Fraud Investigators Hired – Long Beach City Job Order Contract

The (Long Beach City) JOC program is operating in an environment highly vulnerable to fraud.

When operations, such as the JOC program, have a significant systemic lack of controls,
an audit will assess the risk of fraud, waste or abuse occurring and whether the behavior
can be detected.

The Fraud Triangle is a model used in the audit industry to gauge the risk based on whether three primary components exist – financial pressure, opportunity, and justification of the act.

job order contract audit
With the JOC program, the City has created an environment with all three of the components present, creating the perfect environment for fraud or waste to occur.

For this reason, we have engaged the services of an independent firm that specializes
in forensic accounting and fraud investigations, which includes the services of a
construction expert, to perform further review of certain JOC projects. The results of
their work will be issued in a separate report at a later date.

– 2016, Job Order Contract Audit Report, Laura L. Doud City Auditor



Component #1 –

Pressure to Inflate Costs The first component of the triangle is the financial pressure, or need, that motivates someone to commit fraud. The pressure within this JOC program starts with the City accepting bids from the JOC general contractors that are too low and unrealistic. The current JOC contractor percentages range from .50 to .71, meaning the contractor is contractually obligated to perform work at 50-71% of catalog pricing. Under a normal JOC program, it is highly unlikely contractors could earn a profit using these low percentages.

Component #2 –

Opportunity without Detection The second component of the triangle is the perceived opportunity that there is a way to commit fraud and not get caught. The City’s lack of structure and oversight in the JOC program creates multiple opportunities for program manipulation to occur.

Component #3 –

Justification for Quick Project Completion The third component of the triangle is rationalizing or justifying the activity taking place. The City has placed a significant emphasis on the need to complete projects quickly, providing justification for how the program operates and the associated risks. While one benefit of the program is the ability to start projects faster than more traditional procurement methods, speed has unfortunately become the focal point of the program.

Limited City involvement

Project managers are responsible for all aspects of a project, including approval of work performed and payments to all parties. Due to staffing shortages caused by budget cuts, the Department relies heavily on consultants to fill the role of project manager.

– 2016, Job Order Contract Audit Report, Laura L. Doud City Auditor

View Audit Report – Long Beach Job-Order-Contract-Audit


The Importance of Proper Owner Oversight

Of the projects reviewed during the audit, 64% of the project managers were consultants, which is higher than other JOC programs we surveyed. In addition, some of the contracts for which the consultants are working under allow for the firm to provide a variety of services, creating potential conflicts of interest. For example, nothing prevents the City from using the same firm to provide both design and project manager services on a project. This allows the consultant acting as the project manager to approve his own firm’s invoices for the design services.

Overall, oversight by City employees is limited. There are no formal policies, procedures or guidelines over the program, creating inconsistencies in project management and documentation.

During our audit, we found no required or comprehensive reporting of key project information to the JOC program supervisor or other Department management. As a result, the City has very little oversight or control over JOC project costs or the quality of work.

Poor oversight and few program controls combined with a substantial use of consultants, contractors and subcontractors creates an environment where the potential for conflicting interests is highly probably and nearly impossible to detect. The City is relying on consultants at almost every level of the program with minimal oversight. This allows the possibility of conflicting relationships between all parties to occur, and there is no audit trail or controls to identify when it exists.

There are a wide range of consulting services that can be provided via the City’s “as-needed” contracts and used on JOC projects, such as project management, design, inspection, engineering services and construction management. There are no JOC program controls to monitor or prevent multiple consultants from one consulting firm working in different capacities on the same project. Allowing this to occur could create a potential conflict of interest…. allowing consultants from the same firm to function in different roles on a single job creates the opportunity for the firm to have multiple ways to benefit from increased project costs.

– 2016, Job Order Contract Audit Report, Laura L. Doud City Auditor

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