Fleishman-Hillard, the international public relations firm under fire for allegedly submitting false bills to the city's Department of Water and Power, placed the longtime head of its Los Angeles office on indefinite paid leave Friday.
Douglas R. Dowie, the fiery ex-Marine who for years was the firm's public face in Los Angeles, was sent home as the company investigated allegations of improper billing.
Seven former employees have told The Times that they were encouraged or directed to inflate bills to the municipal utility. Two other former employees have said they inflated bills to commercial clients.
Richard Kline, who replaced Dowie in April as head of Fleishman-Hillard's Los Angeles office, said the firm has not concluded on the basis of published reports that Dowie did anything wrong.
"We are intensifying our investigation. We absolutely have not reached any conclusion," he said.
A source familiar with the firm's probe said Dowie was being placed on leave so that his presence would not impede the investigation, which is being conducted by outside lawyers. "The guy who ran the office has to be looked at hard and is not going to be here to interfere," the source said.
Dowie declined to comment.
City Atty. Rocky Delgadillo, meanwhile, followed through on a pledge he made Thursday and filed a lawsuit against the firm; local political fallout continued; and John Graham, chairman and chief executive of the St. Louis-based firm, told his senior managers that the allegations, at worst, were an aberration.
"Recent allegations about past events in our Los Angeles office are very disturbing because, if they are true, then a small group of people has violated what we stand for as an agency and put our most valuable asset -- our reputation -- at risk," he wrote in an internal e-mail.
"We are investigating, and we will discover what happened. If we confirm any wrongdoing, we will share that information with the appropriate authorities and take the necessary corrective actions, up to and including termination."
In his lawsuit, Delgadillo alleged that Fleishman-Hillard submitted false invoices while billing the DWP more than $20 million from 1998 to this year.
No amount was specified.
The lawsuit was filed based on reports in The Times this week and on a city attorney's office interview with one of the former employees who was quoted, according to court papers.
As part of the political fallout, two city councilmen, Antonio Villaraigosa and Jack Weiss, held a news conference at DWP headquarters Friday to say the newspaper's reports have convinced them that the agency has mismanaged public money.
Mayor James K. Hahn also was critical of DWP management. "It appears to me there were some lax controls here that we need to understand why this contract wasn't being better monitored," Hahn said.
Hahn has had a close relationship with Dowie and Fleishman-Hillard for years. Dowie was one of Hahn's leading fundraisers. Fleishman-Hillard not only worked for city departments. It also provided free public relations services for some of the mayor's favored projects, such as the campaign to get people in the city to read the same book at the same time.
"Mr Dowie has been a supporter of mine from Fleishman-Hillard," the mayor acknowledged. "And they've done great work for us in the terms of the 'One Book, One City' campaigns, but ... there's no excuse for padding bills or submitting fraudulent invoices, and I want to get to the bottom of this. "
Hahn said he plans to meet with DWP Board President Dominick Rubalcava to discuss the role of the agency's management in overseeing the public relations contract.
Villaraigosa and Weiss called for a 90-day suspension of a recently approved 11% water rate increase. The move would be an attempt to force the DWP's top managers to do a better job, they said.
"The only way to compel management reforms is to hang the sword of Damocles over this department," Villaraigosa said.
The pair also called for the creation of a new city office -- an inspector general -- to ride herd on the city's three quasi-independent departments overseeing water and power, airports and the harbor.
And they called for expanding the city's efforts to recruit whistle-blowers.
"Much more needs to be done to encourage others to come forward," Weiss said.
Rubalcava said he was outraged by the proposal to suspend the water rate increase.
"If the department has been a victim of misconduct, it strikes me as odd that the department would then be the object of attack like this," he said. "It's a little like attacking a rape victim for being a female."
Hahn also said suspending the rate hike was a bad idea.
"We know that the improvements we are going to need to make in the water system are going to cost a lot of money, and that's what the rate increases are about," Hahn said
City Controller Laura Chick, who is auditing the DWP's handling of the Fleishman contract, was cool to the idea of an inspector general. "Inspector generals identify problems," she said in a statement released Friday afternoon by her office.
"The problems plaguing the proprietary departments are well documented. What is needed now is strong management and leadership to fix the problems."
Times staff writer Jessica Garrison contributed to this report.