MONTEBELLO – A private contractor that is the focus of an FBI bribery probe in Maywood collected $2.5 million from Montebello in one year by awarding itself contracts and receiving city money to monitor its own work, according to court documents and the state controller.
In an audit released Tuesday, State Controller John Chiang concluded that a Montebello city ordinance was likely violated by allowing Advanced Applied Engineering (AAE) to deal itself contracts rather than perform a competitive bidding process.
A 2008 city ordinance requires all contracts over $50,000 to go through a competitive bidding process.
“This latest audit reveals troubling management practices which invite self-dealing, the misuse of taxpayer resources, and the unlawful borrowing of restricted funds,” Chiang said in the audit, the third of four his office is conducting on Montebello.
AAE has worked in Montebello for a decade as the city’s engineer, the last six years under a contract that automatically renews annually unless the city terminates it, according to the controller’s audit.
AAE landed in headlines earlier this year when various news organizations reported the company was at the center of an FBI investigation for allegedly bribing Maywood City Council members and other city officials. A source close to the FBI investigation confirmed that probe continues.
As Montebello’s engineer, AAE received $500,000 a year to identify and oversee capital improvement projects. It would then contract itself to draw up blueprints for those projects, according to the audit.
AAE billed the city $2 million for blueprints during the 2009-10 fiscal year, according to the state controller and city officials.
In response to Chiang’s audit, Montebello city staff contended that a competitive bidding process for AAE would have violated state law. According to the city, AAE’s contract predates the 2008 city ordinance on competitive bidding – even though the contract could have been canceled each year since its inception.
“In fact, if the City were to adopt the (controller’s) position, the City may be exposed to potential litigation,” Montebello city staff wrote in a lengthy rebuttal that cites state contract law.
AAE Chief Executive Officer Sid Mousavi said the audit was wholly inaccurate.
“We’ve never awarded a contract to ourselves,” Mousavi said Tuesday. “And we haven’t done any of the things listed in that report.”
Mousavi said he has no idea how much money Montebello paid his company in the 2009-10 fiscal year.
Mousavi also said he knew little about the FBI investigation.
“The only thing I know about that is what I read in the (news),” Mousavi said.
In 2008, Maywood’s then-director of building and safety, David Mango, allegedly went undercover for the FBI, according to a wrongful termination lawsuit Mango filed in Los Angeles Superior Court.
An AAE representative allegedly gave Mango two envelopes containing $6,000 in cash – payouts that were allegedly made under FBI surveillance, according to the lawsuit.
Mango claims the Maywood City Council misused public funds by approving frivolous projects for AAE to perform, according to the lawsuit. Mango alleges he was fired because he reported the activity.
FBI agents are also interested in AAE’s dealings in Montebello, according to sources close to the investigation.
Federal investigators asked Maywood city officials about the company’s activities in Montebello, according to sources close to the investigation.
Several weeks after news of the Maywood FBI investigation broke, then-Montebello city administrator Peter Cosentini recommended terminating AAE’s contract in a March 9, 2011 report to the Montebello City Council.
The City Council never took action on Cosentini’s recommendation, according to Montebello officials.
Councilman Frank Gomez said while he was “concerned” at the time, the council had more pressing issues to address.
“I think our focus has been keeping the city afloat,” said Gomez, referring to Montebello’s fiscal problems.
Gomez said the engineering and blueprinting contracts should go out for bid.
Bill Molinari is the only Montebello council member who was in office when AAE received its contract.
When contacted by phone Tuesday, Molinari hung up on a reporter. He did not return several other calls for comment.
Interim city administrator Larry Kosmont said in the next few weeks he will recommend that all contracts of $50,000 or more go through a competitive bidding process.
Kosmont said he agreed with the controller’s finding that AAE shouldn’t have received money to monitor contracts it awarded to itself.
“It has to be an independent body that isn’t assigning itself work,” Kosmont said.
Part of the problem, Kosmont said, is the Public Works Department doesn’t have a dedicated director.
“Especially when you have services that are expensive, I think that you want an independent department head to go out to bid and review contracts,” Kosmont said.
The city department head responsible for overseeing AAE’s contract, Director of Planning and Community Development Michael Huntley, said Montebello could probably save money if it had a competitive bidding process.
“Quite frankly, I don’t think that we’re going to argue the point that we could probably get better pricing if we went out to open bid,” Huntley said.
In addition to the city’s relationship with AAE, the State Controller’s Office also found in its latest audit that Montebello misspent close to $4 million of transit funds between 2008 and 2010.
The money allegedly reimbursed the city for “administrative costs,” although Montebello provided no documentation other than a single journal entry to support those expenses, according to the audit.
In its response, city staff said that its billing practices are out of date and that Chiang should “suspend” the finding while it comes up with an acceptable billing practice.
The controller denied the request and told Montebello it should repay the $4 million.
The audit Chiang released Tuesday is the third in a series of four. The final audit will focus on the Montebello’s accounting practices and is slated for release later this year.
The audit process began earlier this year when Chiang decided to exercise a rarely used authority to open up the city’s books amid allegations of corruption in Montebello.
In the first two audits, the controller found the city misspent more than $31 million in redevelopment agency and street improvement funds. Montebello officials dispute that.
Meanwhile, the fiscally troubled city is seeking a $3.9 million short-term loan so it can make payroll through the end of the year.
More than 20 potential lenders have turned down Montebello, according to city documents.
“The fiscal duress now facing Montebello is, in part, self-inflicted due to years of poor fiscal oversight and inattention to basic principles of public accountability,” Chiang said in Tuesday’s audit.
thomas.himes@sgvn.com
626-962-8811, ext. 2477
