A report released by Los Angeles City Controller Kenneth Mejia’s office on Thursday revealed that the city paid a contractor nearly half a million dollars for two vehicle repair lifts that were never properly delivered. The payment was made despite the fact that the lifts were falsely marked as received in the system, allowing the payment to go through.
Details of the Fraudulent Payment
The report, issued by the controller’s Fraud, Waste, and Abuse (FWA) Unit, found that the General Services Department (GSD) paid Gardena-based Makai Solutions a total of $460,972 for the lifts. This investigation began after the controller’s office received an anonymous tip via its fraud hotline.
According to the findings, a superintendent at GSD verbally authorized the advance payment to the contractor, which violated the City Charter rules. The superintendent allegedly cited COVID-related supply chain issues and the urgency of installing the lifts as the reason for the advance payment. The superintendent is no longer employed by the city.
Violation of City Charter Rules
Normally, city departments are required to receive goods and services before making payments. However, advance payments are allowed only under certain conditions, such as when they are specified in vendor agreements or when a documented need for prepayment exists.
In this case, investigators found that GSD staff were instructed to mark the lifts as received in the city’s financial system, even though they had not been delivered, to trigger the payment.
The report highlights a significant internal control issue at GSD, noting that the city’s financial system indicated that a hiring hall employee marked the lifts as received. However, it was “almost impossible” to determine who specifically entered the false record due to the use of shared logins by staff members.
Controller’s Response and Recommendations
City Controller Kenneth Mejia praised the FWA Unit for its work, stating, “Thanks to our office’s tiny but mighty Fraud, Waste and Abuse Unit, the city now has an understanding of the conditions that led to a vendor defrauding the General Services Department out of almost half a million dollars.”
The report made several recommendations to GSD, including conducting periodic reviews to ensure that prepayment procedures are followed correctly. The department has also been advised to train purchasing staff on policies prohibiting shared logins. GSD has agreed to implement these recommendations and has already reminded staff of the rules surrounding advance payments.
Delayed Reporting and Accountability
One of the most concerning findings of the report is that GSD did not report the fraudulent activity to the controller’s office until more than two years after the alleged incident. The report stresses that city departments are required to report possible fraud, waste, or abuse within 10 days of discovery.
GSD has acknowledged the oversight and is taking steps to address the issue. According to Mejia, “We are heartened that GSD has agreed with the FWA Unit’s recommendations and are actively implementing them.
GSD is ensuring that prepayment rules are being followed, that accurate information is being entered into the financial management system, and that staff are properly trained.”
The Need for More Staff
Mejia also used this report to highlight the understaffing in the Fraud, Waste, and Abuse Unit. With only five investigators handling over 700 claims across more than 40 city departments and a budget exceeding $35 billion, Mejia has called for additional staffing to improve oversight and prevent future issues.
“I commend our FWA Unit for their excellent work on this investigation, which will ensure that GSD is now overseeing vendors better and following protocol, and will prevent future loss of taxpayer money,” Mejia said.
