Note-taking dispute reportedly put audit of DWP trusts on hold

A long-awaited examination of how two controversial Los Angeles Department of Water and Power nonprofit trusts spent millions of ratepayer dollars stalled over a concern that auditors were taking too many notes, according to City Hall sources.

Under a deal worked out last year and hailed by the mayor and the City Council president, the city controller’s office was supposed to get “unfettered access” to internal financial records at the nonprofits, which are co-administered by DWP executives and leaders of the utility’s largest union.

The deal promised an end to more than a year of legal and political battles between Brian D’Arcy, head of the DWP employees’ union, and Mayor Eric Garcetti and Controller Ron Galperin.

At issue has been the transparency of the nonprofits, which have received more than $40 million in ratepayer money since they were created more than a decade ago. The entities have never been required to produce a detailed, public accounting of their expenditures.

The agreement said city auditors would get full access to the groups’ financial records for up to 120 days. But the auditors were barred under the deal from photocopying any documents or removing records from the nonprofits’ offices.

Instead, according to the agreement, auditors would be permitted to “transcribe the relevant content of any documents reviewed.”

Two weeks after the process began in early December, the nonprofits’ administrators said the auditors were transcribing too much information, according to three City Hall sources familiar with the impasse. No progress has been made on the audit since, according to the sources, who requested anonymity because of the sensitivity of the issue.

Former Los Angeles Controller Laura Chick on Thursday blasted the “highly unusual” agreement, saying she would “never, ever” do an audit if her staff was not allowed to make copies of the pertinent records.

“It just makes the audit process ridiculously long and tedious and more expensive for the taxpayer,” Chick said.

Asked if there was any precedent for agreeing not to copy documents or remove them from the location during an audit, Galperin spokesman Lowell Goodman cited one case, a 2001 examination of the Los Angeles Police Department’s “secret service account.” That money was used for “payments to informants” during criminal investigations and expenses associated with the witness protection program.

Goodman acknowledged that the no-copying agreement is “a bit unusual,” but he said he believes a resolution to the current dispute will be found and the audit will proceed. In the end, the restrictions “will not keep us from producing an audit that is professional, thorough and fully compliant with government accounting standards,” Goodman said.

There is still time left on the 120-day clock, according to sources, but it’s not clear exactly how much. At one point, the clock stopped for 20 working days while city officials tried to broker a compromise, sources said.

On Thursday, City Administrative Officer Miguel Santana and DWP General Manager Marcie Edwards issued a joint statement saying the agreement authorizing the financial review remains intact and that the parties “are both committed to resuming the work of the fiscal auditors as soon as possible.”

D’Arcy, who sits on the boards of both nonprofits and has played a significant roll in their management over the years, did not respond to a request for comment.

The nonprofits — the Joint Safety Institute and the Joint Training Institute — became a thorny political issue in September 2013, after The Times reported that officials at the city-owned utility had very little information on what the groups had achieved or how they had spent the money.

The institutes were created in the early 2000s following a difficult round of DWP job cuts, with the stated mission of improving labor-management relations at the nation’s largest municipal water and power agency. Union officials and a city analyst have said the groups contributed to worthwhile safety programs.

Former DWP General Manger Ron Nichols, who also sat on the boards of both institutes, struggled to recall their biggest achievements when asked by lawmakers in 2013. He noted that the nonprofits’ combined annual budget of about $4 million is dwarfed by the $117 million the DWP spends on safety programs each year.

D’Arcy, who has thwarted attempts by the DWP’s Board of Commissioners to get an independent accounting of the groups’ spending, has argued the nonprofits aren’t government entities, nor subject to public records laws or the auditing authority of the city controller.

D’Arcy made that argument in court last year, in an effort to quash a city subpoena demanding the nonprofits detailed financial records and his sworn testimony. A Superior Court judge sided with the city and ordered D’Arcy to comply with the subpoena within 10 days. D’Arcy appealed, which halted the process. That case is still pending.

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Times staff writer Emily Alpert Reyes contributed to this report.