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Posts Tagged ‘Marcie Edwards’

A long-awaited report on the status of reforms at the Joint Institutes for Safety and Training, the two non profits who have eaten through over $40M of DWP ratepayer money, was released on May 12th. Go to the link at the bottom of the article.

As with her first report last September, DWP GM Marcie Edwards failed to provide any substantiation of reported progress. This is in direct contradiction of promoting “the purposes of transparency and follow-up,” as she claimed in her cover memo of this latest report.

It only remains to be seen if Edwards, who openly criticized City Controller Ron Galperin’s audit of the trusts, legally changes her name to Marcie D’Arcy.

Before I dive into the report, “Let’s do the numbers,” as Kai Rysdall of American Public Media’s popular Marketplace broadcast says.

Unfortunately, the Trusts have not published their audited financial statements since the end of fiscal year 2013, compelling me to rely on the IRS 990 filings for 2014 data. The 990s are short on detail, but there is enough to point to an increase in cash accumulation of $500K over the previous year.

That brings the total cash for the two trusts to $11.3M, pushing three times the annual contribution they receive from us, the ratepayers. Still no explanation is forthcoming as to what plans there are for this excess funding.

It is worth noting that the trusts are 501(c)(6) corporations.

IRC 501(c)(4), (c)(5), and (c)(6) organizations may engage in political campaigns on behalf of or in opposition to candidates for public office provided that such intervention does not constitute the organization’s primary activity.

It would appear, then, that some of the $11.3M could work its way into political action. The Trusts previously reported they wanted the money for a “rainy day fund.” Not a bad idea, since it would help offset the $4M IBEW Local 18 poured into Wendy Greuel’s failed campaign for mayor.

The rapid growth in prepaid expenses from $75K to $991K over three years in the Joint Safety Institute raises questions. Is it an advance for a major program – or perhaps junkets for the next few years? A reconciliation of the account is in order. Ordinarily, prepaid expenditures tend to level out in most organizations owing to timing (as appears to be the case at the Joint Training Institute).

Edwards’ report pointed to accomplishments, but offered no evidence of what the specific steps were, not even a hint. It alludes to the establishment of formal spending and contracting policies, without sharing so much as a summary; the same for assurances that there would be adequate segregation of duties – a vital safeguard against fraud.

Perhaps the most pathetic admission is the failure to identify duplication of services between the two trusts. At the same time a dedicated manager has been engaged to invest the Trusts’ cash even though the city is capable of handling the role.

No justification was given for the $220K salaries paid to each of the administrators beyond being linked to the DWP pay scale. You would think the jobs could be consolidated.

Edwards did not question any of the assertions.

It is time to authorize another audit of the Trusts by the City Controller. This time, the audit should focus on the reform process and the so-called accomplishments. Otherwise, the report is nothing more than a “trust me” statement.

Would you trust an unaudited report from an organization with an unscrupulous track record?

Trust status report

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The local press has lately focused on one key controversial element of the proposed DWP rate increase, one which the Mayor, City Council and General Manager Marcie “D’Arcy” Edwards would rather not discuss.

That’s the 8% transfer fee and the utility tax (10% paid by residential users and 12.5% by commercial entities). Together they will absorb around 20% of the gross increase and direct it to the city’s general fund, where it will be used for anything other than upgrading the neglected power and water infrastructure.

While allowed by the City Charter, this practice is unconscionable and the transfer component may even be declared illegal by the courts.

In all, around $250 million per year for the last several years has been diverted from what would be a source of funds available to make considerable headway in long-overdue capital improvements. That alone makes the transfer morally unethical.  It is like siphoning cash from your kids’ college savings accounts to buy a new car.

Yet the mayor, his allies and Marcie Edwards like to call the tax and transfer a dividend.  They say we are the shareholders of the DWP.  We are simply paying ourselves.

I know of no other dividend where the recipient does not have the right to decide how to spend it.

In a recent op-ed piece in the LA Times, Gregory Lippe ( a Valley CPA) and Richard Moss (a former DWP Commissioner) suggested keeping the proposed increase free of any tax or transfer fee. This would allow the additional revenue to flow 100% to improvements.

The two gentlemen pointed to the mayor’s position that the increase has nothing to do with feeding the city’s budget.

Perhaps we should refer to it as a supposed position because the mayor has not shown any indication to end the levy on ratepayers’ payments.

It’s time for the mayor to show his true colors. Will he back Lippe’s and Moss’ very sensible approach?

Garcetti’s track record does not provide cause for optimism.

He has failed to make any reforms at the DWP.  His pick for GM, Marcie Edwards, co-whined a letter with Brain D’Arcy defiling Ron Galperin’s audit of the out-of-control non profit trusts, and she has yet to remove any manager associated with the costly failure of the billing system. It appears the DWP is on a path of business as usual – no accountability, no integrity.

Does this type of management warrant a 20% premium?

It is going to be tough enough assuring the increase will be spent wisely and used appropriately.

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Anyone can run numbers, including the crowd that passes itself off as management at DWP.

Attendees at last week’s Valley Alliance of Neighborhood Council meeting got to listen to Marcie Edwards deliver a dog and pony show about proposed rate increases, owing to the need to replace aging water infrastructure and increase power capacity.

No one is doubting the need, but the DWP was not in a full disclosure mode and offered a litany of excuses for its failure to address the problems over the years.

The utility has been feeding pablum to the public about its rate increase plan in an attempt to silence possible criticism. Characterizing the proposal as a 5-year plan is insultingly disingenuous. The higher rates will not go away after five years. With 20% of water pipes destined to reach the end of their useful lives over the next 15 years, the rate increases for the water portion of our bills alone will continue for years to come.  It took an astute attendee at the presentation to pull the admission out of Edwards.

There will be debt service on new bonds for both water and power reaching out 30 years from the issuance dates, which will also contribute to ever-increasing rates.

Once again, no one is doubting the need for restorative capital investments.

But since DWP and the City Council have neglected upgrading and replacing delivery and generation systems, yet continued to divert an annual transfer of a bogus operating surplus (currently around $245 million) from the utility to the general fund, it is only fair for the public to demand an end to that process.  A large part of the surplus must be retained by DWP, and the rate increase reduced accordingly, to help fund the vital improvements.

Edwards, as her predecessors, likened the transfer as a dividend to shareholders.  Anyone receive a dividend check from DWP in the mail lately?  Ever?

I reminded Edwards that well-run companies do not declare dividends when they have ongoing, significant cash needs.

She did not understand the question, instead falling back on how much money DWP has saved its ratepayers as a result of the last labor negotiations.

Savings?

I suppose so, in the same sense as when a burglar does not steal all of your valuables.

Also, she had the hutzpah to compare LA’s leakage rate as favorable to other major cities, all on the east coast – much older systems, not to mention they are not located in a desert where the importance of every drop is magnified many times.

When I asked Edwards if anyone in management had been fired as a result of the costly billing system debacle and the pathetic response to correct customer accounts, she blamed the civil service system and the fact she can only hire ten managers on her own.

Almost any CEO will tell you that ten well-picked hires can make a huge difference in any organization.

According to Jim Collins, author of Good to Great, “Start by getting the right people on the bus, the wrong people off the bus, and the right people in the right seats.”

I think Marcie Edwards missed the bus.

Ten competent leaders can establish and enforce demanding standards.  If their direct reports are not cutting it, they can document their shortcomings and make a case for removal, demotion or termination of the weakest links.

Yes, it takes work, but highly motivated leaders are persistent and will rise to the occasion.  Edwards, herself, must step up and support her direct subordinates along those lines instead of throwing up her hands. Her current approach will preserve a culture that rewards incompetence or mediocrity.

As ratepayers, we need to insist on sound management.

If not, the cost of implementing the very critical capital improvements over the next 15-20 years will be far more expensive than necessary.

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An excerpt from the DWP press release dated May 5th, containing Ms. Edwards purported apology:

“And finally, it’s important that I share something with you.  The Trustees were advised that their review of the draft audit needed to be completed within three days, and that a response letter was required within that time frame. Since a detailed review and response was not possible in three days, the Trustees responded with a brief letter, stating in part that they needed more time to review, among other comments.

“With respect to those other comments, I regret allowing my own frustrations with the audit process overall to lead me to agree to some characterizations which were not appropriate.  For that, I sincerely apologize to the Mayor, the Controller and this Board.”

What a bunch of weasel words.

What a bunch of lies.

Let’s start with “some characterizations which were not appropriate.”

The seriousness of the findings, the blatant disregard for transparency, and the recklessness with which “business” was conducted, merited something much stronger than “not appropriate” – how about, “I was completely wrong.”

Edwards’ also felt that a response was not possible in three days.

I consumed the contents of the report in about an hour.  It was very clear to me, without being a party to the audit, that a detailed response would take some thought and time. An acceptable statement would have acknowledged the significance of the deficiencies and included a commitment to categorically address them, which would take a while longer (with a target date) given the nature and extent of the findings.

Instead, Edwards tag-teamed with D’Arcy to produce a smokescreen filled with bluster. Where was the Air Resources Board? Surely, there must have been a violation.

Are we to believe frustrations with the audit process were behind Edwards’ excuse for the response dismissing Galperin’s report as “innuendo?”

Who was being frustrated?

How about the ratepayers and the residents.

Who caused the frustration?

Wasn’t it D’Arcy?

If not a liar, Edwards is dense.  I cannot believe she could have risen to her current position if the latter were true. No one does a 180 in a few short days willingly.

Edwards showed her true colors when she co-authored the letter with D’Arcy.  She may as well have changed her legal name to Marcie D’Arcy (no disrespect to the popular character from Married with Children).

She added another layer of indifference and disrespect for the ratepayers when she suggested the two trusts simply be consolidated.  Why not challenge the existence of the trusts? Even the CAO report found that the benefits of the safety programs could not be substantiated.

Whether consolidated or not, the trusts will still draw $4-million of our money annually, will still be managed by the same overpaid goons and overseen by trustees with no concept of oversight.

The trusts were created through labor negotiations.  Mayor Garcetti, Marcie Edwards and the City Council use that as an excuse to surrender to D’Arcy.

But just as we can and should insist upon good performance by the IBEW Local 18 members in the execution of their work, the same standards need to apply to the trusts, too. That has not been the case with the trusts and, absent the removal of those responsible, measurable change is highly unlikely.

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By now, most of you are familiar with the audit report of the controversial non profit trusts issued by City Controller Ron Galperin. If not, take the time to read it – at least the Executive Summary.

The report clearly describes an organization with no effective internal or external oversight; glaring deficiencies in controls; indifferent management; incapable staff.

The audit found no evidence of criminal activity, so the city is now required to resume the transfer of $4-million per year of our money to a good old boys club. That should make travel agents happy along with hotels in Las Vegas and Hawaii. The motto of the Joint Safety and Training Institutes should be high-living is job one, and maybe safety, when we have the time. Grossly overpaid staff, high-end travel and no documentation to support the justification of spending characterize the activities and management style.

I’m not surprised by the absence of criminal activity. IBEW Local 18 boss Brian D’Arcy is much smarter than Robert Rizzo was in Bell. He knows the difference between pigs and hogs.

Despite a damning report that would subject executives to civil suits if it involved an investor-funded enterprise in the private sector, Marcie Edwards, GM of the DWP and one of the city’s appointees to the boards of the trusts, co-authored a rebuttal with D’Arcy that referred to the contents as “innuendo” (see page 71-72 in the report).

I expected a reply like that from D’Arcy, but in view of the seriousness of the findings, Edwards’ reply is shameless and exposes her as a weak representative of the public, unfit to serve our interests. It also calls into question her judgment as the General Manager of the largest municipal utility in the nation, especially at a time when we face crushing rate hikes and tough labor negotiations with the union.

Just as questionable is the role played by the CPA firm of Miller, Kaplan and Arase, who served as the external auditors of the trusts since inception.

CPAs have a responsibility to the users of their clients’ financial statements. It extends to those outside of management and include creditors, the business community, investors and, in the case where public funds are at stake, …..the government – that’s us.

The firm was well aware of the pervasive laxity that defined the operations of the trusts:
-Inadequate segregation of duties
-Books that did not balance
-An almost complete absence of accounting skills
-No procurement policy
-Lack of board quorums needed to conduct business

Galperin’s report provides excellent examples.

Knowing that the deficiencies increased the risk of fraud, loss and lack of transparency, the auditors worked around the deficiencies, presumably by increasing their sample population and other steps to mitigate the effects of cavalier practices and carelessness.

They did this year after year, apparently unphased by the boards’ failure to address the problems. This amounts to playing with fire. Given the highly-charged political environment associated with the union and the DWP, and the history of cash contributions by the union to elected officials, the auditors should have had a heightened sense of awareness for potential sweetheart deals. Understandably, such deals are difficult to uncover, especially given the connections involved. I have doubts as to whether the auditors took enough steps to smoke out illicit activities.

The association with a controversial, poorly-run (if not negligently so) organization amounts to holding a time bomb in the same vein as Enron, World Com and other disasters caused by weak controls and management indifference – only on a much smaller scale. Miller, Kaplan and Arase, in essence, became an unwitting enabler to systemic waste of taxpayers’ monies.

But it is a scale equally important – it concerns the public’s trust in government. You cannot place a dollar value on it. I do not think the firm’s partners grasp that concept. They are probably not alone. The fiscal landscape is littered by costly failures resulting from government negligence where auditors did not raise red flags with the true owners of the entities – the public.

There were reported instances where the auditors own actions were, in my view, unprofessional:
– Failure to report material weaknesses in internal control to the boards for 2013 and 2014
– Did not exercise due care in preparing IRS 990 filings (the non profit equivalent of a 1040)
– Failure to review the upcoming audit, and the results of the previous one, with the boards

I challenge the mayor and the Board of DWP Commissioners to take the following actions:

– Remove Marcie Edwards from the trusts’ boards. Her independence is highly questionable. It appears she lacks the backbone to stand up to D’Arcy.

– Recommend that the boards engage a different audit firm. They probably won’t, but my next recommendation could lead to that.

– Ask the State Board of Accountancy to review the conduct of Miller, Kaplan and Arase for possible negligent or unprofessional conduct in the performance of their public duty. If found wanting, sanctions could be placed on the firm that prevent it from performing future audits of the trusts.

The LA Times’ Steve Lopez nailed it in his column today:
“If Garcetti has a pair of big boy pants, Edwards will be out of a job by lunchtime Monday.”

I’ll make it easier for the mayor. I will gladly offer him a pair of pants that has been hanging in my closet for a long time. My waist was smaller then, so it should fit.

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It’s bad enough we have suffered yet another system implementation disaster costing hundreds of millions of dollars.

It is insulting when those responsible for the failure downplay the impact.

It is equally insulting when another party uses it in an attempt to deflect attention from its own costly acts.

The DWP tried to soften the bad news of the failed implementation of its billing system. It wasn’t so bad after all, if you buy into the statement issued by Joseph Ramallo, the utility’s spokesman. Of the $681 million owed by ratepayers, only $245 million in arrears was due to the new system.

It’s like being told you were hit by a bus instead of a train.

Somehow, there is little remorse and no accountability for the snafu.

Sure, the City Attorney is going to sue Price Waterhouse Coopers – that’s good.

But let us not forget that DWP’s executive management had to sign off on the project. Normally that entails a thorough review of the test results, especially when the stakes are high.

If this is what we can expect from Marcie Edwards, it is time to post the GM job, yet again. Maybe she could run for the LAUSD Board. She will feel at home with the current members. If she had the slightest sense of accountability, she would have handled the public announcement of a fiasco of this magnitude instead of pawning it off on a spokesman.

The DWP used Tamar Galatzan’s excuse for the LAUSD’s failed system rollouts: “We were lied to!”

Management that assumes its is going to get the straight scoop most of the time shouldn’t be in management. There is such a thing as healthy skepticism and conducting an independent, thorough review.

And only D’Arcy would attempt to take advantage of the carnage and use it to deflect criticism of the chaos he has created over the years. By spending millions on city officials, he all but guaranteed excessive compensation for his IBEW Local 18 members over the years. His stonewalling of Ron Galperin’s limited audit of the controversial non profit trusts is further proof of his obstinance and disregard of transparency.

While Edwards is downplaying and D’Arcy is deflecting, the mayor is diddling.

For someone who won an election on the promise of reform of the DWP, Garcetti is not delivering. If anything, he appears to be caving under pressure.

Before he completely loses the political capital he won in the last election, he needs to take a firm, public stand and bear the pushback he will receive from the the union, management and their friends in the council chambers. In return, he will win the hearts and minds of the ratepayers.

If enough people pushback, there will be less tolerance for the status quo that is bleeding us.

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