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Tarzana nonprofit paid too much rent, audit finds

The Tarzana Treatment Center leased buildings from its executives and board members and paid above what the law allows, the study says. An attorney for the center says they made no profit.

September 11, 2009|Alan Zarembo

Tarzana Treatment Center, the largest publicly funded provider of drug rehabilitation in Los Angeles County, paid hundreds of thousands of dollars beyond what the law allows to lease buildings from its own executives and board members over the last year, according to a report by county auditors.

The review was ordered by county supervisors in June after a Times story revealed that executives at the nonprofit receive compensation that is unusually high for the industry and benefit from other lucrative financial arrangements.

The audit found that Tarzana's lease payments to its own officials violated federal rules against earning profit from taxpayer money in such transactions.

The top two officials, Chief Executive Scott Taylor and Chief Operating Officer Albert Senella, as well as two board members and a board member's brother, collected $2.6 million in rent for six properties during the 12 months ending in June 2009 -- the period that auditors examined.

Their profit was $1.5 million, according to the report, which was given to supervisors last month.

It is likely that not all of the profit was from taxpayer money. Tarzana gets 15% of its $45 million in revenue from patients who pay with cash or insurance.

Auditors are now calculating how much Tarzana owes the county.

"The supervisors expect they will pay it back," said Fred Leaf, a health policy advisor to Supervisor Mike Antonovich.

He and other officials said it is likely that the county will look at lease payments for past years as well.

Tarzana began leasing its headquarters from insiders in the early 1990s and expanded the practice over the years.

Bruce Glickfeld, an attorney for Tarzana, said the nonprofit has followed a long-standing policy of paying market rents for the properties.

As for the law restricting payments in insider deals, he said, "Apparently nobody was aware of that."

Glickfeld, however, disputed the county's calculation of $1.5 million.

He said the actual profit is far less because auditors did not take into account expenses such as insurance and maintenance.

"My understanding is that there may be no profit," he said.

He declined to provide Tarzana's calculations, which are now being reviewed by the county.

The audit also examined compensation paid to Tarzana's top executives, an issue examined in The Times' June report. It concluded that the payments were acceptable because the portion paid through county contracts fell within a federal cap.

The county also approved of the $18,750-a-month retainer fee that Tarzana pays Taylor, its chief executive, for legal work.

County auditors found one other problem besides the lease payments: $6,327 in taxpayer money spent on tobacco purchases. Tarzana has agreed to pay it back.

Separately, the Service Employees International Union Local 721 this week released its own analysis of Tarzana and asked the state attorney general to investigate.

The SEIU, which represents public sector workers, estimated that excessive pay and self-dealing over the last 11 years have cost the nonprofit $22 million.

It also concluded that Tarzana was paying significantly more than market value to rent properties from its own officials.

In a written statement, Tarzana dismissed the union's report as "filled with factual errors," calling it "a desperate attempt to tarnish TTC's reputation."

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alan.zarembo@latimes.com

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