INDUSTRY>> An audit of city finances concluded Industry paid more than $326 million to companies owned by former Mayor Dave Perez and his family over the past 20 years, much of it for vague or even erroneous invoices that possibly resulted in massive overpayments.

The 33-page audit, obtained by this news organization, also found that Perez, his brother and their company Zerep Management Corporation cost the city more than $7 million as the result of a sexual harassment lawsuit and an unrelated fine from state water regulators.

“This is crony capitalism at its worst,” Douglas Johnson, a fellow at the Rose Institute of State and Local Government at Claremont McKenna College. “This isn’t why cities exist. They exist to provide service and structure, not for the benefit of one family conglomerate.”

Calls to Perez, his attorney Mark Austin and Zerep were not returned.

The Perez family has for decades had outsized influence in business-centric Industry, which has about 400 residents but $140 million in annual revenue. One of the original families to live in the region, the Perezes own various companies that have since the 1970s held lucrative contracts to provide city services. And on the political side, family members have served on the city council, planning commission and the redevelopment agency board before it was dismantled.

But that influence began to fade when Dave Perez stepped down as mayor in 2012, citing health issues, after 11 years on the dais. Then last year, Industry sued Perez and his various companies for nearly $10 million. And in September, it cut the lucrative contract with Zerep — Perez spelled backwards — to provide general maintenance for city infrastructure and facilities. The city is also reviewing its even more lucrative contract with the Perez family’s trash collection company, Valley Vista Services.

Now the Perezes are trying to regain their power in Industry. Family members are backing three challengers in the city’s June 2 council election — only the third time the city has even had a competitive election since 1962. One of the challengers is the City Manager’s brother.

The KPMG audit, dated April 6, reveals just how much is at stake.

It largely focuses on invoices from the last decade, when Perez held elective offices including the post of mayor.

Among the findings:

• Industry paid Zerep six times more for monthly citywide street sweeping and parking lot maintenance than it pays the current service provider. In fiscal 2014, it paid Zerep on average $133,000 a month for such services. Since ending the Zerep contract, the city now pays about $20,000 a month.

• Based on the average number of hours Zerep billed Industry for labor every year, the city was paying Zerep for the equivalent of 50 full-time field employees for general maintenance of city infrastructure and streets in the 12-square-mile city.

• Based on the average number of hours Zerep billed for vehicle and equipment rental, the city “could have purchased and owned a fleet of the same or similar vehicles and equipment several times over.”

• The city already owns several of the same categories of vehicles and equipment that Zerep was charging it to rent. Some of these vehicles and equipment, which were in working condition, were in Zerep possession and at least once, Zerep billed the city rental fees for a city-owned vehicle. The city did not pay the invoice.

The audit stops short of claiming Zerep overcharged, but it raises doubt about the veracity of the invoices and cost of services provided.

“These foregoing observations … raise questions regarding the hours and costs Zerep charged the City for general maintenance and miscellaneous services — including whether the costs of the services invoiced by Zerep are reasonable based on the nature of the services performed and/or reflective of actual labor and vehicles/equipment hours incurred in providing the services,” the report reads.

Industry City Manager Kevin Radecki and Mayor Tim Spohn also would not say whether they think Zerep overcharged the city. The audit was done to ensure the termination of the Zerep contract “was on solid legal ground,” City Attorney Michele Vadon said.

“I think it was the city’s responsibility to do their due diligence, to have somebody outside of the city to look at what is going on … we want to make sure we are proceeding down the right path,” said Spohn, who has been on the council since 2007.

Radecki, who has been city manager since 2008, couldn’t say why the city only started looking into the Zerep invoices now, despite irregularities that date back years.

“I really don’t have an answer to that. It just wasn’t done at that time. After Dave stepped down we took the initiative to review that. We are at where we are at,” Radecki said. “Certain individuals had a large influence around here. You can piece that part together. I will just leave it at that.”

Though Perez may have benefitted from city contracts when he was mayor, law enforcement agencies have never found he has violated any laws in so doing. An investigation by the L.A. County District Attorney’s Office, launched in 2009 and closed in 2011, determined that Perez abstained from votes related to his business interests, and the contracts were in place before he joined the City Council, and therefore there was no conflict of interest.

Ambigious Invoices

During a 20-year period from 1995 to 2014, Industry paid Zerep a total of $107.4 million, according to the report. And it paid an additional $219.2 million to other Perez family-owned entities, including City of Industry Disposal Company and Valley Vista Services. (Valley Vista also collects trash in El Monte, Hacienda Heights, Walnut, La Puente and parts of unincorporated Los Angeles County, including Bassett and Valinda.)

On average Industry annually paid $16 million to Zerep and affiliated companies.

In an attempt to determine whether those charges were legitimate, the auditors scrutinized Zerep invoices from 2003 to 2014, with the exception of 2005 — the only years invoices were available. But auditors were challenged by the vagueness of the invoices. They include general location information and hours billed for labor and vehicle/equipment rental, but little else. And without detailed descriptions or supporting documentation, auditors said they could not conclude whether the invoices were “reasonable or accurate.”

Auditors determined Zerep was billing the city for the equivalent of 50 full-time employees, including 10 full-time employees for street sweeping alone. And though the city’s boundaries over the years never changed — staying consistently at 12 square miles — the amount the city billed for renting a street sweeper did. It grew from 30 hours a week in fiscal 2003, when Perez became mayor, to 64, 72 or 80 hours a week in later years. And on multiple occasions, Zerep billed the city multiple times for street sweeping services on the same date.

For example, on Oct. 4, 2007, Zerep issued six invoices, each with 32 to 40 hours of street sweeper rentals, for the same one-week period — the equivalent to six street sweepers running for a total of 216 hours in one week, the report states.

In September 2014, the last month Zerep provided street sweeping services before the city cut its contract, the company billed the city $129,339. By comparison, the next month, when R.F. Dickson Co. took over street sweeping duties, the city paid $19,775 for the same services.

“Discussions held with city personnel confirm that both Zerep and Dickson cover the same geographic location, servicing the same landscaped areas owned by the City. Considering that Zerep did not maintain an area different than Dickson, it is unclear whether the amount charged by Zerep for street cleaning services is reasonable,” the audit reads.

Radecki said he knows no reason why Zerep invoiced $129,339.

The audit also suggests Industry may have overpaid for vehicle and equipment rental.

The city spent a total of $28 million on vehicle and equipment rental during the 11 years from 2003-2014, including $7.6 million on large tractor rental, $4.9 million on mower rental, and $2.8 million on pickup truck rental, based on hourly rates ranging from $7.39 for a pickup truck to $237.53 for a mower.

“It is questionable whether it was necessary to utilize the vehicles/equipment, particularly the large tractor, mower and street sweeper, to such an extent considering the type of maintenance services allowed under the Contract and the 12.1 square mile size of the City,” the report says. “Furthermore, the total amount … suggests the City could have purchased and owned a fleet of the same or similar vehicles and equipment several times over.”

The audit also points out Industry already owns similar types of vehicles, including tractors, pickup trucks and mowers, many of which were Zerep’s possession for their exclusive use. And the city regularly paid for these vehicles to be serviced by one of Zerep’s affiliates, Vincent’s General Services, suggesting the equipment was in operable condition.

KPMG found one instance in 2014 in which Zerep billed the city $1,100 for tractor rental when it fact the city-owned tractor was used. City staff only knew a city tractor was used because they happened to visit the service location. The invoice was not paid.

In addition, auditors found that Zerep “consistently” purchased supplies from retail stores such as Home Depot rather than getting more competitive pricing from wholesalers, and then directly billed the city for such supplies.

And the audit raises questions about the number of invoices submitted by Zerep, which ranged from 23 invoices to 86 invoices a month, averaging 13 invoices a week. This frequency is “inconsistent” with Zerep’s contract and with conventional invoicing practices, according to the report.

Costly Litigation

The Perez family has cost Industry in other ways as well, the audit revealed.

Last month, the city settled a sexual harassment claim filed by former City Clerk Jodi Scrivens against Dave Perez and his brother, Manuel Perez, who was chairman of the Planning Commission until he died earlier this month. The suit claims the pair bullied her, used abusive language and profanity and prevented her from performing her work duties from Jan. 1, 2009 until Feb. 13, 2015.

Scrivens said the former mayor “hates women,” often referred to the women employees at City Hall as “the herd,” and created a hostile work environment by repeatedly “leering at (her) chest and legs,” according to the complaint she filed March 5. She also alleges Dave Perez demanded the entire Finance Department — composed of women — be fired.

Her complaint also names Planning Commissioner Mark Radecki for “grabbing at her breasts and pulling her towards him to kiss.” Mark is the brother of Kevin Radecki, the city manager.

Besides sexual harassment, Scrivens alleges Perez as mayor ordered her to obscure city business from the public.

“He repeatedly ordered her not to do her job when reporters sought information about him and his business entities and how they are linked to the city,” wrote her attorney R. Craig Scott in the complaint. “Under the implicit threat that she would lose her job otherwise, he ordered her to delay or not release properly-requested documents, such as under the Public Records Act.”

Three weeks later, the city settled the claim, agreeing to pay Scrivens a $950,000 annuity which would be doled out in monthly installments of $8,585.69 for 10 years beginning Jan. 1, according to city documents.

In addition, the city agreed to settle her Workers Compensation claim, which amounted to $250,000. Scrivens, who worked for the city for 25 years, had asked for $5 million in damages. She agreed not to sue the city.

“Instead of going to court and paying more, the City Council made a decision to settle,” said Kevin Radecki.

Last year, the successor agency sued Perez and his various companies, including Valley Vista Inc., Grand Central Recycling & Transfer Station, and City of Industry Disposal Co., for allegedly owing $9.6 million in back rent and for dumping materials on land at 17300 Chestnut St. owned by the city’s former redevelopment agency.

In Perez’s legal response, attorney Mark Austin said the Perez companies deposited the materials on the property at the request of the city.

That case will go before a judge next year, though the city could back out if voters elect a new majority.

The city is also negotiating with state authorities regarding a $5.8 million fine levied against it for extensive damage Zerep allegedly caused to the East Fork of the San Gabriel River when it was doing work at Follows Camp, a property in the San Gabriel Mountains Industry purchased in 2011.

Looking Ahead

City officials say they are taking steps to improve the way Industry does business with contractors.

“If you look at things now, you won’t see the same issues. Let’s face it, it all dealt with one individual and one family,” Radecki said.

In 2013, the year after Perez resigned as mayor, the city implemented changes requiring greater details and documentation on invoices, including time sheets.

“We as the council, the city, are doing our due diligence to provide the correct information to the businesses and residents here in the city we are being responsible with taxpayers money. We are trying to do the right thing,” Spohn said.

But the council could change dramatically depending on the outcome of the June 2 election — the city’s first election in 20 years. The city’s 105 registered voters will decide between the incumbents and the Perez-backed challengers: Cory Moss, a bookkeeper for C & C Engineering Inc; Mark Radecki, a supervisor for Square Root Golf & Landscape and the city manager’s brother; and Newell Ruggles, a manager with Haddick’s Towing.

With the council majority at stake, the council on Thursday unanimously passed an ordinance preventing the removal of the city manager, city clerk and city treasurer from their positions for 180 days after a city election in which a new council member is elected.

According to the wording of the ordinance, the freeze on top administrative positions will give the new city council member or a reorganized city council time to “observe the actions and ability of the city clerk and the city treasurer in the performance of the powers and duties of his or her office.”