State audit of Reiner panel finds flaws

SACRAMENTO —  A state commission chaired by Hollywood entertainer Rob Reiner violated no laws but failed to properly award millions of dollars in contracts and did not adequately justify many payments, a state audit released Tuesday shows.

The nonpartisan California Bureau of State Audits said the commission had “clear legal authority” to spend public money on television commercials last winter touting the benefits of preschool, at the same time Reiner opened a campaign to place an initiative on the state ballot to create universal preschool. Voters rejected that initiative, Proposition 82, in June.

The Sacramento County district attorney’s office continues to investigate the matter, a spokeswoman for Dist. Atty. Jan Scully said Tuesday. State law bars the use of public money for political endeavors.

Auditors found numerous management and oversight problems at the California Children and Families Commission, also known as the California First 5 Commission. The panel was created after voters approved Proposition 10 in 1998, raising tobacco taxes to fund child health and education programs.

In some instances, the commission overpaid for services. In others, it paid for costs that were not part of its obligations. And the commission failed to follow state rules when awarding some contracts. First 5’s recordkeeping was wanting; it could not produce some documents auditors sought.

“We found a number of problems with the way it awards and manages these contracts,” the auditors’ report said, referring to the $230 million in advertising and public relations contracts awarded by the commission.

The audit reviewed some expenses dating from 2000. Among their findings, the auditors said the commission:

* Did not follow state policy when it used a competitive process to award three of the contracts valued at more than $47.7 million, and failed to provide sufficient justification for awarding one $3-million contract and six amendments totaling $27.6 million using the noncompetitive process.

* Paid $1.2 million more than it should have for administrative overhead because it did not follow state policy that limits such payments.

* Paid markups of $129,000 over the actual cost of material, printing and shipping. The markups were as much as 87%, according to the audit, which noted that the commission’s contract did not authorize such increases.

* Paid $673,000 in 2002 and 2003 for fees and expenses of one of the contractors. The payments violated the contract, which did not authorize them, “effectively preventing these funds from being used to further other activities that were allowable.”

Such problems “caused the state commission to make some questionable payments to contractors for items such as laptop computers valued at $10,000, food catering costs and monthly parking fees,” the audit said.

Legislators requested the audit in early March after The Times reported that the commission used public money to pay for $23 million in preschool ads as the initiative campaign was being launched. Reiner resigned from the commission a few weeks later.

“I was stunned by the conclusion,” state Sen. Gloria Romero (D-Los Angeles) said Tuesday. “If the auditor was correct and this was legal, clearly the law stinks.”

Sen. Dave Cox (R-Fair Oaks), one of the lawmakers who requested the audit, said the findings of various management problems shocked him.

“That is clearly an agency that had run amok,” he said.

Assemblyman Dario Frommer (D-Glendale), who joined Cox in seeking the audit, said there “could be more clarification from the Legislature” about when state agencies can use tax money for ad campaigns.

The tobacco tax has generated $4 billion since its inception. Proposition 10 authorized the commission to spend some of that money on advertising.

Critics raised two basic questions: Did the commission use public money to promote Reiner’s political goals of creating universal preschool, and did the commission’s outside advertising and public relations firms get involved in the campaigns?

“On those two issues, the state audit confirms what we’ve said all along,” said Reiner’s spokesman, Mark Fabiani. The commission’s advertising program to promote increased use of preschool was “appropriate and legal,” Fabiani said.

In a telephone news conference, Hector Ramirez, Gov. Arnold Schwarzenegger’s appointee as Reiner’s successor, called the central findings “excellent news.”

“We realize we can do a better job,” Ramirez said, adding that the commission has taken several steps to improve its operation.

Commission officials said they are updating the training of employees and reviewing policies related to competitive bidding and contract oversight.

dan.morain@latimes.com

*

For exclusive Web features, including the new Political Muscle blog, go to latimes.com/calpolitics.