A contractor defrauded the city of Los Angeles out of nearly half-a-million dollars after receiving an early payment and failing to deliver the appropriate goods, according to a controller’s report released Thursday.
The Los Angeles City Controller’s Fraud, Waste and Abuse Unit released a seven page-report that substantiated an allegation against Gardena-based Makai Solutions. The city’s General Services Department paid the company $460,972 for two vehicle repair lifts, but Makai Solutions never provided the lifts, according to the report.
A representative for Makai Solutions did not immediately respond to a request for comment.
The investigation was prompted after the controller’s office received an anonymous tip to its Fraud, Waste and Abuse Unit hotline.
“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, and the city can now take informed action to prevent this from happening again,” City Controller Kenneth Mejia said in a statement.
The investigation found that a GSD superintendent had violated City Charter rules by verbally authorizing advance payment to Makai. The superintendent had used the pretext of COVID-related supply chain issues and a need to install vehicle lifts as soon as possible for pushing the prepayment.
Staff were directed to falsely mark the lifts as received in the city’s financial management system in order to initiate the payment. Without this action, the city would not have approved the payment, according to the report.
The financial management system indicated that the person who marked the lifts as “received” was a hiring hall employee, but it was almost impossible to determine who actually marked the lifts as been received. Part of the problem was that there was a single login for the system.
According to the report, the superintendent is no longer with the city.
Normally, the city must receive goods and services from its contractors before issuing payments. Advance payments require specific guidelines to be followed.
Departments have to either write terms into vendor agreements, or they must document the reasons for prepayment along with assessing the risk of non-recovery. Departments must also have plans in case vendors fail to provide goods or services that were paid for.
Following the report, the controller’s team provided GSD recommendations address the issue:
— Conduct periodic reviews to ensure that prepayment procedures are being followed; and
— Train purchasing staff on city policies on sharing logins.
The General Services Department has agreed to implement recommendations, both of which should be done in April, according to the controller’s office.
GSD has reminded staff of rules regarding advance payments.
The controller’s office reminded GSD that departments are required to report potential fraud, waste or abuse within 10 days of discovery — GSD waited over two years to report this allegation.
“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. All of this will protect city dollars,” Mejia said in a statement.
Mejia noted his FWA Unit only has five investigators compared to the city’s more than 40,000 employees and 40 departments, including proprietary departments that have a total spending of over $35 billion annually.
He urged Mayor Karen Bass and the City Council to support his Fraud, Waste and Abuse Unit.
Mejia says the city needs more investigators to tackle the 700+ claims.
“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 in a statement.