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Bill Collector Bilked City, Lawsuit Claims : Finances: Officials say service received more than $1 million in fees that it wasn't entitled to. The firm's owner insists any payment errors are the city's fault.

July 15, 1993|WILL TIZARD | SPECIAL TO THE TIMES

Glendale is suing a Montrose bill collection agency, contending that it bilked the city of more than $1 million over three years by putting in for its share of bills that were never collected.

Police have seized the business records of the contractor, Commercial Collection Service of Montrose, but the company's owner has not been charged with a crime and has argued that the city is the one at fault for overpaying him. The city sued the agency last week in Glendale Superior Court.

Under a contract held with the city since 1968, the collection agency went after people with overdue utility bills, working from a list provided by the city. The agency at first was entitled to 40% of the amount utility customers could be persuaded to pay. In 1974, that was increased to 50%.

The company did not actually collect the money; it only found the delinquent customers and got them to promise to pay what they owed to the city. Commercial Collection would then tell the city it could expect such an amount in payments, and Glendale in turn would pay the company its 50% commission--even if the customers had not sent in the money.

The arrangement continued without any complaints until October, 1992, when a Glendale Public Service Department employee discovered the city had been paying increasing commissions to Commercial Collection. That growth, according to a Feb. 9 affidavit filed in connection with a search warrant, was based on fraudulent claims.

The contract was terminated that month but a total of the overpayments has not been released despite months of police review of dozens of types of records seized from owner John Parker Jr.'s La Canada Flintridge home and the business at 4111 Oceanview Blvd.

The affidavit alleges that the losses stemmed from Commercial Collection Service's increasing exaggerations of the amount of money it was getting utility customers to pay the city, the affidavit alleges.

Once the city began checking Parker's claims, it found discrepancies, such as the numbers for June, 1992, when Commercial Collection Service told the city to expect $117,381 in payments from utility customers. In reality, the customers paid only $8,109 to the city, costing Glendale more than $50,000 in excess commissions to the collection agency.

That month marked an all-time high claim for the firm, which three years earlier had told the city that the monthly total utility customers would be paying was about $15,000, the court records show.

A chart showing a dramatic rise in the collection agency's claims was prepared by the Public Service Department and filed in court with the warrant. It shows that the payment claims tripled in 1989 over the previous year's amounts. By 1992, the totals had tripled again over 1989's figures.

Parker said he simply reported to the city the amounts utility customers agreed to pay, and had no way of knowing whether the city eventually received the funds.

"I have no direct knowledge of any accounts being billed that were improper, absolutely none," Parker said. "There have been no (criminal) charges and there won't be. There's no impropriety on our part."

Parker's lawyer, J. Michael Flanagan, accused the city of using the police to try to squeeze Parker's company for the money Glendale lost through mismanagement.

"The city was just doing an inept job of keeping track of its customers," Flanagan said. "What my client was doing was just locating the individual and putting the city in contact with the individual, then billing the city for the collection of those expenses. He just assumed that the city was making all those collections."

If the Public Service Department had not yet received the money owed by utility customers, Flanagan said, it should not have paid his client the commissions. In addition, argued Flanagan, many of the overdue utility bills were eventually paid by customers through new utility accounts they later set up, a factor the city has not considered.

Ginger Bremberg, who was on the Glendale City Council when the Public Service Department first reported the problem to city leaders, also criticized the department's handling of the collections.

"I'm inclined to doubt that they were as careful as they could have been. I would challenge their attention to the details of business," Bremberg said.

In addition, Parker's contract escaped scrutiny for far too long, according to Bremberg. "I don't think it had been reviewed for a number of years. (Department officials) obviously approved it at some point in the past and they just let it ride."

Michael Hopkins, director of public services, defended his department's handling of the matter, saying it was not clear at first how much money allegedly was disappearing.

"There were no obvious red flags," Hopkins said. "Our overall bad debt uncollectables remained at consistently about the same percent."

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