which the number of hours worked was falsely increased to support a higher billing total.

“The need to increase the hours was communicated pretty bluntly,” the former employee said. “Different people were approached and told how many hours they needed to add. It would be in those words -- ‘They needed to add 15 hours for that month.’ This conversation would take place with three people a month, on average, asking them to increase their hours anywhere from three to 20 each.” The employee said some colleagues would change their own hours.

This employee said the practice went on during most of 2003 and accounted for an average increase of $30,000 a month. Asked whether anyone objected, the employee said: “I could tell people were uncomfortable with it. But nothing was ever said. I didn’t say anything to anybody. I guess I just figured they knew what they were doing and I was doing what I was told.”