An engineering firm at the center of a federal bribery investigation awarded about $2 million in contracts to itself under an arrangement with the city of Montebello that state auditors found to be improper.
Montebello hired AAE to serve as its city engineer, with the power to pick outside firms to do various engineering jobs for the city. But state Controller John Chiang's office found in an audit released Tuesday that AAE awarded all the work to itself and then approved its own invoices and oversaw its own compliance, which Chiang called "a potential conflict of interest."
In fiscal year 2010 alone, Montebello paid AAE $500,000 to serve as city engineer and $2 million more for engineering services for capital improvement projects. The audit covered just one year; AAE has been the city's engineer for more than a decade but current city officials said they did not have many details on previous payments.
Chiang slammed the troubled city for allowing a system that invites "self-dealing, the misuse of taxpayer resources, and the unlawful borrowing of restricted funds."
The findings could have significance well beyond Montebello because AAE has done work in dozens of cities across Southern California and served as the city engineer for several municipalities, including La Puente, Bell Gardens and Baldwin Park.
The Los Angeles Times reported in January that federal prosecutors and FBI agents had launched a wide-ranging investigation into bribery allegations involving AAE and city officials. The Times quoted a former Maywood official as saying he twice received envelopes containing thousands of dollars in cash from an AAE executive. The executive provided the money in hopes of making it easier for the firm to get new contracts and receive quick payment for existing ones, the former official said. Federal sources confirmed that account and that the official had worked undercover for the FBI.
Sources said the FBI probe includes AAE's dealings in Montebello. Federal authorities are also probing reports that AAE provided gifts to former Montebello city officials at golfing events, according to the sources, who spoke on the condition of anonymity because of the ongoing case.
Sid Mousavi, AAE's chief executive, disputed Chiang's findings, saying the company had not awarded any contracts to itself. Rather, he said, the company had solicited bids for construction work, and, as the manager of those contracts, received a fee. He also said that every deal his company entered into had been approved by Montebello officials.
He added that his company saves Montebello money because it is able to hire experts, such as traffic engineers, for just a few hours a week rather than paying full-time salaries.
Several current and former Montebello officials have said they were concerned about the AAE deal because it was not done with competitive bidding and gave too much authority to the engineering firm. The firm has an "evergreen" contract that automatically renews every year unless either party terminates it.
"It smells bad and it looks wrong," said Montebello Councilman Frank Gomez, who was elected to his seat in 2009.
He described the hiring of the firm as "extremely political."
Gomez acknowledged that he, too, accepted a $1,000 campaign contribution from AAE but said it had not influenced any of his actions.
Randy Narramore, Montebello's former city administrator, said he twice suggested the city terminate its deal with AAE because he thought the costs were too high and he wanted to search for alternatives. But the idea went nowhere, he said, adding: "It was obvious the council majority would in no way entertain a change in engineering firms."
Montebello has cut back the amount of money it pays AAE in each of the last two years, reducing the firm's retainer to $342,000 and decreasing the number of hours its staff worked at City Hall, officials said.
Interim City Administrator Larry Kosmont said he had not known of the FBI probe but said as a matter of "good government," Montebello in the future should "go out to bid on all service and construction agreements."
In recent years, as the federal investigation ramped up, officials in many other cities have cut back their dealings with the company. In interviews earlier this year, more than a dozen city officials told The Times they had not found problems with the quality of the company's work, although some questioned its cost compared with other firms.
In Bell Gardens, City Manager Steve Simonian said he believed all of AAE's engineering contracts were competitively bid and was unaware of any misconduct.
But in La Puente, city officials ended their agreement with AAE and sued the firm, saying it had done a poor job managing a sewer project on a major street, causing the pavement on Hacienda Boulevard to sink in the rains that came in winter 2009.