Top officers of one of the largest anti-poverty agencies in America used money from the agency or its subsidiaries to make themselves personal loans, acquire a Mercedes-Benz, fly to Europe, take their wives to Lake Tahoe and finance their political activities, according to a draft audit report by the Labor Department's inspector general.
The East Los Angeles Community Union (TELACU) and its subsidiaries, which were created to allieviate poverty and unemployment in the Los Angeles barrio, made more than $46 million in questionable or undocumented expenses from 1976 to 1979, according to a preliminary draft of the audit report, which is subject to revision.
In a 104-page rebuttal, TELACU stated last week that the auditors "either did not review or did not understand" the disputed expenses. TELACU said that its for-profit subsidiaries were entitled to make personal loans and political contributions because they are not bound by federal regulations. The auditors "were unreasonable in many respects," said Joseph Connolly, an attorney for TELACU.
"It's really a case study of social programs of the '70s and what went wrong," said Thomas McBride, the Labor Department's inspector general, who is running the audit on behalf of several agencies.
In the annals of the Great Society, many anti-poverty groups have had a variety of problems. "A lot of the grant agreements were so loosely written that you could do almost anything with the money," McBride said.
There were once 52 community development groups across the country, funded by the now-defunct Community Services Administration. About 30 are left. And in one recent six-month period 37 officials of such CSA-funded groups were indicted, 34 convicted and prison sentences of 45 years and fines of $91,000 were ordered, according to federal officials. No criminal charges have been made involving TELACU.
The Reagan administration, despite its well-publicized war on waste, has continued to provide millions of dollars in aid to the embattled ghetto agency. "There's no command center, no mechanism to protect the federal interest when you have a crisis like this," McBride said. "I'm kind of baffled as to where we'll come out."
Among other things, the auditors, making their way through the complexities of 20 TELACU subsidiaries and 380 bank accounts, said in the draft report that:
* TELACU's director, David C. Lizarraga, "used his position" to obtain $20,000 in personal loans through TELACU subsidiaries. Lizarraga's name was "whited out" from some of the company records that listed the loans.
TELACU helped finance Lizarraga's political activities by providing workers, office space and loans to Hispanic American Democrats, which he heads, and to a political fund called "Friends of David Lizarraga Committee."
Lizarraga's attorney, Brian O'Neill, said that TELACU's for-profit subsidiaries did not violate any regulations by making the loans and contributions to Lizarraga. TELACU said that Lizarraga received $15,000 in loans and that these were repaid.
* Leonard Rutkin, former vice president of TELACU Industries, left his job owing TELACU companies $66,000 in loans and personal expenses. Rutkin also was paid $47,000 in consulting fees from TELACU subsidiaries while he was a full-time salaried employee.
Rutkin's attorney, Steven Wilson, said Rutkin had reached a settlement with TELACU on the loans, had earned the consulting fees on his own time and had given half the money to TELACU. He called the audit "one of the worst efforts I've ever seen . . . a totally inaccurate document."
* TELACU companies lost nearly $4 million on outside investments, many of which were made thousands of miles from the Los Angeles neighborhoods it was created to help. CSA encouraged the non-profit group to generate income by setting up profit-making ventures, but auditors said the agency didn't sign off on many of TELACU's larger investments.
For example, the draft audit report said TELACU subsidiaries invested $210,000 in an aquarium manufacturing company that went bankrupt; $200,000 in an Indian ballpoint pen firm in Montana that has lost money for years; $443,000 in a New York publications firm that appeared to be a valueless investment and $100,000 in a California company that went bankrupt.
In one instance, according to the auditors, the TELACU groups moved to buy a Hollywood film company and tried to secure the rights to market British television shows in Latin America, but lost its investment when the deal fell through.
The auditors also said that a TELACU subsidiary bought a $300,000 townhouse in Washington. TELACU's attorney said the house serves as an office and is used by executives when they visit the capital.
The company lost a $30,000 down payment when it backed out of another real estate deal at the last minute. According to the auditors, an effort to buy a bank here also fell through. TELACU's attorney identified the bank as Hemisphere National Bank and said the group used the federal money to start an East Coast real estate firm instead.
Other TELACU ventures, from a travel agency to a venture capital company, also were launched without federal approval, according to the auditors.
Connolly said some TELACU ventures were successful and that it is "unfair for the federal government to tell these people to take risks and then criticize them for making poor investments."
* Four private art companies run by Joe L. Gonzalez, TELACU's vice chairman, were involved in contracts for which TELACU companies awarded $458,000. The auditors cited this as a possible conflict of interest. They also said TELACU used money under the Comprehensive Employment and Training Act (CETA) to hire three ineligible employes, including Gonzalez' wife, Blanca, for Gonzalez's art studio.
TELACU said Gonzalez' wife and the other workers were entitled to this CETA aid. Gonzalez' lawyer, Michael Nasatir, said that the couple had done nothing illegal.
* TELACU had "grossly inadequate" control over travel expenses. In one case, a TELACU subsidiary advanced employes $4,500 for a trip to Europe, but provided no documentation on the visit. In another, TELACU officials attended a training seminar at South Lake Tahoe and the group paid for the spouses of 20 of them to go along. TELACU also made a $2,500 deposit on a Mercedes-Benz and charged it as a travel expense.
TELACU said it has improved travel procedures since the audited period.
* TELACU made "a large number of political contributions" to federal, state and local candidates and political action committees, including a $1,000 reimbursement to an employe for a donation to a fund-raising dinner for Sen. Alan Cranston (D-Calif.), and sent telegrams to support a Hispanic candidate.
* The TELACU group billed twice for its office space; failed to return $261,000 in interest earned on idle government funds; kept an unspecified amount of Social Security taxes; borrowed $33,000 from an employes' pension plan and spent federal money on office parties and receptions.
TELACU disputed the draft audit findings on each of these points or gave reasons why the expenses were proper.
The draft audit's findings are subject to change, and TELACU officials said they expect most of the disputed expenses to be cleared. The draft report said TELACU had not fully cooperated in the audit.
City and county officials in Los Angeles recently cut off their funding of TELACU. The group is still being funded by several federal agencies, ranging from Health and Human Services to the Commerce Department.
Auditors said they also are looking into the circumstances on the final day of the Carter administration, when CSA approved several million dollars in aid to TELACU. Former CSA associate director Gerrold Mukai, one of those who approved the aid, later set up a Virginia consulting firm and received $50,000 from TELACU, according to his attorney, Alvin Friedman. Friedman said the $50,000 was to be either a loan or purchase of preferred stock in the consulting firm, but that Mukai returned the $50,000 on the lawyer's advice.
"I told him there was no discernible violation of law, but the appearances were questionable and it could be improperly viewed," Friedman said.